<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE FLEX FUNDS
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box): N/A
================================================================================
<PAGE> 2
[LOGO]
THE FLEX-FUNDS
THE GROWTH FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 20, 1996
A Special Meeting of Shareholders of the captioned Fund (the "Fund"), a series
of The Flex-funds (the "Trust"), will be held on December 20, 1996 at
the offices of the Fund, 6000 Memorial Drive, Dublin, Ohio 43017, at
9:00 A.M. for the purpose of considering and acting on the following
proposals by the Board of Trustees of the Trust:
(1) With respect to the Growth Stock Portfolio (the "Portfolio"), a
corresponding open-end management investment company having substantially the
same investment objective, policies and restrictions as the Fund, to authorize
the Trust to vote at a meeting of holders of interests in the Portfolio to (A)
elect Trustees of the Portfolio, (B) ratify the selection of KPMG Peat Marwick
LLP as the independent certified public accountants of the Portfolio, (C)
approve the investment subadvisory agreement (as set forth in Appendix A to the
accompanying proxy statement:) among the Portfolio, R. Meeder & Associates,
Inc. and Sector Capital Management, L.L.C. ("Sector"), (D) approve the
investment sub-subadvisory agreements (as set forth in Appendix B to the
accompanying proxy statement) among the Portfolio, Sector and each of the
sub-subadvisers described in the accompanying proxy statement, and (E) allow the
Portfolio and Sector to enter into other investment sub-subadvisory agreements
on behalf of the Portfolio without having such agreements be approved by holders
of interests in the Portfolio or by shareholders of the Fund.
(2) To transact such other business as may properly come before the meeting or
any adjournment thereof.
The transfer books will not be closed, but only those shareholders of record at
the close of business on November 4, 1996 will be entitled to vote at the
meeting.
Shareholders are cordially invited to attend in person. If you plan to attend,
please so indicate on the proxy card and return it promptly in the enclosed
envelope. Whether you will be able to attend or not, PLEASE VOTE, SIGN AND DATE
THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By order of the Board of Trustees
Robert S. Meeder, Sr., President
Dublin, Ohio November __, 1996
PLEASE RETURN PROXY IMMEDIATELY
TO PREVENT ADDITIONAL SOLICITATION EXPENSE
<PAGE> 3
PROXY STATEMENT
GENERAL INFORMATION
This proxy statement is being furnished in connection with the solicitation of
proxies by and on behalf of the Board of Trustees (the "Trust Board" or the
"Fund Trustees") of The Flex-funds (the "Trust") to be used at a Special Meeting
(the "Meeting") of the shareholders of The Growth Fund (the "Fund"), a series of
the Trust. The Meeting will be held at the offices of the Fund, 6000 Memorial
Drive, Dublin, Ohio 43017 on December 20, 1996 at 9:00 a.m. for the purpose set
forth in the accompanying Notice and relating, among other things, to a meeting
of holders of interests in the Growth Stock Portfolio (the "Portfolio"). If the
enclosed form of proxy is executed and returned, it may nevertheless be revoked
prior to its exercise by a signed writing delivered at the Meeting or filed with
the Secretary of the Trust at 6000 Memorial Drive, Dublin, Ohio 43017, which is
also the mailing address of the Trust and the Fund. On November 4, 1996 (the
record date for the Meeting), there were outstanding 1,666,396 shares of the
Fund held by 1,208 shareholders. On that date, all Trustees and officers of the
Trust, as a group, owned less than 1% of the outstanding shares of the Fund and
no person owned more than 5% of the Fund's outstanding shares. Shareholders of
record at the close of business on November 4, 1996 will be entitled to one vote
for each share held. If the accompanying proxy is executed and returned in time
for the Meeting, the shares covered thereby will be voted in accordance with the
proxy. Solicitation of proxies is being made by the mailing of this Notice and
Proxy Statement on or about November 15, 1996.
The Trust was organized as a Massachusetts business trust on December 31, 1991
as the successor to a Pennsylvania business trust organized on April 30, 1982.
The Fund was organized on September 11, 1984 with R. Meeder & Associates, Inc.
("RMA" or the "Adviser") serving as its investment adviser from inception (March
20, 1985) until May 1, 1992, at which time the Fund commenced investing all of
its investable assets in the Portfolio and RMA commenced furnishing investment
advisory services to the Portfolio.
On September 23, 1996, the Trust Board and the Board of Trustees of the
Portfolio (the "Portfolio Board" or the "Portfolio Trustees"), acting on the
recommendation of RMA as the Portfolio's investment adviser, voted to change
the investment objective of each of the Fund and the Portfolio, respectively, to
incorporate the investment discipline Sector Capital Management, L.L.C.
("Sector") characterizes as "Sector Plus", as more fully described below. In
addition, and also on the recommendation of RMA, the Portfolio Trustees
approved the engagement of Sector as subadviser to the Portfolio and the
engagement of certain sub-subadvisers, as more fully described below.
Implementation of these changes is subject, among other things, to (i) the
giving of notice of the change in the Fund's investment objective to
shareholders of the Fund at least 30 days before such change is effected, and
(ii) the approval of the new investment subadvisory and sub-subadvisory
agreements by the investors in the Portfolio. This Proxy Statement constitutes
notice of the change in the Fund's investment objective, which the Fund Trustees
intend to implement on or about January 1, 1997, subject to shareholder approval
of Proposals 1(C ), 1(D) and 1(E) below.
PROPOSAL 1: AUTHORIZATION TO VOTE AT MEETING OF PORTFOLIO INVESTORS
Shareholders of the Fund are being asked to vote on certain matters with respect
to the Portfolio because the Portfolio is expected to call a meeting of its
holders (including the Fund) to vote on such matters. Any such meeting is
expected to take place as promptly as practicable after the Meeting of
shareholders of the Fund is held. Specifically, it is expected that the
Portfolio will ask its holders to vote at such meeting to:
(A) elect a Board of Trustees of the Portfolio,
(B) ratify the selection of KPMG Peat Marwick LLP as the independent
certified public accountants of the Portfolio,
(C) approve the investment subadvisory agreement (as set forth in Appendix A
hereto),
1
<PAGE> 4
(D) approve the investment sub-subadvisory agreements (as set forth in
Appendix B hereto), and
(E) allow the Portfolio and Sector to enter into other investment
sub-subadvisory agreements on behalf of the Portfolio without having
such agreements be approved by holders of the Portfolio or by
shareholders of the Fund.
The Trust on behalf of the Fund will cast its votes at the meeting of holders of
interests in the Portfolio on each matter in the same proportions as the votes
cast by the Fund's shareholders. While there are presently two holders of
interests in the Portfolio, the Fund owns more than 99% of the total interests
and it is anticipated that the vote of the Fund will be determinative on this
Proposal.
PROPOSAL 1(A): AUTHORIZATION TO ELECT TRUSTEES OF THE PORTFOLIO
It is the present intention that the enclosed proxy will, unless authority to
vote for the election of one or more nominees is specifically withheld by
executing the proxy in the manner stated thereon, be used for the purpose of
authorizing the Trust to vote FOR the election of the five nominees indicated
below as Trustees of the Portfolio, each of whom is presently serving in such
capacity. Each Portfolio Trustee so elected will continue to hold office for a
term of unlimited duration until his successor is elected and qualified, as
provided in the Portfolio's Declaration of Trust. Each nominee has consented to
continue to serve as a Portfolio Trustee if so elected. Pursuant to the
Portfolio's Declaration of Trust, the Portfolio Trustees have the power to
establish and alter the number and the terms of office of the Portfolio Trustees
(subject to certain removal procedures, including vote by holders of interests),
to appoint successor Portfolio Trustees and to fill vacancies, including
vacancies existing by reason of an increase in the number of Portfolio Trustees,
provided that always at least a requisite majority of the Portfolio Trustees has
been elected by the holders of interests. Generally, there will not be meetings
of holders of interests for the purpose of electing Portfolio Trustees.
Should any nominee withdraw from the election or otherwise be unable to serve,
the Trust will vote FOR the election of such substitute nominee as the Fund
Trustees may recommend (unless authority to vote for election of one or more
nominees is specifically withheld by executing the proxy in the manner stated
theron or a decision is made to reduce the number of Portfolio Trustees serving
on the board).
The following table sets forth certain information about the nominees:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME AGE TRUSTEE SINCE DURING PAST FIVE YEARS
- ---- --- ------------- ----------------------
<S> <C> <C> <C>
Robert S. Meeder, Sr.* 67 1991 Chairman of RMA, an investment advisory firm
whose clients include the Portfolio
Milton S. Bartholomew 67 1991 Retired Attorney
Russel G. Means 70 1991 Chairman of Employee Benefit Management
Corporation, consultants and administrators
of self-funded health and retirement plans
Walter L. Ogle 58 1991 Executive Vice President of AON Consulting,
an employee benefits consulting group
Philip A. Voelker* 42 1992 Senior Vice President of RMA
*interested person
</TABLE>
2
<PAGE> 5
Mr. Bartholomew comprises the Audit Committee of the Portfolio and of each other
portfolio advised by RMA and corresponding to one or more mutual funds which is
a series of the Trust or of The Flex-Partners Trust, a series trust similar to
the Trust. The Audit Committee, among other things, (1) serves as the liaison
between the Portfolio's management and the independent accountants as their
duties relate to assuring the integrity of the Portfolio's financial reporting
and the safeguarding of the Portfolio's assets; (2) seeks to assure the
independence of the auditors, the integrity of management and the adequacy of
financial disclosure to holders of interests; and (3) reviews the scope of the
audit, the financial results of the Portfolio for the year and the auditors'
evaluation of the overall adequacy of internal controls, thereby assisting the
Portfolio Trustees in fulfilling their fiduciary responsibilities as to
accounting policies and reporting practices. Mr. Bartholomew receives $400 for
each Audit Committee meeting attended regardless of the number of Audit
Committees on which he serves. Two Audit Committee meetings were held in the
last fiscal year and Mr. Bartholomew received $800 aggregate compensation for
all Audit Committee service.
The Portfolio and its related portfolios together 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 Portfolio Trustee serves.
As of November 4, 1996, no officer or Trustee of the Portfolio, individually or
as a group, directly or indirectly, beneficially owned more than 5% of the
outstanding beneficial interests of the Portfolio.
THE FUND TRUSTEES RECOMMEND THAT THE SHAREHOLDERS OF THE FUND VOTE TO AUTHORIZE
THE TRUST TO ELECT EACH NOMINEE AS A PORTFOLIO TRUSTEE AT THE MEETING OF THE
HOLDERS OF INTERESTS IN THE PORTFOLIO.
PROPOSAL 1(B): AUTHORIZATION TO RATIFY SELECTION OF ACCOUNTANTS
A majority of the Portfolio Trustees who are not "interested persons" of the
Portfolio, as defined in the Investment Company Act of 1940 (the "1940 Act"),
have selected KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
as independent certified public accountants to sign or certify any financial
statements which may be filed by the Portfolio with the Securities and Exchange
Commission in respect of all or any part of the Portfolio's current fiscal year,
such employment being expressly conditioned upon the right of the Portfolio, by
vote of a majority of the outstanding "voting securities" in the Portfolio at
any meeting called for the purpose, to terminate such employment forthwith
without any penalty. Such selection will be submitted for ratification or
rejection by the holders of interests in the Portfolio at the meeting of such
holders. KPMG Peat Marwick LLP currently serves as the independent certified
public accountants of the Trust and the Fund. No member of KPMG Peat Marwick LLP
has any direct or material indirect interest in the Trust, the Fund or the
Portfolio.
The Portfolio's independent certified public accountants provide customary
professional services in connection with the audit function for a management
investment company such as the Portfolio, and their fees for such services
include fees for work leading to the expression of opinions on the financial
statements included in annual reports to the holders of interests in the
Portfolio, opinions on the financial statements and other data included in the
Portfolio's annual report to the Securities and Exchange Commission, opinions on
financial statements included in amendments to the Portfolio's registration
statement, and preparation of the Portfolio's federal and state income tax
returns.
Representatives of KPMG Peat Marwick LLP are not expected to be present at the
Meeting but will have been given the opportunity to make a statement if they so
desire and will be available should any matter arise requiring their presence.
If the Trust receives a written request from any shareholder at least five days
prior to the Meeting stating that the shareholder will be present in person at
the Meeting and desires to ask questions of the accountants, the Trust will
arrange to have a representative of KPMG Peat Marwick LLP present at the Meeting
who will respond to appropriate questions and have an opportunity to make a
statement.
3
<PAGE> 6
It is intended that proxies not limited to the contrary will be voted in favor
of authorizing the Trust to ratify the selection of KPMG Peat Marwick LLP as the
independent certified public accountants for the Portfolio.
THE FUND TRUSTEES RECOMMEND THAT THE SHAREHOLDERS OF THE FUND VOTE TO AUTHORIZE
THE TRUST TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS OF THE PORTFOLIO AT THE MEETING OF THE HOLDERS OF
INTERESTS IN THE PORTFOLIO.
PROPOSAL 1(C): AUTHORIZE THE TRUST TO APPROVE AN INVESTMENT SUBADVISORY
AGREEMENT AMONG THE PORTFOLIO, RMA AND SECTOR CAPITAL MANAGEMENT, L.L.C.
RMA has served as the Portfolio's investment adviser since May, 1992 pursuant to
an investment advisory agreement under the terms of which RMA 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. RMA will continue to invest the Portfolio's liquidity reserves and may
invest the Portfolio's financial futures contracts and related options. For such
services provided by RMA, it receives an annual fee, payable in monthly
installments, at the rate of 1% of the first $50 million, 0.75% of the next $50
million, and 0.60% in excess of $100 million, of the Portfolio's average net
assets.
Upon the recommendation of RMA, the Trust Board has approved and is now seeking
shareholder approval of an investment subadvisory agreement (the "proposed
Subadvisory Agreement") pursuant to which Sector would serve as subadviser (the
"Subadviser") to the Portfolio to provide investment advisory services
consistent with the "Sector Plus" investment discipline developed by Sector. The
proposed Subadvisory Agreement is set forth as Appendix A to this Proxy
Statement.
The "Sector Plus" investment discipline calls for establishing separate
investment portfolio components of the Portfolio's existing portfolio of
assets, each such component representing one of the industry sectors
(identified by the Subadviser) comprising the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500"). Except as otherwise provided below in the
case of assets of the Portfolio not assigned to one or more Sub-subadvisers (as
defined below), the assets of the Portfolio representing each of these industry
sectors would be managed on a discretionary basis by one or more separate
investment advisers (the "Sub-subadvisers") selected by the Subadviser, subject
to the review and approval of the Portfolio Trustees. The Subadviser
continuously reviews the representation of the industry sectors in the S&P 500
and continuously categorizes each relevant domestic publicly traded issuer of
common stock into a specific industry sector. Each Sub-subadviser is selected
based upon its perceived ability to select those common stocks which will best
represent the industry sector which that Sub-subadviser manages. Each
Sub-subadviser is limited to companies which are represented in that industry
sector. Each Sub-subadviser then selects those common stocks which, in its
opinion, best represent the industry sector it has been assigned.
Assets of the Portfolio representing each of the industry sectors would be
managed by one or more Sub-subadvisers, except (i) the assets of the Portfolio
representing the health sector would be managed and "indexed" by the Subadviser
until it selects one or more Sub-subadvisers, subject to the review and
approval of the Portfolio Trustees, to manage the assets of the Portfolio
representing the health sector and (ii) in the event a proposed Sub-subadvisory
Agreement is terminated leaving no Sub-subadviser to manage the assets of the
Portfolio representing an industry sector, the Subadviser would, upon
termination and until a new Sub-subadviser were selected, manage and "index"
the assets of the Portfoio representing that industry sector. The Subadviser
would "index" the assets of the Portfolio representing the applicable industry
sector by selling any stocks representing the industry sector that are not
included in the S&P 500 and investing the assets comprising the industry sector
in S&P 500 stocks identified by the Subadviser as belonging to that industry
sector in the same proportion as those stocks are represented in the S&P 500 on
a market capitalization-weighted basis.
Under its revised investment objective, the Portfolio will seek capital growth
by investing primarily in a diversified portfolio of domestic common stocks with
greater than average growth characteristics selected primarily from the S&P 500.
Current income will not be a primary objective. In selecting securities for the
Portfolio, the Sub-subadvisers will evaluate factors believed to be favorable to
long term growth of capital, including specific financial characteristics of the
issuer such as historical earnings growth, sales growth, profitability and
return on equity. The Sub-subadvisers will also analyze the issuer's position
within its industry sector as well as the quality and experience of the issuer's
management. Under normal conditions, at least 80% of the Portfolio's total
assets will be invested in domestic common stocks. The assets of the Portfolio
will be allocated to each of these industry sectors in approximately the same
proportion as these industry sectors are represented in the S&P 500 on a market
capitalization-weighted basis. The total market value of the common stocks in
each industry sector of the S&P 500 is compared to the total market value of all
common stocks in the
4
<PAGE> 7
S&P 500 to determine each industry sector's weight in the S&P 500. Common stocks
are selected for the Portfolio from all domestic publicly traded common stocks.
Common stocks purchased by the Portfolio may or may not be common stocks which
are included in the S&P 500. At least 70% of the asssets of the Portfolio
invested in common stocks will be invested in common stocks which are included
in the S&P 500. The Portfolio may also purchase temporary investments, such as
money market instruments and obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, and repurchase agreements. The
Portfolio may also purchase stock index futures contracts and may purchase and
write options. Up to 5% of the total assets of the Portfolio may be
invested in American Depository Receipts.
If this Proposal is approved, there would be no change in the investment
advisory fee paid by the Portfolio. It would remain at the same level described
above. All compensation to Sector as Subadviser would be shared by Sector and
RMA out of RMA's fee from the Portfolio in accordance with a formula such that
RMA would receive 70% and Sector 30% of the fee payable with respect to the net
assets of the Portfolio upon effectiveness of the subadvisory arrangement; then
RMA would receive 30% and Sector 70% of the fee attributable to any additional
net assets of the Portfolio, up to an amount of net assets equal to the net
assets at inception of the arrangement; and then RMA and Sector would share
equally the fee attributable to any additional net assets of the Portfolio, up
to $50 million of net assets. With respect to net assets of more than $50
million and less than $100 million, the applicable fee of 0.75% would be shared
such that RMA would receive 0.35% and Sector 0.40%. For net assets of $100
million and more, the applicable 0.60% fee would be shared such that RMA would
receive 0.25% and Sector 0.35%. Sector would be solely responsible for paying
the fees of the Sub-subadvisers out of its share of the fees paid by the
Portfolio.
The proposed Subadvisory Agreement will remain in effect for two years from the
date of such agreement and will continue in effect thereafter, but only so long
as such continuance is specifically approved at least annually (i) by the
Portfolio Board or (ii) by a vote of a majority of the Portfolio's outstanding
interests and, in either case, by a vote of a majority of the Portfolio's
Trustees who are not parties to the proposed Subadvisory Agreement, or
"interested persons" of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The proposed Subadvisory Agreement may
be terminated at any time without penalty by any party on 60 days' written
notice. In addition, the agreement will terminate immediately in the event of
its assignment.
The proposed Subadvisory Agreement also provides that the Subadviser 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 covered by such agreement, except
for loss resulting from wilful misfeasance, bad faith or gross negligence of the
Subadviser in the performance of its duties or from reckless disregard of its
obligations and duties under the agreement.
The Portfolio Board, including a majority of those Portfolio Trustees who are
not parties to the proposed Subadvisory Agreement or "interested persons" of any
such party, as defined in the 1940 Act, approved the proposed Subadvisory
Agreement at meetings held on September 23 and November 2, 1996 and authorized
its presentation to the Portfolio's investors. On those dates, the Fund Board
also approved the proposed Subadviser arrangement by a similar vote and
authorized the solicitation of proxies from shareholders and the holding of the
Meeting seeking Fund shareholder approval as described herein.
In connection with their consideration of the proposed Subadvisory Agreement,
the Portfolio Trustees noted in particular that its implementation would result
in no increase in fees for provision of investment management and related
services to the Portfolio. The Portfolio Trustees also met with, considered and
evaluated the staff and professional personnel of Sector, whose President,
William L. Gurner, was known to them from his service as a trustee of The
Flex-Partners Trust, referred to above under Proposal 1(A). In addition, the
Portfolio Trustees considered and evaluated, among other things, comparative
performance results, the Sector Plus methodology, the Sub-subadviser selection
5
<PAGE> 8
process, the experience and qualifications of specific Sub-subadvisers, and
related relevant information. Before approving the proposed Subadvisory
Agreement, the Trustees also conducted a review of various documents, reports
and other materials submitted to them by RMA and Sector, information that they
were familiar with as Trustees, as well as information obtained from independent
sources such as Lipper Analytical Services, Inc.
THE SUBADVISER
Sector Capital Management, L.L.C., is a limited liability company which was
organized on November 23, 1994. Sector's address is 5350 Poplar Avenue, Suite
490, Memphis, Tennessee 38119. Sector is registered with the Securities and
Exchange Commission as an investment adviser under the Investment Advisers Act
of 1940. At September 30, 1996, Sector managed total assets of approximately $88
million.
The principal executive officer of Sector is William L. Gurner. As a Georgia
limited liability company, Sector has no directors or general partners. Its
voting securities are owned by its members who in addition to Mr. Gurner, are
John K. Donaldson, Charles C. Gerber and Robert A. Taylor. Mr. Donaldson is
President of Donaldson & Co., a brokerage firm. Messrs. Taylor and Gerber are
President and Secretary, respectively, of Gerber/Taylor Associates, Inc., an
investment management consulting firm which is also a registered investment
adviser.
The investment advisory services to be provided by Sector to the Portfolio are
not exclusive under the proposed Subadvisory Agreement. Sector will be free to
and does render similar investment advisory services to others. The Portfolio
will be the first registered management investment company client of Sector if
the proposed Subadvisory Agreement is approved.
REQUIRED VOTE
Authorization to approve the proposed Subadvisory Agreement requires the
affirmative vote of a "majority of the outstanding voting securities" of the
Fund, which term as used in this Proxy Statement means the vote of the lesser of
(a) more than 50% of the outstanding shares of the Fund, or (b) 67% of the
shares of the Fund present at the Meeting if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy at the
Meeting.
THE FUND TRUSTEES RECOMMEND APPROVAL OF THE PROPOSED SUBADVISORY AGREEMENT. In
the event the shareholders of the Fund fail to approve this Proposal, the Fund
Trustees will consider what further action should be taken.
PROPOSAL 1(D): AUTHORIZE THE TRUST TO APPROVE INVESTMENT SUB-SUBADVISORY
AGREEMENTS AMONG THE PORTFOLIO, SECTOR AND CERTAIN SUB-SUBADVISERS
Sector's "Sector Plus" investment strategy is described above in Proposal 1(C).
A key component is Sector's Sub-subadviser selection process for choosing
managers for each industry sector identified by Sector as Subadviser. Such
process involves having Sector identify and evaluate the top-performing
investment management firms in a particular sector, as well as identifying and
evaluating individual portfolio managers responsible for producing favorable
performance in that sector. Components of this process include evaluating the
investment strategy employed to produce favorable results, evaluating such
performance against a universe of sector benchmarks, and meeting with selected
investment managers to confirm the selection process.
Currently Sector has identified ten industry sectors for the S&P 500 and has
selected seven investment managers to comprise the Sector Plus management team.
As specified above under Proposal 1(C) the assets of the Portfolio
representing the health sector would be managed and "indexed" by Sector until
it selects one or more Sub-subadvisers, subject to the review and approval of
the Portfolio Trustees, to manage the assets of the Portfolio representing the
health sector. These managers are proposed for approval as Sub-subadvisers to
manage the assets of the Portfolio pursuant to individual sub-subadvisory
agreements among the Portfolio, each manager and Sector (the "proposed
Sub-subadvisory Agreements"). The form of such agreements is set forth as
Appendix B to this Proxy Statement.
6
<PAGE> 9
If the proposed Sub-subadvisory Agreements are approved, there would be no
change in the investment advisory or other fees paid by the Portfolio.
The seven investment managers proposed for approval as Sub-subadvisers are
described below in this Proposal I(D) under the caption "The Sub-subadvisers."
Under its Sector Plus strategy, the Subadviser continuously monitors the
performance of each Sub-subadviser and, subject to the approval of the Portfolio
Trustees, is authorized to terminate a Sub-subadviser and to select a
replacement Sub-subadviser. Under the 1940 Act, approval of a new
Sub-subadviser would require the approval of not only the Portfolio and Fund
Trustees but also the approval of the investors in the Portfolio and the
shareholders of the Fund. In order to minimize the expense and time that would
be required in connection with preparing a proxy statement, soliciting proxies
and holding a meeting of shareholders of the Fund for each such change in
Sub-subadviser, the Fund and the Portfolio are making application to the
Securities and Exchange Commission for an exemptive order which, if granted,
would permit changes to be made in Sub-subadvisers upon Trustee approval alone
and without the need to obtain approval from the shareholders of the Fund and
the investors in the Portfolio. See Proposal 1(E) below, which seeks
shareholder approval of a proposal to allow such changes to be made without
shareholder approval, subject to obtaining an appropriate order of exemption.
Until and unless such exemptive relief is obtained, any change in
Sub-subadvisers will require such shareholder approval.
The compensation to be received by each Sub-subadviser would, as noted above, be
payable solely by Sector and would not involve any additional expense to the
Portfolio or the Fund. Each Sub-subadviser would be entitled to monthly
compensation at an annual rate of 0.25% of the average daily net assets assigned
to such Sub-subadviser.
Each proposed Sub-subadvisory Agreement will remain in effect for two years from
its effective date and will continue in effect for successive annual periods
only so long as its continuance has been specifically approved at least annually
(a) by a vote of a majority of the Portfolio Board or (b) by a vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Portfolio, and in either case, by a majority of the Portfolio Trustees who
are not parties to such agreement or interested persons of any such parties
(other than as Trustees of the Portfolio) cast in person at a meeting called for
purposes of voting on such agreement. Each proposed Sub-subadvisory Agreement
may be terminated, without the payment of any penalty, by the Portfolio Board,
Sector, the Sub-subadviser or by the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Portfolio, upon 30 days
prior written notice to the other parties to such agreement. In addition, each
such agreement will terminate immediately in the event of its assignment.
Each proposed Sub-subadvisory Agreement also provides that a Sub-subadviser will
not be liable for, and will be indemnified by the Portfolio for, any good faith
actions so long as they are not the result of the Sub-subadviser's willful
misfeasance, bad faith or gross negligence, violation of applicable law, or
reckless disregard of its duty or obligations under such agreement.
The Portfolio's Board of Trustees, including a majority of those Portfolio
Trustees who are not parties to the proposed Sub-subadvisory Agreements or
"interested persons" of any such party, as defined in the 1940 Act, approved
such agreements on September 23 and November 2, 1996 and authorized their
presentation to the Portfolio's investors. On those dates, the Fund Trustees
also approved the proposed Sub-subadviser arrangement by a similar vote and
authorized the solicitation of proxies from shareholders and the holding of the
Meeting seeking Fund shareholder approval as described herein.
In connection with their consideration of the proposed Sub-subadvisory
Agreements, the Portfolio Trustees noted in particular that implementation
thereof would not result in any increase in fees to be paid by the Portfolio for
the provision of investment management and related services. The Portfolio
Trustees also considered and evaluated, in connection with their deliberations
relating to the proposed Subadvisory Agreement described above under Proposal
1(C), written information provided to them with respect to
7
<PAGE> 10
the background and qualifications of each proposed Sub-subadviser, including
comparative performance data and results, various documents, reports and other
materials submitted to them by or on behalf of each proposed Sub-subadviser,
information that they were familiar with as Trustees, and information obtained
from independent sources such as Lipper Analytical Services, Inc.
THE SUB-SUBADVISERS
Listed below are the Sub-subadvisers selected by the Subadviser to invest
certain of the Portfolio's assets:
MILLER/HOWARD INVESTMENTS, INC. will serve as Sub-subadviser to the
utilities and transportation sectors of the Portfolio. Miller/Howard is a
registered investment adviser which has been providing investment services to
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
June 30, 1996, Miller/Howard held discretionary investment authority over
approximately $203 million of assets. Lowell Miller and Helen Hamada who are,
respectively, Miller/Howard's President, Secretary and a director and its
Treasurer and a director, each own more than 10% of the outstanding voting
securities of Miller/Howard. Mr. Miller will be the Portfolio manager primarily
responsible for the day-to-day management of those assets of the Portfolio
allocated to Miller/Howard. Mr. Miller has been associated with Miller/Howard
since 1984. Mr. Miller is a Vice President of the Trust and a Vice President and
trustee of The Flex-Partners, mutual funds whose corresponding portfolios are
also advised by RMA. Miller/Howard's principal executive offices are located at
141 Upper Byrdcliffe Road, Post Office Box 549, Woodstock, New York, 12498.
HALLMARK CAPITAL MANAGEMENT, INC. will serve as Sub-subadviser to the
capital goods sector of the Portfolio. Hallmark is a registered investment
adviser which has been providing investment services to individuals; banks;
pension, profit sharing, and other retirement plans; trusts; endowments;
foundations; and other charitable organizations since 1986. As of September 30,
1996, Hallmark held discretionary investment authority over approximately $113
million of assets. Peter S. Hagerman owns more than 10% of the outstanding
voting securities of Hallmark. Mr. Hagerman, Chairman of the Board, President,
and Chief Executive Officer, Thomas S. Moore, Senior Vice President and Chief
Investment Officer, and Kathryn A. Skwieralski, Senior Vice President,
Treasurer, Chief Financial and Administrative Officer, are the directors of
Hallmark. Mr. Hagerman will be the portfolio manager primarily responsible for
the day-to-day management of those assets of the Portfolio allocated to
Hallmark. Mr. Hagerman has been associated with Hallmark since 1986.
Hallmark's principal executive offices are located at One Greenbrook Corporate
Center, 100 Passaic Avenue, Fairfield, New Jersey, 07004.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. will serve as Sub-subadviser to
the consumer durable and non-durable sectors of the Portfolio. Barrow is a
registered investment adviser which has been providing investment services to
banks; investment companies; pension
8
<PAGE> 11
and profit sharing plans; charitable organizations and corporations since 1979.
As of September 30, 1996, Barrow held discretionary investment authority over
approximately $ 18.8 billion of assets. Barrow is a wholly-owned subsidiary of
United Asset Management Corp. Bryant M. Hanley, Jr., President and Chief
Executive Officer, is the sole director of Barrow. Michael C. Mewhinney will be
the portfolio manager primarily responsible for the day-to-day management of
those assets of the Portfolio allocated to Barrow. Mr. Mewhinney has been
associated with Barrow since 1979. Barrow's principal executive offices are
located at 3232 McKinney Avenue, 15th Floor, Dallas, Texas, 75204-2429.
THE MITCHELL GROUP, INC. will serve as Sub-subadviser to the energy sector
of the Portfolio. The Mitchell Group is a registered investment adviser which
has been providing investment services to individuals; banks; investment
companies; pension and profit sharing plans; charitable organizations,
corporations and other institutions since 1989. As of September 30, 1996, The
Mitchell Group held discretionary investment authority over approximately $ 214
million of assets. Rodney Mitchell, President, Chief Executive Officer and sole
director, owns more than 10% of the outstanding voting securities of The
Mitchell Group. Mr. Mitchell will be the portfolio manager primarily
responsible for the day-to-day management of those assets of the Portfolio
allocated to The Mitchell Group. Mr. Mitchell has been associated with The
Mitchell Group since 1989. The Mitchell Group's principal executive offices are
located at 1100 Louisiana, #4810, Houston, Texas, 77702.
ASHLAND MANAGEMENT INCORPORATED will serve as Sub-subadviser to the
materials and services sector of the Portfolio. Ashland is a registered
investment adviser which has been providing investment services to individuals,
pension and profit sharing plans, charitable organizations, corporations and
other institutions since 1975. As of September 30, 1996, Ashland managed
accounts having a value of approximately $1.5 billion. Charles C. Hickox,
Chairman of the Board, Chief Executive Officer and a director, and Parry v.S.
Jones, President, Chief Operating Officer and a director, each own more than 10%
of the outstanding voting securities of Ashland. Terrence J. McLaughlin,
Managing Director of Ashland, and Deborah C. Ohl, a Portfolio Management
Associate, will be the portfolio managers primarily responsible for the
day-to-day management of those assets of the Portfolio allocated to Ashland. Mr.
McLaughlin has been associated with Ashland since 1987. Ms. Ohl has been
employed by Ashland as Portfolio Management Associate since 1993. Ashland's
principal executive offices are located at 26 Broadway, New York, New York
10004.
9
<PAGE> 12
DREMAN VALUE ADVISORS, INC. will serve as Sub-subadviser to the finance
sector of the Portfolio. Dreman is a registered investment adviser which has
been providing investment services to individuals, banks, investment companies,
pension and profit sharing plans, charitable organizations, corporations and
other institutions since 1977. As of June 30, 1996, Dreman held discretionary
investment authority over approximately $2.463 billion of assets. Dreman is a
wholly-owned subsidiary of Zurich Kemper Investments, Inc. ("Zurich Kemper"),
which is a wholly-owned subsidiary of ZKI Holding Corporation, which is
approximately 97% owned by Zurich Holding Company of America, which is a
wholly-owned subsidiary of Zurich Insurance Company. The directors of Dreman are
James R. Neal, President and Chief Executive Officer of Dreman, John E. Neal,
Group President of Zurich Kemper, Stephen B. Timbers, President of Zurich
Kemper, and David N. Dreman, Chairman of the Board of Dreman. Jonathan Kay will
be the portfolio manager primarily responsible for the day-to-day management of
those assets of the Portfolio allocated to Dreman. Mr. Kay has been associated
with Dreman since 1993. Dreman's principal executive offices are located at 280
Park Avenue, 40th Floor, New York, NY 10017.
RCM CAPITAL MANAGEMENT, L.L.C. will serve as Sub-subadviser to the
technology sector of the Portfolio. RCM is a registered investment adviser that
provides investment services to institutional and individual clients and
registered investment companies, with approximately $25.7 billion of assets
under management as of September 30, 1996. RCM was established in April 1996, as
the successor to the business and operations of RCM Capital Management, a
California Limited Partnership, which, with its predecessors, has been in
operation since 1970. RCM is a wholly-owned subsidiary of Dresdner Bank AG
("Dresdner"), an international banking organization with principal executive
offices in Frankfurt, Germany. The Board of Managers of RCM is comprised of
William L. Price, Chairman of the Board and Chief Investment Officer of RCM,
Michael J. Apatoff, Chief Operating Officer of RCM, Hans-Dieter Bauernfeind,
General Manager of Dresdner, Gerhard Eberstadt, Senior Chairman of Dresdner,
George N. Fugelsang, Senior General Manager of Dresdner, John D. Leland, Jr.,
Principal of RCM, Jeffery S. Rudsten, Principal of RCM, William S. Stack,
Principal of RCM, and Kenneth B. Weeman, Jr., Head of Equity Trading of RCM.
Walter C. Price and Huachen Chen, each principals of RCM, will be the portfolio
managers primarily responsible for the day-to-day management of those assets of
the Portfolio allocated to RCM. Messrs. Price and Chen have managed equity
portfolios on behalf of RCM since 1985. RCM's principal executive offices are
located at Four Embarcadero Center, San Francisco, CA 94111.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
certain banking entities, such as Dresdner, from sponsoring organizing,
controlling or distributing the shares of a registered investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities. However, banks and their affiliates generally can
act as an adviser (or sub-subadviser) to an investment company and can purchase
shares of an investment company as agent for and upon the order of customers.
RCM believes that it may perform the services contemplated by the proposed
Sub-subadvisory Agreement without violating these banking law regulations.
However, future changes in legal requirements relating to the permissible
activities of banks and their affiliates, as well as future interpretations of
current requirements, could present RCM from continuing to perform investment
management services for the Portfolio.
10
<PAGE> 13
REQUIRED VOTE
Authorization of the proposed Sub-subadvisory Agreements requires the
affirmative vote of a "majority of the outstanding voting securities" as defined
in the 1940 Act and described in Proposal 1(C) on page 6 of this Proxy
Statement.
The Fund Trustees recommend that the shareholders of the Fund vote to authorize
the Trust to approve the proposed Sub-subadvisory Agreements. In the event the
shareholders of the Fund fail to approve this Proposal, the Fund Trustees will
consider what further action should be taken.
PROPOSAL 1(E): AUTHORIZE THE TRUST TO APPROVE A PROPOSAL TO ALLOW THE PORTFOLIO
AND SECTOR TO ENTER INTO SUB-SUBADVISORY AGREEMENTS WITH SUB-SUBADVISERS WITHOUT
SUCH AGREEMENTS BEING APPROVED BY THE INVESTORS IN THE PORTFOLIO OR THE
SRAREHOLDERS OF THE FUND
INTRODUCTION
As noted above in Proposal 1(D), the Fund and the Portfolio are making
application (the "Application") to the Securities and Exchange Commission (the
"Commission") for an order of exemption from the provisions of Section 15(a)(1)
of the 1940 Act to the extent necessary to permit the Portfolio and Sector to
enter into Sub-subadvisory Agreements with Sub-subadvisers without such
agreements being approved by the shareholders of the Fund or the investors in
the Portfolio, except that such order would not provide an exemption for such
agreements with an affiliated person (as defined in Section 2(a)(3) of the 1940
Act)(an "Affiliated Manager") of the Fund, the Portfolio or Sector other than by
reason of such affiliated person serving as an existing Sub-subadviser to the
Portfolio. Applicable exemptive orders granted by the Commission to other
investment companies seeking similar exemptions have required as a condition to
granting the order that the investment company obtain shareholder approval for
such a policy. The Fund expects that the Commission will impose the same
condition on the Fund and the Portfolio and accordingly the Fund is seeking the
approval of its shareholders for this Proposal, which, if approved, would not
become operative prior to receipt of the Commission's exemptive order permitting
the replacement of Sub-subadvisers without shareholder approval. There is of
course no guarantee that the Commission will grant the exemptive Application.
The proposed Sub-subadvisory Agreements which are described more fully in
Proposal 1(D) above are subject to the shareholder voting requirements of
Section 15(a) of the 1940 Act and related proxy disclosure requirements of Item
22 of Schedule 14A. Section 15(a)(1) of the 1940 Act provides that it is
unlawful for any person to act as investment adviser (which term includes
subadvisers) to a registered
11
<PAGE> 14
investment company except pursuant to a written contract which has been
"approved by the vote of a majority of the outstanding voting securities of such
registered investment company" (e.g., the Portfolio). In addition, an investment
advisory contract must terminate automatically and immediately upon its
"assignment", which is deemed to occur upon any change of control of the
adviser. Section 15(a)(1) requires that the shareholders of the Fund and the
investors in the Portfolio approve a Sub-subadvisory Agreement whenever a new
Sub-subadviser is engaged by the Portfolio and Sector. Without the order sought
by the Application, the Portfolio and Sector would be (a) prohibited from
entering promptly into new or amended relationships with Sub-subadvisers and (b)
required to incur the significant expenses of conducting a proxy solicitation
and convening a special meeting of shareholders to approve a new Sub-subadviser
or to approve a new Sub-subadvisory Agreement required by a change of control of
a Sub-subadviser.
The Fund believes that the effective functioning of the multi-management
methodology represented by Sector Plus would be greatly facilitated if the
Portfolio and Sector were permitted promptly to implement changes in or
additions to the Sub-subadvisers or, in the event of a transaction constituting
an "assignment" (as defined in Section 2(a)(4) of the 1940 Act) of a
Sub-subadvisory Agreement, the Portfolio and Sector could enter into a new
agreement with the Sub-subadviser or its successor, in either case without the
expense and delay of a proxy solicitation and special shareholders' meeting.
REASONS FOR THE PROPOSAL
The Trust and Portfolio Boards (the "Boards") considered a variety of factors in
approving the proposed arrangement. Among others, they noted that requiring
investors and shareholders to approve every Sub-subadviser change would prevent
Sector from performing on a timely and effective basis a key function that
Sector will be paid to perform if Proposal 1(C ) above is approved, namely, the
selection, monitoring and replacement of Sub-subadvisers. Primary responsibility
for management of the Portfolio's investments including, in particular, the
selection and supervision of the Sub-subadvisers, is vested in Sector, subject
to oversight and approval by the Portfolio Board. The Boards also discussed that
it is consistent with the protection of investors and shareholders to vest the
selection and supervision of Sub-subadvisers in Sector, given Sector's expertise
in selecting Sub-subadvisers. The Boards further noted that investors and
shareholders would expect that Sector would change Sub-subadvisers when
appropriate. The Boards agreed that without the exemptive order Sector might be
precluded from promptly and timely employing a Sub-subadviser to the detriment
of the Portfolio and the Fund, as well as incurring additional expenses for the
Portfolio and the Fund. The Boards also noted that such expenses would provide
little or no benefit to investors or shareholders.
The Boards also were advised regarding the conditions expected to be imposed by
the Commission if it grants the requested exemptive order. One likely condition
is that within 60 days of the hiring of any new Sub-subadviser and the effective
date of a new Sub-subadvisory Agreement, shareholders of the Fund will be
furnished with an information statement about the new Sub-subadviser and
Sub-subadvisory Agreement. In addition, the Fund would have to disclose in its
prospectus the details of any exemptive order granted pursuant to the
Application. The Boards believe that the foregoing would provide shareholders
with adequate disclosure to permit them to redeem their Fund shares (or, in
other words, to "vote with their feet") in the event Sector's actions were not
agreeable to them.
In addition the Boards noted that changes in Sub-subadvisers and Sub-subadvisory
Agreements would not have any expense impact on the Portfolio or the Fund, since
Sub-subadvisory fees are payable solely by Sector and the fee received by Sector
is governed by the Subadvisory Agreement among Sector, the Portfolio and RMA.
Such agreement is not covered by the Application and any change thereto,
including an increase in compensation to Sector, would remain subject to the
requirement that approval be obtained from the Portfolio's investors and the
Fund's shareholders.
Moreover, the Boards took into consideration that whenever a Sub-subadviser is
changed, the Fund's prospectus would be supplemented promptly to alert
shareholders and prospective investors in the Fund
12
<PAGE> 15
concerning the change, and the Fund will undertake in accordance with the
anticipated conditions to the exemptive order to notify promptly all
shareholders of a change in Sub-subadviser within 60 days of the change.
REQUIRED VOTE
Authorization of this Proposal requires the affirmative vote of a "majority of
the outstanding voting securities" of the Fund as defined in the 1940 Act and
described in Proposal 1(C).
The Fund Trustees recommend that the shareholders of the Fund vote to authorize
entering into Sub-subadvisory Agreements without requiring shareholder approval.
In the event the shareholders of the Fund fail to approve this Proposal, the
Fund Trustees will consider what further action should be taken.
ADDITIONAL INFORMATION
PRINCIPAL UNDERWRITER
The Fund has no principal underwriter. As a no-load fund it offers its shares
directly to the public without any sales charge.
BENEFICIAL OWNERS
As of November 4, 1996 no person, to the knowledge of Fund management, owned 5%
or more of the outstanding shares of the Fund.
OTHER MATTERS
Neither the Trust nor the Fund holds annual shareholder meetings. Shareholders
of the Fund wishing to submit proposals for consideration in a proxy statement
for the next shareholders' meeting should send their written proposals to the
Fund at P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017, c/o Donald F.
Meeder, Secretary/Treasurer.
The Fund's Annual Report has previously been delivered to shareholders. A
shareholder may obtain a copy of the Fund's most recent annual and semi-annual
reports upon written or oral request, without charge, by contacting the Fund at
the address shown in the preceding paragraph, or by calling 800-325-3539.
The expense of the preparation, printing and mailing of the enclosed form of
proxy and this Notice and Proxy Statement will be borne by the Fund.
To obtain the necessary representation at the Meeting, supplementary
solicitations may be made by mail, telephone, or interview by officers or
employees of the Trust, RMA or the Trust's transfer agent. It is anticipated
that the cost of such supplementary solicitations, if any, would be nominal.
13
<PAGE> 16
No business other than the matters described above is expected to come before
the Meeting, but should any matter requiring a vote of shareholders arise,
including any question as to an adjournment or postponement of the Meeting, the
persons named on the enclosed proxy card will vote thereon according to their
best judgment in the interests of the Fund. In determining whether to adjourn
the Meeting, the following factors may be considered: the nature of the
proposals which are the subject of the Meeting, the percentage of votes actually
cast, the percentage of actual negative votes, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for such solicitation.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES
IT IS IMPORTANT THAT PROXIES BE RETURNED
DATED: NOVEMBER ___ 1996
<PAGE> 17
Appendix A
INVESTMENT SUBADVISORY AGREEMENT
Among
GROWTH STOCK PORTFOLIO
and
R. MEEDER & ASSOCIATES, INC.
and
SECTOR CAPITAL MANAGEMENT, L.L.C.
This Agreement is made the ___ day of December, 1996, by and among
Growth Stock Portfolio, a trust organized and existing under the laws of the
state of New York and operating as an open-end investment company (the
"Portfolio"), R. Meeder & Associates, Inc., an Ohio corporation (the
"Adviser"), and Sector Capital Management, L.L.C., a Georgia limited liability
company (the "Subadviser").
W I T N E S S E T H :
WHEREAS, the Portfolio is engaged in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser and the Subadviser are each engaged principally
in the business of rendering investment supervisory services and each is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended; and
WHEREAS, the Portfolio has retained the Adviser as its investment
adviser pursuant to an Investment Advisory Agreement dated April 30, 1992
(the "Advisory Agreement") which expressly provides that the Adviser may
contract for such supplementary advisory services as it deems necessary or
desirable, provided that any such contract is approved by the Portfolio and the
holders of interests therein in accordance with the 1940 Act; and
WHEREAS, the Portfolio and the Adviser desire to retain the Subadviser
to render investment and supervisory services to the Portfolio in the manner
and on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
set forth, the parties hereto agree as follows:
<PAGE> 18
I
INVESTMENT RESPONSIBILITY
(1) The Portfolio and the Adviser hereby retain the Subadviser to
supervise and assist in the management of the assets of the Portfolio and to
furnish the Portfolio with a continuous program for the investment of the
Portfolio's assets.
In such capacity, the Subadviser is authorized to enter into sub-subadvisory
agreements for investment advisory services in connection with the management of
the Portfolio. Any such agreement may be entered into by the Subadviser on such
terms and in such manner as may be permitted by the 1940 Act and the rules and
regulations of the Securities and Exchange Commission thereunder. The
Subadviser will continue to have responsibility for all investment advisory
services furnished pursuant to any such sub-subadvisory agreements. The Sub-
adviser will review the performance of all sub-subadvisers and make
recommendations to the Trustees of the Portfolio with respect to their retention
and renewal of their contracts.
(2) Subject to the supervision of the Trustees of the Portfolio, and
subject to the foregoing Section (1) hereof, the Subadviser shall be responsible
for the management of the investment strategy of the Portfolio and the
composition thereof, including the purchase, retention and disposition
strategies relating thereto, in accordance with the Portfolio's investment
objective, policies and restrictions as stated in its then current registration
statement (the "Registration Statement") under the 1940 Act and subject to the
following understandings:
(a) The Subadviser, in the performance of its duties and
obligations under this Agreement shall act in conformity with the
Declaration of Trust, By-Laws and Registration Statement of the
Portfolio and with the instructions and directions of the
Trustees of the Portfolio and will conform to and comply with the
requirements of the 1940 Act and with all other applicable
federal and state laws and regulations.
(b) The Subadviser, in the performance of its duties and
obligations under this Agreement, shall also act in conformity
with the "Sector Plus" investment discipline developed by the
Subadviser, as described in the Proxy Statement dated November 15,
1996, of the Flex-funds The Growth Fund relating to the approval
by the shareholders of this Agreement.
(3) The Subadviser shall furnish to the Portfolio the services of one
or more persons who shall be authorized by the Portfolio to place orders for
the purchase and sale of securities for the account of the Portfolio. Acting
through a person so authorized by the Portfolio, the Adviser shall place orders
for the Portfolio.
(4) Notwithstanding the generality of paragraph (3) above, and subject
to the provisions of paragraphs (5) and (6) below, the Subadviser shall
endeavor to secure for the Portfolio the best possible price and execution of
every purchase and sale for the account of the Portfolio. In seeking such best
price and execution the Subadviser shall use its own judgment as to the
<PAGE> 19
implementation of its own investment recommendations, including the
Subadviser's judgment as to the time when an order should be placed, the number
of securities to be bought or sold in any one trade that is a part of any
particular recommendation, and the market in which an order should be placed.
(5) The Subadviser shall use its own judgment in determining the
broker-dealers who shall be employed to execute orders for the purchase or sale
of securities for the Portfolio, in order to:
a. Secure best price and execution on purchases and sales
for the Portfolio; and
b. Secure supplemental research and statistical data for use
in making its recommendations to the Portfolio.
(6) The Subadviser shall use its discretion as to when, and in which
market, the Portfolio's transactions shall be executed, in order to secure for
the Portfolio the benefits of best price and execution, and supplemental
research and statistical data. The use of such discretion shall be subject to
review by the Trustees of the Portfolio at any time and from time to time. The
Portfolio, acting by its Trustees, may withdraw said discretion at any time,
and may direct the execution of portfolio transactions for the Portfolio in any
lawful manner different from that provided for herein. Until a decision is made
to withdraw or limit the discretion herein granted, the Subadviser shall not be
liable for any loss suffered by the Portfolio through the exercise by the
Subadviser of that discretion unless the Subadviser shall be guilty of gross
negligence or willful misconduct.
II
COMPENSATION
The Portfolio shall not pay the Subadviser any fee pursuant to this Agreement.
Instead, the Subadviser shall be compensated by a sharing of the fee (the "Fee")
payable by the Portfolio to the Adviser under the Advisory Agreement. Such
sharing shall be in accordance with the following formula: The Adviser shall
receive 70% and the Subadviser shall receive 30% of the Fee payable with respect
to the net assets of the Portfolio as such net assets exist on the effective
date of this Agreement (the "Effective Date"). The Adviser shall receive 30% and
the Subadviser shall receive 70% of the Fee attributable to any additional net
assets of the Portfolio, up to an amount of net assets equal to the net assets
of the Portfolio on the Effective Date and the Adviser and the Subadviser shall
share equally the Fee attributable to any additional net assets of the
Portfolio, up to $50 million of such net assets. With respect to net assets of
more than $50 million and less than $100 million, the applicable Fee (75 basis
points) shall be shared such that the Adviser receives 35 basis points and the
Subadviser receives 40 basis points. With respect to net assets of $100 million
and more, the applicable Fee (60 basis points) shall be shared such that the
Adviser receives 25 basis points and the Subadviser receives 35 basis points.
The parties to this Agreement agree that arrangements may be
<PAGE> 20
made for disbursement of fees to each of the Adviser and Subadviser
directly from the Portfolio without affecting the fact that the
contractual obligation to pay fees to the Subadviser is that of the
Adviser and not the Portfolio.
III
DURATION AND TERMINATION
(1) The Effective Date of this Agreement shall be the date
first above written and, unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect for a period of two
years. Thereafter this Agreement shall continue in effect from year to
year, subject to the termination provisions and all other terms and
conditions hereof; if: (a) such continuation shall be specifically
approved at least annually by vote of a majority of the outstanding
voting securities of the Portfolio or by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Portfolio who are not parties to this
Agreement or interested persons of any such party; and (b) the
Subadviser shall not have notified the Portfolio and the Adviser, in
writing, at least 60 days prior to the expiration of any term, that it
does not desire such continuation. The Subadviser shall furnish to the
Portfolio, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal or amendment hereof.
(2) This Agreement may not be amended, transferred, sold or
in any manner hypothecated or pledged, without the affirmative vote of
a majority of the outstanding voting securities of the Portfolio, and
this Agreement shall automatically and immediately terminate in the
event of its assignment.
(3) This Agreement may be terminated by any party hereto,
without the payment of any penalty, upon 60 days' notice in writing to
the other parties, provided, that in the case of termination by the
Portfolio such action shall have been authorized by resolution of the
Trustees or by vote of a majority of the outstanding voting securities
of the Portfolio.
IV
MISCELLANEOUS
(1) The Subadviser shall not deal with the Portfolio as
broker or dealer but the Subadviser may enter orders for the purchase
or sale of portfolio securities through a company or companies that
are under common control with the Subadviser, provided such company
acts as broker, and charges a commission that does not exceed the
usual and customary broker's commission if the sale is effected on a
securities exchange, or, 1 per centum of the purchase or sale price of
such securities if the sale is otherwise effected. In connection with
the purchase or sale of portfolio securities for the account of the
Portfolio, neither the Subadviser nor any officer or member of the
Subadviser shall act as a principal.
<PAGE> 21
(2) Except as expressly prohibited in this Agreement, nothing
herein shall in any way limit or restrict the Subadviser, or any
members, officers, shareholders or employees of the Subadviser, from
buying, selling or trading in any security for its or their own
account. Neither the Subadviser nor any officer or member thereof
shall take a short position in any shares of the Portfolio or
otherwise purchase its shares for any purpose other than that of
investment. However, the Subadviser may act as underwriter or
distributor provided it does so pursuant to a written contract
approved in the manner specified in the 1940 Act.
(3) The Subadviser may act as investment adviser to, and
provide management services for, other investment companies, and may
engage in businesses that are unrelated to investment companies,
without limitation, provided the performance of such services and the
transaction of such businesses do not impair the Subadviser's
performance of this Agreement.
The Subadviser shall 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 this Agreement relates
(including, but not limited to, loss sustained by reason of the
adoption or implementation of any investment policy or the purchase,
sale or retention of any security), except for loss resulting from
willful misfeasance, bad faith or gross negligence of the Subadviser
in the performance of its duties or from reckless disregard by the
Subadviser of its obligations and duties under this Agreement.
(5) Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to
such term or provision of said Act and to interpretations thereof, if
any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the
Securities and Exchange Commission validly issued pursuant to said
Act. Specifically, the terms "vote of a majority of the outstanding
voting securities", "annually", "interested person", "assignment", and
"affiliated person", as used herein, shall have the meanings assigned
to them by the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is relaxed by a rule, regulations or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
(6) The Portfolio will provide the Subadviser with all
information concerning the investment policies and restrictions of the
Portfolio as the Subadviser may from time to time request or which the
Portfolio deems necessary. In the event of any change in the
investment policies or restrictions of the Portfolio, the Portfolio
will promptly provide the Subadviser with all information concerning
such change including, but not limited to, copies of all documents
filed by the Portfolio with the Securities and Exchange Commission.
<PAGE> 22
(7) The Trustees, officers, employees and agents of the
Portfolio shall not be personally bound by or liable hereunder, nor
shall resort be had to their private property for the satisfaction of
any obligation or claim hereunder.
(8) The Subadviser agrees to notify the Adviser and the
Portfolio of any change in the senior officers or members of the
Subadviser responsible for the management of the Portfolio in advance,
if reasonable, and otherwise as soon as practicable after such change
occurs.
(9) Except to the extent the provisions of this Agreement are
governed by Federal law, they shall be governed by the law of the
State of Ohio.
(10) This Agreement represents the entire agreement among the
parties hereto.
(11) This Agreement may be executed in three or more
counterparts, each of which shall be considered an original.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective officers thereunto duly
authorized as of the day and year first above written.
GROWTH STOCK PORTFOLIO
Attest: By:
------------------------------- --------------------------------
Donald F. Meeder, Secretary Robert S. Meeder, Sr., President
R. MEEDER & ASSOCIATES, INC.
Attest: By:
------------------------------- --------------------------------
Donald F. Meeder, Secretary Robert S. Meeder, Sr., Chairman
SECTOR CAPITAL MANAGEMENT, L.L.C.
Attest: By:
------------------------------- --------------------------------
William L. Gurner, President
<PAGE> 23
Appendix B
MONEY MANAGER AGREEMENT
Effective Date: December __, 1996
Termination Date: Two years after Effective
Attn:______________________________
Re: The Growth Stock Portfolio
Ladies and Gentlemen:
The Growth Stock Portfolio (all of the assets of the Growth Stock
Portfolio including those assets not managed by the Money Manager, hereinafter
referred to as the "Portfolio") is an open-end management investment company
registered as an investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"), and subject to the rules and regulations
promulgated thereunder.
Sector Capital Management, L.L.C. (the "Manager") acts as the
investment subadviser of the Portfolio pursuant to the terms of an Investment
Advisory Agreement, and is an "investment adviser", as that term is defined in
Section 2(a)(20) of the 1940 Act, to the Portfolio. The Manager is responsible
for the day-to-day management of the Portfolio and for the coordination of
investments of the Portfolio's assets; however, specific portfolio purchases
and sales for the Portfolio, or a portion thereof, are to be made by the
portfolio management organizations recommended and selected by the Manager,
subject to the approval of the Board of Trustees of the Portfolio (the
"Board").
1. APPOINTMENT AS A MONEY MANAGER. The Manager and the Portfolio
hereby appoint and employ, ___________________________ (the "Money Manager") as
a discretionary investment sub-subadviser to the Portfolio for that portion of
the assets of the Portfolio which the Manager determines from time to time to
assign to the Money Manager (those assets being referred to as the "Account").
2. ACCEPTANCE OF APPOINTMENT: STANDARD OF PERFORMANCE. The
Money Manager accepts the appointment as a discretionary investment
sub-subadviser to the Portfolio and agrees to use its best professional
judgment to make and implement investment decisions for the Portfolio with
respect to the investments of the Account in accordance with the provisions of
this Agreement.
3. PORTFOLIO MANAGEMENT SERVICES OF THE MONEY MANAGER. The Money
Manager is hereby employed and authorized to select portfolio securities for
investment by the Portfolio, to determine whether to purchase and sell
securities for the Account, and upon making any purchase or sale decision, to
place orders for the execution of such portfolio transactions in accordance
with paragraphs 5 and 6 hereof and Exhibit A attached hereto and incorporated
by this reference herein (as it may be amended in writing by the parties from
<PAGE> 24
time to time). In providing portfolio management services to the Account, the
Money Manager shall be subject to such investment restrictions as are set forth
in the 1940 Act and rules thereunder, the supervision and control of the Board,
such specific written instructions as the Board may adopt and communicate to the
Money Manager; the investment objectives, policies and restrictions of the
Portfolio furnished pursuant to paragraph 4; and written instructions from the
Manager. The Money Manager shall maintain on behalf of the Portfolio the records
listed in Exhibit B attached hereto and incorporated by this reference herein
(as it may be amended in writing by the parties from time to time). At the
Portfolio's or the Manager's reasonable request (as communicated by the Board or
the officers of such entities), the Money Manager will consult with the officers
of the Portfolio or the Manager, as the case may be, with respect to any
decision made by it with respect to the investments of the Account. R. Meeder &
Associates, Inc., the investment adviser to the Portfolio, will invest any cash
in the Account.
4. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Portfolio
shall provide the Money Manager with a written statement of the investment
objectives and policies of the Portfolio and any specific investment
restrictions applicable thereto as established by the Portfolio, including those
set forth in its Prospectus, as amended from time to time. The Portfolio retains
the right, on reasonable prior written notice to the Money Manager, from the
Portfolio or the Manager, to modify any such objectives, policies or
restrictions in any manner at any time. The Money Manager shall have no duty to
investigate, and the Money Manager may also rely upon, any instructions received
from the Portfolio, the Manager, or both, and absent manifest error, such
instructions shall be presumed reasonable.
5. TRANSACTION PROCEDURES. All transactions will be settled by Star
Bank, N.A. (the "Custodian"), or such depository or agents as may be designated
by the Custodian, as custodian for the Portfolio, of all cash and/or securities
due to or from the Account, and the Money Manager shall not have possession or
custody thereof or any responsibility or liability with respect thereto. The
Money Manager shall advise Mutual Funds Service Co. ("MFSC"), the accounting
agent for the Portfolio, and confirm by facsimile all investment orders for the
Portfolio placed by it with broker/dealers at the time and in the manner set
forth in Exhibit A hereto. The Portfolio shall be responsible for all custodial
arrangements and the payment of all custodial charges and fees and, upon the
Money Manager giving proper instructions to MFSC, the Money Manager shall have
no responsibility or liability with respect to custodial arrangements or the
acts, omissions or other conduct of the Custodian.
6. ALLOCATION OF BROKERAGE. The Money Manager shall have the
authority and discretion to select broker/dealers to execute portfolio
transactions initiated by the Money Manager, and for the selection of the
markets on which the transactions will be executed.
A. In doing so, the Money Manager's primary objective shall be
to select a broker/dealer that can be expected to obtain the best
execution for the Portfolio. However, this responsibility shall not be
deemed to obligate the Money Manager to solicit competitive bids for
each transaction; and the Money Manager shall have no obligation to
seek the lowest available commission cost to the Portfolio, so long as
the Money Manager believes in good faith, based upon its knowledge of
the capabilities of the broker/dealer selected, that the commission
cost is reasonable in relation to the total quality and reliability of
the brokerage and research services made available by the broker/dealer
to the Money Manager viewed in terms of either that particular
transaction or of the Money Manager's overall responsibilities with
respect to its clients, including the Portfolio, as to which the Money
Manager exercises investment discretion, notwithstanding that the
Portfolio may not be the direct or exclusive beneficiary of any such
services or that
2
<PAGE> 25
another broker/dealer may be willing to charge the Portfolio a lower
commission on the particular transaction.
B. The Portfolio shall retain the right to request that
transactions involving the Account that give rise to brokerage
commissions in an annual amount of up to [25% or 50%] of the Money
Manager's executed brokerage commissions for the Portfolio be executed
through one or more broker-dealers selected by the Portfolio, which
broker-dealers will allocate a portion of such commissions, in an
amount mutually satisfactory to the Portfolio and the broker-dealer
selected, to pay the direct expenses of the Portfolio or its feeder
funds. The Money Manager may reject any request for directed brokerage
that does not appear to it to be reasonable or for which it reasonably
believes that best execution will not be obtained. The Money Manager
shall not be liable for failure to comply with such directed brokerage
threshold if it rejects any such request for directed brokerage in
accordance with the immediately preceding sentence or if the Portfolio
fails to make sufficient requests to enable the Money Manager to meet
such threshold. The Manager and the Portfolio acknowledge that, with
respect to those transactions for which the Portfolio has requested
that the transaction be executed through one or more broker-dealers
selected by the Portfolio, such direction may result in the Portfolio
paying higher commissions than otherwise might be obtainable or
receiving less favorable net prices and execution of some transactions,
or both, and may result in the Money Manager's inability to aggregate
trades for the Portfolio with those of the Money Manager's other
clients in order to obtain volume discounts.
C. The Portfolio agrees that it will provide the Money
Manager with a list of broker/dealers which are "affiliated persons"
of the Portfolio's other money managers. Upon receipt of such list,
the Money Manager agrees that it will not execute any portfolio
transactions with a broker/dealer which is an "affiliated person" (as
defined in the 1940 Act) of the Portfolio or of any money manager for
the Portfolio without the prior written approval of the Portfolio.
7. PROXIES. Unless the Manager gives written instructions to the contrary, the
Money Manager shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Account may be invested. The Money
Manager shall use its best good faith judgment to vote such proxies in a manner
which best serves the interests of the Portfolio's investors.
8. REPORTS TO THE MONEY MANAGER. The Portfolio and the Manager shall furnish or
otherwise make available to the Money Manager such information relating to the
business affairs of the Portfolio, including periodic reports concerning the
Portfolio, as the Money Manager at any time, or from time to time, may
reasonably request in order to discharge its obligations hereunder.
9. FEES FOR SERVICES. The compensation of the Money Manager for its
services under this Agreement shall be calculated and paid monthly at an annual
rate of .25% of the Account's average daily net assets.
10. OTHER INVESTMENT ACTIVITIES OF THE MONEY MANAGER. The Portfolio
acknowledges that the Money Manager, or one or more of its affiliates, may have
investment responsibilities or render investment advice to, or perform other
investment advisory services for, other individuals or entities (the
"Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, The
Portfolio agrees that the Money Manager and its affiliates may give advice,
exercise investment responsibility and take other action with respect to the
Affiliated Accounts which may differ from the advice given or the timing or
nature of action taken with respect to the Account, provided that the Money
Manager acts in good faith, and provided further that it is the Money Manager's
policy to allocate, within its reasonable discretion, investment opportunities
to the Account over a period of time on a fair and equitable basis relative to
the Affiliated Accounts, taking into account the
3
<PAGE> 26
investment objectives and policies of the Portfolio and any specific investment
restrictions applicable thereto. The Portfolio acknowledges that one or more
of the Affiliated Accounts may at any time hold, acquire, increase, decrease,
dispose of or otherwise deal with positions in investments in which the Account
may have an interest from time to time, whether in transactions which may
involve the Account or otherwise. The Money Manager shall have no obligation to
acquire for the Account a position in any investment which any Affiliated
Account may acquire, and the Portfolio shall have no first refusal,
co-investment or other rights in respect of any such investment, either for the
Account or otherwise.
11. LIMITATION OF LIABILITY. The Money Manager shall not be liable for, and
shall be indemnified by the Portfolio for any action taken, omitted or suffered
to be taken by it in its reasonable judgment, in good faith and believed by it
to be authorized or within the discretion or rights or powers conferred upon it
by this Agreement, or in accordance with (or in the absence of) specific
directions or instructions from the Portfolio or the Manager; provided,
however, that such acts or omissions shall not have resulted from the Money
Manager's willful misfeasance, bad faith or gross negligence, violation of
applicable law, or reckless disregard of its duty or of its obligations
hereunder. The rights and obligations that are provided for in this Paragraph
11 shall survive the cancellation, expiration or termination of this Agreement.
12. CONFIDENTIALITY. Subject to the right of the Money Manager and the
Portfolio to comply with applicable law, including any demand or request of any
regulatory or taxing authority having jurisdiction over it, the parties hereto
shall treat as confidential all information pertaining to the Portfolio and the
actions of the Money Manager, the Manager and the Portfolio in respect
thereof, other than any such information which is or hereafter becomes
ascertainable from public or published information. The rights and obligations
that are provided for in this Paragraph 12 shall survive the cancellation,
expiration or termination of this Agreement.
13. USE OF THE MONEY MANAGER'S NAME. The Portfolio and the Manager agree to
furnish the Money Manager at its principal office prior to use thereof copies
of all prospectuses, proxy statements, reports to stockholders, sales
literature, or other material prepared for distribution to stockholders of the
feeder funds of the Portfolio or the public that refer in any way to the Money
Manager, and not to use such material if the Money Manager reasonably objects
in writing within five business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this Agreement,
the Portfolio and the Manager will continue to furnish to the Money Manager
copies of any of the above mentioned materials that refer in any way to the
Money Manager, and will not use such material if the Money Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof.
14. ASSIGNMENT. No assignment, as that term is defined in Section 2(a)(4) of
the 1940 Act, of this Agreement shall be made by the Money Manager, and this
Agreement shall terminate automatically in the event that it is assigned. The
Money Manager shall notify the Manager and the Portfolio in writing
sufficiently in advance of any proposed change of control, as defined in
Section 2(a)(9) of the 1940 Act, to enable the Manager and the Portfolio to
consider whether an assignment as that term is defined in section 2(a)(4) of
the 1940 Act, will occur, and to take the steps necessary to enter into a new
money manager agreement with the Money Manager or other investment adviser.
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PORTFOLIO. The Portfolio
represents, warrants and agrees that:
A. The Money Manager has been duly appointed by the
Board to provide investment advisory services to the Account as
contemplated hereby.
4
<PAGE> 27
B. The Portfolio will deliver to the Money Manager a true and
complete copy of its current prospectus as effective from time to
time, such other documents or instruments governing the investments of
the Portfolio, and such other information as is necessary for the
Money Manager to carry out its obligations under this Agreement.
C. The organization of the Portfolio and the conduct of the
business of the Portfolio as contemplated by this Agreement,
materially complies, and shall at all times materially comply, with
the requirements imposed upon the Portfolio by applicable law.
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MANAGER. The Manager
represents, warrants and agrees that:
A. The Manager acts as an "investment adviser", as that
term is defined in Section 2(a)(20) of the 1940 Act, to the Portfolio
pursuant to an Investment Subadvisory Agreement with the Portfolio.
B. The appointment of the Money Manager by the Manager
to provide the investment services as contemplated hereby has been
approved by the Board.
C. The Manager is registered as an "investment adviser"
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
17. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MONEY MANAGER. The
Money Manager represents, warrants and agrees that:
A. The Money Manager is registered as an "investment adviser"
under the Advisers Act; or it is a "bank" as defined in Section
202(a)(2) of the Advisers Act or an "insurance company" as defined in
Section 202(a)(12) of the Advisers Act and is exempt from registration
thereunder.
B. The Money Manager will maintain, keep current and
preserve on behalf of the Portfolio the records identified in Exhibit
B in the manner required by such Exhibit. The Money Manager agrees
that such records (other than those required by No. 4 of Exhibit B)
are the property of the Portfolio and will be surrendered to the
Portfolio promptly upon request.
C. The Money Manager will adopt or has adopted a written code
of ethics complying with the requirements of Rule 17j-1 under the 1940
Act, will provide to the Portfolio a copy of the code of ethics and
evidence of its adoption, and will make such reports to the Portfolio
as required by Rule 17j-1 under the 1940 Act. The Money Manager has
policies and procedures believed by it to be sufficient to enable the
Money Manager to detect and prevent the misuse of material, nonpublic
information by the Money Manager or any person associated with the
Money Manager, in compliance with the Insider Trading and Securities
Fraud Enforcement Act of 1988 and any other applicable federal and
state securities laws.
D. The Money Manager will notify the Portfolio of any changes
in the membership of its partnership or in the case of a corporation
in the ownership of more than five percent of its voting securities,
within a reasonable time after such change.
5
<PAGE> 28
18. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement among the Money Manager, the Manager and the Portfolio, which
amendment, other than amendments to Exhibits A and B, must be approved by the
Board in the manner required by the 1940 Act.
19. EFFECTIVE DATE. This Agreement shall become effective for the Portfolio on
the effective date set forth on page 1 of this Agreement, and shall continue in
effect until the termination date set forth on page 1 of this Agreement.
Thereafter, the Agreement shall continue in effect for successive annual
periods only so long as its continuance has been specifically approved at least
annually (a) by a vote of a majority of the Board or (b) by a vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Portfolio, and in either case by a majority of the Trustees who are not
parties to this Agreement or interested persons of any parties to this
Agreement (other than as Trustees of the Portfolio) cast in person at a meeting
called for purposes of voting on the Agreement.
20. TERMINATION. This Agreement may be terminated, without the payment of any
penalty, by the Board, the Manager, the Money Manager or by the vote of a
majority of the outstanding voting securities (as that term is defined in the
1940 Act) of the Portfolio, upon 30 days prior written notice to the other
parties hereto. Any such termination shall not affect the status, obligations or
liabilities of any party hereto to any of the other parties that accrued prior
to such termination.
21. APPLICABLE LAW. To the extent that state law shall not have been preempted
by the provisions of any laws of the United States heretofore or hereafter
enacted, as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of
Ohio, without reference to its choice of law principles.
TITLE
BY:
----------------------------------
NAME
DATE:
--------------------------------
TITLE
BY:
----------------------------------
NAME
DATE:
--------------------------------
6
<PAGE> 29
Accepted and agreed to:
BY:
----------------------------------
Authorized Signatory
DATE:
--------------------------------
EXHIBITS: A. Operational Procedures.
B. Recordkeeping Requirements.
7
<PAGE> 30
EXHIBIT A
OPERATIONAL PROCEDURES
The Money Manager (the "MM") shall abide by certain rules and
procedures in order to minimize operational problems. The MM will be required
to have various records and files (as required by regulatory agencies) at its
offices. The MM will have to maintain a certain flow of information to Mutual
Funds Service Co. ("MFSC") and Star Bank, N.A. ("Star"), the accounting agent
and the custodian bank, respectively, for the Portfolio.
The MM will be required to furnish MFSC with daily information as to
executed trades. MFSC should receive this data no later than 4:30 PM Eastern
Standard Time on the day of the trade. MM shall verify that such information
has been received by MFSC. MFSC shall reasonably cooperate to confirm that it
has received such information. The necessary information should be transmitted
via facsimile machine to MFSC in the form of a daily trade authorization form
signed by an authorized individual. A list of authorized persons with specimen
signatures must be sent to MFSC. The authorization will contain information on
which MFSC and Star can rely to either accept delivery or deliver out of the
account securities as per each trade by the MM. A preprinted form will be
supplied to the MM by the Portfolio. Upon receipt of brokers' confirmations,
the MM or MFSC will be required to notify the other party if any differences
exist. MFSC will affirm trades through DTC. The reporting of trades by the MM
to MFSC must include the following:
o Whether Purchase or Sale
o Security name
o CUSIP Number
o Ticker Symbol
o Number of shares or principal amount
o Price per share or bond
o Accrued interest
o Commission dollars per trade, or if a net trade
o Executing broker
o Trade date
o Settlement date
o If security is not eligible for DTC (Purchase only), Proper Settlement
Instructions
MFSC will provide the necessary information to Star.
When opening accounts with brokers for the Portfolio, the
account should be a delivery versus payment account. No margin accounts are to
be maintained. The broker should be advised to use Star's ID system number (NO.
_____________________), with interested party ID confirmations to NO. 71394, to
facilitate the receipt of information by Star and MFSC. If this procedure is
followed, DK problems will be held down to a minimum and additional costs of
security trades will not become an important factor in doing business.
<PAGE> 31
EXHIBIT B
RECORDS TO BE MAINTAINED BY MONEY MANAGER
1. A record of each brokerage order, and all other portfolio purchases and
sales orders by the Money Manager or on behalf of the Portfolio for, or in
connection with, the purchase or sale of securities, whether executed or
unexecuted. Such records shall include:
A. The name of the broker,
B. The terms and conditions of the order, and of any
modification or cancellation thereof,
C. The time of entry or cancellation,
D. The price at which executed,
E. The time of receipt of report of execution, and
F. The name of the person who placed the order on behalf of
the Portfolio (Rule 31a-1(b)(5) and (6) of the 1940 Act).
2. A record for each fiscal quarter, completed within ten (10) days after the
end of the quarter, showing specifically the basis or bases upon which the
allocation of orders for the purchase and sale of portfolio securities to
brokers or dealers was made, and the division of brokerage commissions or other
compensation on such purchase and sale orders. The record:
A. Shall include the consideration given to:
(i) the sale of shares of a feeder fund of the
Portfolio
(ii) the supplying of services or benefits by
brokers or dealers to:
(a) The Portfolio,
(b) The Manager,
(c) Yourself (the Money Manager), and
(d) Any person other than the foregoing
(iii) Any other considerations other than the
technical qualifications of the brokers and dealers as such.
B. Shall show the nature of the services or benefits
made available.
Page 1 of Exhibit B
<PAGE> 32
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or other
compensation.
D. The identities of the persons responsible for making
the determination of such allocation and such division of brokerage commissions
or other compensation (Rule 31a-1(b)(9) of the 1940 Act) . *
3. A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept of the names of its members who participate in the authorization.
There shall be retained as part of this record any memorandum, recommendation,
or instruction supporting or authorizing the purchase or sale of portfolio
securities (Rule 31a-1(b)(10) of the 1940 Act) and such other information as is
appropriate to support the authorization. **
4. Such accounts, books and other documents as are required to be maintained by
registered investment advisers by rule adopted under Section 204 of the
Advisers Act, to the extent such records are necessary or appropriate to record
the Money Manager's transactions made with respect to the Portfolio.
(Rule 31a-1(f) of the 1940 Act).
5. All accounts, books, records, or other documents that are required to be
maintained pursuant to the 1940 Act, the Advisers Act, or any rule or
regulation thereunder, need only be retained by the Money Manager as required
under such laws, rule or regulations. Any other account, book , record or other
document that is required to be maintained by the Money Manager pursuant to
this Exhibit B need only be maintained for six years after the date of its
creation.
* Maintained as property of the Portfolio pursuant to Rule 31a-3(a) of
the 1940 Act.
** Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms
(including their recommendations, i.e., buy, sell, hold), and any internal
reports or portfolio manager reviews.
Page 2 of Exhibit B
<PAGE> 33
PROXY THE FLEX-FUNDS PROXY
PROXY SOLICITED BY THE BOARD OF TRUSTEES OF THE FLEX-FUNDS (THE "TRUST") FOR A
SPECIAL MEETING OF SHAREHOLDERS OF THE GROWTH FUND (THE "FUND") OF THE TRUST.
The undersigned hereby appoints Robert S. Meeder, Sr., Donald F.
Meeder, and Wesley F. Hoag, and each of them, proxies with full powers of
substitution, to vote as follows for the undersigned at the Special Meeting of
Shareholders of the Fund to be held at the offices of the Fund, 6000 Memorial
Drive, Dublin, Ohio 43017, on December 20, 1996 at 9:00 a.m., Notice of which
meeting and the accompanying Proxy Statement have been received by the
undersigned, or at any adjournments or postponements thereof, upon the Proposal
described in said Notice and Proxy Statement:
(1) TO AUTHORIZE THE TRUST TO VOTE AT A MEETING OF HOLDERS OF INTERESTS IN THE
PORTFOLIO TO:
<TABLE>
<CAPTION>
(A) ELECT FIVE TRUSTEES OF THE PORTFOLIO
FOR all nominees below WITHHOLD AUTHORITY
<S> <C> <C>
(except as marked to the contrary below) [ ] to vote for all nominees listed below [ ]
Robert S. Meeder, Sr., Milton S. Bartholomew, Russel G. Means, Walter L. Ogle, Philip A. Voelker
(INSTRUCTION: To withhold authority for any individual nominee write that nominee's name on the space
provided below.)
- ------------------------------------------------------------------------------------------
(B) RATIFY THE SELECTION OF KPMG PEAT MARWICK, LLP AS ACCOUNTANTS OF THE PORTFOLIO.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(C) APPROVE THE INVESTMENT SUBADVISORY AGREEMENT AMONG THE PORTFOLIO, RMA AND SECTOR.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(D) APPROVE THE INVESTMENT SUB-SUBADVISORY AGREEMENT AMONG THE PORTFOLIO, SECTOR AND EACH
SUB-SUBADVISER
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(E) PERMIT THE PORTFOLIO AND SECTOR TO ENTER INTO OTHER INVESTMENT SUB-SUBADVISORY AGREEMENTS
WITHOUT SHAREHOLDERS APPROVAL
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(2) THE TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
<PAGE> 34
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE POSTAGE-FREE ENVELOPE PROVIDED
This Proxy is solicited by Management and will be voted as specified. Unless
otherwise specified in the squares provided, the undersigned's vote is to be
cast for proposals 1a, 1b, 1c, 1d and 1e. Discretionary authority is hereby
granted as to any other matters that may come before the meeting. Management
knows of no other matters to be considered by the Shareholders.
Dated, ____________________, 1996
(Please date this Proxy)
---------------------------------
---------------------------------
Please sign exactly as your name or
names appear at left. Corporate
proxies should be signed by an
authorized officer.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
