SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934 (Amendment No. )
Check the appropriate box:
[ X ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
THE FLEX-FUNDS
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ X ] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration No.
(3) Filing Party
(4) Date Filed
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THE FLEX-FUNDS'
THE HIGHLANDS GROWTH FUND
6000 MEMORIAL DRIVE
DUBLIN, OHIO 43017
(800) 325-FLEX
INFORMATION STATEMENT
SEPTEMBER __, 1998
TO THE SHAREHOLDERS:
The Flex-funds is a family of mutual funds organized as a Massachusetts
business trust (the "Trust"). The Highlands Growth Fund (the "Fund"), a series
of the Trust, is a multi-managed, diversified open-end investment management
company known as a mutual fund. The Fund's objective is 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 500 Composite Stock Price Index (the "S&P 500"). Neither the Trust nor
the Fund has an investment adviser because the Trust seeks to achieve the
investment objective of the Fund by investing all of its investable assets in
the Growth Stock Portfolio (the "Portfolio"), a corresponding open-end
management company having the same investment objective as the Fund. Assets of
the Portfolio representing each of the industry sectors of the S&P 500 are
managed by one or more sub-subadvisers.
On February 10, 1998, the Portfolio received an exemptive order from the
Securities and Exchange Commission (the "SEC") that permits the Portfolio's
subadviser (the "Subadviser") to hire new sub-subadvisers and to make certain
changes to existing sub-subadvisory contracts with the approval of the Board of
Trustees, without obtaining shareholder approval. On May 14, 1998, at a regular
meeting of the Board of Trustees of the Portfolio, the Trustees approved a new
sub-subadvisory agreement for the Portfolio. The new sub-subadvisory agreement
approved by the Board of Trustees was entered into among the Portfolio, the
Subadviser, and Delta Capital Management Inc. ("Delta Capital"). Delta Capital
assumed investment advisory responsibility for the finance sector of the
Portfolio on June 26, 1998.
This information statement informs you of the circumstances surrounding the
Board's approval of the new sub-subadvisory agreement and provides you with an
overview of its terms.
By order of the Board
/s/ Donald F. Meeder
Secretary
THIS IS NOT A PROXY STATEMENT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE NOT
REQUESTED TO SEND US A PROXY.
<PAGE>
THE FLEX-FUNDS'
THE HIGHLANDS GROWTH FUND
6000 MEMORIAL DRIVE
DUBLIN, OHIO 43017
(800) 325-FLEX
INFORMATION STATEMENT
SEPTEMBER __, 1998
GENERAL INFORMATION
This information statement is being furnished to the shareholders of The
Highlands Growth Fund in lieu of a proxy statement, pursuant to the terms of an
exemptive order the Fund and the Portfolio received from the SEC. The exemptive
order permits the Portfolio's subadviser to hire new sub-subadvisers and to make
certain changes to existing sub-subadvisory contracts with the approval of the
Board of Trustees, without obtaining shareholder approval.
The Trust is an open-end management investment company organized as a
Massachusetts business trust on December 31, 1991 as the successor to a
Pennsylvania business trust organized on April 30, 1982. The Trust's offices are
at 6000 Memorial Drive, Dublin, Ohio 43017.
We are providing shareholders of the Fund as of September 23, 1998 with the
information statement. This information statement relates to the approval by the
Trustees of a new sub-subadvisory agreement (the "Sub-subadvisory Agreement"),
dated June 26, 1998 among the Portfolio, the Subadviser, and Delta Capital.
Delta Capital assumed its sub-subadvisory duties with respect to the Portfolio
on June 26, 1998. The Trustees, including a majority of the Trustees who were
not parties to the Sub-subadvisory Agreement and were not interested persons of
those parties (as defined in the Investment Company Act of 1940), approved the
Sub-subadvisory Agreement on May 14, 1998. The material terms of the new
Sub-subadvisory Agreement are substantially the same as those of the
sub-subadvisory agreements entered into with the Portfolio's other
sub-subadvisers (each a "Sub-subadviser" and collectively, the
"Sub-subadvisers"). The sub-subadvisory agreements with the Sub-subadvisers were
last approved by the Trustees on September 23, 1996, and by the shareholders of
the Fund on December 20, 1996. The form of the Sub-subadvisory Agreement with
Delta Capital is set forth as Exhibit A to this information statement.
The Fund will pay for the costs associated with preparing and distributing
this information statement, which will be mailed on or about September 24, 1998.
<PAGE>
THE MANAGER
R. Meeder & Associates, Inc. (the "Manager") was incorporated in Ohio in
1974 and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio
43017. The Manager served as the Fund's investment adviser from its inception in
1988 until May 1992, at which time the investment by the Fund in the Portfolio
was implemented. The Manager serves the Portfolio pursuant to an Investment
Advisory Contract under the terms of which it has agreed to provide an
investment program within the limitations of the Portfolio's investment policies
and restrictions, and to furnish all executive, administrative, and clerical
services required for the transaction of Portfolio business, other than
accounting services and services that are provided by the Portfolio's custodian,
transfer agent, independent accountants, and legal counsel. As of September 1,
1998, the Manager served as the investment adviser to six open-end investment
companies with aggregate assets of approximately $1 billion.
THE SUBADVISER
Sector Capital Management, L.L.C. (the "Subadviser"), 5350 Poplar Avenue,
Suite 490, Memphis, Tennessee 38119, serves as the Portfolio's subadviser under
an investment subadvisory agreement among the Portfolio, the Manager and the
Subadviser. The Subadviser furnishes investment advisory services in connection
with the management of the Portfolio.
The Subadviser and the Portfolio have entered into a Sub-subadvisory
Agreement with each Sub-subadviser selected for the Portfolio. It is the
Subadviser's responsibility to select, subject to the review and approval of the
Board of Trustees, the Sub-subadvisers who have distinguished themselves by able
performance in respective areas of expertise in sector management and to review
their continued performance. Components of the Subadviser's selection process
include evaluating the investment strategy employed to produce favorable
results, evaluating such performance against a universe of sector benchmarks,
and meeting with selected investment managers to confirm the selection process.
In addition, it is the Subadviser's responsibility to categorize publicly traded
domestic stocks into a specific industry sector.
THE SUB-SUBADVISERS
Currently, the Subadviser has identified ten industry sectors for the S&P
500 and has selected a Sub-subadviser to manage each sector. Each Sub-subadviser
manages those assets of the Portfolio that are allocated to its industry
sector(s).
The Manager and the Subadviser have the ultimate responsibility for the
investment performance of the Portfolio due to the Manager's responsibility to
oversee the Subadviser and the Subadviser's responsibility to oversee the
Sub-subadvisers and recommend their hiring, termination and replacement.
<PAGE>
THE ADMINISTRATOR
The Administrator of the Fund is Mutual Funds Service Co., 6000 Memorial
Drive, Dublin, Ohio 43017.
SHAREHOLDER REPORTS
The Trust's most recent annual report for the fiscal year ended December
31, 1997 and semi-annual report for the six months ended June 30, 1998 have
previously been sent to shareholders and may be obtained without charge by
writing the Trust at P.O. Box 7177, Dublin, Ohio 43017 or by calling (800)
325-3539.
SHAREHOLDINGS
As of September 1, 1998, the Fund's total net asset value was approximately
$36,691,059.25 and there were 1,975,940.832 shares of the Fund outstanding.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of September 1, 1998, there were no persons known by the Trust to be the
beneficial owners of more than five percent of the outstanding shares of the
Fund.
OWNERSHIP OF MANAGEMENT
The following table sets forth, as of September 1, 1998, the beneficial
ownership of the Fund by each executive officer and trustee of the Trust who
owns Fund shares and by all officers and directors as a group:
NUMBER OF SHARES PERCENT
NAME & ADDRESS BENEFICIALLY OWNED(1) OF CLASS
- -------------- --------------------- --------
Robert S. Meeder, Sr.* 1,371.385 0.07%
Robert S. Meeder, Jr.* 4,966.008(2) 0.25%
Donald F. Meeder* 11,046.055(3) 0.56%
Roger D. Blackwell 789.454 0.04%
Blackwell Associates, Inc.
3380 Tremont Road
Columbus, Ohio 43221
Wesley F. Hoag* 113.528(3) 0.006%
Richard A. Clemens* 98.897(3) 0.005%
All trustees and officers as a group
(15 in group) 17,808.195 0.90%
* 6000 Memorial Drive, Dublin, Ohio 43017.
(1) Except as otherwise noted, none of the named individuals shares with another
person either voting or investment power as to the shares reported.
(2) Includes 4,833.634 shares owned by the R. Meeder & Associates, Inc. Employer
and Employee Savings Plan, for which Robert S. Meeder, Jr. serves as a trustee.
(3) Also includes 364.707 shares for Mr. Donald F. Meeder, 113.528 shares for
Mr. Hoag, and 98.897 shares for Mr. Clemens held in the R. Meeder & Associates,
Inc. Employer and Employee Savings Plan. Prior to the distribution of Fund
shares from this plan to the participants, voting power for the shares allocated
to the accounts of participants is held by Robert S. Meeder, Jr, Robert D.
Baker, Ruth A. Kirkpatrick, and Linda C. Moran as trustees of the plan.
<PAGE>
NEW SUB-SUBADVISORY AGREEMENTS
On May 14, 1998, the Trustees, including a majority of the Trustees who are
not parties to the Sub-subadvisory Agreement or interested persons of such
parties (as defined in the Investment Company Act), unanimously approved the
Sub-subadvisory Agreement and the selection of Delta Capital as a
Sub-subadviser.
The Sub-subadvisory Agreement contains substantially the same terms and
conditions as the sub-subadvisory agreements with the Portfolio's other
sub-subadvisers. See "Terms of Sub-subadvisory Agreement," below.
Section 15 of the Investment Company Act of 1940 requires that a majority
of the Portfolio's outstanding voting securities approve each Sub-subadvisory
Agreement. However, on February 10, 1998, the SEC issued an order granting the
Portfolio and the Manager exemptive relief from the requirements of Section 15.
According to the SEC's order, which is subject to a number of conditions, the
Subadviser may now enter into sub-subadvisory agreements on behalf of the
Portfolio without receiving prior shareholder approval. Thus, execution and
implementation of the Sub-subadvisory Agreement did not require shareholder
consent.
BOARD CONSIDERATION OF SUB-SUBADVISORY AGREEMENT
At a regular meeting of the Board, at which all of the Trustees of the
Portfolio were in attendance, the Board of Trustees considered and unanimously
approved the Sub-subadvisory Agreement with Delta Capital on May 14, 1998. In
considering approval of the Sub-subadvisory Agreement, the Trustees, including
the non-interested Trustees, considered whether approval of the Sub-subadvisory
Agreement was in the best interests of the Portfolio and the shareholders of the
Trust. At the meeting, the Trustees reviewed the provisions of the
Sub-subadvisory Agreement, including the services to be performed by the
Subadviser and Delta Capital; the compensation to be paid by the Manager to the
Subadviser for these services; the compensation to be paid by the Subadviser to
Delta Capital for its services; and the initial term, renewal, termination, and
other material provisions of the Sub-subadvisory Agreement. The Board also
considered the nature, quality and extent of services expected to be provided to
the Portfolio by Delta Capital, as well as its reputation in the asset
management industry.
<PAGE>
Based upon their review, the Trustees concluded that the Sub-subadvisory
Agreement was reasonable, fair, and in the best interests of the Portfolio and
the shareholders of the Trust, and that the fee provided in the Sub-subadvisory
Agreement was fair and reasonable. Accordingly, and after consideration of the
above factors and such other factors and information as they deemed relevant,
the Trustees, including the non-interested Trustees, unanimously approved the
Sub-subadvisory Agreement.
INFORMATION CONCERNING DELTA CAPITAL
Delta Capital Management Inc., 745 Fifth Avenue, New York, NY 10151, began
managing the finance sector of the Portfolio on June 26, 1998. Delta Capital, a
registered investment adviser, has been providing investment services to
individuals, endowments, corporations and other institutions since 1992. As of
December 31, 1997, Delta Capital held discretionary investment authority over
approximately $480 million of assets. Francis L. Fraenkel, Chairman of the Board
and a Director of Delta Capital, Peter K. Loeb, President and a Director of
Delta Capital, and Lida B. Greenberg, Executive Vice President, Secretary, and a
Director of Delta Capital, each own ten percent or more of the outstanding
voting securities of Delta Capital. Messrs. Fraenkel and Loeb and Ms. Greenberg
are Delta Capital's only officers.
Jonathan Kay is the portfolio manager primarily responsible for the
day-to-day management of those assets of the Portfolio allocated to Delta
Capital. Mr. Kay has been associated with Delta Capital since April 1998. From
1993 to March 1998, Mr. Kay was a portfolio manager for Scudder Kemper
Investments, Inc., a registered investment adviser.
Delta Capital does not manage any other mutual funds having an investment
objective similar to that of the Fund.
TERMS OF SUB-SUBADVISORY AGREEMENT
Under the terms of the Sub-subadvisory Agreement, Delta Capital is
compensated by the Subadviser at an annual rate of .25% of the Portfolio's
average daily net assets assigned to it, the same fee that is paid to each of
the other sub-subadvisers of the Portfolio. The Sub-subadvisory Agreement
provides that, subject to the supervision of the Board of Trustees, the Manager
and the Subadviser, Delta Capital is responsible for the day-to-day management
of the finance sector of the Portfolio, in accordance with the investment
objectives and policies of the Portfolio as reflected in the current Prospectus
and Statement of Additional Information of the Trust and as may be adopted from
time to time by the Board of Trustees. In accordance with the requirements of
the Investment Company Act of 1940, Delta Capital maintains, keeps current and
preserves on behalf of the Portfolio all books and records relating to the
transactions it executes, and renders to the Trustees such periodic and special
reports as the Board of Trustees may reasonably request.
<PAGE>
DURATION AND TERMINATION. The Sub-subadvisory Agreement will remain in full
force and effect for a period of two years from its effective date, and will
continue thereafter as long as its continuance is specifically approved at least
annually by vote of a majority of the outstanding voting securities (as that
term is defined in the Investment Company Act of 1940) of the Portfolio, or by
the Board of Trustees, including the approval by a majority of non-interested
Trustees, at a meeting called for the purpose of voting on such approval;
provided, however, that (1) the Sub-subadvisory Agreement may be terminated at
any time, upon thirty days prior written notice to the other parties thereto,
without the payment of any penalty, by vote of the Board of Trustees, the
Subadviser, Delta Capital, or by vote of a majority of the outstanding voting
securities of the Portfolio, and (2) the Sub-subadvisory Agreement will
terminate immediately in the event of its assignment (within the meaning of the
Investment Company Act of 1940).
LIABILITY. The Sub-subadvisory Agreement provides that, in the absence of
willful misfeasance, bad faith or gross negligence, violation of applicable law,
or reckless disregard of its duty or of its obligations thereunder, Delta
Capital will not be liable for any act or omission in connection with its
activities as sub-subadviser to the Portfolio.
SHAREHOLDER PROPOSALS
As a Massachusetts business trust, the Trust is not required to hold annual
meetings of shareholders, and the Trustees currently do not intend to hold such
meetings unless shareholder action is required in accordance with the Investment
Company Act of 1940 or the Trust's Declaration of Trust. A shareholder proposal
intended to be presented at any meeting of shareholders of the Trust must be
received by the Trust at a reasonable time before the Trustees' solicitation
relating thereto is made in order to be included in the Trust's proxy statement
and form of proxy relating to that meeting and presented at the meeting. The
mere submission of a proposal by a shareholder does not guarantee that the
proposal will be included in the proxy statement because certain rules under the
federal securities laws must be complied with before inclusion of the proposal
is required.
/s/ Donald F, Meeder
Secretary
Dated: September __, 1998
<PAGE>
EXHIBIT A
MONEY MANAGER AGREEMENT
Effective Date:
Termination Date: Two years after
Effective
Attn:_______________________________________
Re: The Growth Stock Portfolio
Ladies and Gentlemen:
The Growth Stock Portfolio (all of the assets of the Growth Stock Portfolio
including those assets not managed by the Money Manager, hereinafter referred to
as the "Portfolio") is an open-end management investment company registered as
an investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and subject to the rules and regulations promulgated thereunder.
Sector Capital Management, L.L.C. (the "Manager") acts as the investment
subadvisor of the Portfolio pursuant to the terms of an Investment Advisory
Agreement, and is an "investment adviser", as that term is defined in Section
2(a)(20) of the 1940 Act, to the Portfolio. The Manager is responsible for the
day-to-day management of the Portfolio and for the coordination of investments
of the Portfolio's assets; however, specific portfolio purchases and sales for
the Portfolio, or a portion thereof, are to be made by the portfolio management
organizations recommended and selected by the Manager, subject to the approval
of the Board of Trustees of the Portfolio (the "Board").
1. APPOINTMENT AS A MONEY MANAGER. The Manager and the Portfolio hereby
appoint and employ, ___________________________ (the "Money Manager") as a
discretionary investment sub-subadviser to the Portfolio for that portion of the
assets of the Portfolio which the Manager determines from time to time to assign
to the Money Manager (those assets being referred to as the "Account").
2. ACCEPTANCE OF APPOINTMENT: STANDARD OF PERFORMANCE. The Money Manager
accepts the appointment as a discretionary investment sub-subadviser to the
Portfolio and agrees to use its best professional judgment to make and implement
investment decisions for the Portfolio with respect to the investments of the
Account in accordance with the provisions of this Agreement.
3. PORTFOLIO MANAGEMENT SERVICES OF THE MONEY MANAGER. The Money Manager is
hereby employed and authorized to select portfolio securities for investment by
the Portfolio, to determine whether to purchase and sell securities for the
Account, and upon making any purchase or sale decision, and without prior
consultation, to place orders for the execution of such portfolio transactions
in accordance with paragraphs 5 and 6 hereof and Exhibit A attached hereto and
incorporated by this reference herein (as it may be amended in writing by the
parties from time to time). In providing portfolio management services to the
Account, the Money Manager shall be subject to such investment restrictions as
are set forth in the 1940 Act and rules thereunder, the supervision and control
of the Board, such specific instructions as the Board may adopt and communicate
to the Money Manager; the investment objectives, policies and restrictions of
the Portfolio furnished pursuant to paragraph 4; and written instructions from
the Manager. The Money Manager shall maintain on behalf of the Portfolio the
<PAGE>
records listed in Exhibit B attached hereto and incorporated by this reference
herein (as it may be amended in writing by the parties from time to time). At
the Portfolio's or the Manager's reasonable request (as communicated by the
Board or the officers of such entities), the Money Manager will consult with the
officers of the Portfolio or the Manager, as the case may be, with respect to
any decision made by it with respect to the investments of the Account. R.
Meeder & Associates, Inc., the investment adviser to the Portfolio, will invest
any cash in the Account.
4. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Portfolio shall
provide the Money Manager with a written statement of the investment objectives
and policies of the Portfolio and any specific investment restrictions
applicable thereto as established by the Portfolio, including those set forth in
its Prospectus, as amended from time to time. The Portfolio retains the right,
on reasonable prior written notice to the Money Manager, from the Portfolio or
the Manager, to modify in writing any such objectives, policies or restrictions
in any manner at any time. The Money Manager shall have no duty to investigate,
and the Money Manager may also rely upon, any instructions received from the
Portfolio, the Manager, or both, and absent manifest error, such instructions
shall be presumed reasonable.
5. TRANSACTION PROCEDURES. All transactions will be settled by Star Bank,
N.A. (the "Custodian"), or such depository or agents as may be designated by the
Custodian, as custodian for the Portfolio, of all cash and/or securities due to
or from the Account, and the Money Manager shall not have possession or custody
thereof or any responsibility or liability with respect thereto. The Money
Manager shall advise Mutual Funds Service Co. ("MFSC"), the accounting agent for
the Portfolio, and confirm by facsimile all investment orders for the Portfolio
placed by it with broker/dealers at the time and in the manner set forth in
Exhibit A hereto. The Portfolio shall be responsible for all custodial
arrangements and the payment of all custodial charges and fees and, upon the
Money Manager giving proper instructions to MFSC, the Money Manager shall have
no responsibility or liability with respect to custodial arrangements or the
acts, omissions or other conduct of the Custodian.
6. ALLOCATION OF BROKERAGE. The Money Manager shall have the authority and
discretion to select broker/dealers to execute portfolio transactions initiated
by the Money Manager, and for the selection of the markets on which the
transactions will be executed.
A. In doing so, the Money Manager's primary objective shall be to
select a broker/dealer that can be expected to obtain the best
execution for the Portfolio. However, this responsibility shall not be
deemed to obligate the Money Manager to solicit competitive bids for
each transaction; and the Money Manager shall have no obligation to
seek the lowest available commission cost to the Portfolio, so long as
the Money Manager believes in good faith, based upon its knowledge of
the capabilities of the broker/dealer selected, that the commission
cost is reasonable in relation to the total quality and reliability of
the brokerage and research services made available by the
broker/dealer to the Money Manager viewed in terms of either that
particular transaction or of the Money Manager's overall
responsibilities with respect to its clients, including the Portfolio,
as to which the Money Manager exercises investment discretion,
notwithstanding that the Portfolio may not be the direct or exclusive
beneficiary of any such services or that another broker/dealer may be
willing to charge the Portfolio a lower commission on the particular
transaction. The Money Manager shall be under no obligation to execute
any order in a fashion either preferential to the Portfolio relative
to other accounts managed by the Money Manager or otherwise materially
adverse to such other accounts.
B. The Portfolio shall retain the right to request that
transactions involving the Account that give rise to brokerage
commissions in an annual amount of up to 50% of the Money Manager's
executed brokerage commissions for the Portfolio be executed through
one or more broker-dealers selected by the Portfolio, which
broker-dealers will allocate a portion of such commissions, in an
amount mutually satisfactory to the Portfolio and the broker-dealer
selected, to pay the direct expenses of the Portfolio or its feeder
funds. The Money Manager may reject any request for directed brokerage
that does not appear to it to be reasonable or for which it reasonably
believes that best execution will not be obtained. The Money Manager
shall not be liable for failure to comply with such directed brokerage
threshold if it rejects any such request for directed brokerage in
accordance with the immediately preceding sentence or if the Portfolio
fails to make sufficient requests to enable the Money Manager to meet
such threshold. The Manager and the Portfolio acknowledge that, with
respect to those transactions for which the Portfolio has requested
<PAGE>
that the transaction be executed through one or more broker-dealers
selected by the Portfolio, such direction may result in the Portfolio
paying higher commissions than otherwise might be obtainable or
receiving less favorable net prices and execution of some
transactions, or both, and may result in the Money Manager's inability
to aggregate trades for the Portfolio with those of the Money
Manager's other clients in order to obtain volume discounts.
C. The Portfolio agrees that it will provide the Money Manager
with a list of broker/dealers which are "affiliated persons" of the
Portfolio's other money managers. Upon receipt of such list, the Money
Manager agrees that it will not execute any portfolio transactions
with a broker/dealer which is an "affiliated person" (as defined in
the 1940 Act) of the Portfolio or of any money manager for the
Portfolio without the prior written approval of the Portfolio.
D. In executing portfolio transactions for the Portfolio, the
Money Manager may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities
to be sold or purchased with those of other clients if, in the Money
Manager's reasonable judgment, such aggregation (i) will result in an
overall economic benefit to the Portfolio, taking into consideration
the advantageous selling or purchase price, brokerage commission and
other expenses, and trading requirements, and (ii) is not inconsistent
with the policies set forth in the Portfolio's registration statement
and the Portfolio's Prospectus and Statement of Additional
Information. In such event, the Money Manager will allocate the
securities so purchased or sold, and the expenses incurred in the
transaction, in an equitable manner, consistent with its fiduciary
obligations to the Portfolio and such other clients.
7. PROXIES. Unless the Manager gives written instructions to the contrary,
the Money Manager shall vote all proxies solicited by or with respect to the
issuers of securities in which assets of the Account may be invested. The Money
Manager shall use its best good faith judgment to vote such proxies in a manner
which best serves the interests of the Portfolio's investors.
8. REPORTS TO THE MONEY MANAGER. The Portfolio and the Manager shall
furnish or otherwise make available to the Money Manager such information
relating to the business affairs of the Portfolio, including periodic reports
concerning the Portfolio, as the Money Manager at any time, or from time to
time, may reasonably request in order to discharge its obligations hereunder.
9. FEES FOR SERVICES. The compensation of the Money Manager for its
services under this Agreement shall be calculated and paid monthly at an annual
rate of .25% of the Account's average daily net assets.
10. OTHER INVESTMENT ACTIVITIES OF THE MONEY MANAGER. The Portfolio
acknowledges that the Money Manager, or one or more of its affiliates, may have
investment responsibilities or render investment advice to, or perform other
investment advisory services for, other individuals or entities (the "Affiliated
Accounts"). Subject to the provisions of paragraph 2 hereof, the Portfolio
agrees that the Money Manager and its affiliates may give advice, exercise
investment responsibility and take other action with respect to the Affiliated
Accounts which may differ from the advice given or the timing or nature of
action taken with respect to the Account, provided that the Money Manager acts
in good faith, and provided further that it is the Money Manager's policy to
allocate, within its reasonable discretion, investment opportunities to the
Account over a period of time on a fair and equitable basis relative to the
Affiliated Accounts, taking into account the investment objectives and policies
of the Portfolio and any specific investment restrictions applicable thereto.
The Portfolio acknowledges that one or more of the Affiliated Accounts may at
any time hold, acquire, increase, decrease, dispose of or otherwise deal with
positions in investments in which the Account may have an interest from time to
time, whether in transactions which may involve the Account or otherwise. The
Money Manager shall have no obligation to acquire for the Account a position in
any investment which any Affiliated Account may acquire, and the Portfolio shall
have no first refusal, co-investment or other rights in respect of any such
investment, either for the Account or otherwise.
<PAGE>
11. LIMITATION OF LIABILITY. The Money Manager shall not be liable for, and
shall be indemnified by the Portfolio for any action taken, omitted or suffered
to be taken by it in its reasonable judgment, in good faith and believed by it
to be authorized or within the discretion or rights or powers conferred upon it
by this Agreement, or in accordance with (or in the absence of) specific
directions or instructions from the Portfolio or the Manager; provided, however,
that such acts or omissions shall not have resulted from the Money Manager's
willful misfeasance, bad faith or gross negligence, violation of applicable law,
or reckless disregard of its duty or of its obligations hereunder. The rights
and obligations that are provided for in this Paragraph 11 shall survive the
cancellation, expiration or termination of this Agreement.
12. CONFIDENTIALITY. Subject to the right of the Money Manager and the
Portfolio to comply with applicable law, including any demand or request of any
regulatory or taxing authority having jurisdiction over it, the parties hereto
shall treat as confidential all information pertaining to the Portfolio and the
actions of the Money Manager, the Manager and the Portfolio in respect thereof,
other than any such information which is or hereafter becomes ascertainable from
public or published information. The rights and obligations that are provided
for in this Paragraph 12 shall survive the cancellation, expiration or
termination of this Agreement.
13. USE OF THE MONEY MANAGER'S NAME. The Portfolio and the Manager agree to
furnish the Money Manager at its principal office prior to use thereof copies of
all prospectuses, proxy statements, reports to stockholders, sales literature,
or other material prepared for distribution to stockholders of the feeder funds
of the Portfolio or the public that refer in any way to the Money Manager, and
not to use such material if the Money Manager reasonably objects in writing
within five business days (or such other time as may be mutually agreed) after
receipt thereof. In the event of termination of this Agreement, the Portfolio
and the Manager will continue to furnish to the Money Manager copies of any of
the above-mentioned materials that refer in any way to the Money Manager, and
will not use such material if the Money Manager reasonably objects in writing
within five business days (or such other time as may be mutually agreed) after
receipt thereof.
14. ASSIGNMENT. No assignment, as that term is defined in Section 2(a)(4)
of the 1940 Act, of this Agreement shall be made by the Money Manager, and this
Agreement shall terminate automatically in the event that it is assigned. The
Money Manager shall notify the Manager and the Portfolio in writing sufficiently
in advance of any proposed change of control, as defined in Section 2(a)(9) of
the 1940 Act, to enable the Manager and the Portfolio to consider whether an
assignment as that term is defined in Section 2(a)(4) of the 1940 Act, will
occur, and to take the steps necessary to enter into a new money manager
agreement with the Money Manager or other investment adviser.
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PORTFOLIO. The
Portfolio represents, warrants and agrees that:
A. The Money Manager has been duly appointed by the Board to
provide investment advisory services to the Account as contemplated
hereby.
B. The Portfolio will deliver to the Money Manager a true and
complete copy of its current prospectus as effective from time to
time, such other documents or instruments governing the investments of
the Portfolio, and such other information as is necessary for the
Money Manager to carry out its obligations under this Agreement.
C. The organization of the Portfolio and the conduct of the
business of the Portfolio as contemplated by this Agreement,
materially complies, and shall at all times materially comply, with
the requirements imposed upon the Portfolio by applicable law
including, but not limited to, Section 15 of the 1940 Act.
<PAGE>
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MANAGER. The Manager
represents, warrants and agrees that:
A. The Manager acts as an "investment adviser", as that term is
defined in Section 2(a)(20) of the 1940 Act, to the Portfolio pursuant
to an Investment Subadvisory Agreement with the Portfolio.
B. The appointment of the Money Manager by the Manager to provide
the investment services as contemplated hereby has been approved by
the Board.
C. The Manager is registered as an "investment adviser" under the
Investment Advisers Act of 1940, as amended (the "Advisers Act").
17. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MONEY MANAGER. The Money
Manager represents, warrants and agrees that:
A. The Money Manager is registered as an "investment adviser"
under the Advisers Act; or it is a "bank" as defined in Section
202(a)(2) of the Advisers Act or an "insurance company" as defined in
Section 202(a)(12) of the Advisers Act and is exempt from registration
thereunder.
B. The Money Manager will maintain, keep current and preserve on
behalf of the Portfolio the records identified in Exhibit B in the
manner required by such Exhibit. The Money Manager agrees that such
records (other than those required by No. 4 of Exhibit B) are the
property of the Portfolio and will be surrendered to the Portfolio
promptly upon request.
C. The Money Manager will adopt or has adopted a written code of
ethics complying with the requirements of Rule 17j-1 under the 1940
Act, will provide to the Portfolio a copy of the code of ethics and
evidence of its adoption, and will make such reports to the Portfolio
as required by Rule 17j-1 under the 1940 Act. The Money Manager has
policies and procedures believed by it to be sufficient to enable the
Money Manager to detect and prevent the misuse of material, nonpublic
information by the Money Manager or any person associated with the
Money Manager, in compliance with the Insider Trading and Securities
Fraud Enforcement Act of 1988 and any other applicable federal and
state securities laws.
D. The Money Manager will notify the Portfolio of any changes in
the membership of its partnership or in the case of a corporation in
the ownership of more than five percent of its voting securities,
within a reasonable time after such change.
18. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement among the Money Manager, the Manager and the Portfolio, which
amendment, other than amendments to Exhibits A and B, must be approved by the
Board in the manner required by the 1940 Act.
19. EFFECTIVE DATE. This Agreement shall become effective for the Portfolio
on the effective date set forth on page 1 of this Agreement, and shall continue
in effect until the termination date set forth on page 1 of this Agreement.
Thereafter, the Agreement shall continue in effect for successive annual periods
only so long as its continuance has been specifically approved at least annually
(a) by a vote of a majority of the Board or (b) by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Portfolio, and
in either case by a majority of the Trustees who are not parties to this
Agreement or interested persons of any parties to this Agreement (other than as
Trustees of the Portfolio) cast in person at a meeting called for purposes of
voting on the Agreement.
<PAGE>
20. TERMINATION. This Agreement may be terminated, without the payment of
any penalty, by the Board, the Manager, the Money Manager or by the vote of a
majority of the outstanding voting securities (as that term is defined in the
1940 Act) of the Portfolio, upon 30 days prior written notice to the other
parties hereto. Any such termination shall not affect the status, obligations or
liabilities of any party hereto to any of the other parties that accrued prior
to such termination.
21. APPLICABLE LAW. To the extent that state law shall not have been
pre-empted by the provisions of any laws of the United States heretofore or
hereafter enacted, as the same may be amended from time to time, this Agreement
shall be administered, construed and enforced according to the laws of the State
of Ohio, without reference to its choice of law principles.
THE GROWTH STOCK PORTFOLIO
BY:____________________________
Philip A. Voelker, Vice President
DATE:__________________________
SECTOR CAPITAL MANAGEMENT, L.L.C.
BY:_____________________________
William L. Gurner, President
DATE:___________________________
Accepted and agreed to:
BY:______________________________
Authorized Signatory
DATE: ___________________________
EXHIBITS: A. Operational Procedures.
B. Recordkeeping Requirements.
<PAGE>
EXHIBIT A
OF THE
MONEY MANAGER AGREEMENT
OPERATIONAL PROCEDURES
Consistent with its legal and fiduciary obligations as an investment
adviser, the Money Manager (the "MM") shall abide by certain rules and
procedures in order to minimize operational problems. The MM will be required to
have various records and files (as required by regulatory agencies) at its
offices. The MM will have to maintain a certain flow of information to Mutual
Funds Service Co. ("MFSC") and Star Bank, N.A. ("Star"), the accounting agent
and the custodian bank, respectively, for the Portfolio.
The MM will be required to furnish MFSC with daily information as to
executed trades. MFSC should receive this data no later than 12:00 Noon Eastern
Standard Time on the day after the trade (T+1). MM shall verify that such
information has been received by MFSC. MFSC shall reasonably cooperate to
confirm that it has received such information. The necessary information should
be transmitted via facsimile machine to MFSC in the form of a daily trade
authorization form signed by an authorized individual. A list of authorized
persons with specimen signatures must be sent to MFSC. The authorization will
contain information on which MFSC and Star can rely to either accept delivery or
deliver out of the account securities as per each trade by the MM. A preprinted
form will be supplied to the MM by the Portfolio. Upon receipt of brokers'
confirmations, the MM or MFSC will be required to notify the other party if any
differences exist. MFSC will affirm trades through DTC. The reporting of trades
by the MM to MFSC must include the following:
o Whether Purchase or Sale
o Security name
o CUSIP Number
o Ticker Symbol
o Number of shares or principal amount o Price per share or bond o
Accrued interest o Commission dollars per trade, or if a net trade o
Executing broker o Trade date o Settlement date
o If security is not eligible for DTC (Purchase only), Proper Settlement
Instructions
MFSC will provide the necessary information to Star.
When opening accounts with brokers for the Portfolio, the account should be
a delivery versus payment account. No margin accounts are to be maintained. The
broker should be advised to use Star's ID system number (NO. 27895), with
interested party ID confirmations to NO. 71394, to facilitate the receipt of
information by Star and MFSC. If this procedure is followed, DK problems will be
held down to a minimum and additional costs of security trades will not become
an important factor in doing business.
<PAGE>
EXHIBIT B
OF THE
MONEY MANAGER AGREEMENT
RECORDS TO BE MAINTAINED BY MONEY MANAGER
1. A record of each brokerage order, and all other portfolio purchases and sales
orders by the Money Manager or on behalf of the Portfolio for, or in connection
with, the purchase or sale of securities, whether executed or unexecuted. Such
records shall include:
A. The name of the broker,
B. The terms and conditions of the order, and of any modification or
cancellation thereof,
C. The time of entry or cancellation,
D. The price at which executed,
E. The time of receipt of report of execution, and
F. The name of the person who placed the order on behalf of the Portfolio
(Rule 31a-1(b)(5) and (6) of the 1940 Act).
2. A record for each fiscal quarter, completed within ten (10) days after the
end of the quarter, showing specifically the basis or bases upon which the
allocation of orders for the purchase and sale of portfolio securities to
brokers or dealers was made, and the division of brokerage commissions or other
compensation on such purchase and sale orders. The record:
A. Shall include the consideration given to:
(i) the sale of shares of a feeder fund of the Portfolio
(ii) the supplying of services or benefits by brokers or dealers to:
(a) The Portfolio,
(b) The Manager,
(c) Yourself (the Money Manager), and
(d) Any person other than the foregoing
(iii) Any other considerations other than the technical qualifications
of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
Page 1 of Exhibit B
<PAGE>
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The identities of the persons responsible for making the determination
of such allocation and such division of brokerage commissions or other
compensation (Rule 31a-1(b)(9) of the 1940 Act) . *
3. A record in the form of an appropriate memorandum identifying the person or
persons, committees, or groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee or group, a record
shall be kept of the names of its members who participate in the authorization.
There shall be retained as part of this record any memorandum, recommendation,
or instruction supporting or authorizing the purchase or sale of portfolio
securities (Rule 31a-1(b)(10) of the 1940 Act) and such other information as is
appropriate to support the authorization. **
4. Such accounts, books and other documents as are required to be maintained by
registered investment advisers by rule adopted under Section 204 of the Advisers
Act, to the extent such records are necessary or appropriate to record the Money
Manager's transactions made with respect to the Portfolio. (Rule 31a-1(f) of the
1940 Act).
5. All accounts, books, records, or other documents that are required to be
maintained pursuant to the 1940 Act, the Advisers Act, or any rule or regulation
thereunder, need only be retained by the Money Manager as required under such
laws, rule or regulations. Any other account, book, record or other document
that is required to be maintained by the Money Manager pursuant to this Exhibit
B need only be maintained for six years after the date of its creation.
* Maintained as property of the Portfolio pursuant to Rule 31a-3(a) of the 1940
Act.
** Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms (including
their recommendations, i.e., buy, sell, hold), and any internal reports or
portfolio manager reviews.
Page 2 of Exhibit B
