SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 5
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
THE FLEX-FUNDS
(Exact Name of Registrant as Specified in Charter)
P.O. BOX 7177, 6000 MEMORIAL DRIVE, DUBLIN, OHIO 43017
(Address of Principal Executive Offices-Zip Code)
Registrant's Telephone Number, including Area Code: (614)766-7000
COMMISSION FILE NO. 33-88420
COMMISSION FILE NO. 811-3462
DONALD F. MEEDER, SECRETARY - R. MEEDER & ASSOCIATES, INC.
P.O. BOX 7177, 6000 MEMORIAL DRIVE, DUBLIN, OHIO 43017
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate
box). -----
/XXX / immediately upon filing pursuant to paragraph (b) of Rule 485
-----
/ / on pursuant to paragraph (b) of Rule 485.
-----
/ / 60 days after filing pursuant to paragraph (a)(1).
-----
/ / on (date) pursuant to paragraph (a)(1).
-----
/ / 75 days after filing pursuant to paragraph (a)(2).
-----
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
-----
If appropriate, check the following box:
-----
/ / This post-effective amendment designates a new effective date
----- for a previously filed post-effective amendment.
Indefinite number of shares registered under Rule 24f-2 by filing of a
Pre-Effective Amendment No. 1, effective July 28, 1983. The 24(f)-2 Notice for
the fiscal year ended December 31, 1996, was filed with the Commission on
February 19, 1997.
The Utilities Stock Portfolio has also executed this Registration Statement.
<PAGE>
THE FLEX-FUNDS TOTAL RETURN UTILITIES FUND
CROSS REFERENCE SHEET TO FORM N-1A
PART A.
ITEM A. PROSPECTUS CAPTION
1 Cover Page
2 Highlights
Synopsis of Financial Information
3 Financial Highlights
4 The Fund and its Management
Investment Objective and Policies
Other Investments and Policies
5 The Fund and its Management
5A Performance Comparison
6(a) Other Information - Shares of Beneficial Interest
6(b) Not Applicable
6(c) Other Information - Shares of Beneficial Interest
6(d) Not Applicable
6(e) Highlights
6(f)(g) Income Dividends and Taxes
6(h) Cover Page
Investment Objective and Policies
Other Information - Investment Structure
7(a) Not Applicable
7(b) How Net Asset Value is Determined
7(c) Not Applicable
7(d) How To Buy Shares
7(e) Distribution Plan
7(f) Distribution Plan
7(g) Not Applicable
8(a) How To Make Withdrawals (Redemptions)
8(b) How To Make Withdrawals (Redemptions)
8(c) Shareholder Accounts
8(d) How To Make Withdrawals (Redemptions)
9 Not Applicable
<PAGE>
PROSPECTUS -- April 30, 1997
THE FLEX-FUNDS
TOTAL RETURN UTILITIES FUND
INVESTMENT ADVISER: R. MEEDER & ASSOCIATES, INC.
6000 Memorial Drive
Dublin, OH 43017
800-325-FLEX
614-760-2159
The Total Return Utilities Fund (the "Total Return Utilities Fund" or the
"Fund") is a member of The Flex-funds family of mutual funds, which is organized
as a business trust (the "Trust"). The Fund's investment objective is to seek a
high level of current income and growth of income by investing primarily in
equity securities of domestic and foreign public utility companies; however, the
Fund will not invest in electric utilities whose generation of power is derived
from nuclear reactors. The Fund also seeksL capital appreciation, but only when
consistent with its primary investment objective.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Utilities Stock Portfolio (the "Portfolio"), a
corresponding open-end management investment company having the same investment
objective as the Fund. Accordingly, investors should carefully consider this
investment approach. For additional information regarding this unique concept,
see "Investment Objective and Policies" and "Other Information - Shares of
Beneficial Interest and Investment Structure."
One feature that distinguishes the Fund from other open-end funds of this
type is that it pays monthly (as opposed to quarterly or semiannual) dividends.
The Fund attempts to provide investors with a consistent level of monthly
dividend income, although there is no guarantee that it will be able to do so.
This Prospectus sets forth basic information about the Fund that a
prospective investor should know before investing and it should be retained for
future reference. A STATEMENT OF ADDITIONAL INFORMATION, dated April 30, 1997,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Statement of Additional Information is available upon
request and without charge by contacting the Fund at the address given above or
by calling: 1-800-325-FLEX, or (614) 760-2159.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Highlights................................ 2
Synopsis of Financial Information......... 3
Financial Highlights...................... 4
Performance Comparison.................... 5
Investment Objective and Policies......... 6
Risk Factors......................... 8
Other Investments and Policies............ 9
The Fund and Its Management...............13
Distribution Plan.........................15
Income Dividends and Taxes................16
How Net Asset Value is Determined.........17
Performance Information and Reports.......17
Other Information.........................18
SHAREHOLDER MANUAL
How To Buy Shares.........................20
How To Make Withdrawals (Redemptions).....22
Exchange Privilege........................23
Retirement Plans..........................25
Other Shareholder Services................25
Shareholder Accounts......................26
<PAGE>
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HIGHLIGHTS
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INVESTMENT OBJECTIVE: The Total Return Utilities Fund's investment
objective is to seek a high level of current income and growth of income by
investing primarily in equity securities of domestic and foreign public utility
companies; however, the Fund will not invest in electric utilities whose
generation of power is derived from nuclear reactors. The Fund also seeks
capital appreciation, but only when consistent with its primary investment
objective. The Fund seeks to achieve its objective by investing all of its
investable assets in a corresponding open-end management investment company, the
Utilities Stock Portfolio (the "Portfolio"), having the same investment
objective as the Fund. See "Investment Objective and Policies."
LIQUIDITY: As an open-end investment company, the Total Return Utilities
Fund continuously offers and redeems shares of beneficial interest at the next
determined net asset value per share. See "How to Buy Shares" and "How to Make
Withdrawals (Redemptions)."
DIVERSIFICATION: The Portfolio is a diversified mutual fund because 75% of
the assets of the Portfolio are restricted by the following rules: (1) No more
than 5% of the Portfolio's assets may be invested in the securities of a single
issuer (other than U.S. Government Securities) and (2) the Portfolio may not
purchase more than 10% of any issuer's outstanding voting securities.
NO SALES OR REDEMPTION CHARGES: There are no commissions, fees or charges
for the purchase or redemption of shares. See "Synopsis of Financial
Information", "How to Buy Shares" and "How to Make Withdrawals (Redemptions)."
RETIREMENT PLANS AND OTHER SHAREHOLDER SERVICES: The Fund offers retirement
plans, which include a prototype Profit Sharing Plan, Money Purchase Pension
Plan, Salary Savings Plan--401(k), Individual Retirement Account (IRA), Simple
IRA, Simplified Employee Pension Plan (SEP), and a number of other special
shareholder services. See "Retirement Plans."
MINIMUM INVESTMENT: A minimum investment of $2,500 is required to open an
account, except an IRA account for which the minimum is $500. Subsequent
investments must be at least $100. The Fund has the right to redeem the shares
in an account and pay the proceeds to the shareholder if the value of the
account drops below $1,000 because of shareholder redemptions. The shareholder
will be given 30 days written notice and an opportunity to restore the account
to $1,000 ($500 for an IRA). See "How to Buy Shares", "Other Shareholder
Services" and "Shareholder Accounts."
INVESTMENT ADVISER AND MANAGER: R. Meeder & Associates, Inc. is the
Portfolio's Investment Adviser and Manager (the "Investment Adviser" or the
"Manager"). The Manager has been an investment adviser to individuals,
retirement plans, corporations and foundations since 1974 and to mutual funds
since 1982. See "The Fund and Its Management."
SUBADVISER: Miller/Howard Investments, Inc. is the Portfolio's subadviser
(the "Subadviser"). The Subadviser has been an investment adviser to
broker-dealers, investment advisers, employee benefit plans, endowment funds,
foundations and other institutions and individuals since 1984. See "The Fund and
Its Management."
A-2
<PAGE>
DISTRIBUTION PLAN: The Fund has adopted a distribution plan in accordance
with Rule 12b-1 under the Investment Company Act of 1940. Under this plan, as
much as 25/100 of 1% of average net assets may be paid annually to aid in the
distribution of shares. See "Distribution Plan."
HOW TO BUY SHARES: Complete the New Account Application and forward with
payment as directed. Orders accompanied by payment (ordinary check, bank check,
bank wire, and money order) are accepted immediately and priced at the next
determined net asset value per share after receipt of the order. See "How to Buy
Shares" and "How Net Asset Value is Determined."
SHAREHOLDER INQUIRIES: Shareholder inquiries should be directed to the Fund
by writing or telephoning the Fund at the address or telephone number indicated
on the cover page of this Prospectus. To protect the confidentiality of
shareholder accounts, information relating to a specific account will be
disclosed pursuant to a telephone inquiry if the shareholder identifies the
account by account number or by the taxpayer identification number listed on the
account.
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Synopsis of Financial Information
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Shareholder Transaction Expenses
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price)....................................... none
Maximum Deferred Sales Load (as
a percentage of original purchase price
or redemption proceeds, as applicable)................... none
Maximum Sales Load Imposed on Reinvested
Dividends................................................ none
Redemption Fees............................................... none
Exchange Fee.................................................. none
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management Fees............................................... 1.00%
Distribution Plan (Rule 12b-1 Fees)*.......................... 0.25%
Other Expenses (After Expense Reimbursements) 0.00%
------
TOTAL FUND OPERATING EXPENSES**................................ 1.25%
(After Expense Reimbursements)
<TABLE>
<CAPTION>
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Cumulative Expenses
Paid for the Period of:
Example: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
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<S> <C> <C> <C> <C>
An investor would pay the following expense
on a $1,000 investment, assuming (1) a 5% annual
return throughout the period and (2) redemption
at the end of each time period: $13** $40** $68** $145**
- ------------------------------------------------------------------------------------------------
</TABLE>
*Distribution Plan Expense: The Trust is party to agreements whereby consultant
companies or individuals (including two Trustees) are paid for explaining the
Fund, its investment objective and policies, and the Trust's retirement plans,
to clients. Other distribution plan expenses include: the expense of printing
and mailing prospectuses, periodic reports and other sales materials to
prospective investors; advertising; payment for marketing programs and the
services of public relations consultants; and the cost of special telephone
service to encourage the sale of Fund shares. (See "Distribution Plan.")
**Expenses used in these illustrations are based upon expenses incurred for both
The Total Return Utilities Fund and its proportionate share of expenses from its
corresponding Portfolio, the Utilities Stock Portfolio, for the year ended
December 31, 1996. During the year, the Investment Adviser and Subadviser
reimbursed a portion of Fund expenses in order to reduce the operating expenses
of The Total Return Utilities Fund. Total Fund Operating Expenses shown as
"After Expense Reimbursements" are based on actual fees paid by the Fund. Had
the expenses not been reimbursed, Other Expenses and Total Fund Operating
Expenses, as a percentage of average net assets, would have been 1.70% and
2.95%, respectively.
A-3
<PAGE>
The tables above are meant to assist an investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The Fund does not impose a sales charge, exchange fee or redemption
fee with the following exceptions. The custodian of IRA accounts charges a $5.00
annual maintenance fee and the transfer agent charges IRA accounts a $7.00 fee
if the account is totally liquidated. For more complete descriptions of the
various costs and expenses of the Fund see "The Fund and Its Management" and
"Distribution Plan."
Principally because there is no duplication of fees or expenses between the Fund
and the Portfolio, the Trustees of the Trust believe that the aggregate per
share expenses of the Fund and the Portfolio will, at a minimum, be
approximately equal to and may be less than the expenses that would be incurred
by the Fund if the Fund continued to retain the services of an investment
adviser and to invest directly in portfolio securities. There can, of course, be
no assurance that any such expense savings will be realized. For additional
information concerning expenses incurred by the Fund and the Portfolio, see "The
Fund and Its Management" herein, and "Investment Adviser and Manager" in the
Statement of Additional Information.
The table and hypothetical example above are for illustrative purposes only. The
investment rate of return and expenses should not be considered as
representations of past or future performance or expenses, as actual rates of
return and expenses may be more or less than the rate and amounts shown.
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FINANCIAL HIGHLIGHTS
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The financial highlights of The Total Return Utilities Fund are listed
below. This information has been audited in conjunction with the audit of the
financial statements of the Total Return Utilities Fund and its corresponding
Portfolio, the Utilities Stock Portfolio, by KPMG Peat Marwick LLP, independent
certified public accountants for the year ended December 31, 1996 and for the
period from June 21, 1995 through December 31, 1995.
<TABLE>
<CAPTION>
THE TOTAL RETURN UTILITIES FUND
1996 1995*
---- -----
<S> <C> <C>
Net Asset Value, Beginning of Period $14.14 $12.50
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INCOME FROM INVESTMENT OPERATIONS
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Net Investment Income 0.37 0.21
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Net Gains or Losses on Securities
(both realized and unrealized) 1.48 1.64
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Total from Investment Operations 1.85 1.85
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Less Distributions
- ------------------
Dividends (from net investment income) (0.37) (0.21)
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Distributions (from capital gains) (0.64)
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Total Distributions (1.01) (0.21)
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Net Asset Value, End of Period $14.98 $14.14
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Total Return 13.33% 15.00%
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A-4
<PAGE>
<S> <C> <C>
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net Assets, End of Period ($000) $5,074 $2,881
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Ratio of Expenses to Average Net Assets 1.25% 1.25%+
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Ratio of Net Income to Average Net Assets 2.55% 3.18%+
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Ratio of Expenses to Average Net Assets,
before expense reimbursement(1) 2.95% 4.35%+
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Ratio of Net Investment Income to Average
Net Assets, before expense reimbursement 0.85% 0.08%+
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Portfolio Turnover Rate(2) 51% 5%
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<FN>
*For the period June 21, 1995 to December 31, 1995.
(1) See "Synopsis of Financial Information" for explanation of Adviser's
expense reimbursements.
(2) Turnover rate of corresponding portfolio
+ Annualized
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information Dated April 30, 1997.
</FN>
</TABLE>
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Performance Comparison
- --------------------------------------------------------------------------------
The Total Return Utilities Fund vs. The Dow Jones The Total Return
Utility Average and Morningstar's Average Utilities Fund Utilities Fund
The Growth of $10,000 (6/21/95* to 12/31/96) Average Annual
Total Return
The Total Return The Dow Jones Morningstar's ----------------
Utilities Fund Utility Average Average Utilities Fund
---------------- --------------- ----------------------
1 Year
$10,000 $10,000 $10,000 ---------
1995 $11,500 $11,483 $11,425 13.33%
1996 $13,033 $12,528 $12,553
SINCE INCEPTION
(6/21/95)
----------------
18.88%
The graph depicting the growth of $10,000 and the total return for The Total
Return Utilities Fund are representative of past performance and are not
intended to indicate future performance.
*The returns of the various indexes are from the beginning or end of the month
nearest the Fund's inception to the end of the calendar year.
The Dow Jones Utility Average does not reflect the deduction of expenses
associated with a mutual fund, such as investment management and accounting
fees. The Fund's performance reflects the deduction of fees for these value
added services.
1996 IN REVIEW.
The total return of The Total Return Utilities Fund was 13.33 percent during
1996. For the same period, the total return of the average Utilities fund, as
reported by Morningstar, Inc., was 9.88 percent. The Dow Jones Utility Average
provided a total return of 9.10 percent during 1996.
As deregulation and rising interest rates gripped the utilities stock market
during 1996, The Total Return Utilities Fund outpaced both the average utility
fund and the Dow Jones Utility Average based on the selection of what the
Subadviser believes to be fundamentally strong stocks. Natural gas stocks played
a large part in the Fund's success over the course of the year based both on
sharply higher product prices and some notable acquisitions. Stocks from the
telecommunications service sector also represented a significant portion of the
Portfolio throughout 1996 and contributed to the results achieved by the Fund.
A-5
<PAGE>
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Investment Objective and Policies
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The Total Return Utilities Fund and the Utilities Stock Portfolio have
their own separate investment objectives and policies, as set forth below.
Except as otherwise expressly provided herein, these investment objectives and
policies, which are identical, are not fundamental and may be changed by the
Trustees without approval of the Fund's shareholders, or approval of the
Portfolio's investors. No such change would be made in the Fund, or Portfolio,
without 30 days written notice to shareholders. The Fund seeks to achieve its
investment objective by investing all of its investable assets in the Portfolio.
For more information concerning the investment structure of the Fund which
invests its assets in the Portfolio, see "Other Information - Investment
Structure."
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the investment policies of the Portfolio appears in the Statement of
Additional Information. There can be no assurance that the investment objectives
of the Fund and the Portfolio will be achieved.
The Portfolio's investment objective is to seek a high level of current
income and growth of income by investing primarily in equity securities of
domestic and foreign public utility companies; however, the Portfolio will not
invest in electric utilities whose generation of power is derived from nuclear
reactors. The Portfolio also seeks capital appreciation, but only when
consistent with its primary investment objective. There can be no assurance that
such objective will be achieved.
The Portfolio seeks to achieve its objective by investing, under normal
conditions, at least 65% of its total assets in a diversified portfolio of
common stocks, preferred stocks, warrants and rights, and securities convertible
into common or preferred stock of public utility companies. Public utility
companies include domestic or foreign companies that provide electricity,
natural gas, water, telecommunications or sanitary services to the public. The
Portfolio will not invest more than 5% of its total assets in equity securities
of issuers whose debt securities are rated below investment grade, that is,
rated below one of the four highest rating categories by Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's") or deemed to
be of equivalent quality in the judgment of the Subadviser. Debt securities
rated below investment grade are rated below Baa or BBB.
The remaining 35% of the Portfolio's total assets may be invested in debt
securities issued by public utility companies, and/or equity and debt securities
of issuers outside of the public utility industry which in the opinion of the
Subadviser stand to benefit from developments in the public utilities industry.
The Portfolio will not invest more than 40% of its total assets in the telephone
industry. The Portfolio may invest up to 25% of its total assets in securities
of foreign issuers. The Portfolio will not invest more than 10% of its net
assets in securities that are deemed to be illiquid. See "Investment Policies
and Limitations" in the Statement of Additional Information.
A-6
<PAGE>
Investments are selected on the basis of fundamental analysis to identify
those securities that, in the judgment of the Subadviser, provide a high level
of current income and growth of income, and secondarily, capital appreciation,
but only when consistent with its primary investment objective.
Fundamental analysis involves assessing a company and its business
environment, management, balance sheet, income statement, anticipated earnings
and dividends and other related measures of value. The Subadviser monitors and
evaluates the economic and political climate of the area in which each company
is located. The relative weightings among common stocks, debt securities and
preferred stocks will vary from time to time based upon the Subadviser's
judgment of the extent to which investments in each category will contribute to
meeting the Portfolio's investment objective.
The Subadviser emphasizes quality in selecting investments for the
Portfolio, and in addition to looking for high credit ratings, the Subadviser
ordinarily looks for several of the following characteristics: above average
earnings growth; above average growth of book value; an above average balance
sheet; high earnings to debt service coverage; low ratio of dividends to
earnings; high return on equity; low debt to equity ratio; an above average
rating with respect to government regulation; growing rate base; lack of major
construction programs and strong management.
The Portfolio may invest up to 35% of its total assets in debt securities
of issuers in the public utility industries. Debt securities in which the
Portfolio invests generally are limited to those rated A or better by S&P or
Moody's or deemed to be of equivalent quality in the judgment of the Subadviser.
A change in prevailing interest rates is likely to affect the Portfolio's
net asset value because prices of debt securities and equity securities of
utility companies tend to increase when interest rates decline and decrease when
interest rates rise.
During periods when the Subadviser deems it necessary for temporary
defensive purposes, the Portfolio may invest without limit in high quality money
market instruments. These instruments consist of commercial paper, certificates
of deposit, banker's acceptances and other bank obligations, obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, high
grade corporate obligations and repurchase agreements.
The Portfolio may invest in financial futures contracts, related options
and forward currency contracts in order to implement hedging strategies. These
instruments are considered derivatives, whose value can be affected
significantly by even small market movements, sometimes in unpredictable ways.
See "Other Investments and Policies - Currency, Options and Futures
Transactions."
A-7
<PAGE>
Except as otherwise expressly provided herein, all investment objectives
and policies stated throughout this prospectus are not fundamental and may be
changed without approval of the Fund's shareholders. No such change would be
made in the Fund without 30 days prior written notice to shareholders. The
Portfolio may not purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, 25% or more of the Portfolio's total
assets would be invested in the securities of companies whose principal business
activities are in the same industry, except that the Portfolio, under normal
circumstances, will invest 25% or more of its total assets in securities of
public utility companies. The Portfolio may not, with respect to 75% of its
total assets, purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, or any of its
agencies or instrumentalities) if, as a result thereof, (a) more than 5% of the
Portfolio's total assets would be invested in the securities of such issuer, or
(b) the Fund would hold more than 10% of the voting securities of such issuer.
The foregoing investment policies regarding concentration and diversification
are fundamental and may not be changed without shareholder approval. See
"Investment Policies and Limitations" in the Statement of Additional
Information.
RISK FACTORS
By itself, the Portfolio does not constitute a balanced investment plan;
the Portfolio seeks a high level of current income and growth of income with
capital appreciation as a secondary objective. The Portfolio invests primarily
in common stock, preferred stock and securities convertible into common or
preferred stock. Changes in interest rates may also affect the value of the
Portfolio's investments, and rising interest rates can be expected to reduce the
Portfolio's net asset value. The Fund's share price and total return fluctuate
and your investment may be worth more or less than your original cost when you
redeem your shares.
Because the Portfolio concentrates its investments in public utility
companies, its performance will depend in large part on conditions in the public
utility industries. Utility stocks have traditionally been popular among more
conservative stock market investors because they have generally paid above
average dividends. However, utility stocks can still be affected by the risks of
the stock market, as well as factors specific to public utility companies.
Governmental regulation of public utility companies can limit their ability
to expand their business or to pass cost increases on to customers. Companies
providing power or energy-related services may also be affected by fuel
shortages or cost increases, environmental protection or energy conservation
regulations, as well as fluctuating demand for their services. Some public
utility companies are facing increased competition, which may reduce their
profits. All of these factors are subject to rapid change, which may affect
utility companies independently from the stock market as a whole.
In seeking its investment objective, the Portfolio may invest in securities
of foreign issuers. Foreign securities may involve a higher degree of risk and
may be less liquid or more volatile than domestic investments. Foreign
securities usually are denominated in foreign currencies, which means their
value will be affected by changes in the strength of foreign currencies relative
to the U.S. dollar as well as the other factors that affect security prices.
Foreign companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and there often is less publicly
available information about their operations. Generally, there is less
governmental regulation of foreign securities markets, and security trading
practices abroad may offer less protection to investors such as the Portfolio.
A-8
<PAGE>
The value of such investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of portfolios or
assets, or imposition of (or change in) exchange control or tax regulations in
those foreign countries. Additional risks of foreign securities include
settlement delays and costs, difficulties in obtaining and enforcing judgments,
and taxation of dividends at the source of payment.
In addition, the Portfolio may invest in private placement commercial
paper. Private placement commercial paper consists of unregistered securities
which are traded in public markets to qualified institutional investors, such as
the Portfolio. The Portfolio's risk is that the universe of potential buyers for
the securities, should the Portfolio desire to liquidate a position, is limited
to qualified dealers and institutions, and therefore such securities could have
the effect of being illiquid.
The Subadviser intends to manage the Portfolio actively in pursuit of its
investment objective. The Portfolio does not expect to trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time held.
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Other Investments and Policies
- --------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS. When investing in money market instruments, the
Portfolio will limit its purchases, denominated in U.S. dollars, to the
following securities:
o U.S. Government Securities and Securities of its Agencies and
Instrumentalities.
o Bank Obligations and Instruments Secured Thereby.
o High Quality Commercial Paper -- The Portfolio may invest in
commercial paper rated no lower than "A-2" by Standard & Poor's
Corporation or "Prime-2" by Moody's Investors Services, Inc., or, if
not rated, issued by a company having an outstanding debt issue rated
at least A by Standard & Poor's or Moody's.
o Private Placement Commercial Paper -- unregistered securities which
are traded in public markets to qualified institutional investors,
such as the Portfolio.
o High Grade Corporate Obligations -- obligations rated at least A by
Standard & Poor's or Moody's.
o Repurchase Agreements -- see "Repurchase Agreements" below.
At the discretion of the Subadviser, the Portfolio may employ the following
strategies in pursuing its investment objective.
A-9
<PAGE>
CURRENCY, OPTIONS AND FUTURES TRANSACTIONS. The Portfolio may use forward
currency contracts, futures contracts, options on securities or options on
futures contracts to implement strategies to attempt to hedge its portfolio,
i.e., reduce the overall level of investment risk normally associated with the
Portfolio. There can be no assurance that such efforts will succeed. These
techniques are described below and are further detailed in the Statement of
Additional Information.
To attempt to hedge against adverse movements in exchange rates between
currencies, the Portfolio may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date. Such
contracts may involve the purchase or sale of a foreign currency against the
U.S. dollar, or may involve two foreign currencies. The Portfolio may enter into
forward currency contracts either with respect to specific transactions or with
respect to the Portfolio's positions. For example, when the Portfolio
anticipates making a purchase or sale of a security, the Portfolio may enter
into a forward currency contract in order to set the rate at which a currency
exchange transaction related to the purchase or sale will be made. Further, when
the Subadviser believes that a particular currency may decline compared to the
U.S. dollar or another currency, the Portfolio may enter into a forward contract
to sell the currency the Subadviser expects to decline in an amount
approximating the value of some or all of the Portfolio's securities denominated
in a foreign currency. The Portfolio also may write covered call options and
purchase put and call options on currencies to hedge against movements in
exchange rates.
In addition, the Portfolio may write covered call options and purchase put
and call options on equity and debt securities to hedge against the risk of
fluctuations in the prices of securities held by the Portfolio or which the
Subadviser intends to include in the Portfolio. The Portfolio also may write
covered call options and buy put and call options on stock indexes. Such stock
index options serve to hedge against overall fluctuations in the securities
markets generally or in the utilities market sector specifically, rather than
anticipated increases or decreases in the value of a particular security.
Further, the Portfolio may sell stock index futures contracts and may
purchase put options or write covered call options on such futures contracts to
protect against a general stock market decline or a decline in the utilities
market sector that could adversely affect the Portfolio. The Portfolio also may
buy stock index futures contracts and purchase call options on such contracts to
hedge against a general stock market or market sector advance and thereby
attempt to lessen the cost of future securities acquisitions. The Portfolio may
use interest rate futures contracts and options thereon to hedge the debt
portion of the Portfolio against changes in the general level of interest rates.
The Portfolio may write only "covered" call options. An option written on a
security or currency is "covered" when, so long as the Portfolio is obligated
under the option, it owns the underlying security or currency. The Portfolio
will "cover" stock index options and options on futures contracts it writes by
maintaining in a segregated account either marketable securities, which in the
Subadviser's judgment correlate to the underlying index or futures contract or
an amount of cash, U.S. government securities or other liquid, high grade debt
securities equal in value to the amount the Portfolio would be required to pay
were the option exercised.
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<PAGE>
Although the Portfolio might not employ any of the foregoing strategies,
its use of forward currency contracts, options and futures would involve certain
investment risks and transaction costs to which it might not otherwise be
subject. These risks include: dependence on the Subadviser's ability to predict
movements in the prices of individual securities, fluctuations in the general
securities markets or in the utilities market sector and movements in interest
rates and currency markets; imperfect correlation between movements in the price
of currency, options, futures contracts or options thereon and movements in the
price of the currency or security hedged or used for cover; the fact that skills
and techniques needed to trade options, futures contracts and options thereon or
to use forward currency contracts are different from those needed to select the
securities in which the Portfolio invests; lack of assurance that a liquid
secondary market will exist for any particular option, futures contract or
option thereon at any particular time; and the possible need to defer closing
out of certain options, futures contracts and options thereon in order to
continue to qualify for the beneficial tax treatment afforded regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). See "Distributions and Taxes" in the Statement of
Additional Information.
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, security or index.
Accordingly, these financial futures contracts, related options and forward
currency contracts used by the Portfolio to implement its hedging strategies are
considered derivatives. The value of derivatives can be affected significantly
by even small market movements, sometimes in unpredictable ways. They do not
necessarily increase risk, and may in fact reduce risk.
SECURITIES LENDING
The Portfolio may lend its portfolio securities to brokers or dealers,
banks or other recognized institutional borrowers of securities, provided that
the borrower at all times maintains cash or equivalent collateral or secures a
letter of credit in favor of the Portfolio in an amount equal to at least 100%
of the market value of the securities loaned. During the time portfolio
securities are on loan, the borrower will pay the Portfolio an amount equivalent
to any dividend or interest paid on such securities and earn additional income,
or the Portfolio may receive an agreed-upon amount of interest income from the
borrower. In accordance with applicable regulatory requirements, the Portfolio
may lend up to 30% of the value of its total assets. The risks in lending
portfolio securities, as well as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in recovery of
the securities or possible loss of rights in the collateral should the borrower
fail financially.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements whereby the seller of a
security agrees to repurchase that security from the Portfolio at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may not be for a number of months. The
resale price is in excess of the purchase price, reflecting an agreed-upon rate
of return effective for the period of time the Portfolio's money is invested in
the security. The Portfolio's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price, including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and as the value of instruments declines, the
Portfolio will require additional collateral. If the seller defaults or becomes
insolvent and the value of the collateral securing the repurchase agreement
declines, the Portfolio may incur a loss.
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<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Portfolio may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Portfolio with payment and delivery
taking place as much as a month or more in the future in order to secure what is
considered to be an advantageous price and yield to the Portfolio at the time of
entering into the transaction. The Portfolio's Custodian will maintain, in a
segregated account of the Portfolio, cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or greater than the
Portfolio's purchase commitments; the Custodian will likewise segregate
securities sold on a delayed delivery basis. The securities so purchased are
subject to market fluctuation and no interest accrues to the purchaser during
the period between purchase and settlement. At the time of delivery of the
securities the value may be more or less than the purchase price and an increase
in the percentage of the Portfolio's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Portfolio's net asset value.
BORROWING
The Portfolio may borrow an amount up to 33-1/3% of the value of its total
assets (calculated when the loan is made) from banks for temporary or emergency
purposes. The Portfolio may pledge up to 33-1/3% of its assets to secure such
borrowings. The Portfolio may borrow from banks or through reverse repurchase
agreements. However, the Portfolio will not purchase portfolio securities if
borrowings exceed 5% of the Portfolio's total assets.
If the Portfolio borrows money, the Fund's share price may be subject to
greater fluctuation until the borrowing is paid off.
PORTFOLIO TURNOVER
Because the Subadviser may employ flexible defensive investment strategies
when market trends are not considered favorable, the Subadviser may occasionally
change the entire portfolios in the Portfolio. High transaction costs could
result when compared with other funds. Trading may also result in realization of
net short-term capital gains upon which shareholders may be taxed at ordinary
tax rates when distributed from the Fund. This defensive investment strategy can
produce high portfolio turnover ratios when calculated in accordance with SEC
rules.
The Portfolio's turnover rate for 1996 was 51%. This turnover rate was a
result of rebalancing stock positions within the Portfolio to maximize
performance in each industry represented in the Portfolio. The Utilities Stock
Portfolio's annual portfolio turnover rate is not expected to exceed 60%.
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<PAGE>
The Portfolio intends to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in the Portfolio's investments.
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The Fund and Its Management
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The Fund is a diversified, open-end management investment company organized
as a series of The Flex-funds, a Massachusetts business trust, on August 4,
1994. The Fund and such trust are collectively referred to as the "Fund". The
Fund's offices are at 6000 Memorial Drive, Dublin, OH 43017. The business and
affairs of the Fund are managed under the direction of its Board of Trustees.
The Fund has no investment adviser because the Fund seeks to achieve its
investment objective by investing its assets in the Portfolio. The Portfolio has
retained the services of R. Meeder & Associates, Inc. as investment adviser.
R. Meeder & Associates, Inc. (the "Manager"), has been an investment
adviser to individuals and retirement plans since 1974 and to mutual funds since
1982. The Manager serves the Portfolio pursuant to an Investment Advisory
Contract under the terms of which it has agreed to provide an investment program
within the limitations of the Portfolio's investment policies and restrictions,
and to furnish all executive, administrative, and clerical services required for
the transaction of Portfolio business, other than accounting services and
services which are provided by the Portfolio's custodian, transfer agent,
independent accountants and legal counsel, and investment advisory services
provided by the Subadviser to the Portfolio.
The Manager was incorporated in Ohio in 1974 and maintains its principal
offices at 6000 Memorial Drive, Dublin, OH 43017. The Manager is a wholly-owned
subsidiary of Muirfield Investors, Inc. ("MII"). MII is controlled by Robert S.
Meeder, Sr. through ownership of voting common stock. MII conducts business only
through its six subsidiaries which are R. Meeder & Associates, Inc.; Mutual
Funds Service Co., the Fund's transfer agent; Adviser Dealer Services, Inc., a
registered broker-dealer; Opportunities Management Co., a venture capital
investor; Meeder Advisory Services, Inc., a registered investment adviser and
OMCO, Inc., a registered commodity trading adviser and commodity pool operator.
The Manager earns an annual fee, payable in monthly installments, from the
Portfolio at the rate of 1.00% of the first $50 million, .75% of the next $50
million and .60% in excess of $100 million, of average net assets. These fees
are higher than the fees charged to most other investment companies.
Accounting, stock transfer, dividend disbursing and shareholder services
are provided to the Fund and the Portfolio by Mutual Funds Service Co., 6000
Memorial Drive, Dublin, Ohio 43017, a wholly-owned subsidiary of MII. The
minimum annual fee, payable monthly, for accounting services for the Portfolio
is $7,500. Subject to the applicable minimum fee, the Portfolio's annual fee,
payable monthly, is computed at the rate of .15% of the first $10 million, .10%
of the next $20 million, .02% of the next $50 million and .01% in excess of $80
million of the Portfolio's average net assets. In addition, the Fund incurs
(subject to a $4,000 annual minimum fee) an annual fee of the greater of $15 per
shareholder account or .10% of the Fund's average net assets, payable monthly,
for stock transfer and dividend disbursing services. Mutual Funds Service Co.
also serves as Administrator to the Fund pursuant to an Administration Services
A-13
<PAGE>
Agreement. Services provided to the Fund include coordinating and monitoring any
third party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
administrative fee, payable monthly, of .05% of the Fund's average net assets.
These fees are reviewable annually by the respective Trustees of the Trust and
the Portfolio. For the year ended December 31, 1996, total payments to Mutual
Funds Service Co. amounted to $14,688 for the Fund and Portfolio collectively.
A broker-dealer may use a portion of the commissions paid by the Portfolio
to reduce the Portfolio or the Fund's expenses.
Information concerning the Trustees and officers of both the Fund and
Portfolio appears in the Statement of Additional Information.
SUBADVISER
Miller/Howard Investments, Inc. (the "Subadviser"), 141 Upper Byrdcliffe,
P. O. Box 549, Woodstock, New York 12498, serves as the Portfolio's Subadviser
under an Investment Subadvisory Agreement between the Manager and the
Subadviser. The Subadviser furnishes investment advisory services in connection
with the management of the Portfolio. The Subadviser is compensated for its
services by the Manager based on the value of the average daily net assets of
the Portfolio, payable monthly, computed at the rate of .00% of the first $10
million, .40% of the next $50 million, .30% of the next $40 million and .25% in
excess of $100 million of the Portfolio's average net assets. The Manager
continues to have responsibility for all investment advisory services in
accordance with the investment advisory agreement and supervises the
Subadviser's performance of such services.
The Subadviser, a Delaware corporation, is a registered investment adviser
which has been providing investment services to broker-dealers, investment
advisers, employee benefit plans, endowment portfolios, foundations and other
institutions and individuals since 1984. As of December 31, 1996, the Subadviser
held discretionary investment authority over approximately $183 million of
assets. The Subadviser is controlled by Lowell Miller through ownership of
voting common stock. Lowell Miller, a director and the President of the
Subadviser, is a Trustee of the Utilities Stock Portfolio, a Vice President and
Trustee of The Flex-funds and The Flex-Partners, mutual funds whose
corresponding portfolios are also advised by the Manager.
The Manager or the Subadviser may take into account sales of shares of the
Fund and other funds advised by the Manager in selecting broker-dealers to
effect portfolio transactions on behalf of the Portfolio.
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<PAGE>
PORTFOLIO MANAGER
Lowell Miller, a director and President of the Subadviser, is primarily
responsible for the day-to-day management of the Utilities Stock Portfolio. Mr.
Miller has been associated with the Subadviser and its predecessor since 1984,
and has managed the Utilities Stock Portfolio since its inception in 1995.
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Distribution Plan
- --------------------------------------------------------------------------------
The Trust has adopted a distribution expense plan (the "Plan") which
authorizes the Fund to bear a portion of the expense of any activity which is
primarily intended to result in the sale of Fund shares. The Plan permits, among
other things, payment for distribution in the form of commissions and fees,
advertising, the services of public relations consultants, and direct
solicitation. Possible recipients include securities brokers, attorneys,
accountants, investment advisers, investment performance consultants, pension
actuaries, banks, and service organizations, all of them being hereafter
referred to as "Consultants."
The Trust may expend in the Fund as much as, but not more than, 0.25% of
the Fund's average net assets annually pursuant to the Plan.
The Plan was approved by the Board of Trustees, who made a determination
that there is a reasonable likelihood that the Plan will benefit the Trust.
The Trust has entered into agreements whereby Consultants (including two
Trustees) are paid for their assistance in explaining and interpreting the
Trust, its investment objectives and policies, and its retirement plans, to
their clients. Under these agreements, Consultants are paid quarterly
compensation by the Trust on the average value of shares held by their clients.
Although the compensation is thus seen to be continuing, the Trust retains the
right to terminate any Consultant's agreement on 60 days notice, without further
obligation beyond the date of termination.
Although the objective of the Trust is to pay Consultants for a portion of
the expenses they incur, and to provide them with some incentive to be of
assistance to the Trust and its shareholders, no effort has been made to
determine the actual expenses incurred by Consultants. If any Consultant's
expenses are in excess of what the Trust pays, such excess will not be paid by
the Trust. Conversely, if the Consultant's expenses are less than what the Trust
pays, the Consultant is not obligated to refund the excess, and this excess
could represent a profit for the Consultant.
The Manager or the Subadviser may use its resources to pay expenses
associated with the sale of Fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the Fund's shares. However, the Fund does not
pay the Manager or the Subadviser any separate fees for this service.
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<PAGE>
Total payments made under the Plan by The Total Return Utilities Fund for
the period ended December 31, 1996, as a percentage of average net assets,
amounted to 0.25%. (See "Synopsis of Financial Information.")
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Income Dividends and Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. The Fund's dividends are
distributed at the end of the month and declared payable to shareholders on the
last business day of each month to shareholders of record as of the previous
business day. In December, the Fund may distribute an additional ordinary income
dividend (consisting of net short-term capital gains and undistributed income)
in order to preserve its status as a registered investment company (mutual fund)
under the Internal Revenue Code. Net long-term capital gains, if any, also are
declared and distributed in December.
DISTRIBUTION OPTIONS. You may choose to receive dividends and capital gain
distributions in cash or to reinvest them in additional shares. Please indicate
your choice on your New Account Application or contact the Transfer Agent. If
you elect to receive dividends or capital gain distributions in cash and the
U.S. Postal Service returns your checks to us, the checks will be reinvested in
your account at the Fund's then-current net asset value. Until we receive
instructions to the contrary, subsequent distributions will be reinvested in
your account. In addition, we may reinvest, at the Fund's then-current net asset
value, any distribution checks that remain uncashed for six months.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code by distributing all, or substantially
all, of its net investment income and net realized capital gains to shareholders
each year. The Fund qualified as a "regulated investment company" for the year
ended December 31, 1996.
The Fund's dividends and capital gain distributions are subject to federal
income tax whether they are received in cash or reinvested in additional shares.
Distributions declared in December and paid in January of the following year are
taxable as if they were paid on December 31.
Dividends from net investment income (including net short-term capital
gains) are taxable as ordinary income. Distributions from net long-term capital
gains, if any, are taxable as long-term capital gains, regardless of how long
you have held your shares.
A portion of the Fund's dividends may qualify for the dividends-received
deduction available to corporations. The Fund will send you a tax statement by
January 31 showing the tax status of distributions you received in the previous
year and will file a copy with the IRS.
You may realize a capital gain or loss when you redeem (sell) or exchange
shares of the Fund. For most types of accounts, the proceeds from your
redemption transactions will be reported to you and the IRS annually. However,
because the tax treatment depends on your purchase price and personal tax
position, you should keep your regular account statements to use in determining
your taxes.
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<PAGE>
"BUYING A DIVIDEND." Although it is less likely with a fund such as the
Total Return Utilities Fund, which pays monthly dividends, the timing of your
investment could have undesirable tax consequences.
If you opened a new account or bought more shares for your current account
just before the day a dividend or capital gain distribution was reflected in the
Fund's share price, you would receive a portion of your investment back as a
taxable distribution. This practice is sometimes referred to as "buying a
dividend."
BACKUP WITHHOLDING. The Fund is required by federal law to withhold 31% of
reportable dividends, capital gain distributions, or redemptions payable to
shareholders who have not complied with IRS regulations. To avoid this
withholding requirement, you must certify on your account application (or on IRS
Form W-9) that your social security or taxpayer identification number (TIN) is
correct and that you are not subject to back-up withholding for previous under
reporting to the IRS, or that you are exempt from backup withholding.
The Fund may refuse to sell shares to investors who have not complied with
these requirements, either before or at the time of purchase. Until we receive
your certified TIN, we may redeem your shares in the Fund at any time.
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How Net Asset Value Is Determined
- --------------------------------------------------------------------------------
Net asset value per share is determined at each closing of the New York
Stock Exchange each day the Exchange is open for business and each other day
during which there is a sufficient degree of trading that the current net asset
value of the Fund's shares might be materially affected by changes in the value
of the securities held by the Portfolio. Net asset value is obtained by dividing
the value of the Fund's assets (i.e., the value of its investment in the
Portfolio and other assets), less its liabilities, by the total number of its
shares of beneficial interest outstanding at the time.
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Performance Information and Reports
- --------------------------------------------------------------------------------
The Total Return Utilities Fund's performance may be used from time to time
in advertisements, shareholder reports or other communications to shareholders
or prospective shareholders. Performance information may include the Fund's
investment results and/or comparisons of its investment results to the Standard
& Poor's 500 Composite Stock Price Index, the Standard & Poor's Utility Index,
the Dow Jones Utility Index or other various unmanaged indices or results of
other mutual funds or investment or savings vehicles. The Fund's investment
results as used in such communications will be calculated on a total rate of
return basis in the manner set forth below. From time to time, Fund rankings may
be quoted from various sources, such as Lipper Analytical Services, Inc. and
Morningstar Mutual Fund Report.
The Fund may provide period and average annualized "total return"
quotations. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. Average annual total return smoothes out variations in
performance.
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<PAGE>
An annualized total return is a compounded total return which assumes that
the period total return is generated over a one-year period, and that all
dividends and capital gain distributions are reinvested. An annualized total
return will be slightly higher than a period total return if the period is
shorter than one year, because of the assumed reinvestment.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Utilities
Stock Portfolio and changes in the Fund's expenses. In addition, during certain
periods for which total return quotations may be provided, the Manager may have
voluntarily agreed to waive portions of its fees or reimburse Fund expenses on a
month-to-month basis. Such waivers and reimbursements will have the effect of
increasing the Fund's net income (and therefore its total return) during the
period such waivers and reimbursements are in effect.
Shareholders will receive financial reports semi-annually that include the
Fund's financial statements, including listings of investment securities held by
the Utilities Stock Portfolio at those dates. Annual reports are audited by
independent accountants.
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Other Information
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST
The Fund's Declaration of Trust permits the Fund to offer and sell an
unlimited number of full and fractional shares of beneficial interest with a par
value of $.10 per share. Shares are fully paid, non-assessable and fully
transferable when issued. All shares are issued as full or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
The Fund issues its own series of shares of beneficial interest. The Trust's
Board of Trustees may authorize the creation of additional series under the
Declaration of Trust, each of which would invest its assets in separate,
individually managed portfolios.
Each full or fractional share has a proportionate vote. On some issues,
such as the election of Trustees, all shares vote together as one series. On an
issue affecting a particular series, only its shares vote as a separate series.
An example of such an issue would be a fundamental investment restriction
pertaining to only one series. In voting on a Distribution Plan, approval of the
Plan by the shareholders of a particular series would make the Plan effective as
to that series, whether or not it had been approved by the shareholders of any
other series.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss as a
result of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Fund itself was unable to meet its
obligations.
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When matters are submitted for shareholder vote, shareholders of the Fund
will have one vote for each full share held and proportionate, fractional votes
for fractional shares held. There normally will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of Trustees holding office have been elected by shareholders, at which
time the Trustees then in office will call a shareholders' meeting for the
election of Trustees. Any Trustee may be removed from office upon the vote of
shareholders holding at least two-thirds of the Fund's outstanding shares at a
meeting called for that purpose. The Trustees are required to call such a
meeting upon the written request of shareholders holding at least 10% of the
Fund's outstanding shares. Shareholders have under certain circumstances (e.g.,
upon application and submission of certain specified documents to the Trustees
by a specified number of shareholders) the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees.
The Portfolio, in which all the investable assets of the Fund will be
invested, is organized as a trust under the laws of the State of New York. The
Portfolio's Declaration of Trust provides that the Portfolio and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Fund believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio. In addition, whenever the Fund is requested to vote
on matters pertaining to the fundamental policies of the Portfolio, the Fund
will hold a meeting of shareholders and will cast its vote as instructed by the
Fund's shareholders.
INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objectives by
investing all of its investable assets in the Portfolio, a separate registered
investment company with the same investment objectives as the Fund. Therefore,
an investor's interest in the Portfolio's securities is indirect. In addition to
selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in the Portfolio are not required to sell their shares at the same
public offering price as the Fund. Investors in the Fund should be aware that
these differences may result in differences in returns experienced by investors
in the different funds that invest in the Portfolio. Such differences in returns
are also present in other mutual fund structures. Information concerning other
holders of interests in the Portfolio is available by contacting the Fund by
calling: 1-800-325-FLEX, or (614) 760-2159.
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<PAGE>
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility also exists for traditionally structured funds which have large or
institutional investors.) Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Fund is requested to vote on matters pertaining to the
Portfolio, the Fund will hold a meeting of shareholders of the Fund and will
cast all of its votes in the same proportion as the Fund's shareholders. With
regard to such a meeting of shareholders, the Trustees of the Fund will vote
shares for which they receive no voting instructions in the same proportion as
the shares for which they do receive voting instructions. Certain changes in the
Portfolio's investment objectives, policies or restrictions may require the
Trust to withdraw the Fund's interest in the Portfolio. Any such withdrawal
could result in a distribution in kind of portfolio securities (as opposed to a
cash distribution from the Portfolio). In addition, the distribution in kind may
result in a less diversified portfolio of investments or adversely affect the
liquidity of the Fund.
The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Fund determines that it is in the best interests of the
Fund to do so. Upon any such withdrawal, the Board of Trustees would consider
what action might be taken, including the investment of all the assets of the
Fund in another pooled investment entity having the same investment objectives
as the Fund or the retaining of an investment adviser to manage the Fund's
assets. The inability to find an adequate investment pool or investment adviser
could have a significant impact on shareholders' investment in the Fund.
As stated in "Investment Objective and Policies," except as otherwise
expressly provided herein, the Portfolio and the Fund's investment objective and
policies are not fundamental and may be changed by the Trustees without
shareholder approval. (No such change would be made, however, without 30 days
written notice to shareholders.)
For descriptions of the investment objective and policies of the Portfolio,
see "Investment Objective and Policies." For descriptions of the management and
expenses of the Portfolio, see "The Fund and Its Management" herein, and
"Investment Adviser and Manager", "Investment Subadviser" and "Trustees and
Officers" in the Statement of Additional Information.
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Shareholder Manual
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How To Buy Shares
- --------------------------------------------------------------------------------
Shares are offered continuously and sold without a direct sales charge,
although the Fund does pay some consultants for services in explaining the Fund,
its investment policies and restrictions, and retirement plans to their clients.
(See "Distribution Plan" and "Synopsis of Financial Information".) Shares of the
Fund are sold at net asset value per share next determined after receipt by the
Fund or its authorized service agent or sub-agent of both a purchase order and
payment. Net asset value generally changes each day. (See "How Net Asset Value
Is Determined.")
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<PAGE>
MINIMUM INVESTMENT -- The minimum investment to open an account in the Fund
is $2,500 except an Individual Retirement Account (IRA) which has a $500
minimum. Subsequent investments in any account may be made in amounts of at
least $100.
OPENING AN ACCOUNT -- You may open an account by mail or bank wire as
follows:
BY MAIL: To purchase shares, fill out the New Account Application
accompanying this Prospectus. A check payable to the Fund must
accompany the New Account Application. Payments may be made by check
or Federal Reserve Draft payable to the Fund and should be mailed to
the following address: The Flex-funds, c/o R. Meeder & Associates,
Inc., P.O. Box 7177, Dublin, Ohio 43017.
BY BANK WIRE: If the wire order is for a new account in the Fund, you
must telephone the Fund prior to making your initial investment. Call
1-800-325-FLEX, or (614) 760-2159. Advise the Fund of the amount you
wish to invest and obtain an account number and instructions. Have
your bank wire federal funds to:
Star Bank, N.A. Cinti/Trust
ABA #: 042-00001-3
Attention: The Flex-funds Total Return Utilities Fund
Account Number 483608915
Account Name (your name)
Personal Account No. (your Flex-funds account number)
On new accounts, a completed application must be sent to The Flex-funds,
c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH 43017 on the same
day your wire is sent. The Fund will not permit redemptions until it receives
the New Account Application in good order.
SUBSEQUENT INVESTMENTS -- Subsequent investments in an existing account in
the Fund may be made by mailing a check payable to: Total Return Utilities Fund.
Please include your account number on the check and mail as follows:
The Flex-funds
Location Number: 00215
Cincinnati, OH 45264-0215
Subsequent investments may also be made by bank wire as described above. It
is necessary to notify the Fund prior to each wire purchase. Wire sent without
notifying the Fund will result in a delay of the effective date of your
purchase.
AUTOMATIC ACCOUNT BUILDER -- Periodic investments in an existing account
can be made by selecting this option. (See "Other Shareholder Services.")
A-21
<PAGE>
WHEN PURCHASES ARE EFFECTIVE -- Shares of the Fund are sold at net asset
value per share next determined after receipt of both a purchase order and
payment.
If a shareholder's check is dishonored, the purchase and any dividends paid
thereon will be reversed. If shares are purchased with federal funds, they may
be redeemed at any time thereafter and the shareholder may secure his funds as
explained below. (See "How to Make Withdrawals (Redemptions).") However, if
shares are purchased by check(s) or the Automatic Account Builder, Mutual Funds
Service Co. will delay payment of redemption proceeds until the check used to
purchase shares, or Automatic Account Builder order, has cleared which could be
fifteen (15) calendar days or more subsequent to the purchase of the shares. The
Fund will forward the proceeds promptly once the check has cleared.
FINANCIAL INSTITUTIONS -- You may buy shares or sell shares of the Fund
through a broker or financial institution who may charge you a fee for this
service. If you are purchasing shares of the Fund through a program of services
offered or administered by a securities dealer or financial institution, you
should read the program materials in conjunction with this Prospectus.
Certain financial institutions that have entered into sales agreements with
the Fund may enter confirmed purchase orders on behalf of customers by telephone
to purchase shares of the Fund. If payment for the purchase of shares is not
received in a timely manner, the financial institution could be held liable for
any loss incurred by the Fund.
- --------------------------------------------------------------------------------
How To Make Withdrawals (Redemptions)
- --------------------------------------------------------------------------------
Shares are redeemed and funds withdrawn at net asset value per share, and
there are no redemption fees. (See "How Net Asset Value Is Determined.")
BY MAIL -- A shareholder may redeem shares by mailing a written request in
good order to The Flex-funds, c/o R. Meeder & Associates, Inc., P. O. Box 7177,
Dublin, OH 43017. Good order means that the request must be signed by the
shareholder(s) and the signature(s) must be guaranteed by an eligible guarantor
institution (a bank, broker-dealer, credit union, securities exchange and
association, clearing agency or savings association). The Fund does not accept
signatures guaranteed by a notary public. Further documentation may be required
as to the authority of the person requesting redemption of shares held of record
in the name of corporations, executors, administrators, trustees, guardians or
other fiduciaries. The Fund may waive these requirements in certain instances.
Amounts withdrawn are mailed without charge to the address printed on your
account statement.
BY TELEPHONE -- A shareholder may redeem by telephone: 1-800-325-FLEX, or
call (614) 760-2159. Shareholders who wish to use this procedure must so elect
on the New Account Application. Amounts withdrawn from an account by telephone
are mailed without charge to the address printed on the shareholder's account
statement.
A-22
<PAGE>
As a special service, a shareholder may arrange to have amounts in excess
of $1,000 wired in federal funds to a designated commercial bank account. To use
this procedure please designate on the New Account Application a bank and bank
account number to receive the proceeds of wire withdrawals. There is no charge
for this service.
A shareholder may change the bank account designated to receive
redemptions. This may be done at any time upon written request to the Total
Return Utilities Fund. The shareholder's signature must be guaranteed. Further
documentation may be required from corporations, executors, administrators,
trustees, guardians, or other fiduciaries.
Neither the Total Return Utilities Fund nor Mutual Funds Service Co.
("MFSCo") will be responsible for any loss, expense, or cost arising from any
telephone redemption request made according to the authorization set forth in
the New Account Application if they reasonably believe such request to be
genuine and follow reasonable procedures designed to verify the identity of the
person requesting the redemption. If MFSCo fails to follow reasonable
procedures, MFSCo or the Fund may be liable for losses due to unauthorized or
fraudulent transactions. MFSCo will provide each investor seeking telephone
redemption privileges with a personalized security code which, along with other
information, will be required of the caller upon request of a telephone
redemption. Other information may also be required and calls may be recorded.
WHEN REDEMPTIONS ARE EFFECTIVE -- Redemptions are made at the net asset
value per share next determined after receipt of a redemption request in good
order. (See "How Net Asset Value Is Determined.")
WHEN PAYMENTS ARE MADE -- Amounts withdrawn by telephone are normally
mailed or wired on the next Columbus, Ohio bank business day following the
effective date of the order for withdrawal. Amounts withdrawn by mail are
normally sent by mail within one business day after the request is received, and
must be mailed within seven days with the following exception: If shares are
purchased by check, Mutual Funds Service Co. will not pay a redemption until
reasonably satisfied the check used to purchase shares has been collected which
could be fifteen (15) calendar days or more after shares are first paid for,
unless payment was made with federal funds. The Fund will forward proceeds
promptly once the check has cleared. (See "How to Buy Shares.")
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
A shareholder may exchange shares of the Fund for shares of any other
Flex-funds' fund that are available for sale in your state at their respective
net asset values. Exchanges are subject to applicable minimum initial and
subsequent investment requirements.
It will be necessary to complete a separate New Account Application if:
1. a shareholder wishes to register a new account in a different name;
2. a shareholder wishes to add telephone redemption to an account; or
3. a shareholder wishes to have check-writing redemption privileges in a
Money Market Fund account.
A-23
<PAGE>
Exchange requests may be directed to the Total Return Utilities Fund by
telephone or written request. If a shareholder request is in valid form, and is
accepted before the close of the Total Return Utilities Fund's business day,
shares will be exchanged that day.
BY MAIL:
Exchange requests may also be made in writing and should be sent to The
Flex-funds, c/o R. Meeder & Associates, Inc., P. O. Box 7177, Dublin, Ohio
43017. The letter must be signed exactly as the shareholder's name appears on
the Fund's account records.
BY TELEPHONE:
Exchange requests may be made by telephone: call 1-800-325-FLEX, or call
(614) 760-2159. You may make exchanges by telephone if you have telephone
redemption privileges for your current investment account and the registration
of additional accounts will be identical. Neither the Fund nor Mutual Funds
Service Co. ("MFSCo") will be responsible for any loss, expense, or cost arising
from any telephone exchange request made according to the authorization set
forth in the New Account Application if they reasonably believe such request to
be genuine and follow reasonable procedures designed to verify the identity of
the person requesting the exchange. If MFSCo fails to follow reasonable
procedures, MFSCo or the Fund may be liable for losses due to unauthorized or
fraudulent transactions. MFSCo will provide each investor seeking telephone
exchange privileges with a personalized security code which, along with other
information, will be required of the caller upon request of a telephone
exchange. Other information may also be required and calls may be recorded.
Any exchange involves a redemption of all or a portion of the shares in the
Fund and an investment of the redemption proceeds in shares of one of the other
Flex-funds' funds. The exchange will be based on the respective net asset values
of the shares involved, ordinarily at the value next determined after the
request is received. An exchange may be delayed briefly if redemption proceeds
will not be available immediately for purchase of newly acquired shares. The
exchange privilege may be modified or terminated at any time. The exchange
privilege is designed to accommodate changes in shareholder investment
objectives. In addition, the Total Return Utilities Fund reserves the right to
reject any exchange request and to limit a shareholder's use of the exchange
privilege.
The exchange of shares of the Fund for shares of another Flex-funds' fund
is treated for federal income tax purposes as a sale of the shares given in
exchange. A shareholder may realize a taxable gain or loss on an exchange, and
he should consult his tax adviser for further information concerning the tax
consequences of an exchange.
A-24
<PAGE>
- --------------------------------------------------------------------------------
Retirement Plans
- --------------------------------------------------------------------------------
The Fund offers retirement plans which include a prototype Profit Sharing
Plan, a Money Purchase Pension Plan, a Salary Savings Plan--401(k), an
Individual Retirement Account (IRA), a Simple IRA, and a Simplified Employee
Pension (SEP) Plan. Plan Adoption Agreements and other information required to
establish a Flex-funds Retirement Plan are available from The Flex-funds, c/o R.
Meeder & Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017; or call
1-800-325-FLEX, or call (614) 760-2159.
Minimum purchase requirements for retirement plan accounts are subject to
the same requirements as regular accounts, except for an IRA, which has a
reduced minimum purchase requirement. (See "How to Buy Shares.")
- --------------------------------------------------------------------------------
Other Shareholder Services
- --------------------------------------------------------------------------------
AUTOMATIC ACCOUNT BUILDER: Regular investments in the Fund of $100 or more
will be deducted from a shareholder's checking or savings account and invested
in shares of the Fund. A shareholder's bank must be a member of the Automated
Clearing House (ACH). Shareholders wishing to add to their investment account
must complete the Automatic Account Builder section of the New Account
Application. There is no charge for this service.
DIRECT DEPOSIT: Investments of $100 or more may be directly deposited into
your account. Shareholders wishing to have one or more institutions
electronically transfer funds into their account should contact the Fund for
information on this service. There is no charge associated with this service.
SYSTEMATIC WITHDRAWAL PROGRAM: A Systematic Withdrawal Program is offered
for any investor who wishes to receive regular distributions from his account.
The investor must either own or purchase shares having a value of at least
$10,000 and advise the Fund in writing of the amount to be distributed and the
desired frequency, i.e., monthly, quarterly or annually. This option may be
exercised by completing the appropriate section of the New Account Application.
The investor should realize that if withdrawals exceed income dividends, the
invested principal may be depleted. The investor may make additional investments
and may change or stop the program at any time. There is no charge for this
program.
SUB-ACCOUNTING FOR INSTITUTIONAL INVESTORS: The Trust's optional
sub-accounting system offers a separate shareholder account for each participant
and a master account record for the institution. Share activity is thus recorded
and statements prepared for both individual sub-accounts and for the master
account. For more complete information concerning this program contact the
Trust.
DISTRIBUTOR: Shares of the Fund are sold by the Trust itself in those
states where its shares have been registered for sale or a valid exemption
exists. States where registration or an exemption exists can be obtained by
calling 1-800-325-FLEX or (614) 760-2159.
A-25
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Accounts
- --------------------------------------------------------------------------------
The Fund maintains an account for each shareholder in full and fractional
shares. The Fund reserves the right to reject any purchase order, and to waive
minimum purchase requirements.
CONFIRMATION STATEMENT -- All purchase and sale transactions, and dividend
reinvestments, are confirmed promptly after they become effective.
ACCOUNTS BELOW MINIMUM -- The Fund reserves the right to redeem shares in
any account for their then current net asset value and pay the proceeds to the
shareholder if at any time the account has shares valued at less than $1,000
($500 for an IRA) as a result of redemptions by the shareholder. The Fund also
reserves the right to redeem the shares in any account which may have been
opened under a waiver of minimum purchase requirements if sufficient additional
shares were not subsequently purchased to meet these requirements. Before a
redemption is processed, the shareholder will be allowed 30 days after written
notice from the Fund to make an additional investment sufficient to bring the
value of shares in the account to $1,000 ($500 for an IRA).
A-26
<PAGE>
INVESTMENT ADVISER
R. Meeder & Associates, Inc.
ADDRESS OF FUND & ADVISER
6000 Memorial Drive
Dublin, OH 43017
800-325-FLEX
614-760-2159 (in Central Ohio)
SUBADVISER
Miller/Howard Investments, Inc.
141 Upper Byrdcliffe Road
P. O. Box 549
Woodstock, NY 12498
CUSTODIAN
Star Bank, N.A.
Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Mutual Funds Service Co.
6000 Memorial Drive
Dublin, OH 43017
800-325-FLEX
614-760-2159 (in Central Ohio)
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
TOTAL RETURN UTILITIES FUND
PROSPECTUS
April 30, 1997
A-27
<PAGE>
THE FLEX-FUNDS TOTAL RETURN UTILITIES FUND
CROSS REFERENCE SHEET TO FORM N-1A
----------------------------------
PART B.
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
- -------- -----------------------------------
10 Cover Page
11 Table of Contents
12 Not Applicable
13(a)(b)(c) Investment Policies and Limitations
13(d) Not Applicable
14(a)(b)(c) Trustees and Officers
15(a) Not Applicable
15(b) Principal Holders of Outstanding Shares
15(c) Trustees and Officers
16(a)(b) Investment Adviser and Manager
Investment Subadviser
16(c) Portfolio Transactions
16(d) Contracts with Companies Affiliated with Manager
16(e) Not Applicable
16(f) Distribution Plan
16(g) Not Applicable
16(h) Description of the Trust
16(i) Contracts with Companies Affiliated with Manager
17 Portfolio Transactions
18(a) Description of the Trust
18(b) Not Applicable
19(a) Additional Purchase and Redemption Information
Flex-funds Retirement Plans
19(b) Valuation of Portfolio Securities
Additional Purchase and Redemption Information
19(c) Not Applicable
20 Distributions and Taxes
21 Not Applicable
22(a) Not Applicable
22(b) Performance
23 Financial Statements
<PAGE>
TOTAL RETURN UTILITIES FUND
A Fund of The Flex-funds Trust
STATEMENT OF ADDITIONAL INFORMATION
APRIL __, 1997
This Statement is not a prospectus but should be read in conjunction with the
Fund's current Prospectus (dated April __, 1997). Please retain this document
for future reference. To obtain an additional copy of the Prospectus, please
call Mutual Funds Service Co. at 1-800-325-3539. Capitalized terms used and not
otherwise defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 18
Valuation of Portfolio Securities 20
Performance 21
Additional Purchase and Redemption Information 24
Distributions and Taxes 26
Investment Adviser and Manager 27
Investment Subadviser 29
Distribution Plan 30
Trustees and Officers 31
Flex-funds Retirement Plans 35
Contracts With Companies Affiliated With Manager 37
Description of the Trust 38
Principal Holders of Outstanding Shares 39
Financial Statements 40
INVESTMENT ADVISER TRANSFER AGENT
R. Meeder & Associates, Inc. Mutual Funds Service Co.
INVESTMENT SUBADVISER
Miller/Howard Investments, Inc.
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940) of the Fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Trustees without shareholder approval. THE FOLLOWING ARE
THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY;
PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS WILL PREVENT THE
FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN OPEN-END MANAGEMENT
INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND OR
THE PORTFOLIO MAY NOT
(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
government of the United States, or any of its agencies or instrumentalities)
if, as a result thereof, (a) more than 5% of the Portfolio's total assets would
be invested in the securities of such issuer, or (b) the Fund would hold more
than 10% of the voting securities of such issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of its total assets including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33-1/3% limitation;
(4) underwrite securities issued by others (except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry, except that the Portfolio may invest more than 25% of its total
assets in securities of public utility companies;
B-2
<PAGE>
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Portfolio from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities); or
(8) lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Portfolio does not currently intend to engage in short sales, but
may engage in short sales "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
(ii) The Portfolio does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
(iii) The Portfolio may borrow money only (a) from a bank, or from a
registered investment company for which the Manager serves as investment adviser
if an applicable exemptive order has been granted or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements are treated
as borrowings for purposes of fundamental investment limitation (3). The
Portfolio will not purchase any security while borrowings representing more than
5% of its total assets are outstanding. The Portfolio will not borrow from other
funds advised by the Manager if total outstanding borrowings immediately after
such borrowing would exceed 15% of the Portfolio's total assets.
(iv) The Portfolio does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued, including repurchase agreements with remaining maturities in excess of
seven days or securities without readily available market quotes.
B-3
<PAGE>
(v) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.
(vi) The Portfolio does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 5% of the
Portfolio's net assets) to a registered investment company for which the Manager
serves as investment adviser or (b) acquiring loans, loan participations, or
other forms of direct debt instruments and in connection therewith, assuming any
associated unfunded commitments of the sellers. (This limitation does not apply
to purchases or debt securities or to repurchase agreements.)
(vii) The Portfolio does not currently intend to purchase securities of
other investment companies. This limitation does not apply to securities
received as dividends, through offers of exchange, or as a result of
reorganization, consolidation, or merger.
(viii) The Portfolio does not currently intend to purchase the securities
of any issuer other than securities issued or guaranteed by domestic or foreign
governments (or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
(ix) The Portfolio does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, may
be warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.
(x) The Portfolio does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xi) The Portfolio does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the Trust and those officers and
directors of the Manager or the Subadviser who individually own more than 1/2 of
1% of the securities of such issuer, together own more than 5% of such issuer's
securities.
(xii) The Portfolio does not currently intend to invest in electric
utilities whose generation of power is derived from nuclear reactors.
B-4
<PAGE>
For the Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions" beginning
on page 13. For the Portfolio's limitations on short sales, see the section
entitled "Short Sales" on page 17.
MONEY MARKET INSTRUMENTS When investing in money market instruments, the
Portfolio will limit its purchases, denominated in U.S. dollars, to the
following securities.
* U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal
or interest by the United States or its agencies (such as the Export
Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities
(such as the Federal Home Loan Bank, Federal Intermediate Credit Banks
and Federal Land Bank), including Treasury bills, notes and bonds.
* Bank Obligations and Instruments Secured Thereby - obligations
including certificates of deposit, time deposits and bankers'
acceptances) of domestic banks having total assets of $1,000,000,000
or more, instruments secured by such obligations and obligations of
foreign branches of such banks, if the domestic parent bank is
unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may
also invest in obligations (including certificates of deposit and
bankers' acceptances) of domestic branches of foreign banks having
assets of $1,000 000,000 or more, if the domestic branch is subject to
the same regulation as United States banks. The Portfolio will not
invest at time of purchase more than 25% of its assets in obligations
of banks, nor will the Portfolio invest more than 10% of its assets in
time deposits.
* High Quality Commercial Paper - The Portfolio may invest in commercial
paper rated no lower than "A-2" by Standard & Poor's Corporation or
"Prime-2" by Moody's Investors Services, Inc., or, if not rated,
issued by a company having an outstanding debt issue rated at least A
by Standard & Poor's or Moody's.
* Private Placement Commercial Paper - Private placement commercial
paper consists of unregistered securities which are traded in public
markets to qualified institutional investors, such as the Portfolio.
The Portfolio's risk is that the universe of potential buyers for the
securities, should the Portfolio desire to liquidate a position, is
limited to qualified dealers and institutions, and therefore such
securities could have the effect of being illiquid.
B-5
<PAGE>
* High Grade Corporate Obligations - obligations rated at least A by
Standard & Poor's or Moody's. See rating information below.
* Repurchase Agreements - See "Repurchase Agreements" below.
The Subadviser exercises due care in the selection of money market
instruments. However, there is a risk that the issuers of the securities may not
be able to meet their obligations to pay interest or principal when due. There
is also a risk that some of the Portfolio's securities might have to be
liquidated prior to maturity at a price less than original amortized cost or
value, face amount or maturity value to meet larger than expected redemptions.
Any of these risks, if encountered, could cause a reduction in net income or in
the net asset value of the Portfolio.
RATINGS
1. Moody's Investors Services, Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
B-6
<PAGE>
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA - Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the adverse
effect of changes in economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in their market
behavior but, to some extent, also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
3. A-1 and P-1 Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is A-1, A-2, or
A-3.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
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4. Description of Permitted Money Market Investments:
Commercial Paper - refers to promissory notes issued by corporations in
order to finance their short term credit needs.
U.S. Government Obligations - are bills, certificates of indebtedness notes
and bonds issued by the U.S. Treasury and agencies, authorities and
instrumentalities of the U.S. Government established under the authority of an
act of Congress. Some obligations of U.S. Government agencies, authorities and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, as for example, the Government National Mortgage Association; others
by the right of the issuer to borrow from the Treasury, as in the case of
Federal Farm Credit Banks and Federal National Mortgage Association; and others
only by the credit of the agency, authority or instrumentality; as for example,
Federal Home Loan Mortgage and Federal Home Loan Bank.
Repurchase Agreements - See "Repurchase Agreements" below.
Certificates of Deposit - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified or variable rate
of return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
Corporate Obligations - include bonds and notes issued by corporations in
order to finance longer term credit needs.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Trustees, the Subadviser
determines the liquidity of the Portfolio's investments and, through reports
from the Subadviser, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Portfolio's investments, the Subadviser may
consider various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, over-the-counter
options, and non-government stripped fixed-rate mortgage-backed securities.
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<PAGE>
Also, the Subadviser may determine some restricted securities,
government-stripped fixed-rate mortgage-backed securities, loans and other
direct debt instruments, and swap agreements to be illiquid. However, with
respect to over-the-counter options the Portfolio writes, all or a portion of
the value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the Portfolio
may have to close out the option before expiration. In the absence of market
quotations, illiquid investments are priced at fair value as determined in good
faith by the Board of Trustees. If through a change in values, net assets, or
other circumstances, the Portfolio were in a position where more than 10% of its
net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Portfolio may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. The Portfolio may engage in repurchase
agreements with respect to any security in which it is authorized to invest.
While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to the Portfolio
in connection with bankruptcy proceedings), it is the Portfolio's current policy
to limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Subadviser.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Portfolio sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is outstanding,
the Portfolio will maintain appropriate liquid assets in a segregated custodial
account to cover its obligation under the agreement. The Portfolio will enter
into reverse repurchase agreements only with parties whose creditworthiness has
been found satisfactory by the Subadviser. Such transactions may increase
fluctuations in the market value of the Portfolio's assets and may be viewed as
a form of leverage.
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SECURITIES LENDING. The Portfolio may lend securities to parties such as
broker-dealers or institutional investors.
Securities lending allows the Portfolio to retain ownership of the
securities loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties deemed by the Subadviser to be of good standing. Furthermore,
they will only be made if, in the Subadviser's judgment, the consideration to be
earned from such loans would justify the risk.
The Subadviser understands that it is the current view of the SEC Staff
that the Portfolio may engage in loan transactions only under the following
conditions: (1) the Portfolio must receive 100% collateral in the form of cash
or cash equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2)
the borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Portfolio must be able to terminate the
loan at any time; (4) the Portfolio must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to any dividends,
interest, or other distributions on the securities loaned and to any increase in
market value; (5) the Portfolio may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able to vote
proxies on the securities loaned, either by terminating the loan or by entering
into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which the Portfolio is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more difficult
to obtain reliable information regarding an issuer's financial condition and
operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
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<PAGE>
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Subadviser will be able
to anticipate or counter these potential events.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Portfolio may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.
American Depository Receipts and European Depository Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
corporation held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The Portfolio may hold foreign currency
deposits from time to time, and may convert dollars and foreign currencies in
the foreign exchange markets. Currency conversion involves dealer spreads and
other costs, although commissions usually are not charged. Currencies may be
exchanged on a spot (i.e., cash) basis, or by entering into forward contracts to
purchase or sell foreign currencies at a future date and price. Forward
contracts generally are traded in an interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated currency exchange.
B-11
<PAGE>
The Portfolio may use currency forward contracts to manage currency risks
and to facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolio.
In connection with purchases and sales of securities denominated in foreign
currencies, the Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or "
transaction hedge."
The Subadviser expects to enter into settlement hedges in the normal course
of managing the Portfolio's foreign investments. The Portfolio could also enter
into forward contracts to purchase or sell a foreign currency in anticipation of
future purchases or sales of securities denominated in foreign currency, even if
the specific investments have not yet been selected by the Subadviser.
The Portfolio may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example
if the Portfolio owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Portfolio could also hedge the position by selling
another currency expected to perform similarly to the pound sterling - for
example, by entering into a forward contract to sell Deutschemarks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Under certain conditions, SEC guidelines require mutual funds to set aside
cash and appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the Portfolio will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. The Portfolio will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the Subadvisers
skill in analyzing and predicting currency values. Forward contracts may
substantially change the Portfolio's investment exposure to changes in currency
exchange rates, and could result in losses to the Portfolio if currencies do not
perform as the Subadviser anticipates. For example, if a currency's value rose
at a time when the Subadviser had hedged the Portfolio by selling that currency
in exchange for dollars, the Portfolio would be unable to participate in the
currency's appreciation. If the Subadviser hedges currency exposure through
B-12
<PAGE>
proxy hedges, the Portfolio could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in tandem.
Similarly, if the Subadviser increases the Portfolio's exposure to a foreign
currency, and that currency's value declines, the Portfolio will realize a loss.
There is no assurance that the Subadviser's use of forward currency contracts
will be advantageous to the Portfolio or that it will hedge at an appropriate
time. The policies described in this section are non-fundamental policies of the
Portfolio.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) sell futures contracts, purchase put options, or write call options if, as a
result, more than 25% of the Portfolio's total assets would be hedged with
futures and options under normal conditions; (b) purchase futures contracts or
write put options if, as a result, the Portfolio's total obligations upon
settlement or exercise of purchased futures contracts and written put options
would exceed 25% of its total assets; or (c) purchase call options if, as a
result, the current value of option premiums for call options purchased by the
Portfolio would exceed 5% of the Portfolio's total assets. These limitations do
not apply to options attached to or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate features
similar to options. The above limitations on the Portfolio's investments in
futures contracts and options, and the Portfolio's policies regarding futures
contracts and options discussed elsewhere in this Statement of Additional
Information, may be changed as regulatory agencies permit.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When the Portfolio sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract.
Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on indices
of securities-prices, such as the Standard & Poor's 500 Composite Stock Price
Index (S&P 500). Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
B-13
<PAGE>
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant (FCM), when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value.
If the value of either party's position declines, that party will be
required to make additional "variation margin" payments to settle the change in
value on a daily basis. The party that has a gain may be entitled to receive all
or a portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Portfolio's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option the Portfolio
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indices of securities prices, and futures contracts. The Portfolio may terminate
its position in a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the Fund will lose
the entire premium it paid. If the Portfolio exercises the option, it completes
the sale of the underlying instrument at the strike price. The Portfolio may
also terminate a put option position by closing it out in the secondary market
at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price.
A call buyer typically attempts to participate in potential price increases
of the underlying instrument with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures contract
B-14
<PAGE>
the Portfolio will be required to make margin payments to an FCM as described
above for futures contracts. The Portfolio may seek to terminate its position in
a put option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not liquid for
a put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly
however, because the premium received for writing the option should mitigate the
effects of the decline.
Writing a call option obligates the Portfolio to sell or deliver the
option's underlying instrument, in return for the strike price, upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS. The Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out .
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange traded options and futures contracts, it is likely that the
standardized contracts available will not match the Portfolio's current or
anticipated investments exactly. The Portfolio may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments.
B-15
<PAGE>
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Portfolio's
investments well. options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts.
The Fund may purchase or sell options and futures contracts with a greater
or lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in all cases.
If price changes in the Portfolio's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolio to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Portfolio to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Portfolio greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
B-16
<PAGE>
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The Portfolio
may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The Portfolio may also purchase and write currency options in conjunction with
each other or with currency futures or forward contracts. Currency futures and
options values can be expected to correlate with exchange rates, but may not
reflect other factors that affect the value of the Fund's investments. A
currency hedge, for example, should protect a yen-denominated security from a
decline in the Yen, but will not protect the Portfolio against a price decline
resulting from deterioration in the issuer's creditworthiness. Because the value
of the Portfolio's foreign-denominated investments changes in response to many
factors other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the Portfolio's investments exactly
over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Portfolio will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
SHORT SALES. The Portfolio may enter into short sales "against the box"
with respect to equity securities it holds. For example, if the Subadviser
anticipates a decline in the price of a stock the Portfolio holds, it may sell
the stock short "against the box." If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of the
stock's decline. The Fund currently intends to hedge no more than 15% of its
total assets with short sales "against the box" on equity securities under
normal circumstances.
When the Portfolio enters into a short sale "against the box", it will be
required to own or have the right to obtain at no added cost securities
identical to those sold short "against the box" and will be required to continue
to hold them while the short sale "against the box" is outstanding. The
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
PORTFOLIO TURNOVER. The portfolio turnover rate for 1996 was 51% (1995 -
5%). The turnover rate was a result of rebalancing the Portfolio to take
advantage of market opportunities as well as to realize gains in the independent
power and telecommunications areas. The Subadviser expects the annual portfolio
turnover rate will be 60% or less. The portfolio turnover rate is calculated by
dividing the lesser of sales or purchases of portfolio securities by the average
monthly value of the Portfolio's securities, excluding securities having a
maturity at the date of purchase of one year or less. High portfolio turnover
may involve correspondingly greater brokerage commissions and other transaction
costs which will be borne directly by the Portfolio.
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PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Portfolio by the Subadviser pursuant to authority contained in the
investment advisory agreement and investment subadvisory agreement. The
Subadviser is also responsible for the placement of transaction orders for
accounts for which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, the Subadviser considers various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions, and arrangements for payment of Portfolio
expenses.
The Fund's brokerage transactions involving securities of companies
headquartered in countries other than the United States will be conducted
primarily on the markets and principal exchanges of such countries. Foreign
markets are generally not as developed as those located in the United States,
which may result in higher transaction costs, delayed settlement and less
liquidity for trades effected in foreign markets. Transactions on foreign
exchanges are usually subject to fixed commissions that generally are higher
than negotiated commissions on U.S. transactions. There is generally less
government supervision and regulation of exchanges and brokers in foreign
countries than in the United States.
The Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolio or other accounts over
which the Subadviser or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the advisability
of investing in, purchasing or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses and
reports concerning issuers industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The selection of such broker-dealers generally is made by the
Subadviser (to the extent possible consistent with execution considerations) in
accordance with a ranking of broker-dealers determined periodically by the
Subadviser's investment staff based upon the quality of research and execution
services provided.
B-18
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The receipt of research from broker-dealers that execute transactions on
behalf of the Portfolio may be useful to the Subadviser in rendering investment
management services to the Portfolio or its other clients, and conversely, such
research provided by broker-dealers who have executed transaction orders on
behalf of other Subadviser clients may be useful to the Subadviser in carrying
out its obligations to the Portfolio. The receipt of such research is not
expected to reduce the Subadviser's normal independent research activities;
however, it enables the Subadviser to avoid the additional expenses that could
be incurred if the Subadviser tried to develop comparable information through
its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Portfolio to pay such higher commissions, the Subadviser must determine in good
faith that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers viewed
in terms of a particular transaction or the Subadviser's overall
responsibilities to the Portfolio and its other clients. In reaching this
determination, the Subadviser will not attempt to place a specific dollar value
on the brokerage and research services provided or to determine what portion of
the compensation should be related to those services.
The Subadviser is authorized to use research services provided by and to
place portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the Fund or shares of other Flex-funds funds or
Flex-Partners funds to the extent permitted by law.
The Subadviser may allocate brokerage transactions to broker-dealers who
have entered into arrangements with the Subadviser under which the broker-dealer
allocates a portion of the commissions paid by the Portfolio toward payment of
the Portfolio or the Fund's expenses, such as transfer agent fees of Mutual
Funds Service Co. or custodian fees. The transaction quality must, however, be
comparable to those of other qualified broker-dealers. For the year ended
December 31, 1996, directed brokerage payments of $3,377 were made to reduce
expenses of the Portfolio.
The Trustees of the Portfolio periodically review the Subadviser's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Portfolio and review the commissions
paid by the Portfolio over representative periods of time to determine if they
are reasonable in relation to the benefits to the Portfolio.
From time to time, the Trustees of the Portfolio will review whether the
recapture for the benefit of the Portfolio of some portion of the brokerage
commissions or similar fees paid by the Portfolio on portfolio transactions is
legally permissible and advisable.
B-19
<PAGE>
The Portfolio seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Trustees of the Portfolio intend to continue to review
whether recapture opportunities are available and are legally permissible and,
if so, to determine in the exercise of their business judgment, whether it would
be advisable for the Portfolio to seek such recapture.
Although the Trustees and officers of the Portfolio are substantially the
same as those of other portfolios managed by the Manager, investment decisions
for the Portfolio are made independently from those of other portfolios managed
by the Manager or accounts managed by affiliates of the Manager. It sometimes
happens that the same security is held in the portfolio of more than one of
these funds or accounts. Simultaneous transactions are inevitable when several
portfolios are managed by the same investment adviser, particularly when the
same security is suitable for the investment objective of more than one
portfolio.
When two or more portfolios are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the portfolios involved to be
equitable to each portfolio. In some cases this system could have a detrimental
effect on the price or value of the security as far as the Portfolio is
concerned. In other cases, however, the ability of the Portfolio to participate
in volume transactions will produce better executions and prices for the
Portfolio. It is the current opinion of the Trustees of the Portfolio that the
desirability of retaining the Manager as investment adviser to the Portfolio
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
During the year ended December 31, 1996, the Utilities Stock Portfolio paid
total commissions of $13,594 ($8,202 in 1995) on the purchase and sale of
portfolio securities.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Equity securities for which the primary
market is the U.S. are valued at last sale price or, if no sale has occurred, at
the closing bid price. Equity securities for which the primary market is outside
the U.S. are valued using the official closing price or the last sale price in
the principal market where they are traded. If the last sale price (on the local
exchange) is unavailable, the last evaluated quote or last bid price is normally
used. Short-term securities less than 60 days to maturity are valued either at
amortized cost or at original cost plus accrued interest, both of which
approximate current value. Fixed-income securities are valued primarily by a
pricing service that uses a vendor security valuation matrix which incorporates
both dealer-supplied valuations and electronic data processing techniques.
This twofold approach is believed to more accurately reflect fair value
because it takes into account appropriate factors such as institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data without exclusive reliance
upon quoted, exchange, or over-the-counter prices.
B-20
<PAGE>
Securities and other assets for which there is no readily available market
are valued in good faith by the Board of Trustees. The procedures set forth
above need not be used to determine the value of the securities owned by the
Portfolio if, in the opinion of the Board of Trustees, some other method (e.g.,
closing over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments, and
repurchase agreements, is substantially completed each day at the close of the
New York Stock Exchange (NYSE).
The values of any such securities held by the Portfolio are determined as
of such time for the purpose of computing the Portfolio's net asset value.
Foreign security prices are furnished by independent brokers or quotation
services which express the value of securities in their local currency. The
Manager gathers all exchange rates daily at the close of the NYSE using the last
quoted price on the local currency and then translates the value of foreign
securities from their local currency into U.S. dollars. Any changes in the value
of forward contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of net asset value. If an extraordinary event that
is expected to materially affect the value of a portfolio security occurs after
the close of an exchange on which that security is traded, then the security
will be valued as determined in good faith by the Board of Trustees.
PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the Fund's net asset value over
the period. Average annual returns will be calculated by determining the growth
or decline in value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period while average annual returns are a convenient
means of comparing investment alternatives, investors should realize that the
Fund's performance is not constant over time, but changes from year to year, and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
B-21
<PAGE>
Below is an example of the total return calculation for the Fund assuming a
hypothetical investment of $1,000 at the beginning of each period
Total return is computed by finding the average annual compound d rates of
return over the length of the bas periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula
P(1+T)(to the nth power) = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
<TABLE>
<CAPTION>
THE TOTAL RETURN UTILITIES FUND:
TOTAL RETURN
------------------------------------------------------
1.532 Years
1 Year 5 Years Since Inception
Period Ended Period Ended Period Ended
DECEMBER 31,1996 DECEMBER 31, 1996 DECEMBER 31, 1996
---------------- ----------------- -----------------
<S> <C> <C> <C>
Value of Account
At end of Period $ 1,133.30 $ 0.00 $ 1,303.23
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
----------- ------------ -----------
Base Period Return $ 133.30 $ 0.00 $ 303.23
Average Total Return 13.33% 0.00 18.88%
</TABLE>
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or series of redemptions over any time
period Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis. Total
returns, yields, and other performance information may be quoted numerically, or
in a table, graph, or similar illustration.
B-22
<PAGE>
NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted net asset value includes any distributions paid by the
Fund and reflects all elements of its return. Unless otherwise indicated, the
Fund's adjusted net asset values are not adjusted for sales charges, if any.
MOVING AVERAGES. The Fund may illustrate performance using moving averages.
A long-term moving average is the average of each week's adjusted closing net
asset value for a specified period. A short-term moving average is the average
of each day's adjusted closing net asset value for a specified period. Moving
Average Activity Indicators combine adjusted closing net asset values from the
last business day of each week with moving averages for a specified period to
produce indicators showing when a net asset value has crossed, stayed above, or
stayed below its moving average.
HISTORICAL FUND RESULTS. The Fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as mutual
fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the performance
of mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and total return is prepared without regard
to tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.
From time to time, the Fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of
Flex-Partners or Flex-funds funds to one another in appropriate categories over
specific periods of time may also be quoted in advertising.
In advertising materials, the Trust may reference or discuss its products
and services, which may include: other Flex-Partners or Flex-funds funds;
retirement investing; the effects of periodic investment plans and dollar; cost
averaging; saving for college; and charitable giving. In addition, the Fund may
quote financial or business publications and periodicals, including model
portfolios or allocations, as they relate to Fund management, investment
philosophy, and investment techniques. The Fund may also reprint, and use as
advertising and sales literature, articles from Reflexions, a quarterly magazine
provided free of charge to Flex-Partners and Flex-funds shareholders.
VOLATILITY. The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. All measures of volatility and correlation are calculated using averages of
historical data.
B-23
<PAGE>
MOMENTUM INDICATORS indicate the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period.
The Fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
The Fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a 31%
rate. An equivalent tax deterred investment would have an after tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is
calculated each day the NYSE is open for trading. The NYSE has designated the
following holiday closings for 1997: New Year's Day, Washington's Birthday
(observed), Good Friday, Memorial Day (observed), Independence Day (observed),
Labor Day, Thanksgiving Day, and Christmas Day (observed). Although the
Subadviser expects the same holiday schedule, with the addition of New Year's
Day, to be observed in the future, the NYSE may modify its holiday schedule at
any time.
The Fund's net asset value is determined as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if
trading on the NYSE is restricted or as permitted by the SEC. To the extent that
portfolio securities are traded in other markets on days when the NYSE is
closed, the Fund's NAV may be affected on days when investors do not have access
to the Fund to purchase or redeem shares.
Shareholders of the Fund will be able to exchange their shares for shares
of any mutual fund that is a series of The Flex-funds (each a "Flex-funds'
Fund"). No fee or sales load will be imposed upon the exchange.
B-24
<PAGE>
Additional details about the exchange privilege and prospectuses for each
of the Flex-funds Funds are available from the Fund's Transfer Agent. The
exchange privilege may be modified, terminated or suspended on 60 days' notice
and the Fund has the right to reject any exchange application relating to such
fund's shares. The 60 day notification requirement may be waived if (i) the only
effect of a modification would be to reduce or eliminate an administrative fee
redemption fee, or deferred sales charge ordinarily payable at the time of an
exchange, or (ii) the Fund suspends the redemption of the shares to be exchanged
as permitted under the 1940 Act or the rules and regulations thereunder, or the
fund to be acquired suspends the sale of its shares because it is unable to
invest amounts effectively in accordance with its investment objective and
policies.
In the Prospectus, the Fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by any
person or group if, in the Subadviser's judgment, the Fund would be unable to
invest effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
Any redemptions in kind made by the Fund will be of readily marketable
securities.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount
of $100 or more automatically invested in shares of the Fund monthly by
authorizing his or her bank account to be debited to invest specified dollar
amounts in shares of the Fund. The investor's bank must be a member of the
Automatic Clearing House System.
Further information about these programs and an application form can be
obtained from the Fund's Transfer Agent.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available
for shareholders having shares of the Fund with a minimum value of $10,000,
based upon the offering price. The plan provides for monthly, quarterly or
annual checks in any amount, but not less than $100 which amount is not
necessarily recommended).
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. The Transfer Agent
acts as agent for the shareholder in redeeming sufficient full and fractional
shares to provide the amount of the periodic withdrawal payment. The plan may be
terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.
B-25
<PAGE>
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, the Subadviser may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested until you
provide the Subadviser with alternate instructions.
DIVIDENDS. A portion of the Fund's dividends derived from certain U.S.
government obligations may be exempt from state and local taxation. Gains
(losses) attributable to foreign currency fluctuations are generally taxable as
ordinary income and therefore will increase (decrease) dividend distributions.
The Fund will send each shareholder a notice in January describing the tax
status of dividends and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the Fund on
the sale of securities by the Portfolio and distributed to shareholders of the
Fund are federally taxable as long-term capital gains regardless of the length
of time shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Fund and such shares are
held six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Because the Fund does not
currently anticipate that securities of foreign issuers will constitute more
than 25% of the Portfolio's total assets at the end of its fiscal year,
shareholders should not expect to claim a foreign tax credit or deduction on
their federal income tax returns with respect to foreign taxes withheld.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be liable
for federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes at the Fund level, the Fund intends to distribute
substantially all of its net investment income (consisting of the income it
earns from its investment in the Portfolio, less expenses) and net realized
capital gains within each calendar year as well as on a fiscal year basis. The
Fund intends to comply with other tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of the Fund's
gross income for each fiscal year. Gains from some forward currency contracts,
futures contracts, and options are included in this 30% calculation, which may
limit the Fund's investments in such instruments.
B-26
<PAGE>
If the Portfolio purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs) in the Internal Revenue
Code, it may be subject to U.S. federal income tax on a portion of any excess
distribution or gain from the disposition of such shares. Interest charges may
also be imposed on the Portfolio with respect to deferred taxes arising from
such distributions or gains.
The Fund is treated as a separate entity from the other funds of The
Flex-funds Trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Fund and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
Fund distributions. Investors should consult their tax advisers to determine
whether the Fund is suitable to their particular tax situation.
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. (the "Manager") is the investment adviser and
manager for, and has an Investment Advisory Contract with, the Portfolio.
Pursuant to the Investment Advisory Contract with the Portfolio, the
Manager, subject to the supervision of the Portfolio's Board of Trustees and in
conformity with the stated objective and policies of the Fund, manages both the
investment operations of the Fund and the composition of the Portfolio's
portfolio, including the purchase, retention, disposition and loan of
securities. In connection therewith, the Manager is obligated to keep certain
books and records of the Portfolio. The Manager also administers the Fund's
corporate affairs, and in connection therewith, furnishes the Fund with office
facilities, together with those ordinary clerical and bookkeeping services which
are not being furnished by Star Bank, N.A., the Portfolio's custodian and Mutual
Funds Service Co., the Fund's transfer and disbursing agent The management
services of the Manager are not exclusive under the terms of the Investment
Advisory Agreement and the Manager is free to, and does, render management
services for others.
The Investment Advisory Contract for the Portfolio was separately approved
by a vote of a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940) of the Portfolio. The Investment Advisory Contract is to remain in force
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
B-27
<PAGE>
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days prior written notice by Majority Vote of the
Portfolio, by the Trustees of the Portfolio, or by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities which are not
readily attributable to a particular fund are allocated among all of the Trust's
funds. Thus, each fund pays its proportionate share of: the fees of the Trust's
independent auditors, legal counsel, custodian, transfer agent and accountants;
insurance premiums; the fees and expenses of Trustees who do not receive
compensation from R. Meeder & Associates or Miller/Howard Investments, Inc.;
association dues; the cost of printing and mailing confirmations, prospectuses
proxies, proxy statements, notices and reports to existing shareholders; state
registration fees; distribution expenses within the percentage limitations of
each Class of Shares' distribution and service plan, including the cost of
printing and mailing of prospectuses and other materials incident to soliciting
new accounts; and other miscellaneous expenses.
The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Adviser or Subadviser; registration fees; membership
dues allocable to the Portfolio; fees and expenses of independent accountants,
legal counsel and any transfer agent or accountant of the Portfolio; insurance
premiums and other miscellaneous expenses.
Expenses of the Portfolio also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions; fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager under the Investment Advisory Contract and other
miscellaneous expenses.
The Board of Trustees of the Trust believes that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if it retained the services of an
investment adviser and the assets of the Fund were invested directly in the type
of securities being held by the Portfolio.
B-28
<PAGE>
The Manager earns an annual fee, payable in monthly installments as
follows. The fee for the Portfolio is based upon the average net assets of the
Portfolio and is at the rate of 1% of the first $50 million, 0.75% of the next
$50 million and 0.60% in excess of $100 million of average net assets.
For the year ended December 31, 1996, the Utilities Stock Portfolio paid
fees to the Manager totaling $65,190 ($14,297 in 1995).
R. Meeder & Associates, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors and the principal offices are
as set forth as follows: Robert S. Meeder, Sr., Chairman and Sole Director;
Philip A. Voelker, Senior Vice President and Chief Operating Officer; Donald F.
Meeder, Vice President and Secretary; Sherrie L. Acock, Vice President; Robert
D. Baker, Vice President; Robert S. Meeder, Jr., President; Wesley F. Hoag, Vice
President and General Counsel; Steven T. McCabe, Vice President; and Roy E.
Rogers, Vice President. Mr. Robert S. Meeder, Sr. is President and a Trustee of
the Trust and the Portfolio. Each of Mr. Robert S. Meeder, Jr. and Mr. Philip A.
Voelker is a Trustee and officer of the Portfolio and a Trustee and officer of
the Trust. Each of Donald F. Meeder, Wesley F. Hoag and Steven T. McCabe is an
officer of the Trust and the Portfolio.
INVESTMENT SUBADVISER
Miller/Howard Investments, Inc., 141 Upper Byrdcliffe Road, P.O. Box 549,
Woodstock, New York 12498, serves as the Portfolio's Subadviser. Lowell G.
Miller controls the Subadviser through the ownership of voting common stock.
Lowell G. Miller is a Trustee of the Trust, the Portfolio and The Flex-Partners,
mutual funds whose corresponding portfolios are also advised by the Manager. The
Investment Subadvisory Agreement provides that the Subadviser shall furnish
investment advisory services in connection with the management of the Portfolio.
In connection therewith, the Subadviser is obligated to keep certain books and
records of the Portfolio. The Manager continues to have responsibility for all
investment advisory services pursuant to the Investment Advisory Agreement and
supervises the Subadviser's performance of such services. Under the Investment
Subadvisory Agreement, the Manager, not the Portfolio, pays the Subadviser a
fee, computed daily and payable monthly, computed at the rate of .00% of the
first $10 million, .40% of the next $50 million, .30% of the next $40 million
and .25% in excess of $100 million of the Portfolio's average net assets.
The Investment Subadvisory Agreement provides that the Subadviser will not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Portfolio, except a loss resulting from misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment
Subadvisory Agreement provides that it will terminate automatically if assigned,
B-29
<PAGE>
and that it may be terminated by the Manager without penalty to the Fund or the
Portfolio by the Manager, the Trustees of the Portfolio or by the vote of a
majority of the outstanding voting securities of the Portfolio upon not less
than 30 days written notice. The Investment Subadvisory Agreement will continue
in effect for a period of more than two years from the date of execution only so
long as such continuance is specifically approved at least annually in
conformity with the 1940 Act. The Investment Subadvisory Agreement was approved
by the Board of Trustees of the Portfolio, including all of the Trustees who are
not parties to the contract or "interested persons" of any such party, and by
the shareholders of the Fund.
DISTRIBUTION PLAN
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the
"Act") describes the circumstances under which an investment company such as the
Fund may, directly or indirectly, bear the expenses of distributing its shares.
The Rule defines such distribution expenses to include the cost of any activity
which is primarily intended to result in the sale of Fund shares.
The Distribution Plan permits, among other things, payment for distribution
in the form of commissions and fees, advertising the services of public
relations consultants, and direct solicitation. possible recipients include
securities brokers, attorneys, accountants, investment advisers, investment
performance consultants, pension actuaries, and service organizations. Another
class of recipients is banks. Currently, The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting, selling or distributing securities. Since the only
function of banks who may be engaged as participating organizations, is to
perform administrative and shareholder servicing functions, the Fund believes
that such laws should not preclude banks from acting as participating
organizations; however, future changes in either federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as judicial or administrative decisions or
interpretations of statutes or regulations, could prevent a bank from continuing
to perform all or a part of its shareholder service activities. If a bank were
prohibited from so acting, its shareholder customers would be permitted to
remain Fund shareholders and alternative means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the Fund might occur and a shareholder being serviced by such bank might no
longer be able to avail himself, or itself, of any automatic investment or other
services then being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
B-30
<PAGE>
The Fund may expend as much as, but not more than .25% of its average net
assets annually pursuant to the Plan. A report of the amounts so expended by the
Fund and the purpose of the expenditures must be made to and reviewed by the
Board of Trustees at least quarterly. In addition, the Plan provides that it may
not be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Plan without shareholder approval of the Plan, and
that other material amendments of the Plan must be approved by the Board of
Trustees, and by the Trustees who are not "interested persons" of the Trust (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan or in the related service agreements, by vote cast in
person at a meeting called for the purpose of voting on the Plan.
The Plan is terminable at any time by vote of a majority of the Trustees
who are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Plan or in any of the related service
agreements or by vote of a majority of the Fund's shares. Any service agreement
terminates upon assignment and is terminable without penalty at any time by a
vote of a majority of the Trustees who are not "interested persons" and who have
no direct or indirect financial interest in the operation of the Plan or in the
related service agreements, upon not more than 60 days written notice to the
service organization, or by the vote of the holders of a majority of the Fund's
shares, or, upon 15 days notice, by a party to a service agreement.
The Plan was approved by the Trust's Board of Trustees who made a
determination that there is a reasonable likelihood that the Plan will benefit
the Fund. The Plan was approved by shareholders and it will continue in effect
only if approved at least annually by the Board of Trustees. The Trust has
entered into agreements whereby a Trustee and a company with which one of the
Trustees is affiliated will be paid for their assistance in explaining and
interpreting the Fund, its investment objectives and policies, and the Trust's
retirement plans, to clients. These include: Russel G. Means, a Trustee of the
Trust and the Portfolios; and the firm of Ogle and Waters, Inc. with which
Walter L. Ogle, a Trustee of the Trust and the Portfolios, is affiliated. Total
payments made by the Fund to parties with service agreements for the year ended
December 31, 1996 amounted to $1,343 ($85 in 1995). In addition, expenditures
were approved by the Board of Trustees in the amount of $8,345 for the printing
and mailing of prospectuses, periodic reports and other sales materials to
prospective investors; $4,711 for advertising; $9,124 for the services of public
relations and marketing consultants; and $96 for the cost of special telephone
service to encourage the sale of Fund shares. These expenditures amounted to
$22,276 for the year ended December 31, 1996 ($4,705 in 1995).
TRUSTEES AND OFFICERS
The Trust and the Portfolio are managed by their trustees and officers.
Their names, positions and principal occupations during the past five years are
listed below. Except as indicated, each individual has held the office shown or
other offices in the same company for the last five years. Except as otherwise
shown, all persons named as Trustees also serve in similar capacities for all
other mutual funds advised by the Manager, including The Flex-funds, The
Flex-Partners and the corresponding portfolios of the Flex-Partners and The
Flex-funds (collectively, the "Fund Complex"). Unless otherwise noted, the
B-31
<PAGE>
business address of each Trustee and officer is 6000 Memorial Drive, Dublin,
Ohio 43017, which is also the address of the Manager. Those Trustees who are
"interested persons" (as defined in the Investment Company Act of 1940) by
virtue of their affiliation with the Fund Complex, the Manager or the Subadviser
are indicated by an asterisk (*).
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
- --------------------- ------------- --------------------
<S> <C> <C>
ROBERT S. MEEDER, SR.*+, 68 Trustee/President Chairman, R. Meeder & Associates,
Inc., an investment adviser.
MILTON S. BARTHOLOMEW, 68 Trustee Retired; formerly a practicing
1424 Clubview Boulevard, S. attorney in Columbus, Ohio; member
Worthington, OH 43235 of each fund's Audit Committee.
ROGER D. BLACKWELL, 56 Trustee Professor of Marketing and Consumer
Blackwell Associates, Inc. Behavior, The Ohio State University;
3380 Tremont Road President of Blackwell Associates,
Columbus, OH 43221 Inc., a strategic consulting firm.
JOHN M. EMERY, 76 Trustee Retired; formerly Vice President and
2390 McCoy Road Treasurer of Columbus & Southern
Columbus, OH 43220 Ohio Electric Co.; member of each
fund's Audit Committee.
RICHARD A. FARR, 78 Trustee President of R&R Supply Co. and
3250 W. Henderson Road Farrair Concepts, Inc., two
Columbus, OH 43220 companies involved in engineering,
consulting and sales of heating and
air conditioning equipment.
WILLIAM L. GURNER*, 50 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment adviser
5350 Poplar Avenue, Suite 490 (since January 1995); Manager of
Memphis, TN 38119 Trust Investments of Federal Express
Corporation (1987-1994).
B-32
<PAGE>
<S> <C> <C>
RUSSEL G. MEANS, 71 Trustee Retired; formerly Chairman of
5711 Barry Trace Employee Benefit Management
Dublin, OH 43017 Corporation, consultants and
administrators of self-funded health
and retirement plans.
ROBERT S. MEEDER, JR.*+, 36 Trustee/Vice President President of R. Meeder & Associates,
Inc.
LOWELL G. MILLER*, 48 Trustee President, Miller/Howard
Miller/Howard Investments, Inc. Investments, Inc., an investment
141 Upper Byrdcliffe Road adviser whose clients include the
P. O. Box 549 Portfolio.
Woodstock, NY 12498
WALTER L. OGLE, 58 Trustee Executive Vice President of Aon
400 Interstate North Parkway Consulting, an employee benefits
Suite 1630 consulting group.
Atlanta, GA 30339
PHILIP A. VOELKER*+, 43 Trustee/Vice President Senior Vice President and Chief
Operating Officer of R. Meeder &
Associates, Inc.
JAMES B. CRAVER*, 53 Assistant Secretary Practicing Attorney; Special Counsel
42 Miller Hill Road to Flex-Partners, Flex-funds and
Box 811 their Portfolios; Senior Vice
Dover, MA 02030 President of Signature Financial
Group, Inc. (January 1991 to August
1995).
STEVEN T. MCCABE*+, 32 Assistant Treasurer Vice President, R. Meeder &
Associates, Inc., and Vice President
of Mutual Funds Service Co.
DONALD F. MEEDER*+, 58 Secretary/Treasurer Vice President of R. Meeder &
Associates, Inc., and President of
Mutual Funds Service Co.
WESLEY F. HOAG*+, 40 Vice President Vice President and General Counsel
of R. Meeder & Associates, Inc.
(since July 1993); Attorney, Porter,
Wright, Morris & Arthur, a law firm
(October 1984 to June 1993).
B-33
<PAGE>
<FN>
* Interested Person of the Trust (as defined in the Investment Company Act of
1940), Flex-Partners and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
</FN>
</TABLE>
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F.
Meeder's uncle.
The following table shows the compensation paid by the Fund and the Fund
Complex as a whole to the Trustees of the Trust and the Fund Complex during the
fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or
Retirement
Benefits Estimated Total
Aggregate Accrued as Annual Compensation
Compensation Part of Benefits from Registrant
from the Portfolio Portfolio or Upon and Fund Complex
TRUSTEE AND THE FUND FUND EXPENSES RETIREMENT PAID TO TRUSTEES
- ------- ------------------ ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew None None None $7,550
John M. Emery $933 None None $7,550
Richard A. Farr $833 None None $6,750
William F. Gurner None None None $5,250
Russel G. Means None None None $6,750
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle None None None $6,000
Philip A. Voelker None None None None
Roger D. Blackwell $646 None None $5,250
</TABLE>
B-34
<PAGE>
+
Neither the Trust nor any other member of the Fund Complex pays any pension
or retirement benefits to any Trustee or officer or maintains any plan for such
purpose.
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios. In addition, each such Trustee
earns an annual fee, payable quarterly, based on the average net assets in each
Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of
the amount of average net assets between $500 million and $1 billion; 0.0025% of
the amount of average net assets exceeding $1 billion. For the other four
Portfolios, including the Portfolio, each Trustee is paid a fee of 0.00375% of
the amount of each Portfolio's average net assets exceeding $15 million. Mr.
Bartholomew comprises the Audit Committee for each corresponding Portfolio of
The Flex-funds and the Flex-Partners Trusts. Mr. Bartholomew is paid $500 for
each meeting of the Audit Committees attended regardless of the number of Audit
Committees on which he serves. Trustee fees for the Utilities Stock Portfolio
totaled $4,010 for the year ended December 31, 1996 ($2,875 in 1995). Audit
Committee fees for the Utilities Stock Portfolio totaled $160 for the year ended
December 31, 1996 ($66 in 1995). All other officers and Trustees serve without
compensation from any Portfolio.
The Trustees and officers of the Fund and the Portfolio own, in the
aggregate, less than 1% of the Fund's total outstanding shares.
FLEX-FUNDS RETIREMENT PLANS
The Trust offers retirement plans which are described in the Prospectus.
Minimum purchase requirements for retirement plan accounts are subject to the
same requirements as regular accounts, except for an IRA, which has a $500
minimum purchase requirement. Information concerning contribution limitations
for IRA accounts are described below.
DEDUCTIBLE CONTRIBUTIONS
Individual Retirement Accounts (IRA):
Regular - Contributions to an IRA (except for rollovers) cannot exceed the
amount of compensation includible in gross income for the tax year or $2,000,
whichever is less. If neither you nor your spouse is an active participant in an
employer plan, you may make a contribution up to this limit and take a deduction
for the entire amount contributed. If you or your spouse is an active
participant and your adjusted gross income (AGI) is below a certain level you
may also make a contribution and take a deduction for the entire amount
contributed. However, if you or your spouse is an active participant and your
AGI is above the specified level, the dollar limit of the deductible
contribution you make to your IRA may be reduced or eliminated.
B-35
<PAGE>
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. Contributions for a year may be made during
such year or by the tax return filing date for such year (not including
extensions), if irrevocably designated for such year, in writing, when such
contribution is made.
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA.
Spousal - You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
For a tax year before 1997, the spousal contribution rules limit the
aggregate amount of the contributions to both of your IRAs for a year to the
lesser of $2,250 or the amount of the compensated spouse's compensation for such
year. The contributions do not have to be split equally between the IRAs
belonging to you and your spouse. However, the total contribution to either of
your IRAs may not exceed $2,000.
For tax years after 1996, if you are the compensated spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established by
your spouse as the depositor or grantor of his or her own IRA and your spouse
becomes subject to all of the privileges, rules, and restrictions generally
applicable to IRAs.
Active Participant - If you are not self-employed, your Form W-2 should
indicate your participation status. If you have questions about your
participation status, check with your employer or your tax advisor.
You are covered by a retirement plan for a year if your employer or union
has a retirement plan under which money is added to your account, or you are
eligible to earn retirement credits, even if you are not yet vested in your
retirement plan. Also, if you make required contributions or voluntary
contributions to an employer-sponsored retirement plan, you are an active
participant.
Adjusted Gross Income (AGI) - If you are an active participant, the amount
of your AGI for the year (if you and your spouse file a joint tax return, your
combined AGI) will be used to determine if you can make a deductible IRA
contribution. If you are at or below a certain AGI level, called the Threshold
Level, you can make a deductible contribution under the same rules as a person
who is not an active participant.
B-36
<PAGE>
If you are single, or treated as being single, your AGI Threshold Level is
$25,000. If you are married and file a joint tax return, your AGI Threshold
Level is $40,000. If you are married, file a separate tax return, and live with
your spouse for any part of the year, your AGI Threshold Level is $0.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make rollover
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. provides accounting, stock transfer, dividend
disbursing, and shareholder services to the Fund and the Portfolio. The minimum
annual fee for accounting services for the Portfolio is $7,500. Subject to the
applicable minimum fee, the Portfolio's annual fee, payable monthly, is computed
at the rate of 0.15% of the first $10 million, 0.10% of the next $20 million,
0.02% of the next $50 million and 0.01% in excess of $80 million of the
Portfolio's average net assets. Subject to a $4,000 annual minimum fee, each
class of shares of the Fund will incur an annual fee, payable monthly, which
will be the greater of $15 per shareholder account or 0.10% of the Fund's
average net assets, payable monthly, for stock transfer and dividend disbursing
services. Mutual Funds Service Co. also serves as Administrator to the Fund
pursuant to an Administration Services Agreement which was effective February 1,
1995. Services provided to the Fund include coordinating and monitoring any
third party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
administrative fee, payable monthly, of .05% of the Fund's average net assets.
These fees are reviewable annually by the respective Trustees of the Trust and
the Portfolio.
For the year ended December 31, 1996, total payments to Mutual Funds
Service Co. by the Fund and the Portfolio amounted to $14,688.
B-37
<PAGE>
The general counsel for the Manager was primarily responsible for preparing
and filing with the Securities and Exchange Commission (i) a post-effective
amendment to the registration statement for the Trust to add the Fund as an
additional series of the Trust and (ii) the registration statement for the
Portfolio. Charges in the amounts of $12,000 and $5,000 for such legal services
rendered by the Manager on behalf of the Fund and the Portfolio, respectively,
will be paid and amortized by the Portfolio and the Fund as organization
expenses over a period not exceeding 60 months.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. The assets of the Trust received for the issue or sale
of the shares of the Fund and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially allocated to
the Fund and constitute the underlying assets of the Fund. The underlying assets
of the Fund are segregated on the books of account, and are to be charged with
the liabilities with respect to the Fund and with a share of the general
expenses of the Trust. Expenses with respect to the Trust are to be allocated in
proportion to the asset value of the respective funds except where allocations
of direct expense can otherwise be fairly made. The officers of the Trust,
subject to the general supervision of the Board of Trustees, have the power to
determine which expenses are allocable to a given fund, or which are general or
allocable to all of the funds. In the event of the dissolution or liquidation of
the Trust, shareholders of each fund are entitled to receive as a class the
underlying assets of such fund available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees
include a provision limiting the obligations created thereby to the Trust and
its assets.
The Declaration of Trust provides for indemnification out of each fund's
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that each Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations. The Manager believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects Trustees against any liability to
which they would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
B-38
<PAGE>
VOTING RIGHTS. The Fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each share you own. The
shares have no preemptive or conversion rights; the voting and dividend rights,
the right of redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set forth under
the heading "Shareholder and Trustee Liability" above. Shareholders representing
10% or more of the Trust or the Fund may, as set forth in the Declaration of
Trust; call meetings of the Trust or the Fund for any purpose related to the
Trust or Fund, as the case may be, including, in the case of a meeting of the
entire Trust, the purpose of voting on removal of one or more Trustees. The
Trust or any Fund may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the Trust or the
Fund, as determined by the current value of each shareholder's investment in the
Fund or Trust. If not so terminated, the Trust and the Fund will continue
indefinitely.
CUSTODIAN Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is
custodian of the assets of the Portfolio. The custodian is responsible for the
safekeeping of the Portfolio's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the investment
policies of the Portfolio or in deciding which securities are purchased or sold
by the Portfolio. The Portfolio may, however, invest in obligations of the
custodian and may purchase or sell securities from or to the custodian.
AUDITOR. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
serves as the trust's independent accountant. KPMG audits financial statements
for the Fund and provides other audit, tax, and related services.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of April 8, 1997, the following persons owned 5% or more of the Fund's
outstanding shares of beneficial interest:
<TABLE>
<CAPTION>
Name of Name and Address Amount of Record Percent
Fund of Beneficial Owner and Beneficially of Fund
- ---- ------------------- ---------------- -------
<S> <C> <C> <C>
Total Return Douglas James 32,000.000 9.2%
Utilities Fund c/o Key Trust Co.
P. O. Box 94871
Cleveland, OH 44101
+
B-39
<PAGE>
<S> <C> <C> <C>
Total Return Frieda K. Stewart 17,598.560 5.1%
Utilities Fund c/o R. Meeder & Associates
6000 Memorial Drive
Dublin, OH 43017
Total Return Martin Obsatz 22,481.830 6.5%
Utilities Fund Phyllis Obsatz JTWROS
2195 Glasco Turnpike
Woodstock, NY 12498
<FN>
The shareholders listed above own shares for investment purposes and have no
known intention of exercising any control of the Fund.
</FN>
</TABLE>
FINANCIAL STATEMENTS
Financial statements for the Fund and the Portfolio are presented on the
following pages.
B-40
<PAGE>
<TABLE>
<CAPTION>
MUTUAL FUND PORTFOLIO
Portfolio of Investments as of December 31, 1996
SHARES OR
FACE AMOUNT VALUE
<S> <C> <C>
MUTUAL FUNDS - 59.5%
Aim Constellation Fund 86 $2,185
Aim Weingarten Fund 99 1,832
Charles Schwab Money Market Fund 16,172,563 16,172,563
Fidelity Blue Chip Fund 235,580 7,701,108
Fidelity Core Money Market Fund 19,964,557 19,964,557
Fidelity Fund 236,798 5,848,911
Fidelity Growth & Income Fund 251,433 7,726,531
Mutual Series Fund 58 5,412
PBHG Growth Fund 624 16,398
Rydex U.S. Government Money Market Fund 5,927,310 5,927,310
Rydex Nova Fund 721,714 12,666,082
T. Rowe Price New Era Fund 132 3,443
T. Rowe Price New Horizons Fund 151 3,287
Value Line Fund 292,179 5,636,131
TOTAL MUTUAL FUNDS ==========
(Cost $81,126,588) 81,675,750
----------
U.S.TREASURY BILLS - 2.9%
*U.S. Treasury Bill, 5.34%, due 3/06/97 $1,650,000 1,635,222
*U.S. Treasury Bill, 5.00%, due 3/06/97 1,000,000 991,044
*U.S. Treasury Bill, 4.84%, due 3/06/97 900,000 891,940
*U.S. Treasury Bill, 4.90%, due 3/06/97 200,000 198,209
*U.S. Treasury Bill, 4.99%, due 3/06/97 150,000 148,657
U.S. Treasury Bill, 4.90%, due 1/09/97 30,100 30,068
TOTAL U.S. TREASURY BILLS =========
(Cost $3,894,698) 3,895,140
---------
<FN>
*Pledged $2,960,000 face amount as collateral on futures contracts
</FN>
B-41
<PAGE>
<CAPTION>
MUTUAL FUND PORTFOLIO, continued
<S> <C> <C>
REPURCHASE AGREEMENTS - 37.6%
(Collateralized by U.S. government
obligations - market value $52,366,298)
Paine Webber Incorporated, dated 12/30/96,
6.35%, due 1/02/97 25,000,000 25,000,000
Prudential Bache Securities, dated 12/31/96,
6.75%, due 1/02/97 14,343,000 14,343,000
State Street Bank, dated 12/31/96,
6.00%, due 1/02/97 12,318,000 12,318,000
TOTAL REPURCHASE AGREEMENTS ==========
(Cost $51,661,000) 51,661,000
----------
TOTAL INVESTMENTS - 100% ============
(Cost $136,682,286) $137,231,890
------------
CONTRACTS
FUTURES CONTRACTS
Long, S&P 500 futures contracts,
face amount $90,456,750 expiring in March, 1997. 243 (1,773,830)
Long, Midcap futures contracts,
face amount $2,181,100 expiring in March, 1997. 17 (11,475)
-----------
NET PAYABLE FOR FUTURES CONTRACTS SETTLEMENTS (1,785,305)
-----------
See accompanying notes to financial statements
</TABLE>
B-42
<PAGE>
<TABLE>
<CAPTION>
GROWTH STOCK PORTFOLIO
Portfolio of Investments as of December 31, 1996
SHARES OR
INDUSTRIES/CLASSIFICATIONS FACE AMOUNT VALUE
<S> <C> <C>
COMMON STOCKS - 67.6%
AEROSPACE/DEFENSE - (3.4%)
Boeing Company 7,850 $835,044
--------
ALUMINUM - (2.0%)
Aluminum Company of America 7,850 500,438
--------
AUTO AND TRUCK - (1.8%)
General Motors 7,850 437,637
--------
BANKING - (3.1%)
J.P. Morgan & Company, Inc. 7,850 766,356
--------
BEVERAGE - (1.7%)
Coca Cola 7,850 413,106
--------
CHEMICAL (BASIC) - (4.3%)
Dupont 7,850 740,844
Union Carbide 7,850 320,869
========
1,061,713
--------
CHEMICAL (DIVERSIFIED) - (2.7%)
Minnesota Mining & Manufacturing 7,850 650,569
--------
COMPUTER AND PERIPHERALS - (4.8%)
International Business Machines 7,850 1,185,350
--------
DRUG - (2.5%)
Merck & Company, Inc. 7,850 622,112
--------
B-43
<PAGE>
<CAPTION>
GROWTH STOCK PORTFOLIO, continued
<S> <C> <C>
ELECTRICAL EQUIPMENT - (3.8%)
General Electric Company 7,850 776,169
Westinghouse Electric Corporation 7,850 156,018
========
932,187
--------
FINANCIAL SERVICES - (1.8%)
American Express 7,850 443,525
--------
HOUSEHOLD PRODUCTS - (3.4%)
Procter & Gamble 7,850 843,875
--------
MACHINERY (CONSTRUCTION & MINING) - (2.4%)
Caterpillar Inc. 7,850 590,713
--------
MULTIFORM - (4.3%)
Allied-Signal Inc. 7,850 525,950
United Technologies 7,850 518,100
========
1,044,050
--------
PAPER AND FOREST PRODUCTS - (1.3%)
International Paper 7,850 316,943
--------
PETROLEUM (INTEGRATED) - (8.3%)
Chevron Corporation 7,850 510,250
Exxon 7,850 769,300
Texaco 7,850 770,281
========
2,049,831
--------
B-44
<PAGE>
<CAPTION>
Growth Stock Portfolio, continued
<S> <C> <C>
PRECISION INSTRUMENT - (2.7%)
Eastman Kodak 7,850 629,963
Imation Corporation 785 22,078
========
652,041
--------
RECREATION - (2.2%)
Walt Disney Company 7,850 546,556
--------
RESTAURANT - (1.5%)
McDonalds Corporation 7,850 355,213
--------
RETAIL STORE - (2.2%)
Sears 7,850 362,081
Woolworth Corporation 7,850 171,719
========
533,800
--------
STEEL (INTEGRATED) - (.3%)
Bethlehem Steel 7,850 70,650
--------
TELECOMMUNICATION EQUIPMENT & SERVICES - (1.9%)
American Telephone & Telegraph 7,850 341,475
Lucent Technologies Incorporated 2,544 117,660
========
459,135
--------
TIRE AND RUBBER - (1.6%)
Goodyear Tire & Rubber 7,850 403,294
--------
TOBACCO - (3.6%)
Philip Morris Companies, Inc. 7,850 884,106
TOTAL COMMON STOCKS ==========
(Cost $13,435,117) 16,598,244
----------
B-45
<PAGE>
<CAPTION>
GROWTH STOCK PORTFOLIO, continued
<S> <C> <C>
U.S. TREASURY BILLS - 4.0%
*U.S. Treasury Bill, 5.34%, due 3/06/97 $800,000 792,836
U.S. Treasury Bill, 5.01%, due 3/06/97 100,000 99,105
U.S. Treasury Bill, 4.84%, due 3/06/97 100,000 99,104
U.S. Treasury Bill, 4.90%, due 1/09/97 6,000 5,994
TOTAL U.S. TREASURY BILLS ========
(Cost $996,649) 997,039
--------
<FN>
*Pledged $390,000 face amount as collateral on futures
</FN>
REPURCHASE AGREEMENTS - 28.4%
(Collateralized by U.S. government obligations
- market value $7,047,064)
Paine Webber Incorporated, dated 12/30/96,
6.35%, due 1/02/97 4,000,000 4,000,000
Prudential Bache Securities, dated 12/31/96,
6.75%, due 1/02/97 2,968,000 2,968,000
TOTAL REPURCHASE AGREEMENTS =========
(Cost $6,968,000) 6,968,000
---------
TOTAL INVESTMENTS - 100% ===========
(Cost $21,399,766) $24,563,283
-----------
CONTRACTS
FUTURES CONTRACTS
Long, S&P 500 futures contracts,
face amount $7,817,250 expiring in March, 1997. 21 (153,300)
=========
NET PAYABLE FOR FUTURES CONTRACTS SETTLEMENTS (153,300)
---------
See accompanying notes to financial statements
</TABLE>
B-46
<PAGE>
<TABLE>
<CAPTION>
UTILITIES STOCK PORTFOLIO
Portfolio of Investments as of December 31, 1996
SHARES OR
INDUSTRIES/CLASSIFICATIONS FACE AMOUNT VALUE
<S> <C> <C>
COMMON STOCKS - 88.5%
ELECTRIC/GAS UTILITY - (4.1%)
MDU Resources Group Incorporated 6,100 $ 140,300
Nipsco Industries Incorporated 4,700 186,238
========
326,538
--------
ELECTRIC UTILITY - (18.1%)
Cinergy Corporation 7,900 263,663
Ipalco Enterprises Incorporated 6,000 163,500
KU Energy Corporation 3,300 99,000
LG&E Energy Corporation 8,600 210,700
Pacificorp 10,000 205,000
Public Service Company of Colorado 5,900 229,362
Teco Energy Incorporated 11,000 265,375
========
1,436,600
--------
DIVERSIFIED UTILITY - (1.9%)
Citizens Utilities Company Class B 13,514 150,341
--------
NATURAL GAS (DISTRIBUTOR) - (21.8%)
Bay State Gas Company 2,200 62,150
Brooklyn UN Gas Company 5,900 177,738
Consolidated Natural Gas Company 3,900 215,475
MCN Corporation 6,200 179,025
Nicor Incorporated 1,800 64,350
Pacific Enterprises 7,000 212,625
Panenergy Corporation 5,500 247,500
Transcanada Pipelines Ltd. 8,200 143,500
UGI Corporation 2,000 44,750
Wicor Incorporated 5,800 208,075
Williams Companies Incorporated 4,800 180,000
========
1,735,188
--------
B-47
<PAGE>
<CAPTION>
Utilities Stock Portfolio, continued
<S> <C> <C>
OIL/GAS (DOMESTIC) - (7.9%)
El Paso Natural Gas Company 4,800 242,400
Enron Corporation 3,000 129,375
Questar Corporation 5,300 194,775
Sante Fe Pacific Pipeline Partners 1,600 60,800
========
627,350
--------
TELECOMMUNICATION EQUIPMENT - (2.1%)
LCC International A 5,000 92,500
Vanguard Cellular 4,700 74,025
========
166,525
--------
TELECOMMUNICATION SERVICES - (28.7%)
Airtouch Communications 5,600 141,400
Alltel Corporation 8,100 254,138
Bell Atlantic Corporation 2,400 155,400
Bellsouth Corporation 3,000 121,125
Century Telephone 8,500 262,437
Frontier Corporation 9,500 214,937
GTE Corporation 5,200 236,600
Intellicell Corporation 30,000 221,250
MCI Communications 5,000 163,437
Sprint Corporation 4,400 175,450
Tele Denmark 5,000 136,250
U.S. West Incorporated 6,000 193,500
=========
2,275,924
---------
WATER UTILITY - (3.9%)
American Water Works Incorporated 15,200 313,500
--------
TOTAL COMMON STOCKS
(Cost $6,252,239) 7,031,966
---------
B-48
<PAGE>
<CAPTION>
UTILITIES STOCK PORTFOLIO, continued
<S> <C> <C>
U.S. TREASURY BILLS - 0.0%
U.S. Treasury Bill, 4.90%, due 1/09/97 $ 1,000 1,000
-------
TOTAL U.S. TREASURY BILLS
(Cost $1,000) 1,000
-------
REPURCHASE AGREEMENTS - 11.5%
(Collateralized by U.S. government
obligations - market value $922,418)
Prudential Bache Securities, dated 12/31/96,
6.75%, due 1/02/97 914,000 914,000
-------
TOTAL REPURCHASE AGREEMENTS
(Cost $914,000) 914,000
-------
TOTAL INVESTMENTS - 100% ==========
(Cost $7,167,239) $7,946,966
----------
See accompanying notes to financial statements
</TABLE>
B-49
<PAGE>
<TABLE>
<CAPTION>
BOND PORTFOLIO
Portfolio of Investments as of December 31, 1996
FACE AMOUNT VALUE
<S> <C> <C>
U.S.TREASURY NOTES - 66.6%
U.S. Treasury Note, 6.50%, due 10/15/2006 $ 9,000,000 $ 9,054,844
TOTAL U.S.TREASURY NOTES =========
(Cost $9,169,393) 9,054,844
---------
U.S. GOVERNMENT AGENCY - 29.9%
Federal National Mortgage Association Discount Note, 5.48%, due 1/06/97 2,000,000 1,998,478
Federal National Mortgage Association Discount Note, 5.48%, due 1/14/97 2,000,000 1,996,042
Federal National Mortgage Association Note, 4.80%, due 6/25/97 79,359 78,937
TOTAL U.S. GOVERNMENT AGENCY =========
(Cost $4,073,521) 4,073,457
---------
U.S.TREASURY BILLS - 1.9%
U.S. Treasury Bill, 4.97%, due 2/20/97 100,000 99,310
U.S. Treasury Bill, 5.34%, due 3/06/97 100,000 99,105
U.S. Treasury Bill, 4.99%, due 3/06/97 50,000 49,552
U.S. Treasury Bill, 4.90%, due 1/09/97 4,800 4,794
TOTAL U.S.TREASURY BILLS =========
(Cost $252,711) 252,761
---------
REPURCHASE AGREEMENTS - 1.6%
(Collateralized by U.S. government obligations - market value $227,072)
Prudential Bache Securities, dated 12/31/96, 6.75%, due 1/02/97 225,000 225,000
---------
TOTAL REPURCHASE AGREEMENTS
(Cost $225,000) 225,000
---------
TOTAL INVESTMENTS - 100% ===========
(Cost $13,720,625) $13,606,062
-----------
See accompanying notes to financial statements
</TABLE>
B-50
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
Portfolio of Investments as of December 31, 1996
AMORTIZED
FACE AMOUNT COST
<S> <C> <C>
COMMERCIAL PAPER - 49.5%
American Trading & Production, 5.35%, due 1/14/97 $ 4,000,000 $ 3,992,272
Bell South, 5.42%, due 1/21/97 5,030,000 5,014,854
Calcot, 5.75%, due 2/21/97 3,000,000 2,975,562
Calcot, 5.40%, due 1/24/97 5,000,000 4,982,750
Calcot, 5.36%, due 1/22/97 5,000,000 4,984,367
Cargill Financial, 5.58%, due 6/16/97 5,000,000 4,871,350
Coca-Cola Company, 5.80%, due 1/17/97 15,000,000 14,961,333
Equitable of Iowa, 5.61%, due 1/17/97 12,000,000 11,970,080
Fingerhut Owners Trust, 5.50%, due 1/09/97 10,000,000 9,987,778
Fleet Funding, 5.48%, due 1/24/97 2,200,000 2,192,298
Hertz Corporation, 5.90%, due 1/03/97 10,000,000 9,996,722
Hitachi America Ltd., 5.35%, due 3/25/97 8,160,000 8,059,349
JC Penney Funding, 5.39%, due 3/27/97 15,000,000 14,809,104
Merrill Lynch & Company, 5.55%, due 6/13/97 5,000,000 4,874,354
Michigan Consolidated Gas, 5.33%, due 2/07/97 8,000,000 7,956,175
National Rural Utilities, 5.31%, due 2/14/97 4,200,000 4,172,742
PHH Corporation, 5.50%, due 1/17/9710,000,000 9,975,556
Portland General Electric, 5.33%, due 1/21/97 10,000,000 9,970,389
Receivables Capital Corporation, 5.75%, due 1/15/97 10,000,000 9,977,639
Toyota Motor Company, 5.31%, due 2/06/97 8,000,000 7,957,520
WMX Technologies, 5.60%, due 5/13/97 20,000,000 19,589,333
TOTAL COMMERCIAL PAPER ===========
(Cost $173,271,527) 173,271,527
-----------
CORPORATE OBLIGATIONS - 33.1%
American Home Products Corporation, 6.875%, due 4/15/97 1,005,000 1,008,499
American General Finance, 7.75%, due 1/15/97 450,000 450,335
Associates Corporation, 6.875%, due 1/15/97 425,000 425,179
*Bank One Capital Demand Note, 5.95%, next redemption
date 1/02/97, due 4/01/2113 3,536,000 3,536,000
Bell Atlantic Corporation, 7.22%, due 6/16/97 4,000,000 4,029,304
Bell Tri LSG, 8.05%, due 2/19/97 500,000 501,663
*Care Life Project Floating Rate Note, 5.80%, next
redemption date 1/02/97, due 8/01/2111 1,350,000 1,350,000
*Caterpillar Financial Incorporated Floating Rate
Note, 5.654%, due 6/20/97 1,000,000 1,000,473
Caterpillar Incorporated, 5.05%, due 1/15/97 500,000 499,933
Central Illinois Public Service, 6.125%, due 7/01/97 2,000,000 2,003,840
Chase Manhattan Bank, 7.875%, due 1/15/97 750,000 750,574
B-51
<PAGE>
<CAPTION>
MONEY MARKET PORTFOLIO, continued
<S> <C> <C>
Consolidated Rail, 6.00%, due 7/01/97 142,000 141,977
Cooper Industries, 7.77%, due 10/21/97 5,000,000 5,063,808
Cooper Industries, 7.81%, due 10/15/97 3,000,000 3,038,398
*Espanola/Nambe Variable Rate Demand Note, 5.84%, next
redemption date 1/02/97, due 6/01/2006 2,500,000 2,500,000
Ford Capital, 9.75%, due 6/05/97 3,700,000 3,755,316
Ford Holdings, 9.25%, due 7/15/97 3,168,000 3,220,923
Ford Motor Credit Corporation, 6.75%, put date 7/15/97 350,000 351,922
GE Capital Corporation, 7.00%, due 4/03/97 1,518,000 1,522,190
GE Capital Corporation, 4.55%, due 10/27/97 2,500,000 2,471,888
*General Motors Acceptance Corporation Floating Rate Note,
5.68%, next redemption date 4/13/97, due 4/13/98 10,000,000 10,000,000
General Motors Acceptance Corporation, 7.40%, due 1/14/97 170,000 170,130
General Motors Acceptance Corporation, 7.80%, due 5/05/97 9,200,000 9,264,405
General Motors Acceptance Corporation, 7.90%, due 5/01/97 1,500,000 1,509,712
General Telephone, California, 6.75%, due 12/01/97 2,500,000 2,500,000
General Nutrition Corporation, 11.375%, redemption date 3/03/97 5,000,000 5,183,933
Golden West Financial, 10.25%, due 5/15/97 475,000 482,422
*Hancor Incorporated Floating Rate Note, 5.84%, next redemption
date 1/02/97, due 12/01/2004 800,000 800,000
Hertz Corporation, 10.125%, due 3/01/97 2,000,000 2,014,965
Marshall & Isley, 7.375%, due 10/31/97 10,000,000 10,125,300
Michigan Consolidated Gas, 6.25%, due 5/01/97 1,500,000 1,502,857
Minnesota Mining & Manufacturing, 6.375%, due 6/16/97 1,000,000 1,001,186
Morgan Stanley Incorporated, 7.32%, due 1/15/97 500,000 500,292
*Mubea, Incorporated Floating Rate Note, 5.84%, next redemption
date 1/02/97, due 12/01/2004 5,000,000 5,000,000
NBD Bank N.A., 7.875%, due 1/21/97 250,000 250,266
Philip Morris Companies, 9.25%, due 12/01/97 1,568,000 1,615,090
Philip Morris Companies, 9.75%, due 5/01/97 814,000 824,532
Philip Morris Companies, 8.75%, due 6/15/97 500,000 506,712
Philip Morris Companies, 7.50%, due 3/15/97 870,000 873,155
*Presrite Corporation Floating Rate Note, 5.84%, next redemption
date 1/02/97, due 1/01/2004 2,540,000 2,540,000
*Seariver Maritime Financial Holdings Floating Rate Note, 5.405%,
next redemption date 1/02/97, due 10/01/2111 7,000,000 7,000,000
Sears Roebuck & Company, 6.66%, due 5/20/97 1,000,000 1,003,456
Sears Roebuck & Company, 7.41%, due 6/11/97 100,000 100,629
Southern California Edison, 5.90%, due 1/15/97 1,000,000 1,000,237
Virginia Electric & Power, 7.25%, due 3/01/97 3,250,000 3,258,635
*White Castle Corporation, Floating Rate Note, 5.84%, next
redemption date 1/02/97, due 12/01/2010 9,000,000 9,000,000
TOTAL CORPORATE OBLIGATIONS ===========
(Cost $115,650,136) 115,650,136
-----------
U.S. TREASURY NOTES - 4.0%
U.S. Treasury Note, 6.00%, due 8/31/97 4,000,000 4,005,201
U.S. Treasury Note, 6.00%, due 11/30/97 10,000,000 10,043,606
B-52
<PAGE>
<CAPTION>
Money Market Portfolio, continued
<S> <C> <C>
TOTAL U.S. TREASURY NOTES ==========
(Cost $14,048,807) 14,048,807
----------
U.S. TREASURY BILLS - 0.0% ==========
U.S. Treasury Bill, 4.906%, due 1/09/97 63,100 63,031
----------
TOTAL U.S. TREASURY BILLS
(Cost $63,031) 63,031
U.S. GOVERNMENT OBLIGATIONS - 4.1%
Federal Home Loan Mortgage Corporation, 5.10%, due 1/13/97 100,000 99,995
Federal Home Loan Mortgage Corporation, 6.47%, due 7/07/97 500,000 501,978
Federal Home Loan Bank Note, 5.50%, due 3/21/97 235,000 235,000
Federal Farm Credit, 5.32%, due 2/03/97 200,000 199,895
*Federal Home Loan Bank Floating Rate Note, 5.803%,
due 4/08/97, next redemption date 1/02/97 2,000,000 2,000,863
*Student Loan Marketing Association Floating Rate
Note, 5.48%, due 8/03/99, next redemption date
7/02/96 4,350,000 4,353,782
*Student Loan Marketing Association Floating Rate Note,
5.43%, due 11/10/98, next redemption date 7/02/96 5,000,000 5,000,000
*Student Loan Marketing Association Floating Rate Note,
5.41%, due 11/24/97, next redemption date 7/02/96 2,000,000 1,999,816
Tennesee Valley Authority, 6.00%, due 1/15/97 100,000 100,009
TOTAL U.S. GOVERNMENT OBLIGATIONS ==========
(Cost $14,491,338) 14,491,338
----------
REPURCHASE AGREEMENTS - 9.3%
(Collateralized by U.S. government obligations - market value $32,927,954)
Paine Webber Incorporated, dated 12/31/96, 6.35%, due 1/02/97 21,000,000 21,000,000
Prudential Bache Securities, dated 12/31/96, 6.75%, due 1/02/97 11,550,000 11,550,000
TOTAL REPURCHASE AGREEMENTS ==========
(Cost $32,550,000) 32,550,000
----------
TOTAL INVESTMENTS - 100% ============
(Cost $350,074,839) $350,074,839
------------
<FN>
* - Floating Rate as of 12/31/96.
</FN>
See accompanying notes to financial statements
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996
The The The Total The U.S. The
Muirfield Growth Return Utilities Government Money Market
Fund Fund Fund Bond Fund Fund
<S> <C> <C> <C> <C> <C>
Assets:
Investment in corresponding portfolio $ 121,425,042 $ 24,413,491 $ 5,089,213 $ 17,791,465 $ 119,987,807
Receivable for capital stock issued 3,616,683 2,717 39 383 -
Unamortized organizational costs - - - 17,146 - -
Other assets 452 15,835 8,822 2,610 7,666
============= ============= ============= ============= =============
Total Assets 125,042,177 24,432,043 5,115,220 17,794,458 119,995,473
------------- ------------- ------------- ------------- -------------
Liabilities:
Payable for capital stock redeemed 3,570,240 217,039 119 2,674 -
Dividends payable 93,203 2,942 27,385 2,532 11,207
Accrued transfer agent and
administrative fees 12,153 2,611 368 1,219 9,469
Other accrued liabilities 31,974 5,595 13,230 5,428 27,300
============= ============= ============= ============= =============
Total Liabilities 3,707,570 228,187 41,102 11,853 47,976
------------- ------------- ------------- ------------- -------------
Net Assets:
Capital 120,745,044 22,379,843 4,521,433 18,790,118 119,947,497
Accumulated undistributed net
investment income (loss) (1) 9 - (3) -
Accumulated undistributed net realized
gain (loss) on investments 12,496 (1,339,494) - (892,948) -
Net unrealized gain (loss) on
investments 577,068 3,163,498 552,685 (114,562) -
============= ============= ============= ============= =============
Net Assets $ 121,334,607 $ 24,203,856 $ 5,074,118 $ 17,782,605 $ 119,947,497
------------- ------------- ------------- ------------- -------------
Capital Stock Outstanding 22,198,952 1,475,239 338,624 861,611 119,947,497
------------- ------------- ------------- ------------- -------------
Net Asset Value, Offering and
Redemption Price Per Share $ 5.47 $ 16.41 $ 14.98 $ 20.64 $ 1.00
------------- ------------- ------------- ------------- -------------
See accompanying notes to financial statements
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
The The The Total The U.S. The
Muirfield Growth Return Utilities Government Money Market
Fund Fund Fund Bond Fund Fund
<S> <C> <C> <C> <C> <C>
Net Investment Income From
Corresponding Portfolio:
Interest $ 2,995,152 $599,913 $15,424 $983,780 $8,775,604
Dividends 311,660 321,265 126,220 - -
Expenses (1,052,259) (320,098) (61,617) (107,760) (294,611)
============= ============= ============= ============= =============
Total Net Investment Income From
Corresponding Portfolio 2,254,553 601,080 80,027 876,020 8,480,993
------------- ------------- ------------- ------------- -------------
Fund Expenses:
Legal fees 2,007 2,225 1,642 2,034 3,998
Audit fees 3,936 6,480 2,881 2,876 4,234
Printing 22,332 8,599 3,642 4,056 35,582
Postage 17,803 4,575 1,100 2,857 25,544
Transfer agent fees 120,161 25,406 4,026 10,228 111,421
Administrative fee 36,230 7,712 1,121 5,362 42,785
Trustees fees and expenses 2,931 2,949 3,832 2,495 2,914
Registration and filing fees 13,530 7,470 12,054 6,880 23,314
Insurance 1,778 387 36 256 2,501
Distribution plan 157,536 36,280 9,338 28,045 115,428
Amortization of organizational costs - - 5,036 - -
Other expenses 10,991 3,837 1,917 2,310 27,281
============= ============= ============= ============= =============
Total expenses 389,235 105,920 46,625 67,399 395,002
Expenses reimbursed by adviser - - (61,549) - (52,840)
============= ============= ============= ============= =============
Total Expenses - net 389,235 105,920 (14,924) 67,399 342,162
INVESTMENT INCOME - NET 1,865,318 495,160 94,951 808,621 8,138,831
------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS - NET:
Net realized gain (loss) on futures (385,498) (1,614,914) - 41,147 -
Net realized gain (loss) on investments 10,610,566 301,293 209,382 (7,020) -
Net change in unrealized appreciation
(depreciation) of investments (5,306,075) 3,055,094 219,393 (776,909) -
============= ============= ============= ============= =============
NET GAIN (LOSS) ON INVESTMENTS 4,918,993 1,741,473 428,775 (742,782) -
------------- ------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 6,784,311 $ 2,236,633 $523,726 $65,839 $8,138,831
------------- ------------- ------------- ------------- -------------
See accompanying notes to financial statements
</TABLE>
B-55
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31,
The The
Muirfield Growth
Fund Fund
INCREASE (DECREASE) IN NET ASSETS: 1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income - net $ 1,865,318 $ 938,690 $ 495,160 $ 807,065
Net realized gain (loss) on investments and
futures contracts 10,225,068 14,740,346 (1,313,621) 4,316,008
Net change in unrealized appreciation
(depreciation) of investments (5,306,075) 5,883,601 3,055,094 111,505
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations 6,784,311 21,562,637 2,236,633 5,234,578
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income - net (1,865,319) (938,690) (495,151) (807,065)
Net realized gain from investments and futures
contracts (9,879,664) (15,073,253) - (659,136)
------------- ------------- ------------- -------------
Net decrease in net assets resulting
from dividends and distributions (11,744,983) (16,011,943) (495,151) (1,466,201)
------------- ------------- ------------- -------------
CAPITAL TRANSACTIONS:
Net proceeds from sales 31,306,972 26,530,545 3,904,506 1,775,837
Reinvestment of dividends 11,652,407 15,844,992 488,159 1,436,634
Cost of redemptions (28,415,321) (19,294,010) (6,561,166) (4,525,935)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from capital share transactions 14,544,058 23,081,527 (2,168,501) (1,313,464)
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,583,386 28,632,221 (427,019) 2,454,913
NET ASSETS - Beginning of period 111,751,221 83,119,000 24,630,875 22,175,962
============= ============= ============= =============
NET ASSETS - End of period $ 121,334,607 $ 111,751,221 $ 24,203,856 $ 24,630,875
============= ============= ============= =============
SHARE TRANSACTIONS:
Issued 5,310,158 4,353,780 246,129 120,106
Reinvested 2,132,111 2,767,237 30,498 96,212
Redeemed (4,745,388) (3,170,312) (406,881) (306,553)
------------- ------------- ------------- -------------
Change in shares 2,696,881 3,950,705 (130,254) (90,235)
============= ============= ============= =============
B-56
<PAGE>
<CAPTION>
The The U.S.
Total Return Government
Utilities Fund Bond Fund
INCREASE (DECREASE) IN NET ASSETS: 1996 1995* 1996 1995
<S> <C> <C> <C> <C>
OPERATIONS:
Investment income - net $ 94,951 $ 39,143 $ 808,621 $ 780,338
Net realized gain (loss) on investments and
futures contracts 209,382 (679) 34,127 988,478
Net change in unrealized appreciation
(depreciation) of investments 219,393 333,292 (776,909) 667,973
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations 523,726 371,756 65,839 2,436,789
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income - net (94,951) (39,143) (808,624) (780,352)
Net realized gain from investments and futures
contracts (208,703) - - -
------------- ------------- ------------- -------------
Net decrease in net assets resulting
from dividends and distributions (303,654) (39,143) (808,624) (780,352)
------------- ------------- ------------- -------------
CAPITAL TRANSACTIONS:
Net proceeds from sales 2,105,006 2,519,770 4,221,575 2,883,665
Reinvestment of dividends 261,364 33,121 731,408 686,353
Cost of redemptions (393,419) (4,409) (2,475,250) (2,161,626)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from capital share transactions 1,972,951 2,548,482 2,477,733 1,408,392
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,193,023 2,881,095 1,734,948 3,064,829
NET ASSETS - Beginning of period 2,881,095 - 16,047,657 12,982,828
============= ============= ============= =============
NET ASSETS - End of period $ 5,074,118 $ 2,881,095 $ 17,782,605 $ 16,047,657
============= ============= ============= =============
SHARE TRANSACTIONS:
Issued 143,939 201,499 201,655 142,467
Reinvested 17,645 2,569 35,083 33,492
Redeemed (26,688) (340) (118,887) (106,680)
------------- ------------- ------------- -------------
Change in shares 134,896 203,728 117,851 69,279
============= ============= ============= =============
B-57
<PAGE>
<CAPTION>
The
Money Market
Fund
INCREASE (DECREASE) IN NET ASSETS: 1996 1995
<S> <C> <C>
OPERATIONS:
Investment income - net $ 8,138,831 $ 8,095,621
Net realized gain (loss) on investments and futures contracts - -
Net change in unrealized appreciation
(depreciation) of investments - -
------------ ------------
Net increase in net assets resulting from operations 8,138,831 8,095,621
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Investment income - net (8,138,831) (8,095,621)
Net realized gain from investments and futures contracts - -
------------ ------------
Net decrease in net assets resulting
from dividends and distributions (8,138,831) (8,095,621)
------------ ------------
CAPITAL TRANSACTIONS:
Net proceeds from sales 389,806,633 365,251,080
Reinvestment of dividends 7,883,875 7,649,188
Cost of redemptions (418,830,047) (396,651,391)
------------ ------------
Net increase (decrease) in net assets
resulting from capital share transactions (21,139,539) (23,751,123)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (21,139,539) (23,751,123)
NET ASSETS - Beginning of period 141,087,036 164,838,159
============ ============
NET ASSETS - End of period $ 119,947,497 $ 141,087,036
============ ============
SHARE TRANSACTIONS:
Issued 389,806,633 365,251,080
Reinvested 7,883,875 7,649,188
Redeemed (418,830,047) (396,651,391)
------------ ------------
Change in shares (21,139,539) (23,751,123)
============ ============
<FN>
*For period from June 21, 1995 through December 31, 1995
</FN>
See accompanying notes to financial statements
</TABLE>
B-58
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during
each period based upon audited financial statements
THE MUIRFIELD FUND
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $5.73 $5.34 $5.36 $6.25 $6.43
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.06 0.14 (0.01) 0.06
Net Gains or Losses on Securities
(both realized and unrealized) 0.25 1.31 - 0.45 0.34
===== ===== ===== ===== =====
Total From Investment Operations 0.35 1.37 0.14 0.44 0.40
===== ===== ===== ===== =====
LESS DISTRIBUTIONS
Dividends (from net investment income) (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 $5.47 $5.73 $5.34 $5.36 $6.25
===== ===== ===== ===== =====
TOTAL RETURN 5.99% 25.82% 2.70% 8.11% 6.91%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 121,335 111,751 83,119 73,063 55,280
Ratio of Expenses to Average Net Assets 1.19% 1.26% 1.22% 1.26% 1.40%
Ratio of Net Investment Income to Average Net Assets 1.54% 0.97% 2.55% -0.13% 1.05%
Portfolio Turnover Rate* 297.41% 186.13% 168.17% 279.56% 324.14
<FN>
*Turnover rate of corresponding portfolio
</FN>
See Accompanying Notes to Financial Statements
</TABLE>
B-59
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during
each period based upon audited financial statements
THE GROWTH FUND
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.34 $13.08 $13.45 $12.70 $12.05
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.31 0.50 0.27 0.09 0.18
Net Gains or Losses on Securities
(both realized and unrealized) 1.07 2.68 (0.37) 0.82 0.58
====== ====== ======= ====== ======
Total From Investment Operations 1.38 3.18 (0.10) 0.91 0.76
====== ====== ======= ====== ======
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.31) (0.50) (0.27) (0.16) (0.11)
Distributions (from capital gains) -- (0.42) -- -- --
====== ====== ======= ====== ======
Total Distributions (0.31) (0.92) (0.27) (0.16) (0.11)
====== ====== ======= ====== ======
NET ASSET VALUE, END OF PERIOD $16.41 $15.34 $13.08 $13.45 $12.70
====== ====== ======= ====== ======
TOTAL RETURN 9.08% 24.61% -0.69% 7.21% 6.35%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 24,204 24,631 22,176 26,171 25,534
Ratio of Expenses to Average Net Assets 1.65% 1.64% 1.63% 1.51% 1.51%
Ratio of Net Investment Income to Average Net Assets 1.92% 3.38% 1.95% 0.69% 1.31%
Portfolio Turnover Rate* 81.66% 337.57% 102.76% 99.54% 39.03%
<FN>
*Turnover rate of corresponding portfolio
</FN>
See Accompanying Notes to Financial Statements
</TABLE>
B-60
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during
each period based upon audited and unaudited financial statements
THE TOTAL RETURN UTILITIES FUND
For The Period
For The Year Ended June 21, 1995 2
December 31, 1996 to Dec. 31, 1995
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.14 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.21
Net Gains or Losses on Securities (both realized and unrealized) 1.48 1.64
===== =====
Total From Investment Operations 1.85 1.85
===== =====
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.37) (0.21)
Distributions (from capital gains) (0.64) --
===== =====
Total Distributions (1.01) (0.21)
NET ASSET VALUE, END OF PERIOD $14.98 $14.14
===== =====
TOTAL RETURN 13.33% 15.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 5,074 2,881
Ratio of Expenses to Average Net Assets 1.25% 1.25% 1
Ratio of Net Investment Income to Average Net Assets 2.55% 3.18% 1
Ratio of Expenses to Average Net Assets, before waiver of fees 2.95% 4.35% 1
Ratio of Net Investment Income to Average Net Assets, before waiver of fees 0.85% 0.08% 1
Portfolio Turnover Rate* 50.79% 5.06%
<FN>
1 Annualized
2 Date of commencement of operations
*Turnover rate of corresponding portfolio
</FN>
See Accompanying Notes to Financial Statements
</TABLE>
B-61
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during
each period based upon audited financial statements.
THE U.S. GOVERNMENT BOND FUND
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.58 $19.25 $20.18 $19.46 $19.84
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.96 1.11 0.72 0.86 0.99
Net Gains or Losses on Securities
(both realized and unrealized) (0.94) 2.33 (0.93) 0.71 (0.38)
====== ===== ===== ===== ======
Total From Investment Operations 0.02 3.44 (0.21) 1.57 0.61
====== ===== ===== ===== ======
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.96) (1.11) (0.72) (0.85) (0.99)
====== ===== ===== ===== ======
Total Distributions (0.96) (1.11) (0.72) (0.85) (0.99)
====== ===== ===== ===== ======
Net Asset Value, End of Period $20.64 $21.58 $19.25 $20.18 $19.46
====== ===== ===== ===== ======
TOTAL RETURN 0.15% 18.32% -0.99% 8.21% 3.26%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 17,783 16,048 12,983 13,137 11,100
Ratio of Expenses to Average Net Assets 1.00% 1.00% 1.00% 0.99% 1.00%
Ratio of Net Investment Income to Average Net Assets 4.61% 5.41% 3.71% 4.25% 5.13%
Ratio of Expenses to Average Net Assets, before
waiver of fees * 1.06% 1.14% 1.14% 1.09% 1.21%
Ratio of Net Investment Income to Average Net Assets,
before waiver of fees * 4.55% 5.27% 3.57% 4.15% 4.92%
Portfolio Turnover Rate1 778.59% 232.34% 707.57% 235.74% 100.53%
<FN>
* Includes fees waived in corresponding portfolio
1 Turnover rate of corresponding portfolio
</FN>
See Accompanying Notes to Financial Statements
</TABLE>
B-62
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during
each period based upon audited financial statements
THE MONEY MARKET FUND
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.06 0.04 0.03 0.04
====== ===== ===== ===== ======
Total From Investment Operations 0.05 0.06 0.04 0.03 0.04
====== ===== ===== ===== ======
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.05) (0.06) (0.04) (0.03) (0.04)
====== ===== ===== ===== ======
Total Distributions (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
====== ===== ===== ===== ======
TOTAL RETURN 5.27% 5.85% 4.10% 2.98% 3.70%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 119,947 141,087 164,838 200,030 245,259
Ratio of Expenses to Average Net Assets 0.40% 0.40% 0.37% 0.37% 0.35%
Ratio of Net Investment Income to Average
Net Assets 5.15% 5.70% 4.02% 2.94% 3.68%
Ratio of Expenses to Average Net Assets, before
waiver of fees * 0.58% 0.64% 0.57% 0.57% 0.56%
Ratio of Net Investment Income to Average Net
Assets, before waiver of fees * 4.97% 5.46% 3.82% 2.74% 3.47%
<FN>
* Includes fees waived in corresponding portfolio
</FN>
See Accompanying Notes to Financial Statements
</TABLE>
B-63
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 six separate series. Effective
May 1, 1992, The Money Market, Growth, and 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, Growth, Bond and Total Return Utilities
Funds, the Portfolios into which they invest and the percentage of each
portfolio owned by the respective Fund at December 31, 1996 is shown below:
<TABLE>
<CAPTION>
Approximate Percentage
of Portfolio Held by Fund
Fund Portfolio at December 31, 1996
<S> <C> <C>
The Muirfield Fund Mutual Fund Portfolio 90%
The Growth Fund Growth Stock Portfolio 100%
The Total Return Utilities Fund Utilities Stock Portfolio 64%
The U.S. Government Bond Fund Bond Portfolio 100%
The Money Market Fund Money Market Portfolio 34%
</TABLE>
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 46).
B-64
<PAGE>
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 Growth, 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.
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 year ended December 31, 1996 were at the
request of RMA and were not the result of the aforementioned expense
limitations.
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 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 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 .03% 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.
B-65
<PAGE>
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
December 31, 1996, 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 December 31, 1996, an indefinite number of shares of $0.10 par value stock
were authorized in each of the Funds, and paid-in capital amounted to
$119,947,497 in The Money Market Fund, $120,745,044 in The Muirfield Fund,
$22,378,542 in The Growth Fund, $18,790,130 in The Bond Fund, and $4,521,433
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 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 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 December 31, 1996, The Growth and Bond Funds had available for Federal
income tax purposes unused capital loss carryforwards. The amount in the
Growth Fund is $1,339,495 which will expire in 2004, and the amount in the
Bond Fund is $700,493 which will expire in the years 1997 through 2002.
7. SUBSEQUENT EVENTS
On January 1, 1997 The Growth Fund changed its name to The Highlander Fund. In
addition, The Growth Stock Portfolio (the "Portfolio") in which the Growth
Fund invests all of its investable assets, changed its investment objective to
seek capital growth by investing primarily in a diversified portfolio of
domestic common stocks with greater than average growth characteristics
selected primarily from the Standard & Poor's Composite Stock Price Index (the
"S&P 500"). The new investment discipline calls for establishing separate
investment portfolio components of the Portfolio's existing portfolio of
assets, each such component representing one of the industry sectors
comprising the S&P 500. The industry sectors are then managed by one or more
subadvisers.
B-66
<PAGE>
Independent Auditors' Report
To the Shareholders and Board of Trustees of The Flex-funds:
We have audited the accompanying statements of assets and liabilities of The
Flex-funds (comprising, respectively, The Muirfield, Growth, Total Return
Utilities, U.S. Government Bond and Money Market Funds), as of December 31,
1996, and the related statements of operations, statements of changes in net
assets and the financial highlights for each of the periods indicated herein.
These financial statements and the financial highlights are the responsibility
of The Flex-funds' management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification of securities
owned as of December 31, 1996, by correspondence with the custodian and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Flex-funds at December 31, 1996,
the results of their operations, the changes in their net assets and the
financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
B-67
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996
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* $85,570,890 $17,595,283 $7,032,966 $13,381,062 $317,524,839
Repurchase agreements* 51,661,000 6,968,000 914,000 225,000 32,550,000
Cash 520 689 583 581 248,915
Receivable for securities sold - - - 4,084,554 -
Interest receivable 193,699 1,968 171 125,001 3,167,087
Dividends receivable - 32,852 18,560 - -
Prepaid/Other assets 644 140 16 89 844
Unamortized organization costs 4,924 2,545 31,150 2,545 2,545
=========== =========== =========== =========== ============
Total Assets 137,431,677 24,601,477 7,997,446 17,818,832 353,494,230
----------- ----------- ----------- ----------- ------------
Liabilites:
Payable for futures contract settlement 1,785,305 153,300 - 8,625 -
Payable to corresponding Fund - - - - 505,357
Payable to investment adviser 91,065 21,868 6,264 6,077 46,355
Accrued fund accounting fees 4,248 2,648 644 1,910 6,313
Other accrued liabilities 11,491 9,979 26,184 10,626 5,980
=========== =========== =========== =========== ============
Total Liabilities 1,892,109 187,795 33,092 27,238 564,005
----------- ----------- ----------- ----------- ------------
Net Assets:
Capital 134,989,964 21,250,165 7,184,627 17,906,157 352,930,225
Net unrealized gain (loss) on investments 549,604 3,163,517 779,727 (114,563) -
=========== =========== =========== =========== ============
Net Assets $135,539,568 $24,413,682 $7,964,354 $17,791,594 $352,930,225
----------- ----------- ----------- ----------- ------------
*Securities at cost 136,682,286 21,399,766 7,167,239 13,720,625 350,074,839
See accompanying notes to financial statements
</TABLE>
B-68
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
Mutual Growth Utilities Money
Fund Stock Stock Bond Market
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME - NET:
Interest $3,331,013 $599,916 $20,631 $983,788 $20,131,315
Dividends 348,105 321,268 230,516 - -
========== ========= ======== ======== ===========
Total Investment Income 3,679,118 921,184 251,147 983,788 20,131,315
---------- --------- -------- -------- -----------
Expenses:
Investment advisory fees 1,083,553 258,239 65,190 70,236 1,060,982
Legal fees 1,543 2,040 1,535 1,543 1,522
Audit fees 10,880 8,471 10,211 8,184 13,848
Custodian fees 15,407 6,451 3,066 4,980 21,008
Accounting fees 50,435 30,867 9,541 22,555 74,002
Trustees fees and expenses 4,870 7,192 5,558 4,956 4,938
Insurance 2,382 536 51 340 3,913
Amortization of organization cost 5,453 4,992 8,996 4,992 4,992
Other expenses 4,649 1,313 4,000 865 3,720
========== ========= ======== ======== ===========
Total Expenses 1,179,172 320,101 108,148 118,651 1,188,925
Investment advisory fees waived - - - (10,890) (512,876)
Directed brokerage payments received - - (3,377) - -
Other directed payments received (10,397) - - - -
========== ========= ======== ======== ===========
Total Expenses - net 1,168,775 320,101 104,771 107,761 676,049
---------- --------- -------- -------- -----------
INVESTMENT INCOME - NET 2,510,343 601,083 146,376 876,027 19,455,266
---------- --------- -------- -------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on futures contracts (425,664) (1,614,924) - 41,147 -
Net realized gain (loss) on investments 11,000,788 301,314 348,392 (7,021) -
Net change in unrealized appreciation
(depreciation) of investments (5,130,740) 3,055,094 357,308 (776,915) -
========== ========= ======== ======== ===========
NET GAIN (LOSS) ON INVESTMENTS 5,444,384 1,741,484 705,700 (742,789) -
========== ========= ======== ======== ===========
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $7,954,727 $2,342,567 $852,076 $133,238 $19,455,266
========== ========= ======== ======== ===========
See accompanying notes to financial statements
</TABLE>
B-69
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended December 31,
Mutual Growth
Fund Stock
Portfolio Portfolio
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net $2,510,343 $1,278,396 $601,083 $900,867
Net realized gain (loss) on investments and futures contracts 10,575,124 15,554,692 (1,313,610) 4,316,033
Net change in unrealized appreciation
(depreciation) of investments (5,130,740) 5,680,803 3,055,094 111,506
----------- ---------- ----------- ---------
Net increase in net assets resulting from operations 7,954,727 22,513,891 2,342,567 5,328,406
----------- ---------- ----------- ---------
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 32,575,692 34,671,819 4,020,512 1,680,821
Withdrawals (27,099,980) (18,261,284) (6,486,427) (4,640,744)
----------- ---------- ----------- ---------
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests 5,475,712 16,410,535 (2,465,915) (2,959,923)
----------- ---------- ----------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 13,430,439 38,924,426 (123,348) 2,368,483
=========== ========== =========== =========
NET ASSETS - Beginning of period 122,109,129 83,184,703 24,537,030 22,168,547
=========== ========== =========== =========
NET ASSETS - End of period $135,539,568 $122,109,129 $24,413,682 $24,537,030
=========== ========== =========== =========
B-70
<PAGE>
<CAPTION>
Utilities
Stock Bond
Portfolio Portfolio
1996 1995* 1996 1995
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net $146,376 $29,889 $876,027 $841,854
Net realized gain (loss) on investments and futures contracts 348,392 (1,067) 34,126 988,487
Net change in unrealized appreciation
(depreciation) of investments 357,308 422,419 (776,915) 667,977
----------- ---------- ----------- ---------
Net increase in net assets resulting from operations 852,076 451,241 133,238 2,498,318
----------- ---------- ----------- ---------
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 5,138,546 3,908,655 4,220,008 2,890,694
Withdrawals (2,317,138) (69,026) (2,627,674) (2,330,962)
----------- ---------- ----------- ---------
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests 2,821,408 3,839,629 1,592,334 559,732
----------- ---------- ----------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,673,484 4,290,870 1,725,572 3,058,050
=========== ========== =========== =========
NET ASSETS - Beginning of period 4,290,870 - 16,066,022 13,007,972
=========== ========== =========== =========
NET ASSETS - End of period $7,964,354 $4,290,870 $17,791,594 $16,066,022
=========== ========== =========== =========
B-71
<PAGE>
<CAPTION>
Money
Market
Portfolio
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income - net $19,455,266 $11,720,462
Net realized gain (loss) on investments and futures contracts - -
Net change in unrealized appreciation
(depreciation) of investments - -
------------- ------------
Net increase in net assets resulting from operations 19,455,266 11,720,462
------------- ------------
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 1,414,075,891 753,617,719
Withdrawals (1,335,249,306) (735,213,083)
------------- ------------
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests 78,826,585 18,404,636
------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 98,281,851 30,125,098
============= ============
NET ASSETS - Beginning of period 254,648,374 224,523,276
============= ============
NET ASSETS - End of period $352,930,225 $254,648,374
============= ============
<FN>
*For the period June 21, 1995 through December 31, 1996
</FN>
See accompanying notes to financial statements
</TABLE>
B-72
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Ratios/Supplemental Data
MUTUAL FUND PORTFOLIO
Year Ended December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net Assets, End of Period ($000) 135,540 122,109 83,185 81,605
Ratio of Expenses to Average Net Assets* 0.87% 0.95% 1.01% 1.03%
Ratio of Net Investment Income to Average Net Assets 1.86% 1.26% 2.76% 0.09%
Portfolio Turnover Rate 297.41% 186.13% 168.17% 279.56%
<FN>
*Ratio of expenses both with and without effect of directed payments
</FN>
</TABLE>
<TABLE>
<CAPTION>
GROWTH STOCK PORTFOLIO
For The Period May 1, 1992
Year Ended December 31, to December 31, 1992
1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) 24,414 24,537 22,169 26,172 25,556
Ratio of Expenses to Average Net Assets 1.24% 1.25% 1.23% 1.23% 1.22% 1
Ratio of Net Investment Income to Average Net Assets 2.33% 3.78% 2.35% 0.99% 2.04% 1
Portfolio Turnover Rate 81.66% 337.57% 102.76% 99.54% 129.44%
Average brokerage commission per share 2 $0.091 $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>
<CAPTION>
UTILITY STOCK PORTFOLIO
For The Period
For The Year Ended June 21, 1995 *
December 31, 1996 to December 31, 1995
<S> <C> <C>
Net Assets, End of Period ($000) 7,964 4,291
Ratio of Expenses to Average Net Assets 1.61% 2.32% 1
Ratio of Net Investment Income to Average Net Assets 2.24% 2.09% 1
Ratio of Expenses to Average Net Assets before directed brokerage payments 1.66% 2.40% 1
Ratio of Net Investment Income to Average Net Assets before
directed brokerage payments 2.19% 2.01% 1
Portfolio Turnover Rate 50.79% 5.06%
Average brokerage commission per share 2 $0.060 $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>
See accompanying notes to financial statements
</TABLE>
B-73
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Ratios/Supplemental Data
BOND PORTFOLIO
For The Period May 1, 1992
Year Ended December 31, to December 31, 1992
1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) 17,792 16,066 13,008 13,178 11,126
Ratio of Expenses to Average Net Assets 0.61% 0.57% 0.56% 0.60% 0.58% 1
Ratio of Net Investment Income to Average Net
Assets 4.99% 5.82% 4.15% 4.62% 5.40% 1
Ratio of Expenses to Average Net Assets, before
waiver of fees 0.68% 0.71% 0.70% 0.71% 0.80% 1
Ratio of Net Investment Income to Average Net
Assets, before waiver of fees 4.92% 5.68% 4.01% 4.51% 5.18% 1
Portfolio Turnover Rate 778.59% 232.34% 707.57% 235.74% 132.53%
<FN>
1 Annualized
</FN>
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
For The Period
May 1, 1992
Year Ended December 31, to Dec. 31, 1992
1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) 352,930 256,126 224,523 200,148 244,272
Ratio of Expenses to Average Net Assets 0.19% 0.21% 0.19% 0.19% 0.18% 1
Ratio of Net Investment Income to Average
Net Assets 5.34% 5.87% 4.28% 3.09% 3.60% 1
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.33% 0.37% 0.39% 0.40% 0.40% 1
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.20% 5.70% 4.08% 2.88% 3.38% 1
Portfolio Turnover Rate N/A N/A N/A N/A N/A
<FN>
1 Annualized
</FN>
See accompanying notes to financial statements
</TABLE>
B-74
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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.
B-75
<PAGE>
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 December 31, 1996 the Portfolios wrote the following option contracts:
<TABLE>
<CAPTION>
GROWTH STOCK PORTFOLIO BOND PORTFOLIO
Number of Contracts Number of Premiums Number of Contracts Number of Premiums
<S> <C> <C> <C> <C>
Outstanding at Beginning of Period 3,300 $4,881,362 20 $10,850
Options Written - - - -
Options Terminated (3,300) (4,881,362) (20) (10,850)
====== ========== ===== ========
Outstanding at End of Period 0 $0 0 $0
</TABLE>
B-76
<PAGE>
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.
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. 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 year ended December 31,
1996, 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.
B-77
<PAGE>
3. PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, excluding short-term investments and U.S.
Government and agency obligations for the year ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Mutual Fund Portfolio $127,926,031 $179,435,771
Growth Stock Portfolio $ 2,990,564 $ 792,118
Utilities Stock Portfolio $ 5,484,900 $ 3,084,727
</TABLE>
As of December 31, 1996, 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 $136,682,286 $1,034,293 $(484,688) $549,605
Growth Stock Portfolio $21,399,766 $3,267,845 $(104,329) $3,163,516
Bond Portfolio $13,720,625 $54 $(114,617) $(114,563)
Utilities Stock Portfolio $7,167,239 $902,962 $(123,235) $779,727
</TABLE>
B-78
<PAGE>
Independent Auditors' Report
To the Shareholders and Board of Trustees of the Mutual Fund Portfolio, Growth
Stock Portfolio, Utilities Stock Portfolio, Bond Portfolio, and Money Market
Portfolio:
We have audited the accompanying statements of assets and liabilities of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio, including the portfolios of investments,
as of December 31, 1996, and the related statements of operations, statements
of changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and the financial highlights are
the responsibility of the Portfolios' management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification of securities
owned as of December 31, 1996, by correspondence with the custodian and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio at December 31, 1996, the results of
their operations, the changes in their net assets and the financial highlights
for each of the periods indicated herein, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
B-79
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements
Financial Statements included in Part A
Financial Highlights
Financial Statements included in Part B
REGISTRANT -- THE FLEX-FUNDS
Statements of Assets and Liabilities - December 31, 1996
Statements of Operations - For the period ended December 31, 1996
Statements of Changes in Net Assets - for the periods ended
December 31, 1996 and 1995
Financial Highlights - for the periods indicated therein
Notes to Financial Statements
Independent Auditors' Report dated January 31, 1997.
PORTFOLIOS -- MONEY MARKET, MUTUAL FUND, GROWTH STOCK, UTILITIES
STOCK AND BOND PORTFOLIOS
Portfolio of Investments - December 31, 1996
Statements of Assets and Liabilities - December 31, 1996
Statements of Operations - For the period ended December 31, 1996
Statements of Changes in Net Assets - for the periods ended
December 31, 1996 and 1995
Financial Highlights - for the periods indicated therein
Notes to Financial Statements
Independent Auditors' Report dated January 31, 1997.
C-1
<PAGE>
Statements and schedules other than those listed above are omitted because they
are not required, or because the information required is included in the
financial statements or notes thereto.
(b) EXHIBITS:
1. Declaration of Trust (effective December 30, 1991) -- filed as an
exhibit to Registrant's Post-Effective Amendment No. 18 on January 16,
1992, which exhibit is incorporated herein by reference.
2. By-laws of the Trust -- filed as an exhibit to Registrant's
Post-Effective Amendment No. 18 on January 16, 1992, which exhibit is
incorporated herein by reference.
3. Not Applicable.
4. Not Applicable.
5. Not Applicable.
6. Not Applicable
7. Not Applicable.
8. Custodian Agreement -- filed as an exhibit to Registrant's
Post-Effective Amendment No. 16 on April 9, 1991, which exhibit is
incorporated herein by reference.
9. Administrative Services Agreement between The Flex-funds and Mutual
Funds Service Co.--filed as an Exhibit to Registrant's Post-Effective
Amendment No. 31 on or about February 28, 1995, which exhibit is
incorporated by reference herein.
10. Opinion and Consent of Counsel - filed as an exhibit to Registrant's
First Pre-Effective Amendment to the Registration Statement on Form
N-1A filed with the Commission on July 20, 1982, which exhibit is
incorporated herein by reference.
11. Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants.
12. Not Applicable.
13. Agreements etc. for initial capital, etc. -- reference is made to Part
II, Item 1(b)(13) of Registrant's First Pre-effective Amendment to the
Registration Statement on Form N-1 filed with the Commission on or
about July 20, 1982, and is incorporated herein by reference.
14. Model Plans and related documents to be used in the establishment of
retirement plans in conjunction with shares of the Registrant --
incorporated by reference to Part II, Item 1(b)(14) of Registrant's
First Pre-effective Amendment of the Registration Statement on Form
N-1 filed with the Commission on or about July 20, 1982, and is
incorporated herein by reference.
C-2
<PAGE>
15. 12b-1 Plans for The Growth Fund, The U.S. Government Bond Fund and The
Money Market Fund -- reference is made to the exhibits referred to in
Part C, Item 24(b)(15) of Registrant's Third Post-Effective Amendment
to the Registration Statement on Form N-1A filed with the Commission
on or about March 1, 1985, and is incorporated herein by reference.
The 12b-1 Plan for The Muirfield Fund was filed as an exhibit to
Registrant's 10th Post-Effective Amendment to Form N-1A filed with the
Commission on August 5, 1988, and is incorporated herein by reference.
The 12b-1 and Service Plan for the Total Return Utilities Fund was
filed as an exhibit to the Registrant's 29th Post-Effective Amendment
to Form N-1A filed with the Commission on January 12, 1995 and is
incorporated herein by reference.
16. Schedule for computation of performance quotation for The Total Return
Utilities Fund is filed herewith.
17. Financial Data Schedule for The Total Return Utilities Fund is filed
herewith.
18. Not Applicable.
19. Powers of Attorney of Trustees of Registrant and the Utilities Stock
Portfolio - previously filed and incorporated herein by reference;
however, Powers of Attorney of new Trustees of Registrant and the
Utilities Stock Portfolio are filed herewith.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES AT DECEMBER 31, 1996.
Title of Number of
Class Fund Record Holders
-------- ---- --------------
Shares of Total Return 231
Beneficial Utilities Fund
Interest
Item 27. INDEMNIFICATION
Reference is made to Section 5.3 of the Declaration of Trust filed as
an original exhibit to Registrant's Post-Effective Amendment No. 18 on
January 16, 1992. As provided therein, the Trust is required to
indemnify its officers and trustees against claims and liability
arising in connection with the affairs of the Trust, except liability
arising from breach of trust, bad faith, willful misfeasance, gross
negligence or reckless disregard of duties. The Trust is obligated to
undertake the defense of any action brought against any officer,
C-3
<PAGE>
trustee or shareholder, and to pay the expenses thereof if he acted in
good faith and in a manner he reasonably believed to in or not opposed
to the best interest of the Trust, and with respect to any criminal
action had no reasonable cause to believe his conduct was unlawful.
Other conditions are applicable to the right of indemnification as set
forth in the Declaration of Trust. In applying these provisions, the
Trust will comply with the provisions of the Investment Company Act.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not applicable.
Item 29. PRINCIPAL UNDERWRITERS.
Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Registrant's Declaration of Trust, By-laws, and Minutes of Trustees'
and Shareholders' Meetings, and contracts and like documents are in
the physical possession of Mutual Funds Service Co., or R. Meeder &
Associates, Inc., at 6000 Memorial Drive, Dublin, Ohio 43017. Certain
custodial records are in the custody of Star Bank, N.A., the Trust's
custodian, at 425 Walnut Street, Cincinnati, Ohio 45202. All other
records are kept in the custody of R. Meeder & Associates, Inc. and
Mutual Funds Service Co., 6000 Memorial Drive, Dublin, OH 43017.
Item 31. MANAGEMENT SERVICES.
None
Item 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) If the information called for by Item 5A of this Registration
Statement is contained in the latest annual report to
shareholders, Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders, upon request and without
charge.
(d) The Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the question of removal of one or more
directors, if requested to do so by the holders of at least 10%
of the Registrant's outstanding shares, and will assist
communications among shareholders as set forth within Section
16(c) of the 1940 Act.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this Amendment to
its Registration Statement meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Dublin, and the State of Ohio on the 29th day of
April, 1997.
THE FLEX-FUNDS
BY: /s/ Donald F. Meeder
----------------------------
Donald F. Meeder,
Secretary/Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Date Signed April 29, 1997 /s/ Donald F. Meeder
--------------------------------
Donald F. Meeder,
Secretary/Treasurer
As Attorney-in-Fact pursuant to
Special Powers of Attorney,
copies of which are enclosed herewith
as Exhibits, for Roger D. Blackwell, Richard A. Farr,
John M. Emery, Robert Meeder, Jr., Robert Meeder, Sr.,
Milton S. Bartholomew, William L. Gurner, Russel G. Means,
Lowell G. Miller, Walter L. Ogle and Philip A. Voelker,
Trustees of The Flex-funds
/s/ Donald F. Meeder
Date Signed April 29, 1997 ----------------------------------
Donald F. Meeder, Attorney-in-Fact
C-5
<PAGE>
SIGNATURES
Utilities Stock Portfolio (the "Portfolio") has duly caused this
Post-Effective Amendment to the Registration on Form N-1A of The Flex-funds
(File No. 33-88420) to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Dublin and State of Ohio on the 29th day of
April, 1997.
UTILITIES STOCK PORTFOLIO
By: /s/ Donald F. Meeder
-----------------------------
Donald F. Meeder
This Post-Effective Amendment to the Registration Statement on Form N-1A of
The Flex-funds (File No. 33-88420) has been signed below by the following
persons in the capacities with respect to the Portfolio indicated on April 29,
1997.
SIGNATURE TITLE
--------- -----
ROBERT S. MEEDER, SR.*
- -------------------------------- President and Trustee
Robert S. Meeder, Sr.
MILTON S. BARTHOLOMEW*
- -------------------------------- Trustee
Milton S. Bartholomew
ROGER D. BLACKWELL*
- -------------------------------- Trustee
Roger D. Blackwell
JOHN M. EMERY*
- -------------------------------- Trustee
John M. Emery
RICHARD A. FARR*
- -------------------------------- Trustee
Richard A. Farr
WILLIAM L. GURNER*
- -------------------------------- Trustee
William L. Gurner
RUSSEL G. MEANS*
- -------------------------------- Trustee
Russel G. Means
/S/ DONALD F. MEEDER
- -------------------------------- Secretary/Treasurer, Principal Financial
Donald F. Meeder Officer and Principal Accounting Officer
C-6
<PAGE>
ROBERT S. MEEDER, JR.*
- -------------------------------- Vice President and Trustee
Robert S. Meeder, Jr.
LOWELL G. MILLER*
- -------------------------------- Trustee
Lowell G. Miller
WALTER L. OGLE*
- -------------------------------- Trustee
Walter L. Ogle
PHILIP A. VOELKER*
- -------------------------------- Vice President and Trustee
Philip A. Voelker
*By: /S/ DONALD F. MEEDER
---------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
C-7
EXHIBIT 11
Auditor's Consent
The Board of Trustees of
The Flex-funds, Mutual Fund Portfolio,
Growth Stock Portfolio, Utilities Stock
Portfolio, Bond Portfolio, and Money
Market Portfolio:
We consent to the use of our reports included herein dated January 31, 1997 on
the financial statements of The Flex-funds (comprising The Muirfield, Growth,
Total Return Utilities, U.S. Government Bond, and Money Market Funds), the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio as of December 31, 1996 and for the periods
indicated therein and to the references to our firm under the headings
"Financial Highlights" in each prospectus and "Auditor" in the Statement of
Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 29, 1997
EXHIBIT 16
THE FLEX-FUNDS
TOTAL RETURN UTILITIES FUND
TOTAL RETURN COMPUTATION SCHEDULE
1.53 YEARS
----------
Beginning Account Balances $1,000.00
Total Return 18.88%
Ending Redeemable Value $1,303.23
Formula Computation:
1.53 Years: $1,000 (1 + .1888) = $1,303.23
The total return quotations represented above were computed for the periods
ended December 31, 1996.
EXHIBIT 19
POWERS OF ATTORNEY
THE FLEX-FUNDS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers
of substitution as his true and lawful attorneys and agents to execute in his
name and on his behalf in any and all capacities the Registration Statements on
Form N-1A, and any and all amendments thereto, filed by The Flex-funds (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his own act and deed any and all that such attorneys
and agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents have, and may exercise, all of the powers
hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Milton S. Bartholomew
---------------------------------
Milton S. Bartholomew
<PAGE>
THE FLEX-FUNDS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers
of substitution as his true and lawful attorneys and agents to execute in his
name and on his behalf in any and all capacities the Registration Statements on
Form N-1A, and any and all amendments thereto, filed by The Flex-funds (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his own act and deed any and all that such attorneys
and agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents have, and may exercise, all of the powers
hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ William L. Gurner
---------------------------------
William L. Gurner
<PAGE>
THE FLEX-FUNDS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers
of substitution as his true and lawful attorneys and agents to execute in his
name and on his behalf in any and all capacities the Registration Statements on
Form N-1A, and any and all amendments thereto, filed by The Flex-funds (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his own act and deed any and all that such attorneys
and agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents have, and may exercise, all of the powers
hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Russel G. Means
---------------------------------
Russel G. Means
<PAGE>
THE FLEX-FUNDS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers
of substitution as his true and lawful attorneys and agents to execute in his
name and on his behalf in any and all capacities the Registration Statements on
Form N-1A, and any and all amendments thereto, filed by The Flex-funds (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his own act and deed any and all that such attorneys
and agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents have, and may exercise, all of the powers
hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Lowell G. Miller
---------------------------------
Lowell G. Miller
<PAGE>
THE FLEX-FUNDS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers
of substitution as his true and lawful attorneys and agents to execute in his
name and on his behalf in any and all capacities the Registration Statements on
Form N-1A, and any and all amendments thereto, filed by The Flex-funds (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his own act and deed any and all that such attorneys
and agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents have, and may exercise, all of the powers
hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Walter L. Ogle
---------------------------------
Walter L. Ogle
<PAGE>
THE FLEX-FUNDS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers
of substitution as his true and lawful attorneys and agents to execute in his
name and on his behalf in any and all capacities the Registration Statements on
Form N-1A, and any and all amendments thereto, filed by The Flex-funds (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940 and the Securities Act of 1933 and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Trust to comply with such Acts, the rules, regulations and
requirements of the Securities and Exchange Commission, and the securities or
Blue Sky laws of any state or other jurisdiction and the undersigned hereby
ratifies and confirms as his own act and deed any and all that such attorneys
and agents, or any of them, shall do or cause to be done by virtue hereof. Any
one of such attorneys and agents have, and may exercise, all of the powers
hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Philip A. Voelker
---------------------------------
Philip A. Voelker
<PAGE>
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker and James B. Craver, and each of them, with full powers of substitution
as his true and lawful attorneys and agents to execute in his name and on his
behalf in any and all capacities the Registration Statements on Form N-1A, and
any and all amendments thereto, filed by the Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (the "Portfolios") The Flex-Partners
or The Flex-funds (each a "Trust") with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933 and any
and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Portfolios or the Trusts to comply with
such Acts, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction and the undersigned hereby ratifies and confirms as his own act and
deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ John M. Emery
---------------------------------
John M. Emery
<PAGE>
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker and James B. Craver, and each of them, with full powers of substitution
as his true and lawful attorneys and agents to execute in his name and on his
behalf in any and all capacities the Registration Statements on Form N-1A, and
any and all amendments thereto, filed by the Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (the "Portfolios") The Flex-Partners
or The Flex-funds (each a "Trust") with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933 and any
and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Portfolios or the Trusts to comply with
such Acts, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction and the undersigned hereby ratifies and confirms as his own act and
deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Richard A. Farr
---------------------------------
Richard A. Farr
<PAGE>
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Wesley F.
Hoag and James B. Craver, and each of them, with full powers of substitution as
his true and lawful attorneys and agents to execute in his name and on his
behalf in any and all capacities the Registration Statements on Form N-1A, and
any and all amendments thereto, filed by the Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (the "Portfolios") The Flex-Partners
or The Flex-funds (each a "Trust") with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933 and any
and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Portfolios or the Trusts to comply with
such Acts, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction and the undersigned hereby ratifies and confirms as his own act and
deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ William L. Gurner
---------------------------------
William L. Gurner
<PAGE>
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Wesley F.
Hoag and James B. Craver, and each of them, with full powers of substitution as
his true and lawful attorneys and agents to execute in his name and on his
behalf in any and all capacities the Registration Statements on Form N-1A, and
any and all amendments thereto, filed by the Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (the "Portfolios") The Flex-Partners
or The Flex-funds (each a "Trust") with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933 and any
and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Portfolios or the Trusts to comply with
such Acts, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction and the undersigned hereby ratifies and confirms as his own act and
deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Lowell G. Miller
---------------------------------
Lowell G. Miller
<PAGE>
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Wesley F.
Hoag and James B. Craver, and each of them, with full powers of substitution as
his true and lawful attorneys and agents to execute in his name and on his
behalf in any and all capacities the Registration Statements on Form N-1A, and
any and all amendments thereto, filed by the Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (the "Portfolios") The Flex-Partners
or The Flex-funds (each a "Trust") with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933 and any
and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Portfolios or the Trusts to comply with
such Acts, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction and the undersigned hereby ratifies and confirms as his own act and
deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Robert S. Meeder, Jr.
---------------------------------
Robert S. Meeder, Jr.
<PAGE>
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Wesley F.
Hoag and James B. Craver, and each of them, with full powers of substitution as
his true and lawful attorneys and agents to execute in his name and on his
behalf in any and all capacities the Registration Statements on Form N-1A, and
any and all amendments thereto, filed by the Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (the "Portfolios") The Flex-Partners
or The Flex-funds (each a "Trust") with the Securities and Exchange Commission
under the Investment Company Act of 1940 and the Securities Act of 1933 and any
and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Portfolios or the Trusts to comply with
such Acts, the rules, regulations and requirements of the Securities and
Exchange Commission, and the securities or Blue Sky laws of any state or other
jurisdiction and the undersigned hereby ratifies and confirms as his own act and
deed any and all that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents have,
and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 22nd day
of April, 1997.
/s/ Roger D. Blackwell
---------------------------------
Roger D. Blackwell
<TABLE> <S> <C>
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<NAME> FLEX-FUNDS
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<NAME> TOTAL RETURN
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<OTHER-ITEMS-LIABILITIES> 41102
<TOTAL-LIABILITIES> 41102
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<PAID-IN-CAPITAL-COMMON> 4521433
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<INTEREST-INCOME> 15424
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<EXPENSES-NET> 46693
<NET-INVESTMENT-INCOME> 94951
<REALIZED-GAINS-CURRENT> 209382
<APPREC-INCREASE-CURRENT> 219393
<NET-CHANGE-FROM-OPS> 523726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 94951
<DISTRIBUTIONS-OF-GAINS> 208703
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 143939
<NUMBER-OF-SHARES-REDEEMED> 26688
<SHARES-REINVESTED> 17645
<NET-CHANGE-IN-ASSETS> 2193023
<ACCUMULATED-NII-PRIOR> 0
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<AVERAGE-NET-ASSETS> 3735440
<PER-SHARE-NAV-BEGIN> 14.14
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0.37
<PER-SHARE-DISTRIBUTIONS> 0.64
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