THE FLEX FUNDS
1997 Semiannual Report
[LOGO] Hands plotting points on a graph.
The Muirfield Fund
The Highlands Growth Fund
The Total Return Utilities Fund
The U.S. Government Bond Fund
The Money Market Fund
<PAGE>
CONTENTS
- --------
President's Letter 3
Financial Markets 4
PORTFOLIO MANAGER COMMENTARY
The Muirfield Fund 7
The Highlands Growth Fund 8
The Total Return Utilities Fund 10
The U.S. Government Bond Fund 11
The Money Market Fund 12
FINANCIAL DATA
Portfolios 13
Fund Financials 26
Portfolio Financials 36
<TABLE>
FLEX-FUNDS TOTAL AND AVERAGE ANNUAL RETURNS SINCE 1985
<CAPTION>
FUND
(Inception) 1997(ytd) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Muirfield Fund 14.44% 5.99 25.82 2.70 8.11 6.91 29.83 2.33 13.95 6.20(1) n/a n/a n/a
(8/10/88)
- -----------------------------------------------------------------------------------------------------------------------------------
The Highlands Growth 16.25% 9.08 24.61 -0.69 7.21 6.35 21.46 4.31 10.17 -5.79 7.61 11.81 6.90(2)
Fund (3/20/85)
- -----------------------------------------------------------------------------------------------------------------------------------
The Total Return 5.50% 13.33 15.00(3) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Utilities Fund (6/21/95)
- -----------------------------------------------------------------------------------------------------------------------------------
The U.S. Government 0.59% 0.15 18.32 -0.99 8.21 3.26 15.30 8.35 8.75 2.74 -0.62 12.58 6.75
Bond Fund (5/9/85)
- -----------------------------------------------------------------------------------------------------------------------------------
The Money Market Fund 2.60% 5.27 5.85 4.10 2.98 3.70 6.12 8.21 9.32 7.59 6.62 6.75 6.10(5)
(3/27/85)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%)
FUND Since
(Inception) 1 year 5 years 10 years Inception
- --------------------------------------------------------------------------------
The Muirfield Fund 13.76 12.91 n/a 12.77
(8/10/88)
- --------------------------------------------------------------------------------
The Highlands Growth 19.77 12.01 7.97 9.43
Fund (3/20/85)
- --------------------------------------------------------------------------------
The Total Return 13.61 n/a n/a n/a
Utilities Fund (6/21/95)
- --------------------------------------------------------------------------------
The U.S. Government 1.91 5.85 6.15 6.93
Bond Fund (5/9/85)
- --------------------------------------------------------------------------------
The Money Market Fund 5.28 4.50 5.92 6.14
(3/27/85)
- --------------------------------------------------------------------------------
All performance figures above represent total returns for the periods ended
6/30/97. Investment performance represents total returns and assumes
reinvestment of all dividend and capital gain distributions. The performance
data shown above represents past peformance and does not necessarily indicate
future performance. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. The Investment Adviser waived a portion of its
management fees and/or reimbursed expenses in order to reduce the operating
expenses of The Money Market, U.S. Government Bond, and Total Return Utilities
Fund during each of the periods shown above. The Money Market Fund will seek to
maintain a constant net asset value of $1.00 per share, although there is no
guarantee that it will be able to do so. Investments in The Money Market Fund
are neither insured nor guaranteed by the U.S. Government. (1)Represents total
return from 8/10/88 to 12/31/88. (2)Represents total return from 3/20/85 to
12/31/85. (3)Represents total return from 6/21/95 to 12/31/95. (4)Represents
total return from 5/9/85 to 12/31/85. (5)Represents total return from 3/27/85 to
12/31/85.
<PAGE>
July 30, 1997
Dear Fellow Shareholders:
In order to keep you informed about your Flex-funds investments, we are pleased
to provide you with this Semiannual Report. Our Report outlines the most recent
performance achieved by each member of The Flex-funds family of no-load mutual
funds and offers commentary from the members of your Investment Team regarding
developments within the financial markets during the first six months of 1997.
We encourage you to read this report carefully. If you have any questions about
this information, please call our Investor Relations Department at 800-325-3539.
AN EXCITING QUARTER
The second quarter saw the launch of an exciting new investment opportunity for
Flex-funds investors. In the culmination of an effort we have been reporting to
you for some time, our affiliated family of funds, The Flex-Partners Funds, was
recently informed by the Securities and Exchange Commission that the
International Equity Fund should be rendered effective within the next few
weeks.
The International Equity Fund represents an exciting new working relationship
for us, since the subadviser of the fund is Commercial Union Investment
Management, Limited, a wholly-owned subsidiary of one of the oldest and largest
insurance companies in the United Kingdom, Commercial Union plc. Commercial
Union, plc is an international insurance and financial services organization
that has managed global and international assets since 1861 and can trace its
roots back to 1696. As of December 31, 1996, Commercial Union Investment
Management, Limited and its affiliates managed over $111 billion.
Though the International Equity Fund will typically be sold with a load (selling
commission), we will soon offer Flex-funds shareholders the opportunity to
invest in the Fund on a no-load basis. To receive more information about how to
invest in the Fund, including a preliminary fund prospectus, call The
Flex-Partners Investor Relations Department at 800-494-3539.
We were also excited and pleased with the overall performance of The Flex-funds
during the second quarter. The Muirfield Fund has performed well so far this
year versus other Asset Allocation mutual funds. The Highlands Growth Fund,
completing its second quarter since adopting a new investment objective,
outperformed the Morningstar Growth Fund average during the first six months of
1997. The Total Return Utilities Fund marked its two-year anniversary during the
second quarter and is well-ahead of Morningstar, Inc.'s Utility Fund average
since its inception. For complete details regarding all of these funds, please
read the portfolio manager commentary that follows.
We appreciate your continued confidence and look forward to serving you in the
future.
Cordially,
/s/ Robert S. Meeder, Sr.
Robert S. Meeder Sr.
President
[PHOTO] Robert S. Meeder, Sr., President
<PAGE>
THE FINANCIAL MARKETS
SELL STOCKS NOW? What's really going on in the current stock market environment
depends on your perspective.
A recent MONEY magazine cover proclaimed "Don't just sit there, SELL STOCK
NOW."
To some, the headline is indeed a dire pronouncement from what is arguably
the nation's leading publication for individual investors. To others, the cover
is a sizzling enticement to buy, buy, buy.
Such paradoxes are commonplace on Wall Street. For investors already
convinced that the current bull market is taking its last wheezing steps, the
Money cover may be the penultimate sign that it is indeed time to head for the
exits. More optimistic investors may see the cover as the best thing that could
happen to the stock market. The logic being: if Money magazine and everyone else
thinks the market's going down hard, then the opposite must be true. Bear
markets invariably begin when investors are overconfident.
Ultimately, the decision to stick with the market or "sell stocks now"
rests with the individual investor, who must make a personal decision based on
an examination and interpretation of the facts at hand. Thus, we offer the
following analysis of the cases for and against the stock market. In order to
challenge your current thoughts about the market, if you're a bear, take a look
at the bullish scenario that begins below. Bulls may want to skip to the bearish
scenario that begins on the next page
[PICTURE] Bull's head
Demographics, low interest rates, a strong economy, and the development of
a global marketplace each contributes to the case built by those who think that
this bull market has a long way to go. The stock market may be fundamentally
overpriced by historical standards, but that's because the market is benefiting
from an unprecedented rate of change and expansion in the global economy.
BOOMERS TO THE RESCUE!
The investors on whose shoulders rests the future of the stock market are
the very investors who have the most to gain from an ongoing stock market
ascent. Baby boomers, as a group fairly lackadaisical with regard to retirement
planning, have a huge stake in the success of stocks and stock mutual funds.
As the first wave of the baby boomers roars past fifty, the stock market
may be the prime beneficiary, because boomers have 401(k) plans and IRAs and
they are looking to build retirement nest eggs in a hurry. The influx of boomer
assets into stock mutual funds means a steady source of new money for the stock
market, especially since many 401(k) plans automatically invest assets each
month or quarter deducted from employee salaries. Additionally, since most
boomer investments are dedicated to retirement, they may be less likely to sell
out at the first sign of a market downturn.
INTEREST RATES AND THE ECONOMY
Interest rates are an important part of the stock market's ongoing success.
If you don't believe it, watch how the market gyrates at the first sign of an
interest rate hike by the Federal Reserve Board. So long as interest rates, and
inflation, remain in acceptable territory and the economy remains strong, the
stock market will likely prosper. So far in 1997, all of these elements favor
continued growth in stocks. Interest rates are low, consumer confidence is high,
and unemployment is at levels not seen since the early Seventies. Additionally,
after hiking rates a quarter of a point at its March meeting, The Federal
Reserve Board has since foregone further rate hikes and appears to be satisfied,
for the time being, that inflation is under control.
PRODUCTIVITY AND THE GLOBAL MARKETPLACE
We are at a unique point in history, so why shouldn't the stock market
<PAGE>
environment be unique as well? Companies are doing business around the globe
with heretofore unknown ease and efficiency. Markets are opening up in Asia, the
Far East, Eastern Europe, and the former Soviet Union. At the same time,
technological advances are prompting big gains in productivity.
In short, the world is a very different place than it was 15 years ago when
this bull market began. Those bears among us point to the fundamental
overvaluations present in the market and the unsustainable growth in the economy
as signs that the end is near. But it may be that we have entered a new era in
the stock market one in which many of the old rules no longer apply. Maybe it
really is different this time.
[PICTURE] Bear's head
"Even in the best of times, a wise man remembers the worst of times."
Does this wisdom come from a dusty old history book or an ancient
philosopher? Not really. We formulated this aphorism ourselves in response to
the flood of optimism currently engulfing the stock market and its constituents.
THE BEST OF TIMES OR THE WORST OF TIMES?
What we are getting at is that in today's stock market environment, it
might be helpful to remember that stocks have not always been the asset class of
choice. Just prior to the beginning of the current bull market, in 1982, with
interest rates and inflation at all-time highs, money market funds were offering
yields as high as 18 percent and stocks were the last thing on the minds of most
investors.
At the close of the second quarter of 1997, we find ourselves at the
opposite end of this spectrum. Everyone from the President to your paper boy
seems to be talking up stocks. The attainment of the elusive 10,000 mark on the
Dow Jones Industrial average, which to many investors may once have seemed as
intangible and unknown as the surface of Mars, now appears as accessible as
Pathfinder's pictures of the Martian surface, appearing on the evening news.
However, as we end the tenth consecutive positive quarter for the Standard
and Poor's 500 Index (an event that has occurred on only two other occasions
since 1928), it is logical to assume that we are closer to the end of this
15-year bull market than we are to its beginning.
A STRONG ECONOMY?
By most accounts, the economy is running along as smoothly today as it has
in the history of the country. Consumer confidence is high. Unemployment and
interest rates are low.
But the economy has been expanding steadily for seven years, a show of
strength much greater than the average period of economic expansion, which
normally lasts four or five years. Growth in the Gross Domestic Product (GDP)
during the first quarter ran at 5.8 percent, a level that many consider to be
unsustainable.
According to a recent commentary by Ned Davis Research, an independent
investment research firm, "When everyone agrees that the economy is wonderful,
the problem is that it breeds euphoria and complacency about stocks to the point
where people get `overbought,' and then when any random negative comes along,
investors usually sell, and sell big."
[GRAPH] The performances of the NASDAQ Composite Index and the Standard and
Poor's 500 Index for the periods from 12/31/96 through 6/30/97 were presented in
the forms of graphs.
A REGRESSION TO THE MEAN?
There is a truism in investing which contends that, despite all assertions
to the contrary, markets have a tendency toward normalcy. As the level of
returns available from the market grow increasingly abnormal, therefore, the
<PAGE>
market is more likely to undergo a "regression to the mean." For example, since
1928, the S&P 500 Index has undergone an average yearly advance of 10.61
percent. The bull market that began 15 years ago has appreciated at an annual
average of approximately 17.97 percent. The fact that the current price
appreciation of the stock market is over one and a half times that of its
historical "mean," or average, suggests that some action may eventually take
place that will bring the current level of appreciation closer to its historical
average.
Added to this atypical level of returns is a surprising lack of downside
risk. The current bull market has not experienced a decline of more that 10
percent since 1990. Such an extended period without a decline is more than twice
the historical average, which dictates that rising markets experience at least a
10 percent decline every two or three years.
As we have noted for some time, the market's fundamental valuations also
remain at historically high levels. The Dow Jones Industrial Average has
historically traded at about 16 times earnings, even during times of low
inflation. Since the Dow's price to earnings ratio is currently running above
20, a return to the mean in these terms could take the Dow to below 6200.
`GREENSPANNING' THE MARKET
The idea that the current bull market in stocks has less zip in its step
today than it did 15 years ago is not a new one. We are not trying to paint a
picture of doom and gloom. We are simply striving, like the eminent chair of The
Federal Reserve Board, to be a voice of prudence in a world where many seem to
have forgotten that stocks decline as well as advance.
WHETHER YOU ARE A BULL OR A BEAR . . .
Whether or not you think that the stock market is not going to keep going
up forever, there are actions you can take in response to your convictions.
Here's how:
IF YOU ARE A BULL . . . you know that not many investments offer the
returns of stocks over the long haul. Most investors can always have a portion
of their portfolios devoted to the stock market, even during market declines.
You may want to consider a larger investment in The Highlands Growth Fund and a
smaller, complementary investment in The Muirfield Fund. The Highlands Growth
Fund strives to invest in stocks with greater than average growth potential
selected primarily from the S&P 500 Index. The Muirfield Fund remains exposed to
other growth mutual funds as long as the potential rewards present in the
marketplace outweigh the risks.
IF YOU ARE CAUTIOUSLY BULLISH . . . you may want to spread your investments
among mutual funds that invest in different asset classes in an effort to lessen
the risk from a decline in any individual fund asset class. To diversify your
portfolio, consider a core investment in an asset allocation fund like The
Muirfield Fund, with smaller complementary positions in an international mutual
fund like the new Flex-Partners International Equity Fund (when it becomes
effective), The Highlands Growth Fund, or a utility sector mutual fund, like The
Total Return Utilities Fund.
IF YOU ARE MINDFUL OF RISK . . . the successful implementation of a
strategy for asset allocation, dividing assets among stocks, bonds, and money
market instruments based on tactical decisions with regard to risk, may offer
you valuable benefits and peace of mind. Consider a larger position in The
Muirfield Fund, which has implemented asset allocation decisions for
shareholders since 1988.
IF YOU ARE A BEAR . . . and you've decided that the market is ready for a
big decline, then you may want to commit your assets to bonds or money market
funds. In that case, The Flex-funds offer The U.S. Government Bond Fund and The
Money Market Fund. Striving to provide investors with a competitive yield and
stability of principal, The Money Market Fund is the #1 General Purpose Money
Market Fund based on its cumulative total return since the Fund's inception in
1985, according to Lipper Analytical Services, Inc.
[GRAPHS] The performances of the Treasury Bill Index (yield) and the
30-Year Treasury Bond Index (price) for the periods from 12/31/96 through
6/30/97 were presented in the forms of graphs.
<PAGE>
THE MUIRFIELD FUND
[PHOTO] Robert S. Meeder, Jr., Portfolio Manager
The Muirfield Fund capitalized on an exceptionally strong second quarter in
the stock market and provided a total return for the period that exceeded both
the Asset Allocation and Balanced fund averages, as reported by mutual fund
rating service, Morningstar, Inc.
For the three months ended June 30, The Muirfield Fund provided a total
return of 12.59 percent, compared with a return from the average Asset
Allocation fund of 9.41 percent and a return of 10.14 percent from the average
Balanced fund. The Fund also performed well versus Morningstar's average Asset
Allocation fund for the six month period ended June 30, as shown in the chart at
left.
Since its inception in 1988, The Muirfield Fund has provided a cumulative
total return of 191.25 percent, which equates to an average annual compound rate
of return of 12.77 percent.
Major holdings of The Muirfield Fund and their percentages of the Portfolio
on June 30, 1997 are shown in the table below.
THE TOP FIVE
mutual fund holdings of The Muirfield Fund
(1) Federated S&P 500 Maxcap Fund 15.7%
(2) Neuberger & Berman Partners Fund 12.4%
(3) Fidelity Growth & Income Fund 12.2%
(4) Federated Stock Trust Fund 12.2%
(5) Fidelity Blue Chip Fund 10.96%
MARKET PERSPECTIVE
As it did during the first quarter of the year, The Muirfield Fund gained
its exposure to the stock market during the second quarter via investment in
mutual funds with significant exposure to large cap stocks and via exposure to
the S&P 500 Index. In addition, based upon improvements in the
small-capitalization market, the Fund began to gain limited exposure to funds
with small- to mid-cap holdings. Our large-cap exposure and our lack of
significant exposure to bonds or money market instruments allowed us to achieve
the results that we did during the second quarter.
Our evaluation of the stock market environment was largely positive during
the second quarter. However, from mid-March to early May we adopted a partially
defensive position based on our concerns regarding the level of risk present in
the marketplace.
As soon as the our investment discipline indicated that the level of risk
in the stock market had subsided to acceptable levels, we acted quickly to
return the Portfolio of The Muirfield Fund to a fully invested position. Thus,
the Fund performed well versus similar funds during the second quarter and has
participated nicely in the market's advance so far in 1997.
Thanks to our investment discipline, shareholders in The Muirfield Fund
were protected from a brief period of adversity in the marketplace and have also
enjoyed significant gains. We remain watchful for signs of adversity in the
stock market and are ready to act in defense of our shareholders should the
current market environment begin to show signs of a growing level of risk.
PORTFOLIO EXPOSURE
THE MUTUAL FUND PORTFOLIO as of June 30, 1997
The following information was presented as a pie chart: 100% of the Mutual
Fund Portfolio was invested in other mutual funds and the S&P 500.
<TABLE>
PERIOD AND AVERAGE ANNUAL TOTAL RETURNS
THE MUIRFIELD FUND as of June 30, 1997
<CAPTION>
The following information was presented as a bar graph: Since
Inception
FUND 3 months 6 months 1 year 5 years (8/10/88)
- ---- -------- -------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
The Muirfield Fund 12.59% 14.44% 13.76% 12.91% 12.77%
The Average Asset Allocation Fund* 9.41% 9.13% 16.86% 12.46% 11.95%
The Average Balanced Fund* 10.14% 10.10% 18.96% 12.62% 12.43%
<FN>
*Per Morningstar Principia as of June 30, 1997. See inside front cover for
important related performance information.
</FN>
</TABLE>
<PAGE>
THE HIGHLANDS GROWTH FUND
[PHOTO] William L. Gurner, Portfolio Manager
So far this year, The Highlands Growth Fund has outdistanced the
competition, providing a level of returns greater than the average Growth fund,
according to figures from Morningstar, Inc.
In the second quarter following its adoption of a modified investment
objective, the Highlands Growth Fund provided a six month total return of 16.25
percent, compared to a total return from the average Growth fund of 13.51
percent. For the same period, the S&P 500 Index rose 20.60 percent.
At the close of the second quarter, the stock holdings of The Highlands
Growth Fund were 74.6 percent invested in S&P 500 issues and 25.4 percent
invested in non-S&P 500 issues.
MARKET PERSPECTIVE
The 1997 stock market is testing the I.Q. (Investment Quality) of every
investment manager. The real key to success in this market environment is to
select an investment strategy that has the best chance of delivering a superior
return in any investment environment. To that end, investors must be selective
in the stocks they don't own as well as in the stocks they do own. This point is
clearly made by recognizing that over the past five years, only three of 10
individual sectors have outperformed the S&P 500 Index as a whole.
The Highlands Growth Fund invests in every sector in the S&P 500 based on
its market weight and assigns a manager for each sector. So far this year, the
Fund's Transportation, Utilities, and Capital Goods sectors are performing well
versus their S&P 500 sector benchmarks.
By investing in all ten sectors of the S&P 500, the focus within the Fund's
portfolio shifts from sector selection to stock selection. The manager of each
sector is charged with finding stocks that will perform well versus his sector
benchmark. Four noteworthy S&P 500 stocks included in the Portfolio of The
Highlands Growth Fund are:
CHASE MANHATTAN BANK (CMB) - We believe this issue is one of the most
undervalued money center bank stocks in the marketplace.
CAMCO INTERNATIONAL INC. (CAM) - An oilfield equipment and services provider,
Camco is, in our opinion, an outstanding mid-cap growth opportunity.
CONSECO, Inc. (CNC) - A financial services holding company active and acquiring
and consolidating insurance companies, CONSECO has made seven acquisitions in
the past 12 months and remains 25 percent management-owned.
LOUISIANA LAND & EXPLORATION (LLX) - This company explores for, develops, and
produces petroleum natural gas resources. In our opinion, the land holdings of
this company make its stock an exceptional value.
PORTFOLIO EXPOSURE
THE GROWTH STOCK PORTFOLIO as of June 30, 1997
The following information was presented as a pie chart:
MANAGER % OF PORTFOLIO
------- --------------
Capital Goods Hallmark 5.48%
Consumer Durables Barrow-Hanley 6.89%
Consumer Non-Durables Barrow-Hanley 17.55%
Energy Mitchell 9.43%
Finance Dreman 15.01%
Health* Sector 11.30%
Materials and Services Ashland 7.31%
Technology RCM 16.63%
Transportation Miller/Howard 1.39%
Utilities Miller/Howard 9.01%
*The Health Sector is currently indexed pending the selection of a manager. The
results at left achieved during the six month period ended June 30, 1997 were
achieved with the strategy implemented by Sector Capital Management LLC, the
Fund's subadviser. The average annual rates of return for the one-, five-, and
ten-year periods reflect a combination of the Fund's previous investment
objective and the new Sector discipline.
<TABLE>
PERIOD AND AVERAGE ANNUAL TOTAL RETURNS
THE HIGHLANDS GROWTH FUND as of June 30, 1997
<CAPTION>
The following information was presented as a bar graph:
FUND 3 months 6 months 1 year 5 years 10 years
- ---- -------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
The Highlands Growth Fund 16.04% 16.25% 19.77% 12.01% 7.97%
The Average Growth Fund* 15.58% 13.51% 23.08% 17.22% 12.78%
<FN>
*Per Morningstar Principia as of June 30, 1997. See inside front cover for
important related performance information.
</FN>
</TABLE>
Please see the next page for more information about the Subadviser of The
Highlands Growth Fund.
<PAGE>
PERFORMANCE OF MR. GURNER AND THE SUBADVISER
In response to shareholders' questions about the recent change in The Highlands
Growth Fund's investment objective, we are providing the following information,
which discusses the prior performance of similarly managed private accounts
managed by Sector Capital Management, LLC, The Highlands Growth Fund's
subadviser, and William L. Gurner, the Subadviser's Portfolio Manager.
[ 1996 1995 ][ 1994 1993 1992 1991(2)]
---- ---- ---- ---- ---- ----
[Sector Capital][ Mr. Gurner ]
PRIVATELY MANAGED ACCOUNTS [26.27% 45.79%][ 0.97% 14.78% 8.26% 18.79% ]
THE S&P 500 INDEX(1) 21.08% 37.53% 1.10% 10.00% 7.69% 16.66%
THE AVERAGE GROWTH FUND(3) 19.56% 31.02% -1.66% 12.00% 8.80% 20.27%
(1)The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income, dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.
(2)Commencement of investment operations with regard to Mr. Gurner is March 1,
1991.
(3)According to Morningstar Principia as of June 30, 1997.
William L. Gurner, the President, Administrator and Portfolio Manager of
Sector Capital Management, LLC ("the Subadviser"), served as Manager (Trust
Investments) for an employee benefit plan of a large corporation from September,
1987 through December, 1994. The table above sets forth Mr. Gurner's performance
from March 1, 1991 through December 31, 1994 [from September 1987 until March 1,
1991, the employee benefit plan did not have investment objectives, policies,
strategies and risks similar to those of the Growth Stock Portfolio (The
Highlands Growth Fund's Portfolio) and The Highlands Growth Fund ("The Fund")]
relating to the historical performance of the employee benefit plan managed by
Mr. Gurner and the Subadviser's composite performance relating to the historical
performance of private accounts managed by the Subadviser from January 1, 1995
through December 31, 1996, that have investment objectives, policies, strategies
and risks substantially similar to those of the Growth Stock Portfolio and the
Fund. Mr. Gurner and the Sub-adviser engaged substantially the same Sector
Advisers currently engaged by the Growth Stock Portfolio to manage on a
discretionary basis the assets of the employee benefit plan and such private
accounts. The data is provided to illustrate the past performance of Mr. Gurner
and the Subadviser in managing substantially similar accounts as measured
against specified market indices and does not represent the performance of the
Growth Stock Portfolio or the Fund. Investors should not consider this
performance data as an indication of future performance of the Growth Stock
Portfolio or the Fund. Mr. Gurner and the Subadviser's composite performance
data shown above were calculated in accordance with recommended standards of the
Association for Investment Management and Research ("AIMR"*), retroactively
applied to all time periods. All returns presented were calculated on a total
return basis and include all dividends and interest, accrued income and realized
and unrealized gains and losses. All returns reflect the deduction of investment
advisory fees, brokerage commissions and execution costs paid by the employee
benefit plan and the private accounts without provision for federal or state
income taxes. Custodial fees, if any, were not included in the calculation. The
Subadviser's composite includes all actual, fee paying, discretionary, private
accounts managed by the Subadviser that have investment objectives, policies,
strategies and risks substantially similar to those of the Growth Stock
Portfolio and the Fund. Securities transactions are accounted for on the trade
date and accrual accounting is utilized. Cash and equivalents are included in
performance returns. The yearly returns of the Sub-adviser's composite combine
the individual accounts' returns by asset-weighting each individual account's
asset value as of the beginning of each quarter. The yearly returns are computed
by geometrically linking the returns of each quarter within the calendar year.
The employee benefit plan managed by Mr. Gurner and the private accounts
that are included in the Subadviser's composite are not subject to the same
types of expenses to which the Growth Stock Portfolio or the Fund are subject
nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on the Growth Stock Portfolio and the Fund by the
Investment Company Act or Subchapter M of the Internal Revenue Code.
Consequently, the performance results for the employee benefit plan managed by
Mr. Gurner and the Subadviser's composite could have been adversely affected if
the employee benefit plan and the private accounts included in the composite had
been regulated as investment companies under the federal securities laws.
The investment results of Mr. Gurner and the Sub-adviser's composite
presented above are unaudited and not intended to predict or suggest the returns
that might be experienced by the Growth Stock Portfolio or an individual
investor investing in the Fund. Investors should also be aware that the use of a
methodology different from that used above to calculate performance could result
in different performance data.
*AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly compatible.
<PAGE>
TOTAL RETURN UTILITIES FUND
[PHOTO] Lowell G. Miller, Portfolio Manager
Last quarter we suggested the economy would have to slow this year - either
of its own accord or as a response to the stern Federal Reserve, whose cranky
visage seemed to loom above each new release of economic statistics. We noted
that our stocks, and utilities in general, continued to exhibit a pattern of
performance rather better than one would expect given the interest rate
environment, and that it was possible to envision an environment of supportive
tailwinds as the interest rate picture improved, rather than the headwinds that
utilities had fought for some time. In hindsight, we can see that an economic
pause indeed began to unfold just a few weeks after we uttered the suggestion.
The Total Return Utilities Fund provided a total return of 8.02 percent for
the second quarter of 1997. For the quarter, the average Utility fund provided a
total return of 8.51 percent, according to Morningstar, Inc. For the same
period, the Dow Jones Utility Average provided a total return of 5.02 percent.
MARKET PERSPECTIVE
There were several developments in our portfolio this quarter. LGE and KU
Energy, both Kentucky electrics with low-cost production and interests in
wholesale sales, agreed to merge, with a premium paid to KU shareholders. This
merger makes eminent sense, taking two smaller deregulation "winners" and making
one larger "winner," and it has been initially applauded by all local and
regional regulators.
In line with our current emphasis on stocks with higher yields, we added
Utilicorp and New Zealand Telecom, and increased our position in Bay State Gas.
Utilicorp is a fine representative of a "new era" utility a low cost producer
with a forward-looking view of the industry. New Zealand Telecom is also nicely
higher since its purchase. This credit offers a 6-plus percent local yield with
anticipated growth of yield in the vicinity of 10 percent and serves a growing
population in a congenial regulatory environment. There may be some currency
risk, but we don't think it outweighs the merits of NZT as a stock. Because the
stock is not domestic we hold it on a shorter leash than might otherwise be the
case; still, if the story unfolds as we think it will, this could be a very
long-term holding. We increased Bay State because it offers the best of all
possible worlds, a company doing very well in its local area with a clear vision
regarding the path to prosperity in a deregulated gas environment (the gas
distributor as a "mall" offering services to producers, marketers, and
consumers), and pursuing that path in a fiscally prudent manner.
Looking forward, we see the same general forces that helped our portfolio
this quarter continuing to provide assistance for some time. While the recent
easing of the economy hardly has the hallmarks of "the end," it may take some
time before the weakening trend of the numbers is reversed. Meanwhile, inflation
is still nowhere to be seen. The trend in interest rates has been a clear
positive in recent weeks, and we don't see a good reason for this to change over
the summer. In addition, the issues of change that have concerned investors
regarding utilities continue to wane, but the sector still languishes at roughly
half the PE of the general market, a third of the book/market ratio, and more
than twice the yield. Investors have not fully recognized the values in
utilities at a time when few other sectors would be immune to profit-taking, yet
many essential service stocks, including many that we hold, offer growth
projections equal to or better than those of the S&P 500.
PORTFOLIO EXPOSURE
THE UTILITY STOCK PORTFOLIO as of June 30, 1997
The following information was presented as a pie chart:
% of Portfolio
--------------
Diversified Utility 1.2%
Electric/Gas Utility 7.2%
Electric Utility 16.8%
Energy 3.5%
Natural Gas (Distributor) 20.4%
Oil/Gas (Domestic) 7.1%
Telecommunication Equipment 4.9%
Telecommunication Services 32.4%
Water Utility 3.6%
Money Market Instruments 2.9%
<TABLE>
PERIOD AND AVERAGE ANNUAL TOTAL RETURNS
THE TOTAL RETURN UTILITIES FUND as of June 30, 1997
<CAPTION>
The following information was presented as a bar graph: Since
Inception
FUND 3 months 6 months 1 year (6/21/95)
- ---- -------- -------- ------ --------
<S> <C> <C> <C> <C>
The Total Return Utilities Fund 8.02% 5.50% 13.61% 17.01%
The Average Utility Fund* 8.51% 7.53% 13.92% 16.31%
<FN>
*Per Morningstar Principia as of June 30, 1997. See inside front cover for
important related performance information.
</FN>
</TABLE>
<PAGE>
THE U.S. GOVERNMENT BOND FUND
[PHOTO] Joseph A. Zarr, Portfolio Manager
The second quarter of 1997 saw bonds rally based partly on the fact that
the Federal Reserved Board chose not to implement a short-term rate hike at its
meeting in late May, and partly on the fact that the economy, in general, showed
enough signs of weakness during the second quarter to support lower interest
rates (higher bond prices).
The U.S. Government Bond Fund provided a total return of 1.77 percent for
the second quarter of 1997. For the quarter, the average General Government Bond
fund provided a total return of 3.01 percent, according to Morningstar, Inc. For
the same period, the Lehman Brothers Intermediate Government Bond Index provided
a total return of 2.80 percent.
Since its inception in 1985, The U.S. Government Bond Fund has provided a
cumulative total return of 125.69 percent, which equates to an average annual
total return of 6.93 percent.
MARKET PERSPECTIVE
Fully defensive as the second quarter began, The U.S. Government Bond Fund
increased its exposure to 10-year U.S. Treasury Notes to 50 percent by the
second week in May. By June 11, The Fund was fully exposed to the bond market.
All of the elements of our bond discipline were positive late in the
quarter. The Trend of Interest Rates, which was negative for much of the first
quarter of the year, became positive late in the second quarter based on a
declining interest rate trend (rising bond prices). The Yield Ratio remained
positive as yields on intermediate- to long-term bonds outpaced Treasury Bill
yields. Real Rates of Return were positive based on continued low levels of
inflation relative to bond yields.
Interest rates on the benchmark 30-year Treasury Bond fell during the
second quarter from 7.10 percent on March 31 to 6.80 percent on June 30.
Economic numbers released during the second quarter pointed to a continued
stifling of inflation, a fact reflected in bond investors' apparent consensus
that the Federal Reserve Board would again take no action with regard to
short-term interest rates at its July meeting. An ongoing conviction on the part
of some investors that growth in the Gross Domestic Product (GDP) was at
unsustainable levels [as we noted in the first quarter Performance Update] also
added steam to the bond market's advance during the second quarter.
Regarding the items of potential concern within the bond market, we are
watching carefully for any signs of a change in the status of inflation. Any
unexpected increase in economic activity could cause problems for a rejuvenated
bond market that has hung its hopes on keeping inflation in check. Current
statistics regarding high consumer confidence and excessively bullish sentiment
within the bond market may or may not be a sign of trouble ahead.
Overall, bonds remained in stable territory as the second quarter ended and
the third quarter began. We remain watchful for signs that the bond market is
vulnerable to inflation, and we are prepared to act accordingly in defense of
our shareholders, should higher interest rates materialize.
PORTFOLIO EXPOSURE
THE BOND PORTFOLIO as of June 30, 1997
The following information was presented in the form of a pie chart:
% OF PORTFOLIO
--------------
U.S. Government Obligations 95%
Money Market Instruments 5%
<TABLE>
PERIOD AND AVERAGE ANNUAL TOTAL RETURNS
THE U.S. GOVERNMENT BOND FUND as of June 30, 1997
<CAPTION>
The following information was presented as a bar graph:
FUND 3 months 6 months 1 year 5 years 10 years
- ---- -------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
The U.S. Government Bond Fund 1.77% 0.59% 1.91% 5.85% 6.15%
The Average General Govt. Bond Fund* 3.01% 2.47% 6.64% 5.47% 7.32%
<FN>
*Per Morningstar Principia as of June 30, 1997. See inside front cover for
important related performance information.
</FN>
</TABLE>
<PAGE>
THE MONEY MARKET FUND
[PHOTO] Philip A. Voelker, Portfolio Manager
The Money Market Fund remained one of the nation's leading money market
funds as the second quarter ended, according to data from Lipper Analytical
Services, Inc.
The Fund was ranked no lower than the 5th percentile for any rating period
shown below, according to the data, and, as rated by Lipper, the Fund has the
highest cumulative total return of any General Purpose Money Market Fund in the
nation from its inception through June 30, 1997. The chart below shows the
Fund's ranking for each period, according to Lipper.
MONEY MARKET FUND RANKING
based on cumulative total returns for the periods shown through June 30, 1997
among General Purpose Money Market funds monitored by Lipper Analytical
Services, Inc.
PERIOD RANK UNIVERSE % RANKING
- ------ ---- -------- ---------
Since Inception* #1 88 1%
10 years #4 107 4%
5 years #9 180 5%
1 year #11 292 4%
*March 27, 1985
The Money Market Fund has provided a cumulative total return since its
inception of 107.63 percent, which equates to an average annual total return of
6.14 percent.. As of June 30, 1997, The Money Market Fund's 30-day compound
annualized yield was 5.44 percent.
MARKET PERSPECTIVE
Following March's increase in the benchmark Federal Funds rate by the
Federal Reserve Board, short-term interest rates were stable throughout the
second quarter. Steadily declining long-term interest rates during the second
quarter indicated investors` general approval of the Federal Reserve's handling
of the economy so far in 1997. Yields available from the benchmark 30-year
Treasury declined from 7.10 percent at the end of the first quarter to 6.80
percent on June 30. Treasury Bill rates slipped from 5.33 percent on March 31 to
5.25 by quarter's end.
The average maturity of the securities in the portfolio of The Money Market
Fund increased from the low 40-day range late in the first quarter to the upper
60-day range by the end of the second quarter. We increased the average maturity
of the Portfolio in the face of the July 2 Federal Reserve Board meeting because
short-term interest rates were stable and long-term interest rates were
declining. As you may recall, The Money Market Fund acts during periods of
declining rates to invest in longer-term securities (up to one year) in an
effort to capture higher yields for a longer period of time.
For now, it appears that inflation is in check and interest rates are in a
declining trend. As the second quarter closed, the Federal Reserve seemed to be
content with the effects of the interest rate hikes it has implemented so far
this year. We are alert for changes in the marketplace that would indicate a
rising trend in interest rates and are prepared to adjust the portfolio of The
Money Market Fund in favor of shorter maturities, if necessary. We continue to
strive for the best possible yields from the high quality investments we choose
for The Money Market Fund in order to continue to earn competitive yields for
our shareholders and maintain our position as one of the nation's leading money
market investments.
PORTFOLIO EXPOSURE
THE MONEY MARKET PORTFOLIO
The following information was presented as a pie chart:
% OF PORTFOLIO
--------------
Commercial Paper 42.0%
Corporate Obligations 40.4%
U.S. Government Agency Obligations 2.9%
U.S. Treasury Obligations 4.3%
Repurchase Agreements 10.4%
<TABLE>
PERIOD AND AVERAGE ANNUAL TOTAL RETURNS
THE MONEY MARKET FUND as of June 30, 1997
<CAPTION>
The following information was presented as a bar graph:
FUND 1 year 5 years 10 years
- ---- ------ ------- --------
<S> <C> <C> <C>
The Money Market Fund 5.28% 4.50% 5.92%
The Average Money Market Fund* 4.82% 4.09% 5.48%
<FN>
*Per Morningstar Principia as of June 30, 1997. See inside front cover for
important related performance information.
</FN>
</TABLE>
<PAGE>
MUTUAL FUND PORTFOLIO
Portfolio of Investments as of June 30, 1997 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
MUTUAL FUNDS - 85.5%
Aim Constellation Fund 86 $2,361
Aim Weingarten Fund 99 2,105
Charles Schwab Money Market Fund 16,494,943 16,494,943
Federated S&P 500 Maxcap Fund 1,139,377 21,716,531
Federated Stock Trust Fund 445,617 16,875,513
Fidelity Blue Chip Fund 397,040 15,151,055
Fidelity Core Money Market Fund 787,000 787,000
Fidelity Growth & Income Fund 468,286 16,881,698
Fidelity Over-the-Counter Fund 189,404 6,593,166
Mutual Shares Fund 291 6,155
Neuberger & Berman Partners Fund 584,899 17,102,440
PBHG Growth Fund 624 15,462
Rydex OTC Fund 301,723 6,550,415
T. Rowe Price New Era Fund 132 3,788
T. Rowe Price New Horizons Fund 151 3,325
================================================================================
TOTAL MUTUAL FUNDS
(Cost $108,346,288 ) 118,185,957
- --------------------------------------------------------------------------------
U.S.TREASURY BILLS - 3.5%
* 5.17%, due 09/04/97 $4,400,000 4,359,021
* 5.23%, due 09/04/97 500,000 495,343
5.27%, due 01/08/98 30,100 29,272
================================================================================
TOTAL U.S. TREASURY BILLS
(Cost $4,883,465 ) 4,883,636
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 11.0%
** Paine Weber Inc., dated 06/30/97
6.10%, due 07/01/97 15,398,000 15,398,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $15,398,000 ) 15,398,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $128,627,753 ) $138,467,593
- --------------------------------------------------------------------------------
================================================================================
FUTURES CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS (DEPRECIATION)
Long, S&P 500 Futures, face amount
$2,639,900 expiring September 1997. 85 $838,624
================================================================================
NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS $838,624
- --------------------------------------------------------------------------------
* Pledged $4,660,000 face amount as collateral on futures contracts.
** Collateralized by U.S. government obligations--market value $15,488,061.
See accompanying notes to financial statements.
<PAGE>
GROWTH STOCK PORTFOLIO
Portfolio of Investments as of June 30, 1997 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 87.9%
AEROSPACE/DEFENSE - 1.7%
Allied-Signal, Inc. 1,240 104,160
Boeing Co. 1,398 74,181
General Dynamics Corp. 375 28,125
Gulfstream Aerospace Corp. 900 26,550
Lockheed Martin Corp. 760 78,708
McDonnell Douglas Corp. 1,055 72,268
Raytheon Co. 800 40,800
Textron, Inc. 1,550 102,881
Thiokol Corp. 600 42,000
=========
569,673
---------
AIR TRANSPORTATION - 0.3%
AMR Corp. 445 41,163
Delta Air Lines, Inc. 360 29,520
Southwest Airlines 700 18,112
USAir Group 310 10,850
=========
99,645
---------
ALUMINUM - 0.3%
Alcan Aluminum LTD 810 28,097
Aluminum Company of America 720 54,270
=========
82,367
---------
AUTO & TRUCK - 1.6%
Chrysler Corp. 2,900 95,156
Ford Motor Co. 5,900 222,725
General Motors 3,100 172,631
General Motors - Class H 135 7,796
TRW, Inc. 375 21,305
=========
519,613
---------
BANKING - 0.5%
Great Western Financial 1,300 69,875
J.P. Morgan 1,000 104,375
=========
174,250
---------
BEVERAGE--ALCOHOLIC - 0.4%
Canadaigua Wine Co. 4,000 136,000
BEVERAGE--SOFT DRINK - 2.0%
Coca-Cola 6,500 438,750
Pepsico, Inc. 6,000 225,375
=========
664,125
---------
BUILDING & CONSTRUCTION - 0.1%
USG Corp. 460 16,790
BUILDING MATERIALS - 0.3%
Armstrong World Industries 150 11,006
Crane Co. 280 11,708
Masco Corp. 1,075 44,881
Willbros Group 1,600 25,400
=========
92,995
---------
CAPITAL GOODS - 0.1%
Cooper Industries 170 8,458
Eaton Corp. 124 10,827
Ingersoll-Rand 319 19,698
=========
38,983
---------
CHEMICAL--DIVERSIFIED - 1.8%
Air Products & Chemicals, Inc. 455 36,969
Dow Chemical Co. 995 86,689
E.I. DuPont DeNemours 4,390 276,021
Monsanto Corp. 2,840 122,297
Praxair, Inc. 870 48,720
Rohm & Haas Co. 265 23,867
Union Carbide 460 21,649
=========
616,212
---------
CHEMICAL--SPECIALTY - 0.2%
Morton International Industries, Inc. 880 26,565
Sigma Aldrich 440 15,428
W.R. Grace & Co. 320 17,640
=========
59,633
---------
COMMERCIAL SERVICES - 0.1%
Dun & Bradstreet 710 18,637
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 2.1%
Compaq Computer Corp. 1,020 101,235
Dell Computer Corp. 1,220 143,274
EMC Corp. 1,735 67,665
International Business Machines 4,140 373,376
Micron Technology 630 25,161
=========
710,711
---------
COMPUTER SOFTWARE & SERVICES -4.1%
America Online, Inc. 1,240 68,975
Ceridian Co. 2,015 85,134
Computer Associates International, In 1,830 101,908
Computer Sciences Corp. 700 50,488
Electronic Arts, Inc. 590 19,839
First Data Corp. 2,220 97,541
McAfee Associates, Inc. 220 13,887
Microsoft Corp. 6,075 767,727
National Data Corp. 540 23,389
Orcale Corporation 457 23,021
Peoplesoft, Inc. 1,490 78,598
Sterling Commerce, Inc. 620 20,383
Wind River Systems 605 23,141
=========
1,374,031
---------
CONSUMER NON-DURABLE - 2.5%
Central Garden & Pet 2,900 72,500
Chattem, Inc. 8,700 117,450
Colgate Palmolive 3,300 215,325
Haggar Corp. 10,400 132,600
Scotts Miracle Grow 4,300 124,700
Tupperware Corp. 4,400 160,600
=========
823,175
---------
CONTAINERS--PAPER & PLASTIC - 0.0%
Sealed Air Corp. 300 14,250
COPPER - 0.1%
Freeport McMoran Copper & Gold, Inc. 710 22,099
Phelps Dodge Corp. 240 20,445
=========
42,544
---------
COSMETICS - 0.7%
Avon Products, Inc. 3,100 218,744
DATA PROCESSING - 0.1%
Reynolds & Reynolds Co. - Class A 1,000 15,750
DIVERSIFIED - 2.6%
American Brands 2,500 93,281
Corning, Inc. 980 54,513
Minnesota Mining & Manufacturing 930 94,860
National Service Industries 430 20,936
Norfolk Southern Corp. 610 61,457
PPG Industries, Inc. 820 47,663
Ralston Purina 1,900 156,156
Raychem Corp. 270 20,081
Tenneco 569 25,712
Tyco International 576 40,068
United Technologies Corp. 1,350 112,050
Westinghouse Electric 5,800 134,125
=========
860,902
---------
DRUG - 6.2%
Abbott Labs 3,432 229,086
Bristol Myers Squibb 4,443 359,883
Eli Lilly & Co. 2,458 268,690
Merck & Co., Inc. 5,425 561,489
Pfizer, Inc. 2,857 341,412
Pharmacia & Upjohn 2,213 76,902
Schering Plough Corp. 1,597 76,456
Warner Lambert Co. 1,221 151,709
=========
2,065,627
---------
DRUGSTORE - 0.4%
Longs Drug Stores 2,000 52,375
Rite Aid Corp. 1,500 74,813
=========
127,188
---------
ELECTRIC--INTEGRATED - 0.4%
FPL Group, Inc. 1,170 53,893
Texas Utilities Co. 2,490 85,749
=========
139,642
---------
Growth Stock Portfolio, continued The Flex-funds Semiannual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
ELECTRIC PRODUCTION - 0.3%
Sundstrand Corp. 1,550 86,509
ELECTRIC UTILITY - 1.0%
American Electric Power, Inc. 1,250 52,500
Duke Power Co. 2,930 140,457
Southern Co. 6,190 135,406
=========
328,363
---------
ELECTRICAL EQUIPMENT - 3.0%
General Electric Co. 15,174 992,000
ELECTRONIC COMPONENT SEMICONDUCTORS - 2.5%
Analog Devices 2,056 54,613
Applied Materials, Inc. 1,555 110,113
Intel 2,643 374,810
KLA-Tencor Corp. 675 32,906
LSI Logic Corp. 230 7,360
Linear Tech Corp. 290 15,008
Maxim Integrated Products, Inc. 755 42,941
Motorola, Inc. 1,680 127,680
Texas Instruments, Inc. 460 38,669
Xilinx, Inc. 310 15,209
=========
819,309
---------
ELECTRONIC COMPONENTS - 0.3%
Emerson Electric 1,833 100,930
ELECTRONIC MEASUREMENT - 0.1%
Teradyne, Inc. 1,080 42,390
ELECTRONICS - 0.1%
Altera Corporation 290 14,645
Rockwell International Corp. 280 16,520
=========
31,165
---------
FINANCE - 8.3%
Advanta Corp. 1,000 35,688
Banc One Corp. 3,000 145,313
Bank of Boston Corp. 800 57,650
Bankers Trust New York Co. 600 52,200
Barnett Banks, Inc. 1,200 63,000
Chase Manhattan Corp. 3,300 320,305
Citicorp 2,300 277,294
Corestates Financial 1,000 53,750
Dean Witter Discovery 1,100 47,369
Equifax, Inc. 1,070 39,791
Federal Home Loan Mortgage Corp. 4,500 154,687
Federal National Mortgage Corp. 3,800 165,775
First Chicago NBD Corp. 1,700 102,850
First Union Corp. 1,900 175,750
Fleet Financial Group, Inc. 1,200 75,900
Household International, Inc. 400 46,975
KeyCorp 1,400 78,225
Lehman Brothers Holdings, Inc. 1,300 52,650
Mellon Bank Corp. 1,000 45,125
Merrill Lynch & Co. 600 35,775
NationsBank Corp. 3,800 245,100
Norwest Corp. 3,100 174,375
PNC Bank Corp. 2,400 99,900
Republic New York Corp. 200 21,500
Ryder Systems, Inc. 370 12,210
Salomon Brothers, Inc. 500 27,812
SunTrust Banks, Inc. 900 49,556
Wells Fargo & Co. 500 134,750
=========
2,791,275
---------
FINANCIAL SERVICES - 1.9%
American Express 900 67,050
Associate First Capital 1,900 105,450
Avery Dennison Corp. 620 24,877
BankAmerica Corp. 4,400 284,075
HF Ahmanson & Co. 800 34,400
Long Beach Financial Corp. 3,900 34,125
Mercury Finance Corp. 11,800 28,763
Nationwide Financial Services - Class 1,900 50,469
=========
629,209
---------
FOOD DIVERSIFIED - 1.3%
CPC International 1,800 166,162
General Mills 1,900 123,738
Kellogg Company 1,800 154,125
=========
444,025
---------
FOOD WHOLESALER - 1.1%
Nabisco 9,400 374,825
Growth Stock Portfolio, continued The Flex-funds Semiannual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
FOREST PRODUCTS - 0.3%
Georgia Pacific Corp. 430 36,711
Weyerhauser Co. 1,010 52,520
Willamette Industries, Inc. 320 22,400
=========
111,631
---------
GIFTWARE & CRYSTAL - 0.3%
Stanhome, Inc. 3,000 98,625
GOLD/SILVER MINING - 0.2%
Barrick Gold Corp. 1,640 36,080
Englehard Corp. 620 12,981
Newmont Mining Corp. 570 22,230
=========
71,291
---------
HEALTH - 1.9%
Allergan, Inc. 283 9,003
American Home Products 2,701 206,626
Humana, Inc. 751 17,367
Johnson & Johnson 6,062 390,241
=========
623,237
---------
HOUSEHOLD PRODUCTS - 1.5%
Procter & Gamble 2,000 282,500
Whirlpool Corp. 3,900 212,794
=========
495,294
---------
INSURANCE--LIFE - 0.4%
American Heritage Life Investment Co. 1,000 33,000
AmVestors Financial Corp. 5,000 91,250
Westbridge Capital Corp. 2,500 24,219
=========
148,469
---------
INSURANCE--MULTILINE - 2.6%
Allstate 1,800 131,400
American International Group 1,500 224,063
Cigna Corp. 300 53,250
Conseco, Inc. 5,700 210,900
Leucadia National 1,600 49,500
Travelers Group, Inc. 3,000 189,188
=========
858,301
---------
INSTRUMENTS--SCIENTIFIC - 0.0%
Perkin Elmer Corp. 120 9,548
INSTRUMENTS--CONTROLS - 0.5%
Honeywell, Inc. 705 53,492
Johnson Controls, Inc. 1,637 67,219
Microchip Technology, Inc. 700 20,825
Parker Hannifin Corp. 169 10,256
=========
151,792
---------
LASERS--SYSTEMS & COMPONENTS - 0.2%
Uniphase Corp. 970 56,503
MACHINERY - 0.6%
Deere & Co. 952 52,241
Dover Corp. 145 8,918
Paxar Corp. 6,000 113,250
W.W. Grainger 152 11,884
=========
186,293
---------
MACHINERY--CONSTRUCTION & MINING - 0.6%
Case Corp. 211 14,533
Caterpillar, Inc. 762 81,820
Halliburton Co. 500 39,625
Harnischfeger Industries 1,892 78,518
=========
214,496
---------
MANUFACTURING - 0.0%
Millipore 210 9,240
MATERIALS & SERVICES - 1.1%
Champion Internationsl Corp. 425 23,481
Crown Cork & Seal 520 27,788
Dana Corp. 370 14,060
Deluxe Corp. 300 10,237
Fluor Corp. 340 18,764
Hercules, Inc. 390 18,671
Ikon Office Solutions 350 8,728
Illinois Tool Works, Inc. 1,270 63,421
James River Corp. of Virginia 330 12,210
Moore LTD 400 7,875
Pall Corp. 420 9,765
Service Corp. International 1,650 54,244
Sherwin-Williams Co. 920 28,405
Waste Management, Inc. 1,970 63,286
=========
360,935
---------
Growth Stock Portfolio, continued The Flex-Funds Semiannual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
MEDICAL SERVICES - 0.8%
AMGEN 1,159 67,367
Beverly Enterprise 445 7,231
Columbia/HCA Health 2,897 113,888
Healthsouth Rehab 1,321 32,942
Manor Care, Inc. 264 8,613
Shared Medical Systems 170 9,180
Tenet Healthcare 1,371 40,530
=========
279,751
---------
MEDICAL SUPPLIES - 1.1%
AlzaCorp. 389 11,281
BIOMET 471 8,772
Bausch & Lomb, Inc. 249 11,734
Baxter International, Inc. 1,237 64,633
Becton Dickinson 545 27,591
Boston Scientific Co. 855 52,529
Cardinal Health, Inc. 150 8,569
CR Bard, Inc. 250 9,078
Guidant Corp. 331 28,135
Mallinkrodt Group 331 12,578
Medtronic, Inc. 1,120 90,720
St. Jude Medical, Inc. 347 13,533
U.S. Surgical 311 11,585
=========
350,738
---------
MEDICAL--HMO - 0.1%
United Healthcare Co. 836 43,472
METAL--DIVERSIFIED - 0.1%
Inco LTD 610 18,338
Placer Dome, Inc. 1,230 20,141
=========
38,479
---------
NATURAL GAS DISTRIBUTOR - 0.1%
Williams Companies, Inc. 700 30,625
NETWORKING PRODUCTS - 0.7%
Cisco Systems, Inc. 3,460 232,252
3Com Corp. 320 14,400
=========
246,652
---------
OFFICE AUTOMATION & EQUIPMENT - 0.6%
Pitney Bowes, Inc. 350 24,325
Xerox Corp. 2,055 162,088
=========
186,413
---------
OIL/GAS--DOMESTIC - 3.1%
Amoco Corp. 2,200 191,263
Apache Corp. 200 6,500
Atlantic Richfield 1,200 84,600
Baker Hughes 1,100 42,556
Burlington Resources 900 39,713
Camco International 600 32,850
Chevron Corp. 2,500 184,844
Chieftan International 1,000 21,750
Devon Energy 700 25,156
Enron Corp. 400 16,325
Louisiana Land 800 45,700
Mitchell Energy & Development - Class 1,500 32,625
Mobil Corp. 3,000 209,625
Murphy Oil 400 19,500
Nobe Drilling Co. 1,400 31,587
Sonat, Inc. 500 25,625
USX Marathon group 900 25,987
=========
1,036,206
---------
OILFIELD SERVICES/EQUIPMENT - 1.0%
Dresser Industries 500 18,625
Enron Exchangeable Notes 1,000 19,125
Kerr McGee Corp. 200 12,675
Schlumberger LTD 1,100 137,500
Union Pacific Resources 800 19,900
Union Texas Petroleum Holdings 1,100 23,031
United Meridian Co. 1,300 39,000
Veritas DGC, Inc. 1,800 40,950
Weatherford Enterra 800 30,800
=========
341,606
---------
Growth Stock Portfolio, continued The Flex-funds Semiannual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
PAINT & RELATED PRODUCTS - 0.1%
WD 40 Co. 280 16,800
PAPER & FOREST PRODUCTS - 0.4%
Bemis Co., Inc. 310 13,408
International Paper 1,485 72,115
Mead Corp. 360 22,410
Shorewood Packaging Corp. 700 15,925
Union Camp Corp. 450 22,500
=========
146,358
---------
PETROLEUM--INTEGRATED - 4.1%
Exxon 10,600 651,900
Occidental Petroleum Corp. 400 10,025
Phillips Petroleum 1,500 65,625
Royal Dutch Petroleum 8,900 483,938
Texaco 1,000 108,750
Unocal Corp. 1,000 38,812
=========
1,359,050
---------
PRECISION INSTRUMENT - 0.7%
Eastman Kodak 3,000 230,250
PROTECTION--SAFETY EQUIPMENT - 0.7%
LoJack Corporation 15,500 222,813
RAILROAD TRANSPORTATION - 0.5%
Burlington Northern Sante Fe 740 66,507
Union Pacific Corp. 1,190 83,895
=========
150,402
---------
RECREATION - 0.4%
Polaris Industries 2,000 65,125
Walt Disney Co. 800 64,200
=========
129,325
---------
RECYCLING - 0.1%
Philip Environmental, Inc. 1,600 25,400
RESTAURANT - 0.4%
McDonald's Corp. 3,000 144,938
RETAIL GROCERY - 0.3%
Albertsons, Inc. 2,500 91,250
RETAIL STORE - 2.4%
Dillard Department Stores 1,300 45,013
JC Penny 2,000 104,375
Kmart 11,700 143,325
Office Depot 3,400 66,087
OfficeMax 8,000 115,500
Toys "R" Us, Inc. 1,500 52,500
Wal Mart Stores, Inc. 8,000 270,500
=========
797,300
---------
SERVICES - 0.3%
Automatic Data Processing, Inc. 1,400 65,800
Paychex, Inc. 525 19,950
=========
85,750
---------
STEEL--INTEGRATED - 0.1%
Nucor Corp. 320 18,080
TELECOMMUNICATION EQUIPMENT - 1.5%
Andrew Corp. 350 9,844
Ascend Communication, Inc. 320 12,600
General Signal Corp. 1,694 68,819
Loral Space & Communications 540 8,100
Newbridge Networks Corp. 1,880 81,780
Nokia Corp. - Sponsored ADR - Class A 2,250 167,062
Northern Telecom LTD 1,615 146,965
=========
495,170
---------
TELECOMMUNICATION SERVICES - 7.1%
Airtouch Communications 7,630 208,871
Ameritech Corp. 2,540 172,561
AT&T 7,000 245,438
Bell Atlantic Corp. 1,930 146,439
BellSouth Corp. 4,260 197,558
Compania De Telecomunicaciones de Chi 2,320 76,560
DSC Communications 620 13,795
Frontier Corp. 2,880 57,420
GTE Corp. 4,220 185,152
Lucent Technologies, Inc. 1,775 127,911
MCI Communication 3,200 122,500
Growth Stock Portfolio, continued The Flex-funds Semiannual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
Nynex Corp. 1,950 112,369
Octel Communications, Corp. 1,600 37,500
SBC Communications 4,100 253,688
Sprint Corp. 1,620 85,252
Telefonaktiebolaget LM Ericsson -- AD 1,000 39,375
Tellabs, Inc. 950 53,081
U.S. West, Inc. 1,470 55,401
US West Media Group 2,070 41,917
Worldcom, Inc. 4,280 136,960
=========
2,369,748
---------
TOBACCO - 2.7%
Gallaher Group, PLC - ADR 8,500 156,719
Imperial Tobacco 4,900 63,087
Philip Morris Companies 13,900 616,810
UST, Inc. 2,900 80,475
=========
917,091
---------
TOYS - 0.3%
Hasbro Bradley, Inc. 3,700 104,987
TRANSPORTATION - 0.1%
Caliber Systems, Inc. 190 7,077
Federal Express Corp. 550 31,763
=========
38,840
---------
TRUCKING/TRANSPORTATION LEASING - 0.2%
CSX, Corp. 1,047 58,108
WASTE DISPOSAL--NON-HAZARDOUS - 0.2%
Browning Ferris Industries, Inc. 1,180 39,235
United Waste Systems, Inc. 780 31,980
=========
71,215
---------
================================================================================
TOTAL COMMON STOCKS
Cost $25,900,427) 29,543,959
================================================================================
U.S. TREASURY OBLIGATIONS - 3.0%
U.S. Treasury Bills
*5.17%, 09/04/97 1,000,000 990,687
5.27%, 01/08/98 6,000 5,835
================================================================================
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $996,498) 996,522
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 8.8%
** Paine Weber Inc., dated 06/30/97
6.10%, due 07/01/97 2,962,000 2,962,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $2,962,000) 2,962,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $29,858,925) $33,502,481
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS (DEPRECIATION)
Long, S&P 500 Futures, face amount $2,639,900
expiring September 1997. 6 $30,850
================================================================================
NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS $30,850
- --------------------------------------------------------------------------------
* Pledged $110,000 face amount as collateral on futures contracts.
** Collateralized by U.S. government obligations--market value $2,979,324.
See accompanying notes to financial statements.
Growth Stock Portfolio, continued The Flex-funds Semiannual Report
<PAGE>
UTILITIES STOCK PORTFOLIO
Portfolio of Investments as of June 30, 1997 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 97.1%
DIVERSIFIED UTILITY - 1.2%
Citizens Utilities Co.--Class B 13,535 $108,281
ELECTRIC/GAS UTILITY - 7.2%
MDU Resources Group Incorporated 6,000 144,000
Nipsco Industries Incorporated 4,700 194,169
Utilicorp United, Incorporated 10,000 291,250
==========
629,419
----------
ELECTRIC UTILITY - 16.8%
Cinergy Corporation 7,800 271,538
Ipalco Enterprises Incorporated 5,900 184,375
KU Energy Corporation 3,200 109,200
LG&E Energy Corporation 8,600 189,738
Pacificorp 9,800 215,600
Public Service Company of Colorado 5,600 232,400
Teco Energy Incorporated 10,400 265,850
==========
1,468,701
----------
ENERGY - 3.5%
CalEnergy 8,000 304,000
NATURAL GAS (DISTRIBUTOR) - 20.4%
Bay State Gas Company 8,100 215,663
Brooklyn UN Gas Company 10,900 312,012
Consolidated Natural Gas Company 3,800 204,488
MCN Corporation 6,000 183,750
Pacific Enterprises 6,800 228,650
Transcanada Pipelines Ltd. 8,100 163,012
UGI Corporation 1,900 42,038
Wicor Incorporated 5,600 218,050
Williams Companies Incorporated 4,800 210,000
==========
1,777,663
----------
OIL/GAS (DOMESTIC) - 7.1%
El Paso Natural Gas Company 4,220 232,100
Enron Corporation 3,000 122,437
Questar Corporation 5,100 205,913
Sante Fe Pacific Pipeline Partners 1,600 61,200
==========
621,650
----------
TELECOMMUNICATION EQUIPMENT - 4.9%
LCC International--A 10,000 157,500
Telecom New Zealand--ADR 5,000 203,750
Vanguard Cellular 4,600 62,675
==========
423,925
----------
TELECOMMUNICATION SERVICES - 32.4%
Airtouch Communications 5,400 $147,825
Alltel Corporation 7,900 264,156
AT&T 3,500 122,719
Bell Atlantic Corporation 2,300 174,512
Bellsouth Corporation 3,000 139,125
Century Telephone 8,400 282,975
Frontier Corporation 19,300 384,794
GTE Corporation 5,000 219,375
LCI International 15,000 328,125
MCI Communications 5,000 191,406
Sprint Corporation 4,300 226,288
Tele Denmark 4,900 128,012
U.S. West Incorporated 5,900 222,356
==========
2,831,668
----------
WATER UTILITY - 3.6%
American Water Works Incorporated 14,900 318,487
================================================================================
TOTAL COMMON STOCKS
(Cost $7,464,726) 8,483,794
- --------------------------------------------------------------------------------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS - 0.0%
5.27%, due 01/08/98 1,000 972
================================================================================
TOTAL U.S. TREASURY BILLS
(Cost $972) 972
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 2.9%
**Paine Weber Inc., dated 06/30/97
6.10%, due 07/01/97 169,000 169,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $169,000) 169,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $7,634,698) $8,653,766
- --------------------------------------------------------------------------------
** Collateralized by U.S. government obligations--market value $169,988.
See accompanying notes to financial statements.
Utilities Stock Portfolio, continued The Flex-funds Semiannual Report
<PAGE>
BOND PORTFOLIO
Portfolio of Investments as of June 30, 1997 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 56.5%
Federal National Mortgage Association
Discount note, 5.41%, 07/23/97 $3,000,000 $2,990,081
5.50%, 09/11/97 840,000 839,715
7.00%,07/03/06 4,400,000 4,411,968
================================================================================
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $8,229,832) 8,241,764
- --------------------------------------------------------------------------------
U.S.TREASURY OBLIGATIONS - 43.5%
U.S. Treasury Bills
* 5.11%, 07/10/97 100,000 99,865
* 4.81%, 09/11/97 200,000 197,944
5.27%, 01/08/98 4,800 4,668
=========
302,477
---------
U.S. Treasury Bonds
6.63%, 05/15/07 6,000,000 6,054,375
================================================================================
TOTAL U.S.TREASURY OBLIGATIONS
(Cost $6,347,582) 6,356,852
- --------------------------------------------------------------------------------
================================================================================
REPURCHASE AGREEMENTS - 3.1%
** Paine Weber Inc., dated 06/30/97
6.10%, due 07/01/97 502,000 502,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $502,000) 502,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $15,079,414 ) $15,100,616
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
UNREALIZED
APPRECIATION
CONTRACTS (DEPRECIATION)
Long, 10 Year Bond Futures, face amount
$8,523,875 expiring September 1997. 79 ($1,750)
================================================================================
NET DEPRECIATION OF FUTURES CONTRACTS ($1,750)
- --------------------------------------------------------------------------------
* Pledged $300,000 face amount as collateral on futures contracts.
** Collateralized by U.S. government obligations--market value $504,936.
See accompanying notes to financial statements.
<PAGE>
MONEY MARKET PORTFOLIO
Portfolio of Investments as of June 30, 1997 (Unaudited)
COUPON/ AMORTIZED
YIELD MATURITY FACE AMOUNT COST
- --------------------------------------------------------------------------------
COMMERCIAL PAPER - 42.0%
American Trading & Products 5.58% 08/19/97 $8,000,000 $7,939,240
Cincinnati Bell 5.56% 08/18/97 15,000,000 14,888,800
Duff & Phelps Utilities 5.32% 07/10/97 10,000,000 9,986,700
Duff & Phelps Utilities 5.30% 08/11/97 10,000,000 9,939,639
Equitable of Iowa 5.70% 07/21/97 10,100,000 10,068,017
Franklin Resources 5.65% 08/04/97 11,150,000 11,090,502
GE Capital Corp. 5.50% 11/19/97 14,000,000 13,698,417
General Motors Acceptance Corp. 5.70% 12/17/97 10,000,000 9,732,416
Greenwich Funding 5.69% 09/19/97 12,638,000 12,479,323
Greenwich Funding 5.57% 08/19/97 2,020,000 2,004,686
Greenwich Funding 5.58% 08/08/97 4,770,000 4,741,905
Hasbro, Inc. 5.60% 10/31/97 6,600,000 6,474,747
MCI Communications 5.62% 09/23/97 15,000,000 14,803,300
Merrill Lynch 5.55% 07/02/97 12,500,000 12,498,073
Merrill Lynch 5.38% 07/30/97 10,000,000 9,956,660
New Jersey Natural Gas 5.55% 07/02/97 5,000,000 4,999,229
Toronto Dominion 5.61% 12/10/97 15,000,000 14,621,325
Tribune Co. 5.65% 12/22/97 17,000,000 16,535,758
================================================================================
TOTAL COMMERCIAL PAPER
(Cost $186,458,737) 186,458,737
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 40.4%
American General Finance Corp. 9.95% 10/29/97 500,000 506,282
American General Finance Corp. 9.75% 12/01/97 1,000,000 1,016,744
American General Finance Corp. 8.25% 01/15/98 400,000 404,492
Associates Corp. 5.88% 07/21/97 500,000 499,827
Associates Corp. 6.41% 08/15/97 500,000 500,218
Associates Corp. 7.30% 03/15/98 200,000 201,671
Bank of America 6.00% 07/15/97 200,000 200,013
Care Life Project
next redemption date 07/03/97 5.70%* 08/01/11 1,350,000 1,350,000
Central Illinois Public Services 6.13% 07/01/97 2,000,000 2,000,000
Chase Manhattan Bank 7.50% 12/01/97 300,000 301,723
Chrysler Financial Corp. 5.88% 12/12/97 350,000 350,090
Chrysler Financial Corp. 8.26% 01/26/98 10,000,000 10,119,167
Cincinnati Bell 6.70% 12/15/97 6,055,000 6,073,865
Comerica 5.95% 09/15/97 500,000 500,130
Consolidated Rail 6.00% 07/01/97 142,000 142,000
Cooper Industries 7.81% 10/21/97 3,000,000 3,014,182
Cooper Industries 7.77% 10/15/97 5,000,000 5,024,392
Coughlin Family Properties
next redemption date 07/03/97 5.71%* 05/15/07 4,950,000 4,950,000
Doren, Inc.
next redemption date 07/03/97 5.70%* 01/01/13 675,000 675,000
Espanola/Nambe
next redemption date 07/03/97 5.70%* 06/01/06 2,500,000 2,500,000
Exxon Shipping
next redemption date 07/03/97 5.60%* 10/01/11 7,000,000 7,000,000
First Union Corp. 6.75% 01/15/98 6,100,000 6,123,109
First Union Corp. 6.75% 01/15/98 119,000 119,392
Ford Holdings 9.25% 07/15/97 3,368,000 3,372,067
Ford Motor Co. 10.35% 10/01/97 1,125,000 1,136,773
Ford Motor Credit Corp.
next redemption date 07/15/97 6.75% 07/15/06 350,000 350,137
Gannett, Inc. 5.25% 10/27/97 2,525,000 2,511,139
GE Capital Corp. 4.55% 03/01/98 2,500,000 2,488,905
General Mills 5.70% 10/03/97 1,000,000 999,267
General Motors Acceptance Corp.
next redemption date 07/03/97 7.02%* 04/13/98 10,000,000 10,000,000
Hancor, Inc.
next redemption date 07/03/97 5.70%* 12/01/04 800,000 800,000
H.J. Heinz 5.50% 09/15/97 6,500,000 6,495,813
Kellogg Co. 5.90% 07/15/97 1,000,000 1,000,013
Marshall & Isley 7.38% 10/31/97 10,000,000 10,050,451
Monsanto Co. 8.80% 07/15/97 2,500,000 2,502,871
Morgan Stanley, Inc. 9.25% 03/01/98 1,250,000 1,276,289
Mubea, Inc.
next redemption date 07/03/97 5.70%* 12/01/04 5,000,000 5,000,000
National Rural Utilities 8.50% 02/15/98 125,000 126,753
NationsBank 6.63% 01/15/98 365,000 366,003
Norwest Corp. 6.50% 11/15/97 150,000 150,333
Norwest Corp. 7.70% 11/15/97 2,000,000 2,011,785
Osco Industries
next redemption date 07/03/97 5.70%* 12/01/07 3,000,000 3,000,000
Paccar Finance 5.12% 07/10/97 4,000,000 3,999,475
<PAGE>
COUPON/ AMORTIZED
YIELD MATURITY FACE AMOUNT COST
- --------------------------------------------------------------------------------
Pacific Gas & Electric 8.95% 12/01/97 1,000,000 1,012,333
Philip Morris Companies 9.35% 12/01/97 210,000 212,700
Philip Morris Companies 9.50% 11/21/97 500,000 504,277
Philip Morris Companies 9.25% 09/22/97 1,568,000 1,589,570
Portland General Electric 6.75% 09/15/97 3,000,000 3,006,355
Presrite Corp.
next redemption date 07/03/97 5.70%* 01/01/04 2,375,000 2,375,000
Public Service Gas & Electric 7.13% 11/01/97 5,350,000 5,367,128
RI Lampus Co.
next redemption date 07/03/97 5.70%* 01/01/13 2,440,000 2,440,000
Sears Roebuck & Company 9.25% 08/01/97 2,000,000 2,005,513
Southern California Edison 6.13% 07/15/97 2,500,000 2,500,362
Southern California Edison 5.88% 02/01/98 100,000 100,000
Southwest Bell Corp. 4.50% 08/01/97 120,000 119,885
Student Loan Marketing Assoc. 6.00% 04/07/98 22,555,000 22,555,839
Surgery Financing Co.
next redemption date 07/03/97 5.70%* 04/01/20 3,585,000 3,585,000
U.S. Leasing 7.00% 11/01/97 200,000 200,588
Walt Disney Co. 8.00% 12/19/97 1,325,000 1,335,906
White Castle Project
next redemption date 07/03/97 5.70%* 12/01/10 8,750,000 8,750,000
Wisconsin Power & Light 6.13% 07/15/97 13,000,000 13,002,241
================================================================================
TOTAL CORPORATE OBLIGATIONS
(Cost $181,873,068) 181,873,068
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.9%
Federal Home Loan Mortgage Corp. 6.47% 07/07/97 500,000 500,063
Federal National Mortgage Assoc. 5.73% 04/13/98 500,000 498,652
Student Loan Marketing Assoc.
next redemption date 07/01/97 5.57%* 11/24/97 2,000,000 1,999,920
Student Loan Marketing Assoc.
next redemption date 07/01/97 5.46%* 11/10/98 5,000,000 5,000,000
Student Loan Marketing Assoc.
next redemption date 07/01/97 5.47%* 08/03/99 4,350,000 4,353,056
Tennesee Valley Authority
called @ $100, 09/15/97 7.88% 09/15/01 500,000 501,994
================================================================================
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $12,853,685) 12,853,685
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 4.3%
U.S. Treasury Bill 5.27% 01/08/98 63,100 61,338
U.S. Treasury Note 6.00% 11/30/97 10,000,000 10,019,903
U.S. Treasury Note 6.00% 08/31/97 4,000,000 4,001,311
U.S. Treasury Note 5.00% 01/31/98 5,000,000 4,981,175
================================================================================
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $19,063,727) 19,063,727
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 10.4%
** Paine Weber Inc.,
dated 06/30/97 6.10% 07/01/97 34,899,000 34,899,000
***Star Bank, dated 06/30/97 5.25% 07/01/97 5,535,000 5,535,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $40,434,000 ) 40,434,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $440,683,217 ) $440,683,217
- --------------------------------------------------------------------------------
* Floating Rate as of 06/30/97.
** Collateralized by U.S. government obligations--market value $35,103,120.
***Collateralized by U.S. government obligations--market value $5,659,690.
See accompanying notes to financial statements.
Money Market Fund, continued The Flex-funds Semiannual Report
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997 (Unaudited)
<CAPTION>
U.S.
HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investment in corresponding portfolio at value $123,210,119 $33,037,750 $5,903,674 $15,273,978 $136,802,468
Receivable for capital stock issued 16,604 969 2,855 --- ---
Unamortized organization costs --- --- 14,656 --- ---
Other assets 11,529 42,688 7,312 4,589 50,516
Total Assets 123,238,252 33,081,407 5,928,497 15,278,567 136,852,984
===================================================================================================================================
Liabilites:
Payable for capital stock redeemed 6,701 2,154 2,675 14,327 ---
Dividends payable 11,664 797 609 2,281 8,976
Accrued transfer agent and administrative fees 12,539 3,985 44 1,859 794
Other accrued liabilities 44,550 3,589 11,997 6,638 28,494
Total Liabilities 75,454 10,525 15,325 25,105 38,264
===================================================================================================================================
Net Assets 123,162,798 33,070,882 5,913,172 15,253,462 136,814,720
===================================================================================================================================
Net Assets:
===================================================================================================================================
Capital 106,695,472 26,917,789 5,090,655 15,837,996 136,814,720
Accumulated undistributed (distributions in
excess of) net investment income 83,969 4,969 (279) (1) ---
Accumulated undistributed net realized
gain (loss) from investments 6,712,872 2,496,755 100,370 (611,979) ---
Net unrealized appreciation of investments 9,670,485 3,651,369 722,426 27,446 ---
Net Assets $123,162,798 $33,070,882 $5,913,172 $15,253,462 $136,814,720
===================================================================================================================================
Capital Stock Outstanding 19,849,143 1,738,378 377,715 752,156 136,814,720
Net Asset Value, Offering and
Redemption Price Per Share $6.20 $19.02 $15.66 $20.28 $1.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (Unaudited)
<CAPTION>
U.S.
HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Investment Income from Corresponding Portfolio:
===================================================================================================================================
Interest $1,782,687 $111,814 $6,642 $491,001 $3,753,257
Dividends 224,680 208,460 87,930 --- ---
Expenses (534,890) (177,706) (45,353) (50,201) (124,443)
Total Net Investment Income from Corresponding Portfolio 1,472,477 142,568 49,219 440,800 3,628,814
===================================================================================================================================
Fund Expenses:
===================================================================================================================================
Administrative fee 29,255 7,220 511 4,537 28,652
Transfer agent fees 61,588 12,277 1,653 5,070 50,230
Audit fees 1,517 2,397 1,176 1,063 1,594
Legal fees 1,068 3,719 1,235 1,094 3,150
Printing 10,273 4,144 2,385 1,678 13,884
Amortization of organizational costs --- --- 2,491 --- ---
Distribution plan 78,973 19,873 6,718 13,988 47,112
Postage 7,435 1,857 432 825 10,855
Registration and filing fees 8,993 5,844 9,844 5,965 12,930
Insurance 3,964 853 116 569 5,994
Other expenses 5,791 1,314 1,048 601 16,719
Total Expenses 208,857 59,498 27,609 35,390 191,120
===================================================================================================================================
Expenses reimbursed by investment adviser --- --- (27,996) --- (47,224)
Net Expenses 208,857 59,498 (387) 35,390 143,896
===================================================================================================================================
NET INVESTMENT INCOME 1,263,620 83,070 49,606 405,410 3,484,918
===================================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
===================================================================================================================================
Net realized gain from futures contracts 6,753,479 557,634 --- 60,618 ---
Net realized gain (loss) from investments (53,103) 3,278,615 100,370 (503,166) ---
Net change in unrealized appreciation of investments 9,093,417 487,871 169,741 142,008 ---
NET GAIN (LOSS) FROM INVESTMENTS 15,793,793 4,324,120 270,111 (300,540) ---
===================================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,057,413 $4,407,190 $319,717 $104,870 $3,484,918
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (Unaudited)
<CAPTION>
U.S.
HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
Six months Six months Six months Six months Six months
ended ended ended ended ended
6/30/97 6/30/97 6/30/97 6/30/97 6/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
===================================================================================================================================
OPERATIONS:
===================================================================================================================================
Net investment income $1,263,620 $83,070 $49,606 $405,410 $3,484,918
Net realized gain (loss) from investments
and futures contracts 6,700,376 3,836,249 100,370 (442,548) ---
Net change in unrealized appreciation
of investments 9,093,417 487,871 169,741 142,008 ---
Net increase in net assets
resulting from operations 17,057,413 4,407,190 319,717 104,870 3,484,918
===================================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,179,650) (78,110) (49,885) (405,408) (3,484,918)
Net realized gain from investments
and futures contracts --- --- --- --- ---
Net decrease in net assets resulting
from dividends and distributions (1,179,650) (78,110) (49,885) (405,408) (3,484,918)
===================================================================================================================================
CAPITAL TRANSACTIONS:
Issued 10,681,717 17,013,644 1,363,931 1,557,187 193,012,045
Reinvested 1,167,532 76,087 43,101 386,162 3,406,823
Redeemed (25,898,821) (12,551,785) (837,810) (4,171,954) (179,551,645)
Net increase (decrease) in net assets resulting
from capital share transactions (14,049,572) 4,537,946 569,222 (2,228,605) 16,867,223
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,828,191 8,867,026 839,054 (2,529,143) 16,867,223
===================================================================================================================================
NET ASSETS - Beginning of period 121,334,607 24,203,856 5,074,118 17,782,605 119,947,497
NET ASSETS - End of period $123,162,798 $33,070,882 $5,913,172 $15,253,462 $136,814,720
===================================================================================================================================
SHARE TRANSACTIONS:
Issued 1,858,925 972,944 91,071 76,911 193,012,045
Reinvested 188,312 4,500 2,864 19,052 3,406,823
Redeemed (4,397,046) (714,305) (54,844) (205,418) (179,551,645)
Change in shares (2,349,809) 263,139 39,091 (109,455) 16,867,223
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during each
period based upon audited and unaudited financial statements
<CAPTION>
THE MUIRFIELD FUND
Six Months Ended Years Ended December 31,
June 30, 1997 --------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $5.47 $5.73 $5.34 $5.36 $6.25 $6.43
Income from Investment Operations
Net Investment Income 0.06 0.10 0.06 0.14 (0.01) 0.06
Net Gains or Losses from Securities
(both realized and unrealized) 0.73 0.25 1.31 - 0.45 0.34
Total From Investment Operations 0.79 0.35 1.37 0.14 0.44 0.40
Less Distributions
Dividends (from net investment income) (0.06) (0.10) (0.06) (0.14) (0.02) (0.06
Distributions (from capital gains) - (0.51) (0.92) (0.02) (1.31) (0.52)
Total Distributions - (0.61) (0.98) (0.16) (1.33) (0.58)
Net Asset Value, End of Period $6.20 $5.47 $5.73 $5.34 $5.36 $6.25
Total Return 14.44%(1) 5.99% 25.82% 2.70% 8.11% 6.91%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $123,163 $121,335 $111,751 $83,119 $73,063 $55,280
Ratio of Expenses to Average Net Assets 1.22%(2) 1.19% 1.26% 1.22% 1.26% 1.40%
Ratio of Net Investment Income to
Average Net Assets 2.08%(2) 1.54% 0.97% 2.55% -0.13% 1.05%
Portfolio Turnover Rate* 106.89% 297.41% 186.13% 168.17% 279.56% 324.14%
<FN>
*Turnover rate of corresponding portfolio
(1) Not annualized
(2) Annualized
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during each
period based upon audited and unaudited financial statements
<CAPTION>
THE HIGHLANDS GROWTH FUND
Six Months Ended Years Ended December 31,
June 30, 1997 --------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.41 $15.34 $13.08 $13.45 $12.70 $12.05
Income from Investment Operations
Net Investment Income 0.05 0.31 0.50 0.27 0.09 0.18
Net Gains or Losses from Securities
(both realized and unrealized) 2.61 1.07 2.68 (0.37) 0.82 0.58
Total From Investment Operations 2.66 1.38 3.18 (0.10) 0.91 0.76
Less Distributions
Dividends (from net investment income) (0.05) (0.31) (0.50) (0.27) (0.16) (0.11)
Distributions (from capital gains) - -- (0.42) -- -- --
Total Distributions (0.05) (0.31) (0.92) (0.27) (0.16) (0.11)
Net Asset Value, End of Period $19.02 $16.41 $15.34 $13.08 $13.45 $12.70
Total Return 16.25%(1) 9.08% 24.61% -0.69% 7.21% 6.35%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $33,071 $24,204 $24,631 $22,176 $26,171 $25,534
Ratio of Expenses to Average Net Assets 1.71%(2) 1.65% 1.64% 1.63% 1.51% 1.51%
Ratio of Net Investment Income to
Average Net Assets 0.60%(2) 1.92% 3.38% 1.95% 0.69% 1.31%
Portfolio Turnover Rate* 103.18% 81.66% 337.57% 102.76% 99.54% 39.03%
<FN>
*Turnover rate of corresponding portfolio
(1) Not annualized
(2) Annualized
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during each
period based upon audited and unaudited and unaudited financial statements
<CAPTION>
THE TOTAL RETURN UTILITIES FUND
Six Months Ended Period
June 30, 1997 Year Ended June 21, 1995**
(unaudited) December 31, 1996 to Dec. 31, 1995
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $14.98 $14.14 $12.50
Income from Investment Operations
Net Investment Income 0.14 0.37 0.21
Net Gains or Losses from Securities
(both realized and unrealized) 0.68 1.48 1.64
Total From Investment Operations 0.82 1.85 1.85
Less Distributions
Dividends (from net investment income) (0.14) (0.37) (0.21)
Distributions (from capital gains) -- (0.64) --
Total Distributions (0.14) (1.01) (0.21)
Net Asset Value, End of Period $15.66 $14.98 $14.14
Total Return 5.50%(1) 13.33% 15.00%(1)
Ratios/Supplemental Data
Net Assets, End of Period ($000) $5,913 $5,074 $2,881
Ratio of Expenses to Average Net Assets 1.67%(2) 1.25% 1.25%(2)
Ratio of Net Investment Income to
Average Net Assets 1.84%(2) 2.55% 3.18%(2)
Ratio of Expenses to Average Net Assets,
before waiver of fees 2.71%(3) 2.95% 4.35%(2)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 0.80%(3) 0.85% 0.08%(2)
Portfolio Turnover Rate* 17.05%* 50.79% 5.06%
<FN>
(1)Not Annualized
(2)Annualized
(3)Annualized ratio includes fees waived in corresponding portfolio.
* Turnover rate of corresponding portfolio
** Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during each
period based upon audited and unaudited financial statements.
<CAPTION>
THE U.S. GOVERNMENT BOND FUND
Six Months Ended Years Ended December 31,
June 30, 1997 --------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $20.64 $21.58 $19.25 $20.18 $19.46 $19.84
Income from Investment Operations
Net Investment Income 0.48 0.96 1.11 0.72 0.86 0.99
Net Gains or Losses from Securities
(both realized and unrealized) (0.36) (0.94) 2.33 (0.93) 0.71 (0.38)
Total From Investment Operations 0.12 0.02 3.44 (0.21) 1.57 0.61
Less Distributions
Dividends (from net investment income) (0.48) (0.96) (1.11) (0.72) (0.85) (0.99)
Total Distributions (0.48) (0.96) (1.11) (0.72) (0.85) (0.99)
Net Asset Value, End of Period $20.28 $20.64 $21.58 $19.25 $20.18 $19.46
Total Return 0.59%(1) 0.15% 18.32% -0.99% 8.21% 3.26%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $15,253 $17,783 $16,048 $12,983 $13,137 $11,100
Ratio of Expenses to Average Net Assets 1.00%(2) 1.00% 1.00% 1.00% 0.99% 1.00%
Ratio of Net Investment Income to
Average Net Assets 4.74%(2) 4.61% 5.41% 3.71% 4.25% 5.13%
Ratio of Expenses to Average Net Assets,
before waiver of fees 1.11%(3) 1.06%(3) 1.14%(3) 1.14%(3) 1.09%(3) 1.21%(3)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 4.63%(3) 4.55%(3) 5.27%(3) 3.57%(3) 4.15%(3) 4.92%(3)
Portfolio Turnover Rate* 380.17% 778.59% 232.34% 707.57% 235.74% 100.53%
<FN>
*Turnover rate of corresponding portfolio
(1) Not Annualized
(2) Annualized
(3) Annualized ratio includes fees waived in corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during each
period based upon audited and unaudited financial statements
<CAPTION>
MONEY MARKET FUND
Six Months Ended Years Ended December 31,
June 30, 1997 --------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income 0.026 0.05 0.06 0.04 0.03 0.04
Total From Investment Operations 0.026 0.05 0.06 0.04 0.03 0.04
Less Distributions
Dividends (from net investment income) (0.026) (0.05) (0.06) (0.04) (0.03) (0.04)
Total Distributions (0.026) (0.05) (0.06) (0.04) (0.03) (0.04)
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 2.60%(1) 5.27% 5.85% 4.10% 2.98% 3.70%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $136,815 $119,947 $141,087 $164,838 $200,030 $245,259
Ratio of Expenses to Average Net Assets 0.40%(2) 0.40% 0.40% 0.37% 0.37% 0.35%
Ratio of Net Investment Income to
Average Net Assets 5.19%(2) 5.15% 5.70% 4.02% 2.94% 3.68%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.60%(3) 0.58%(3) 0.64%(3) 0.57%(3) 0.57%(3) 0.56%(3)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 4.99%(3) 4.97%(3) 5.46%(3) 3.82%(3) 2.74%(3) 3.47%(3)
<FN>
1 Not Annualized
2 Annualized
3 Annualized ratio includes fees waived in corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE FLEX-FUNDS NOTES TO FINANCIAL STATEMENTS
June 30, 1997
1. ORGANIZATION
The Flex-funds Trust (the Trust) was organized in 1982 and is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company which is presently comprised of five separate funds (each a
"Fund" and collectively the "Funds") offering five separate series. Effective
May 1, 1992, The Money Market, Highlands Growth, and U.S. Government Bond Funds
began investing all of their investable assets in a corresponding open-end
management investment company (each a "Portfolio" and collectively the
"Portfolios") having the same investment objective as the Fund. The Muirfield
Fund began on January 3, 1993 investing all of its investable assets in a
corresponding open-end management investment company having the same investment
objectives as the Fund. The Total Return Utilities Fund commenced operations on
June 21, 1995 when it began investing all of its investable assets in a
corresponding open-end management investment company having the same investment
objectives as the Fund. The Money Market, Muirfield, Highlands Growth, U.S.
Government Bond and Total Return Utilities Funds, the Portfolios into which they
invest and the percentage of each portfolio owned by the respective Fund at June
30, 1997 is shown below:
Approximate Percentage
Portfolio Held by Fund at
Fund Portfolio June 30, 1997
Money Market Fund Money Market Portfolio 31%
Muirfield Fund Mutual Fund Portfolio 89%
Highlands Growth Fund Growth Stock Portfolio 100%
U.S. Government Bond Fund Bond Portfolio 100%
Total Return Utilities Fund Utilities Stock Portfolio 68%
The financial statements of the Portfolios, including the Portfolios of
Investments, are included elsewhere in this report and should be read in
conjunction with the financial statements of each respective Fund.
2. SIGNIFICANT ACCOUNTING POLICES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Valuation of Investments - Valuation of securities by the Portfolios is
discussed at Note 1 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report (See page 41).
Income Taxes - It is the Funds' policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income to their shareholders. Therefore, no
Federal income tax provision is required.
Distributions to Shareholders - Dividends to shareholders are recorded on the
ex-dividend date.
Organizational Costs - The costs related to the organization of each of the five
Funds have been deferred and are being amortized by each Fund on a straight-line
basis over a five-year period. Such costs for The Highlands Growth, U.S.
Government Bond, Muirfield and Money Market Funds have been fully amortized.
3. INVESTMENT ADVISORY AND OTHER AGREEMENTS WITH AFFILIATES
R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), provides each Portfolio with investment management, research,
statistical and advisory services. Miller/Howard Investments, Inc. (Subadviser)
serves as the Utilities Stock Portfolio's Subadviser under an Investment
Subadvisory Agreement between RMA and the Subadviser. Sector Capital Management,
L.L.C. serves as the Growth Stock Portfolio's Subadviser under an Investment
Subadvisory Agreement between RMA and the Subadviser.
RMA has agreed to reimburse each Fund for the amount by which annual expenses of
the Fund and its respective Portfolio (excluding interest, taxes, brokerage
fees, and extraordinary expenses) exceed the most restrictive expense limitation
imposed by any State in which such Fund's shares are sold. Such reimbursement is
limited to the total fee charged by RMA. The investment advisory fees reimbursed
for the six months ended June 30, 1997 were at the request of RMA and were not
the result of the aforementioned expense limitations.
<PAGE>
Mutual Funds Service Co., (MFS), a wholly-owned subsidiary of MII, serves as
stock transfer, dividend disbursing and shareholder services for all of the
Trust's separate Funds. Subject to a $4,000 annual minimum fee The Highlands
Growth, Muirfield, and Total Return Utilities Funds each incur an annual fee
equal to the greater of $15 per shareholder account, or .10% of each Fund's
average net assets, payable monthly. In The U.S. Government Bond Fund, the
annual fee is the greater of $15 per shareholder account, or .06% of the Fund's
average net assets, payable monthly. In The Money Market Fund, the annual fee is
the greater of $20 per shareholder account, or .06% of the Fund's average net
assets, payable monthly.
MFS also provides the Trust with certain administrative services. Each Fund
incurs an annual fee, payable monthly, of .05% of each Fund's average net
assets.
The Funds have adopted distribution expense plans pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "Plans"). Pursuant to the Plans, the
Funds may annually incur certain expenses associated with the distribution of
fund shares in amounts not to exceed 2/10 of 1% of each Fund's average net
assets, with the exception of The Total Return Utilities Fund whose amount
cannot exceed 25/100 of 1% of average net assets.
Certain officers and/or trustees of the Funds and each Portfolio are officers
and/or directors of MII, RMA and MFS.
4. COMMITMENTS AND CONTINGENCIES
Fidelity Bond and Errors and Omissions insurance coverage for the Trust and its
officers and Trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. As of June 30,
1997, the Trust has made payments of $29,620, in addition to the annual premiums
paid, for the capital reserves of ICI Mutual.
The Trust is also committed to provide $51,055 should ICI Mutual experience the
need for additional capital contributions.
Total assets of $105,000 invested in U.S. Treasury Bills are held in segregated
accounts which collateralize a standby letter of credit in connection with the
Trust's participation in ICI Mutual.
5. CAPITAL SHARE TRANSACTIONS
At June 30, 1997, an indefinite number of shares of $0.10 par value stock were
authorized in each of the Funds, and paid-in capital amounted to $138,814,720 in
The Money Market Fund, $106,695,472 in The Muirfield Fund, $26,917,789 in The
Highlands Growth Fund, $15,837,996 in The U.S. Government Bond Fund, and
$5,090,655 in The Total Return Utilities Fund. (See Statements of Changes in Net
Assets which are included elsewhere in this report for capital stock
transactions.)
6. DISTRIBUTIONS
The Money Market and U.S. Government Bond Funds declare dividends daily and
distribute monthly all of their net investment income. The Total Return
Utilities Fund declares as dividends and distributes monthly substantially all
of its net investment income. The Muirfield and Highlands Growth Funds declare
as dividends and distribute quarterly substantially all of their net investment
income. Net realized capital gains for all Funds, if any, are distributed
annually after deduction of prior years' loss carryforwards. Dividends from net
investment income and any distributions of realized capital gains are
distributed in cash or reinvested in additional shares of the Funds at net asset
value.
At June 30, 1997, The U.S. Government Bond Fund had available for Federal income
tax purposes, an unused capital loss carryforward amounting to $1,340,412 which
will expire in the years 1997 through 2005.
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997 (Unaudited)
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at market value* $123,069,593 $30,540,481 $8,484,766 $14,598,616 $400,249,217
Repurchase agreements* 15,398,000 2,962,000 169,000 502,000 40,434,000
Appreciation (Depreciation) on futures contract 838,624 30,850 --- (1,750) ---
Cash 706 204 717 356 219
Receivable for securities sold --- 131,576 --- --- ---
Receivable for futures contract settlement --- --- --- --- ---
Interest receivable 174,354 502 29 216,894 3,338,160
Dividends receivable --- 40,231 15,863 --- ---
Prepaid/Other assets 10,231 16,103 933 803 5,967
Unamortized organization costs --- 77 12,811 76 76
Total Assets 139,491,508 33,722,024 8,684,119 15,316,995 444,027,639
===============================================================================================================================
Liabilites:
Payable for securities purchased --- 562,815 --- --- ---
Call options written, at cost --- 28,025 --- 7,500 ---
Payable for futures contract settlement 1,121,200 58,453 --- 25,406 ---
Payable to corresponding Fund --- --- --- ---
Payable to investment adviser 89,037 25,567 6,873 2,601 53,028
Accrued fund accounting fees 3,672 2,516 552 1,486 6,998
Other accrued liabilities 6,344 6,677 7,977 5,894 10,146
Total Liabilities 1,220,253 684,053 15,402 42,887 70,172
===============================================================================================================================
Net Assets 138,271,255 33,037,971 8,668,717 15,274,108 443,957,467
===============================================================================================================================
Net Assets:
===============================================================================================================================
Capital 127,592,791 29,386,582 7,649,649 15,246,661 443,957,467
Net unrealized gain from investments 10,678,464 3,651,389 1,019,068 27,447 ---
Net Assets $138,271,255 $33,037,971 $8,668,717 $15,274,108 $443,957,467
===============================================================================================================================
*Securities at cost 128,627,753 29,881,942 7,634,698 15,071,419 440,683,217
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (Unaudited)
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
========================================================================================================================
Interest $1,995,344 $102,263 $10,162 $491,005 $12,670,633
Dividends 251,918 217,615 132,807 --- ---
Total Investment Income 2,247,262 319,878 142,969 491,005 12,670,633
========================================================================================================================
Expenses:
========================================================================================================================
Investment advisory fees 544,844 138,431 40,523 34,293 638,575
Audit fees 3,910 3,635 5,614 3,592 5,767
Custodian fees 3,742 8,324 1,399 2,455 15,478
Trustees fees and expenses 9,835 4,247 3,174 2,909 2,783
Legal fees 1,241 2,771 1,381 1,243 1,302
Amortization of organization cost 2,697 2,469 4,449 2,469 2,469
Accounting fees 24,777 15,823 5,920 10,913 41,517
Insurance 1,294 286 36 183 1,700
Other expenses 6,327 1,721 5,959 1,211 6,987
Total Expenses 598,667 177,707 68,455 59,268 716,578
========================================================================================================================
Investment advisory fees waived --- --- --- (9,066) (296,983)
Total Net Expenses 598,667 177,707 68,455 50,202 419,595
========================================================================================================================
NET INVESTMENT INCOME 1,648,595 142,171 74,514 440,803 12,251,038
========================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
========================================================================================================================
Net realized gain from futures contracts 7,558,231 557,639 --- 60,619 ---
Net realized gain (loss) from investments (70,450) 3,278,637 149,894 (503,170) ---
Net change in unrealized appreciation
of investments 10,128,860 487,872 239,341 142,010 ---
NET GAIN (LOSS) ON INVESTMENTS 17,616,641 4,324,148 389,235 (300,541) ---
========================================================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $19,265,236 $4,466,319 $463,749 $140,262 $12,251,038
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
Six months Six months Six months Six months Six months
ended ended ended ended ended
6/30/97 6/30/97 6/30/97 6/30/97 6/30/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
===================================================================================================================================
OPERATIONS:
===================================================================================================================================
Net investment income $1,648,595 $142,171 $74,514 $440,803 $12,251,038
Net realized gain (loss) from investments
and futures contracts 7,487,781 3,836,276 149,894 (442,551) ---
Net change in unrealized appreciation
of investments 10,128,860 487,872 239,341 142,010 ---
Net increase in net assets
resulting from operations 19,265,236 4,466,319 463,749 140,262 12,251,038
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
===================================================================================================================================
Contributions 10,911,125 17,018,515 1,702,141 1,558,656 1,783,146,092
Withdrawals (27,444,674) (12,860,545) (1,461,527) (4,216,404) (1,704,369,888)
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests (16,533,549) 4,157,970 240,614 (2,657,748) 78,776,204
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,731,687 8,624,289 704,363 (2,517,486) 91,027,242
===================================================================================================================================
NET ASSETS - Beginning of period 135,539,568 24,413,682 7,964,354 17,791,594 352,930,225
NET ASSETS - End of period $138,271,255 $33,037,971 $8,668,717 $15,274,108 $443,957,467
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
year ended year ended year ended year ended year ended
12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
===================================================================================================================================
OPERATIONS:
===================================================================================================================================
Net investment income $2,510,343 $601,083 $146,376 $876,027 $19,455,266
Net realized gain (loss) from investments
and futures contracts 10,575,124 (1,313,610) 348,392 34,126 ---
Net change in unrealized appreciation
(depreciation) of investments (5,130,740) 3,055,094 357,308 (776,915) ---
Net increase in net assets
resulting from operations 7,954,727 2,342,567 852,076 133,238 19,455,266
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
===================================================================================================================================
Contributions 32,575,692 4,020,512 5,138,546 4,220,008 1,414,075,891
Withdrawals (27,099,980) (6,486,427) (2,317,138) (2,627,674) (1,335,249,306
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests 5,475,712 (2,465,915) 2,821,408 1,592,334 78,826,585
TOTAL INCREASE (DECREASE) IN NET ASSETS 13,430,439 (123,348) 3,673,484 1,725,572 98,281,851
===================================================================================================================================
NET ASSETS - Beginning of period 122,109,129 24,537,030 4,290,870 16,066,022 254,648,374
NET ASSETS - End of period $135,539,568 $24,413,682 $7,964,354 $17,791,594 $352,930,225
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
Ratios/Supplementary Data
<TABLE>
MUTUAL FUND PORTFOLIO
<CAPTION>
Six months ended
June 30, 1997 Year Ended December 31,
(unaudited) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $138,271 $135,540 $122,109 $83,185 $81,605
Ratio of Expenses to Average Net Assets* 0.88%(1) 0.87% 0.95% 1.01% 1.03%
Ratio of Net Investment Income to
Average Net Assets 2.42%(1) 1.86% 1.26% 2.76% 0.09%
Portfolio Turnover Rate 106.89% 297.41% 186.13% 168.17% 279.56%
<FN>
(1) Annualized
*Ratio of expenses both with and without affect of directed payments
</FN>
</TABLE>
<TABLE>
GROWTH STOCK PORTFOLIO
<CAPTION>
Six months ended Period
June 30, 1997 Year Ended December 31, May 1, 1992* to
(unaudited) 1996 1995 1994 1993 December 31, 1992
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $33,038 $24,414 $24,537 $22,169 $26,172 $25,556
Ratio of Expenses to Average Net Assets 1.28%(1) 1.24% 1.25% 1.23% 1.23% 1.22%(1)
Ratio of Net Investment Income to
Average Net Assets 1.03%(1) 2.33% 3.78% 2.35% 0.99% 2.04%(1)
Portfolio Turnover Rate 103.18% 81.66% 337.57% 102.76% 99.54% 129.44%
Average brokerage commission per share(2) $0.0653 $0.0910 $0.0806 N/A N/A N/A
<FN>
1 Annualized
2 Represents the total dollar amount of commissions paid on portfolio
transactions divided by the total number of shares purchased and sold by the
Portfolio for which commissions were charged.
</FN>
</TABLE>
<TABLE>
UTILITIES STOCK PORTFOLIO
<CAPTION>
Six months ended Period
June 30, 1997 Year Ended June 21, 1995* to
(unaudited) December 31, 1996 December 31, 1995
<S> <C> <C> <C>
Net Assets, End of Period ($000) $8,669 $7,964 $4,291
Ratio of Expenses to Average Net Assets 1.69%(1) 1.61% 2.32%(1)
Ratio of Net Investment Income to
Average Net Assets 1.84%(1) 2.24% 2.09%(1)
Ratio of Expenses to Average Net Assets
before directed brokerage payments 1.69%(1) 1.66% 2.40%(1)
Ratio of Net Investment Income to Average Net
Assets before directed brokerage payments 1.84%(1) 2.19% 2.01%(1)
Portfolio Turnover Rate 17.05% 50.79% 5.06%
Average brokerage commission per share(2) $0.0600 $0.0600 $0.0600
<FN>
(1) Annualized
(2) Represents the total dollar amount of commissions paid on portfolio
transactions divided by the total number of shares purchased and sold by the
Portfolio for which commissions were charged.
* Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
Ratios/Supplementary Data
<TABLE>
BOND PORTFOLIO
<CAPTION>
Six months ended Period
June 30, 1997 Year Ended December 31, May 1, 1992 to
(unaudited) 1996 1995 1994 1993 December 31, 1992
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $15,274 $17,792 $16,066 $13,008 $13,178 $11,126
Ratio of Expenses to Average Net Assets 0.59%(1) 0.61% 0.57% 0.56% 0.60% 0.58%(1)
Ratio of Net Investment Income to
Average Net Assets 5.15%(1) 4.99% 5.82% 4.15% 4.62% 5.40%(1)
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.69%(1) 0.68% 0.71% 0.70% 0.71% 0.80%(1)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.05%(1) 4.92% 5.68% 4.01% 4.51% 5.18%(1)
Portfolio Turnover Rate 380.17% 778.59% 232.34% 707.57% 235.74% 132.53%
<FN>
(1) Annualized
</FN>
</TABLE>
<TABLE>
MONEY MARKET PORTFOLIO
<CAPTION>
Six months ended Period
June 30, 1997 Year Ended December 31, May 1, 1992 to
(unaudited) 1996 1995 1994 1993 December 31, 1992
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $443,957 $352,930 $256,126 $224,523 $200,148 $244,272
Ratio of Expenses to Average Net Assets 0.19%(1) 0.19% 0.21% 0.19% 0.19% 0.18%(1)
Ratio of Net Investment Income to
Average Net Assets 5.40%(1) 5.34% 5.87% 4.28% 3.09% 3.60%(1)
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.32%(1) 0.33% 0.37% 0.39% 0.40% 0.40%(1)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.27%(1) 5.20% 5.70% 4.08% 2.88% 3.38%(1)
Portfolio Turnover Rate N/A N/A N/A N/A N/A N/A
<FN>
1 Annualized
*Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
MUTUAL FUND PORTFOLIO, GROWTH STOCK PORTFOLIO, UTILITIES STOCK PORTFOLIO, BOND
PORTFOLIO, MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Each separate Portfolio (the "Portfolios") is registered under the Investment
Company Act of 1940, as amended, as a no-load, open-end management investment
company which was organized as a trust under the laws of the State of New York.
Each Declaration of Trust permits the Trustees, who are the same for all the
Portfolios, to issue beneficial interests in each Portfolio. The following is a
summary of significant accounting policies followed by the Portfolios.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments - Money market securities held in the Money Market Portfolio are
valued at amortized cost, which approximates market value in accordance with
Rule 2a-7 of the Investment Company Act of 1940. Money market securities held in
the four remaining Portfolios maturing more than sixty days after the valuation
date are valued at the last sales price as of the close of business on the day
of valuation, or, lacking any sales, at the most recent bid price or yield
equivalent as obtained from dealers that make markets in such securities. When
such securities are valued within sixty days or less to maturity, the difference
between the valuation existing on the sixty-first day before maturity and
maturity value is amortized on a straight-line basis to maturity. Securities
maturing within sixty days from their date of acquisition are valued at
amortized cost.
Securities which are traded on stock exchanges are valued at the last sales
price as of the close of business of the New York Stock Exchange on the day of
valuation, or, lacking any sales, at the closing bid prices. Securities traded
on the over-the-counter market are valued at the most recent bid price or yield
equivalent as obtained from one or more dealers that make markets in such
securities. Mutual funds are valued at the daily redemption value determined by
the underlying fund. Valuations in The Bond Portfolio are determined as of 3:00
p.m. Eastern time.
Repurchase Agreements - It is the Portfolios' policy to take possession of the
collateral for repurchase agreements before payment is made to the seller.
Market value of the collateral must be at least 100% of the amount of the
repurchase agreement.
Options & Futures - Each Portfolio except the Money Market Portfolio may engage
in transactions in financial futures contracts and options as a hedge against
the change in market value of the securities held in the portfolio, or which it
intends to purchase. The expectation is that any gain or loss on such
transactions will be substantially offset by any gain or loss on the securities
in the underlying portfolio or on those which are being considered for purchase.
To the extent that the Portfolio enters into futures contracts on an index or
group of securities the Portfolio exposes itself to an indeterminate liability
and will be required to pay or receive a sum of money measured by the change in
the market value of the index. Upon entering into a futures contract the
Portfolio is required to deposit either cash or securities in an amount
("initial margin") equal to a certain percentage of the contract value.
Subsequent payments ("variation margin") equal to changes in the daily
settlement price or last sale on the exchanges where they trade are paid or
received each day and are recorded as a gain or loss on futures contracts.
Call and put option contracts involve the payment of a premium for the right to
purchase or sell an individual security or index aggregate at a specified price
until the expiration of the contract. Such transactions expose the Portfolio to
the loss of the premium paid if the Portfolio does not sell or exercise the
contract prior to the expiration date. In the case of a call option, sufficient
cash or money market instruments will be segregated to complete the purchase.
Options are valued on the basis of the daily settlement price or last sale on
the exchanges where they trade and the changes in value are recorded as an
unrealized gain or loss until sold, exercised or expired. In the case of a
written option, premiums received by each portfolio upon writing the option are
recorded in the liability section of the Statement of Assets and Liabilities and
are subsequently adjusted to current market value. When the written option is
closed, exercised or expired, the portfolio realizes a gain or loss and the
liability is eliminated. During the period ended June 30, 1997 the Portfolios
wrote the following option contracts:
<TABLE>
<CAPTION>
GROWTH STOCK PORTFOLIO BOND PORTFOLIO
Number of Number of Number of Number of
Contracts Premiums Contracts Premiums
<S> <C> <C> <C> <C>
Outstanding at Beginning of Period 0 $0 0 $0
Options Written 14 $5,008 20 $15,495
Options Terminated 0 0 0 0
-- ------ -- -------
Outstanding at End of Period 14 $5,008 20 $15,495
</TABLE>
Income Taxes - It is the Portfolios' policy to comply with the requirements of
the Internal Revenue Code applicable to it. Therefore, no Federal income tax
provision is required.
<PAGE>
Organizational Costs - The costs related to the organization of each of the five
Portfolios have been deferred and are being amortized by each Portfolio on a
straight-line basis over a five-year period.
Other - The Portfolios follow industry practice and record security transactions
on the trade date. Gains and losses on security transactions are determined on
the specific identification basis. Dividend income is recognized on the
ex-dividend date, and interest income (including amortization of premium and
discount) is recognized as earned.
2. INVESTMENT ADVISORY, AND OTHER AGREEMENTS WITH AFFILIATES
R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), provides the Portfolios with investment management, research,
statistical and advisory services, and pays certain other expenses of the
Portfolios. Miller/Howard Investments, Inc. (Subadviser) serves as the Utilities
Stock Portfolio's Subadviser under an Investment Subadvisory Agreement between
RMA and the Subadviser. Sector Capital Management, L.L.C. serves as the Growth
Stock Portfolio's Subadviser under an Investment Subadvisory Agreement between
RMA and the Subadviser. For such services the Portfolios pay monthly a fee based
upon the average daily value of each Portfolios' net assets at the following
annual rates: Mutual Fund, Growth Stock, and Utilities Stock Portfolio, 1% of
average net assets up to $50 million, 0.75% of average net assets exceeding $50
million up to $100 million and 0.60% of average net assets exceeding $100
million; Bond Portfolio, 0.40% of average net assets up to $100 million and
0.20% of average net assets exceeding $100 million; Money Market Portfolio,
0.40% of average net assets up to $100 million and 0.25% of average net assets
exceeding $100 million. During the six months ended June 30, 1997, RMA
voluntarily waived a portion of its investment advisory fees in the Money Market
and Bond Portfolios.
Mutual Funds Service Co., (MFS), a wholly-owned subsidiary of MII, serves as
accounting services agent for all of the Portfolios. The minimum annual fee for
all such services for the Mutual Fund, Growth Stock, Bond, and Utilities Stock
Portfolios is $7,500. Subject to the applicable minimum fee, each Portfolio's
annual fee, payable monthly, is computed at the rate of 0.15% of the first $10
million, 0.10% of the next $20 million, 0.02% of the next $50 million, and 0.01%
in excess of $80 million of the respective Portfolio's average net assets. In
the Money Market Portfolio the minimum annual fee for accounting services is
$30,000. Subject to the applicable minimum fee, the Money Market Portfolio's
annual fee, payable monthly, is computed at the rate of 0.15% of the first $10
million, 0.10% of the next $20 million, 0.02% of the next $50 million and 0.01%
in excess of $80 million of the Portfolio's average net assets.
Certain officers and/or trustees of the Funds and each Portfolio are officers
and/or directors of MII, RMA and MFS.
3. PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, excluding short-term investments and U.S.
Government and agency obligations for the six months ended June 30, 1997 were as
follows:
Purchases ($) Sales ($)
Mutual Fund Portfolio 131,585,398 104,473,473
Growth Stock Portfolio 34,424,657 24,174,760
Utilities Stock Portfolio 2,397,008 1,334,469
As of June 30, 1997, the aggregate cost of investments and net unrealized
appreciation (depreciation) for Federal income tax purposes was comprised of the
following:
<TABLE>
<CAPTION>
Net Unrealized
Unrealized Unrealized Appreciation
Investment Appreciation Depreciation (Depreciation)
Cost ($) of Investments($) of Investments($) of Investments($)
<S> <C> <C> <C> <C>
Mutual Fund Portfolio 128,627,753 10,678,464 0 10,678,464
Growth Stock Portfolio 29,858,925 4,192,914 (541,525) 3,651,389
Bond Portfolio 15,079,414 50,819 (23,372) 27,447
Utilities Stock Portfolio 7,634,698 1,189,436 (170,368) 1,019,068
</TABLE>
<PAGE>
MANAGER AND INVESTMENT ADVISER
R. Meeder & Associates
6000 Memorial Drive
P.O. Box 7177
Dublin, Ohio 43017
SUBADVISER/THE UTILITIES STOCK PORTFOLIO
Miller/Howard Investments, Inc.
141 Upper Byrdcliffe Road, P.O. Box 549
Woodstock, New York 12498
SUBADVISER/THE GROWTH STOCK PORTFOLIO
Sector Capital Management L.L.C.
5350 Poplar Avenue, Suite 490
Memphis, Tennessee 38119
BOARD OF TRUSTEES
Milton S. Bartholomew
Dr. Roger D. Blackwell
John M. Emery
Richard A. Farr
William L. Gurner
Robert S. Meeder. Sr.
Robert S. Meeder, Jr.
Russel G. Means
Lowell G. Miller
Walter L. Ogle
Philip A. Voelker
CUSTODIAN
Star Bank, N.A. Cincinnati
Cincinnati, Ohio 45201
TRANSFER AGENT DIVIDEND DISBURSING AGENT
Mutual Funds Service Co.
6000 Memorial Drive
Dublin, Ohio 43017
AUDITORS
KPMG Peat Marwick L.L.P.
Columbus, Ohio 43215
<PAGE>
THE FLEX-FUNDS
P.O. Box 7177
Dublin, Ohio 43017
