THE FLEX-FUNDS THE FLEX-FUNDS
1998 SEMI-ANNUAL REPORT P.O. Box 7177
Dublin, Ohio 43017
800-325-3539
[email protected]
www.flexfunds.com
INSIDE
------
Performance Table
[PHOTO] New York Stock Exchange page 2
Meet John Q. Investor
page 3
Letter to Shareholders
page 5
The Highlands Growth Fund
page 7
The Total Return Utilites Fund
page 9
Investment Adviser: R. Meeder & Associates
The Muirfield Fund
page 10
The U.S. Goverment Bond Fund
page 11
The Money Market Fund
page 12
1998 Semi-Annual Financial
Statements
page 13
<PAGE>
PERFORMANCE TABLE
<TABLE>
<CAPTION>
PERIOD AND AVERAGE
ANNUAL TOTAL RETURNS THE HIGHLANDS THE TOTAL RETURN THE MUIRFIELD THE US GOVT THE MONEY
AS OF 6/30/98 GROWTH FUND UTILITIES FUND FUND BOND FUND MARKET FUND
- ------------- ----------- -------------- ---- --------- -----------
<S> <C> <C> <C> <C> <C>
Year to Date 15.96% 6.80% 6.41% 3.04% 2.64%
1 year 28.96% 30.26% 10.26% 10.35% 5.42%
3 years 21.75% 21.93% 13.89% 5.66% 5.40%
5 years 16.22% -- 12.70% 6.09% 4.96%
10 years 11.86% -- -- 7.12% 5.77%
life of fund 10.80% 21.24% 12.53% 7.19% 6.09%
5.35% 7-day simple yield(1)
5.48% 7-day compound yield(1)
1998 (thru 6/30/98) 15.96% 6.80% 6.41% 3.04% 2.64%
1997 29.28% 28.68% 18.59% 7.70% 5.38%
1996 9.08% 13.33% 5.99% 0.15% 5.27%
1995 24.61% 15.00%(4) 25.82% 18.32% 5.85%
1994 -0.69% -- 2.70% -0.99% 4.10%
1993 7.21% -- 8.11% 8.21% 2.98%
1992 6.35% -- 6.91% 3.26% 3.70%
1991 21.46% -- 29.83% 15.30% 6.12%
1990 4.31% -- 2.33% 8.35% 8.21%
1989 10.17% -- 13.95% 8.75% 9.32%
1988 -5.79% -- 6.20%(2) 2.74% 7.59%
1987 7.61% -- -- -0.62% 6.62%
1986 11.81% -- -- 12.58% 6.75%
1985 6.90%(3) -- -- 9.59%(5) 6.10%(6)
<FN>
* The results achieved by the Highlands Growth Fund during 1997 and 1998 were
achieved with the Sector strategy as implemented by Sector Capital Management
LLC, the Fund's subadviser. The average annual rates of return for 3 years, 5
years, 10 years, and since inception reflect a combination of the Fund's
previous tactical asset allocation discipline and its new Sector discipline.
The performance data shown above represents past performance and does not
necessarily indicate future performance. All performance figures represent total
returns and average annual total returns for the periods ended 6/30/98.
Investment performance represents total return and assumes reinvestment of all
dividend and capital gain distributions. The investment return and principal
value of an investment will fluctuate so that an investor's shares may be worth
more or less than their original cost. The Investment Adviser waived a portion
of its management fees and/or reimbursed expenses in order to reduce the
operating expenses of The Money Market, U.S. Government Bond, and Total Return
Utilities funds during each of the periods shown at right. The Money Market Fund
will seek to maintain a constant net asset value, although there is no guarantee
that it will be able to do so. Investments in The Money Market Fund are niether
insured nor guaranteed by the U.S. Government.
(1) Yield quotations more closely reflect the current earnings of The Money
Market Fund than do total return quotations. (2) Represents total return from
8/10/88 to 12/31/88. (3) Represents total return from 3/20/85 to 12/31/85. (4)
Represents total return from 6/21/95 tp 12/31/95. (5) Represents total return
from 5/9/85 to 12/31/85. (6) Represents total return from 3/27/85 to 12/31/85.
</FN>
</TABLE>
The Flex-funds 1998 Semi-Annual Report * page 2
<PAGE>
MEET JOHN Q. INVESTOR
Like many individual investors, he gets market information from the financial
press and the nightly news. On any given day, he could tell you how the Dow was
doing and where interest rates were headed. But it took a lesson in history
before John became a wise and knowledgeable investor. Here is his story.
"Four years ago," John says, "everyone was talking emerging markets. Twenty-,
thirty-, even forty-percent returns were being had, while the S&P 500 could
barely keep ahead of inflation.
"So at the beginning of 1995, I sold shares in my large-cap growth fund, and
bought shares in a hot emerging markets fund. By the end of 1997, my investment
had lost money, and I missed out on the gains made by the U.S. stock market
during that time.
"Now I know I should not have made my investment decision based on past
performance. Today, I am a better investor because of it."
John's story, although hypothetical, is not unusual. Almost 3 out of every 4
investors choose a fund based only on short-term performance* -- not the best
strategy to follow when planning your financial future.
Although analysts frequently cite historical figures to backup their theories
about market movements, there is no guarantee that a rising market will continue
to rise, year after record-breaking year. In fact, it is more likely a market
that posts gains over an extended period will not show similar results over the
next.
To demonstrate this point, consider the chart below. The numbers in the first
column represent the average annual total return of five diverse market indexes
for the years 1992 through 1994. Based on this information, in which market do
you think John Q. Investor would have invested his money? And in which market
would you have invested your money?
Turn to the next page to see how the market indexes performed over the next
three year period.
AVERAGE ANNUAL TOTAL RETURNS FOR 3-YEAR CYCLES
1992-1994 1995-1997 Index
- --------- --------- -----
18.3%
10.3%
7.9%
6.3%
4.6%
* FINANCIAL NEWS THIS WEEK, July 6, 1998. Published by Standard & Poor's
Published Image.
The Flex-funds 1998 Semi-Annual Report * page 3
<PAGE>
MEET JOHN Q. INVESTOR Continued from page 3
AVERAGE ANNUAL TOTAL RETURNS FOR 3-YEAR CYCLES
1992-1994 1995-1997 Index
- --------- --------- -----
18.3% -7.6% MSCI Emerging Markets Index
10.3% 22.5% Real Estate Investment Trust Index
7.9% 6.3% MSCI Europe Asia Far East Index
6.3% 31.1% Standard & Poors 500 Index
4.6% 10.4% Lehman Bros. Aggregate Bond Index
Maybe you are surprised to learn that an index that has performed so well as of
late, like the S&P 500, was among the worst performing indexes only four years
earlier.
This demonstrates the point perfectly -- past performance does not guarantee
future results, and an investment strategy that chases past performance will not
always result in similar gains.
If you were chasing past performance at the end of 1994, you may have shifted
your investments to emerging markets, noting that the incredible 18.3% average
annual return of the MSCI Emerging Market Index beat the S&P 500's 6.3% average
annual return. If you had done so, you would have missed the bull run mounted by
large-cap issues in the U.S. stock market since that time, and your investment
in emerging markets may have actually lost money during the dismal performance
between 1995 and 1997.
Does this mean you should shift your investments now, out of U.S. stock funds
and into emerging market funds? Not exactly.
As a fund investor, your best strategy is to look beyond the annual returns,
into the fine print of the prospectus. Read beyond the performance charts, to
find out what is the fund's investment strategy, where are the market risks, and
who is the manager behind the fund.
Also, understand that many investment markets go through cycles of bullishness
and bearishness. If one market or fund posts stellar returns this year, don't
expect a command performance the next. If your goals are long-term, be prepared
to stick with your investment through the sluggish periods, in order to reap the
benefits of multi-year growth.
Most importantly, know your own investment objective and tolerance for risk,
then find a fund that is consistent with your objective and style.
By chasing the prevailing winds of performance, your investment strategy may
fall short of your financial expectations. Shifting your investments from fund
to fund may result in diminished returns, as hot markets quickly grow cold and
short-term gains may be dramatically reduced by increased taxes.
Philosopher George Santayana said more than a century ago, "Those who do not
remember the past are condemned to repeat it." He was speaking, of course, about
history. But just like John Q. Investor, everyone could use a history lesson
about the nature of change in the financial markets.
The Flex-funds 1998 Semi-Annual Report * page 4
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO] Robert S. Meeder, Chairman
Dear Shareholders: July 21, 1998
The stock market has forged ahead to historically high values, and long term
interest rates have reached record lows. The second quarter of 1998 gave
investors a much needed pause after the first quarter's meteoric rise, when most
market averages recorded modest gains. But during the first twenty calendar days
of July, the percentage gain of the S&P 500, the Dow Jones Industrial Average,
and the NASDAQ exceeded the results of all ninety days of the second quarter.
(The Nasdaq alone added a 6.3% gain!)
Several years ago, I had a conversation with a respected market analyst which
bears some relevance today. We were discussing a recent market rally when he
said, "The rise in the market is significant, but how it got there may be more
important," ... meaning ... was it a broad based rally with good volume
statistics?
A current observation of "how it got there" was addressed in a recent article in
Barron's: "To illustrate," the author stated, "four equities -- Microsoft,
Intel, Cisco, and Dell -- represent 25% or $566 billion of the Nasdaq composite
index. That means the other 75% of the value of the composite is accounted for
by no less than 5,422 stocks."
Another newspaper article noted that three of these high tech market favorites
- -- Cisco, Dell, and Microsoft -- were responsible for 51% of the increase in the
Nasdaq's value for the last three years. The extent of their appreciation this
year is best illustrated by reviewing each equity's percentage gain and
price/earnings ratio estimated for this calendar year (as of 7/17/98): Equity
P/E Ratio % Gain (Year to date, as of 7/17/98) Dell Computer 58 171% Microsoft
58 81% Cisco Systems 51 71%
EQUITY P/E RATIO % GAIN (YEAR TO DATE, AS OF 7/17/98)
- ------ --------- ------------------------------------
Dell Computer 58 171%
Microsoft 58 81%
Cisco Systems 51 71%
The point is, the advance in the market over the last six to twelve months has
become more selective as time has passed. This condition of narrow leadership
tends to develop high valuation in the few market favorites. Unless the rest of
the market can catch up, the eventual result is a vulnerable market. So far, the
catch-up has not occurred -- just the opposite is happening.
How high will this market go? Obviously, no one really knows. But at some point
in the future, most everyone will say in hindsight the market was tremendously
overvalued and a decline to more "normal levels" was inevitable.
Whenever we publish a report to our shareholders, I would love to say that all
our funds rank near or at the top of their categories. But that is not
realistic, because our funds have diverse investment strategies, and the mutual
fund universe is now larger than the number of stocks listed on the New York and
American Stock Exchanges combined.
The Flex-funds 1998 Semi-Annual Report * page 5
<PAGE>
However, three of our funds posted noteworthy results for the twelve months
ended June 30, 1998: The Total Return Utilities Fund, which just received a
4-star rating from Morningstar; The Money Market Fund, a consistent top
performer among all retail money market funds in the country; and The U.S.
Government Bond Fund, which performed well when compared to other intermediate
government bond funds.
Once again, The Money Market Fund extended its streak of having the highest
cumulative total return of all general purpose money market funds monitored by
Lipper Analytical Services since its inception in March of 1985. For the last
twelve months, The Money Market Fund exceeded the average annual total return of
general purpose money market funds by almost one-half of 1% (5.42% versus 4.96%)
and was ranked in the top 8% of general money market funds.
In my previous letter to shareholders, I referred to an upcoming capability for
shareholders to access account balance information, including recent deposits,
redemptions, distributions, and share prices via The Flex-fund Voice Response
Line. That has not happened yet, but we expect it will on or about October 1st.
We are converting to a new record keeping software package, and we elected to
delay implementation of the Voice Response System until the new record keeping
system is installed.
By the way, you will be pleased to know that our new record keeping system is
Year 2000 compliant.
Over the last few years, The Flex-funds have contracted with well known national
and international investment managers, to expand our mutual fund offerings. The
Board is very pleased with the investment results provided by our new partners,
and we encourage you to investigate their strategies and investment returns. The
Total Return Utilities Fund, The Highlands Growth Fund, and our most recent
offering to our shareholders, The International Equity Fund, affords you the
opportunity to expand your investment horizon with experienced and successful
portfolio managers.
Please read the enclosed progress reports from our fund managers for in-depth
market and performance perspective. For more information on any fund in The
Flex-funds family, simply call our shareholder services number at
1-800-325-3539, and our friendly associates will make sure you receive the
information you seek.
Cordially,
/s/ Robert S. Meeder
Robert S. Meeder
Chairman
The Flex-funds 1998 Semi-Annual Report * page 6
<PAGE>
The Flex-funds Semi-annual Report * June 30th, 1998
THE HIGHLANDS GROWTH FUND
[PHOTO] William L. Gurner, Portfolio Manager
For the first half of 1998, The Highlands Growth Fund outperformed the
Morningstar average growth fund with a six-month total return of 15.96%, besting
the 13.66% Morningstar average total return for growth funds.
PERFORMANCE PERSPECTIVE
Since the adoption of The Fund's new investment strategy, "Sector Plus", on
December 31, 1996, the Fund has consistently outperformed the average growth
fund, according to Morningstar Inc.
Period and Average Annual The Highlands Morningstar Average
Total Returns as of 6/30/98 Growth Fund Growth Fund
- --------------------------- ----------- -----------
3 months* 2.43% 0.83%
6 months* 15.96% 13.66%
12 months 28.96% 24.52%
18 months 30.97% 26.21%
- -----------------------------------------------------------------------
* Not Annualized
- -----------------------------------------------------------------------
The Highlands Growth Fund allocates its assets into 10 distinct industry
sectors, closely weighted to the respective sectors of the S&P 500. Investment
managers who are "sector specialists" are then utilized to manage the 10
distinct sectors. Each sector specialist's goal is to outperform their S&P 500
sector benchmark.
The following table illustrates each sector manager's performance versus their
respective S&P 500 sector performance for the first six months of 1998.
SECTOR The Highlands S&P SECTOR The Highlands S&P
Sector Manager Growth Fund 500 Sector Manager Growth Fund 500
- -------------- ----------- --- -------------- ----------- ---
CONSUMER DURABLES CONSUMER NON-DURABLES
Barrow-Hanley 32.02% 34.27% Barrow-Hanley 7.81% 13.41%
TECHNOLOGY MATERIALS & SERVICES
RCM 28.38% 26.31% Ashland 11.95% 10.79%
HEALTH CONSUMER GOODS
Alliance 24.82% 25.86% Hallmark 13.18% 15.83%
ENERGY FINANCE
Mitchell 2.85% 5.25% Delta Capital 15.99% 16.51%
TRANSPORTATION UTILITIES
Miller/Howard 2.65% 1.65% Miller/Howard 14.11% 12.00%
MARKET PERSPECTIVE
Through the first half of 1998, the stock market was performing to our
expectations. Large-cap stocks continued to advance during the second quarter
before corrections in several market sectors affected the market as a whole. By
the end of June, however, the market had achieved modest gains, thanks in part
to a slight recovery at the end of the quarter.
During the second quarter, we saw a bull market and a bear market at the same
time. Stocks with less earnings momentum were doing better than quality stocks
and equities with better earnings potential.
It looks as if the market may remain choppy through the second half of 1998. The
momentum shifts so quickly that a long-term investor should hold those quality
names that will do well in the long run.
PERIOD AND AVERAGE SECTOR WEIGHTINGS (6/30/98)
ANNUAL TOTAL RETURNS* ---------------------------
- --------------------- [GRAPH] The following was
Year to date 15.96% presented as a pie
1 Year 28.96% chart:
3 Years 21.75%
5 Years 16.22% S&P 500 Futures 21.1%
10 Years 11.86% Technology 14.1%
Life of Fund 10.80% Finance 13.4%
- --------------------- Consumer Nondurables 11.9%
* The results achieved by the Highlands Health 9.5%
Growth Fund during 1997 and 1998 were Transportation 7.5%
achieved with the Sector strategy as Energy 6.4%
implemented by Sector Capital Management Consumer Durables 6.4%
LLC, the Fund's subadviser. The average Materials & Services 5.1%
annual rates of return for 3 years, 5 years, Capital Goods 3.9%
10 years, and since inception reflect a Utilities 0.8%
combination of the Fund's previous tactical
asset allocation discipline and its new
Sector discipline.
The Flex-funds 1998 Semi-Annual Report * page 7
<PAGE>
PERFORMANCE OF MR. GURNER and the SUBADVISER
1996 1995 1994 1993 1992 1991(2)
- --------------------------------------------------------------------------------
Sector Capital LLC Mr. Gurner
- --------------------------------------------------------------------------------
Privately Managed Accounts 26.27% 45.79% 0.97% 14.78% 8.26% 18.79%
The S&P 500 Index(1) 21.08% 37.53% 1.10% 10.00% 7.69% 16.66%
The Average Growth Fund(3) 19.56% 31.02% -1.66% 12.00% 8.80% 20.27%
- --------------------------------------------------------------------------------
(1)The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income, dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.
(2) Commencement of investment operations with regard to Mr. Gurner is March 1,
1991.
(3)According to Morningstar Principia.
William L. Gurner, the President, Administrator and Portfolio Manager of Sector
Capital Management, LLC ("the Subadviser"), served as Manager (Trust
Investments) for an employee benefit plan of a large corporation from September,
1987 through December, 1994. The table above sets forth Mr. Gurner's performance
from March 1, 1991 through December 31, 1994 [from September 1987 until March 1,
1991, the employee benefit plan did not have investment objectives, policies,
strategies and risks similar to those of the Growth Stock Portfolio (The
Highlands Growth Fund's Portfolio) and The Highlands Growth Fund ("The Fund")]
relating to the historical performance of the employee benefit plan managed by
Mr. Gurner and the Subadviser's composite performance relating to the historical
performance of private accounts managed by the Subadviser from January 1, 1995
through December 31, 1996, that have investment objectives, policies, strategies
and risks substantially similar to those of the Growth Stock Portfolio and the
Fund. Mr. Gurner and the Subadviser engaged substantially the same Sector
Advisers currently engaged by the Growth Stock Portfolio to manage on a
discretionary basis the assets of the employee benefit plan and such private
accounts. The data is provided to illustrate the past performance of Mr. Gurner
and the Subadviser in managing substantially similar accounts as measured
against specified market indices and does not represent the performance of the
Growth Stock Portfolio or the Fund. Investors should not consider this
performance data as an indication of future performance of the Growth Stock
Portfolio or the Fund. Mr. Gurner and the Subadviser's composite performance
data shown above were calculated in accordance with recommended standards of the
Association for Investment Management and Research ("AIMR"*), retroactively
applied to all time periods. All returns presented were calculated on a total
return basis and include all dividends and interest, accrued income and realized
and unrealized gains and losses. All returns reflect the deduction of investment
advisory fees, brokerage commissions and execution costs paid by the employee
benefit plan and the private accounts without provision for federal or state
income taxes. Custodial fees, if any, were not included in the calculation. The
Subadviser's composite includes all actual, fee paying, discretionary, private
accounts managed by the Subadviser that have investment objectives, policies,
strategies and risks substantially similar to those of the Growth Stock
Portfolio and the Fund. Securities transactions are accounted for on the trade
date and accrual accounting is utilized. Cash and equivalents are included in
performance returns. The yearly returns of the Subadviser's composite combine
the individual accounts' returns by asset-weighting each individual account's
asset value as of the beginning of each quarter. The yearly returns are computed
by geometrically linking the returns of each quarter within the calendar year.
The employee benefit plan managed by Mr. Gurner and the private accounts that
are included in the Subadviser's composite are not subject to the same types of
expenses to which the Growth Stock Portfolio or the Fund are subject nor to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Growth Stock Portfolio and the Fund by the Investment
Company Act or Subchapter M of the Internal Revenue Code. Consequently, the
performance results for the employee benefit plan managed by Mr. Gurner and the
Subadviser's composite could have been adversely affected if the employee
benefit plan and the private accounts included in the composite had been
regulated as investment companies under the federal securities laws.
The investment results of Mr. Gurner and the Subadviser's composite presented
above are unaudited and not intended to predict or suggest the returns that
might be experienced by the Growth Stock Portfolio or an individual investor
investing in the Fund. Investors should also be aware that the use of a
methodology different from that used above to calculate performance could result
in different performance data.
*AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly compatible.
The Flex-funds 1998 Semi-Annual Report * page 8
<PAGE>
The Flex-funds Semi-Annual Report * June 30th, 1998
THE TOTAL RETURN UTILITIES FUND
[PHOTO] Lowell G. Miller, Portfolio Manager
In its first review, The Total Return Utilities Fund has earned a 4-star rating
(****) from Morningstar*. Only one other fund in the utilities industry category
has a 4-star rating, making The Total Return Utilities Fund one of the best
investments in that market sector.
During the first half of 1998, the Fund lagged behind the average utility fund,
due to slight underperformance of some of our major holdings. However, for
longer periods, the performance of The Total Return Utilities Fund remains well
ahead of industry averages.
PERFORMANCE PERSPECTIVE
The Fund's annual total return rates over the previous one-, two-, and
three-year periods remain ahead of the competition. Since the Fund's inception
in 1995, it has provided a cumulative total return of 79.10%, which equates to
an average annual total return of 21.24%.
PERIOD AND AVERAGE ANNUAL THE TOTAL RETURN MORNINGSTAR AVERAGE
TOTAL RETURNS AS OF 6/30/98 UTILITIES FUND UTILITIES FUND
- --------------------------- -------------- --------------
3 months -3.01% -1.50%
6 months 6.80% 8.30%
12 months 30.26% 25.38%
2 years 21.65% 19.99%
3 years 21.93% 18.88%
MARKET PERSPECTIVE
After recording competitive results during the first quarter of 1998,
profit-taking and other circumstances caught up with The Total Return Utilities
Fund during the three months that ended June 30, 1998. In comparison, the Dow
Jones Utilities Average did well during the second quarter, largely because the
index is heavily weighted in favor of large-cap, nuclear-based electric utility
companies, just the sort of stock we do not own and never will.
Even though most of the Fund's portfolio is domestic, it was nicked by Asian
concerns and currency weaknesses. New Zealand Telecom lost 17.55%, while Hong
Kong Telecom dropped 9.6%. Because some traders tend to lump all non-Western
companies in the same basket, Enersis, a Chilean company, suffered, too, falling
22.57 percent.
On the positive side, Calenergy has continued its recovery, even though it has
some limited exposure in the Far East. AirTouch has continued to move higher, up
16.25%, as has Enron, up 16.%, and the heavily weighted LGE, up 4.62%.
Looking forward, we see ample opportunity for our steady, moderate growth
utilities and excellent special opportunities due to mergers domestically and
oversold companies internationally.
* Morningstar proprietary rating reflects historical risk-adjusted performance
as of 6/30/98. These ratings are subject to change monthly and are calculated
from the fund's 3-year average annual return in excess of 90-day Treasury bill
returns with appropriate fee adjustments, and a risk factor that reflects fund
performance below 90-day T-bill returns. Ten percent of the funds in an
investment category receive 5-stars; 22.5% receive four stars.
PERIOD AND AVERAGE PORTFOLIO HOLDINGS (6/30/98)
ANNUAL TOTAL RETURNS* ---------------------------
- --------------------- [GRAPH] The following was
Year to date 6.80% presented as a pie
1 Year 30.26% chart:
2 Years 21.65%
3 Years 21.93% Telecommunications 35.6%
Life of Fund 21.24% Natural Gas 18%
- --------------------- Telecommunications Equipment 16.6%
Oil/Gas Domestic 12.2%
Electric Utility 9.7%
Water Utility 3.8%
Energy 1.9%
Money Market Instruments 1.3%
Diversified Utility 1.1%
The Flex-funds 1998 Semi-Annual Report * page 9
<PAGE>
The Flex-funds Semi-Annual Report * June 30th, 1998
THE MUIRFIELD FUND
[PHOTO] Robert S. Meeder, Jr., Portfolio Manager
Through the first half of 1998, The Muirfield Fund underperformed the average
asset allocation fund. However, during the second quarter, the Fund's total
return exceeded Morningstar's average total return for asset allocation funds.
We are pleased with the second quarter results, which are due to timely asset
allocation adjustments within the portfolio and good decisions on mutual fund
holdings made during the quarter.
PERFORMANCE PERSPECTIVE
PERIOD AND AVERAGE ANNUAL THE MUIRFIELD MORNINGSTAR AVERAGE
TOTAL RETURNS AS OF 6/30/98 FUND ASSET ALLOCATION FUND
- --------------------------- ---- ---------------------
3 months 2.11% 1.08%
6 months 6.41% 8.60%
12 months 10.26% 16.50%
3 years 13.89% 16.24%
5 years 12.70% 13.21%
MARKET PERSPECTIVE
The Fund began the second quarter with 65% of the portfolio invested in the
stock market, 30% in U.S. government bonds, and the remainder in money market
instruments. However, by early May, while the benchmark Dow Jones Industrial
Average hit record levels, the broader stock market and other internal
measurements of the stock market were not confirming the strength in the Dow
Jones Industrial Average.
For example, while the Dow Jones Industrial Average was posting new all-time
highs, the Nasdaq Composite (OTC), the Russell 2000, and our proprietary growth
mutual fund index were at lower highs. Additionally, fewer stocks were making
new highs, nearly all of our advance/decline statistics were in a negative
trend, and our various volume measurements were also negative.
Historically, when these conditions develop, it indicates the risk/reward
relationship may be changing, from a low risk to a high risk stock market
environment. Consequently, we concluded the most prudent posture was to adopt a
more defensive position, and we reduced our equity exposure to 50% in early May.
Furthermore, a flattening yield curve (a smaller difference between the yield on
long-term bonds and short-term money market instruments, for example 5.6% on
long-term bonds vs. 5.5% on money market securities) precipitated the
elimination of our U.S. Government bond holdings.
However, by late June our investment discipline improved to the point where it
was no longer appropriate to maintain a partially defensive position.
Consequently, by late June The Muirfield Fund was 100% invested in the stock
market.
As a reminder, all our traditional fundamental indicators (i.e.: P/E ratios,
dividend yield, earnings ratios, etc.) are so overvalued that it prevents us
from becoming complacent regarding the potential risk of the stock market.
PERIOD AND AVERAGE PORTFOLIO HOLDINGS (6/30/98)
ANNUAL TOTAL RETURNS* ---------------------------
- --------------------- [GRAPH] The following was
Year to date 6.41% presented as a pie
1 Year 10.26% chart:
3 Years 13.89%
5 Years 12.70% Mutual Funds 61.3%
Life of Fund 12.53% S&P 500 Futures 22.2%
- --------------------- The Dow 30 Stocks 11.9%
Cash & Cash Equivalents 3.5%
U.S. Government Bonds 1.1%
The Flex-funds 1998 Semi-Annual Report * page 10
<PAGE>
The Flex-funds Semi-Annual Report * June 30th, 1998
THE U.S. GOVERNMENT BOND FUND
[PHOTO] Joseph A. Zarr, Portfolio Manager
Interest rates continued to fluctuate in a narrow range during the first half of
1998, although a slight decline from late April through the second quarter
helped long-term U.S. interest rates reach record lows.
The U.S. Government Bond
Fund was able to make the most of this historically low interest rate
environment, providing a six-month total return of 3.04% which was in line with
the average government bond fund. As of June 30, 1998, the Fund's 12-month total
return of 10.35% significantly outperformed the 8.63% 12-month total return for
the average government bond fund, according to Morningstar.
PERFORMANCE PERSPECTIVE
PERIOD AND AVERAGE ANNUAL THE U.S. GOVERNMENT MORNINGSTAR AVERAGE
TOTAL RETURNS (AS OF 6/30/98) BOND FUND U.S. GOVERNMENT BOND FUND
- ----------------------------- --------- -------------------------
3 months 1.72% 1.92%
6 months 3.04% 3.20%
12 months 10.35% 8.63%
3 years 5.66% 6.37%
5 years 6.09% 5.31%
MARKET PERSPECTIVE
The impetus for these record low interest rates during the first half of 1998
has been the"flight to quality" triggered by the on-going Asian financial
crisis. Not only did markets throughout Southeast Asia continue to fall through
the second quarter, but in May Japan officially tumbled into a recession. That
in turn caused equity markets across the region to drop sharply, as money flowed
into U.S. Treasury bonds.
The Asian crisis has had a definite impact on the Federal Reserve Board and its
policy-making considerations about short-term interest rates. Conflicting data
regarding the U.S. economy has caused the Fed to walk a fiscal tightrope between
raising rates to slow the pace of growth, and leaving them untouched.
The U.S. Government Bond Fund began the second quarter in a slightly defensive
position, investing about 20% of its portfolio in money market instruments. Then
in May, the Fund took an even greater defensive tack, placing 40% of the
portfolio into short-term investments, before the fund became fully invested at
the beginning of June.
At this point, we expect the Fed to maintain a steady course, especially with
the upcoming general election this November. However, if Treasury rates continue
to fall and short-term rates remain level, it will create an "inverted yield
curve," in which short-term rates will be higher than the longer-term rates. If
that happens, expect the Fund to be invested entirely in higher-yield money
market instruments.
PERIOD AND AVERAGE PORTFOLIO HOLDINGS (6/30/98)
ANNUAL TOTAL RETURNS* ---------------------------
- --------------------- [GRAPH] The following was
Year to date 3.04% presented as a pie
1 Year 10.35% chart:
3 Years 5.66%
5 Years 6.09% 10 Year U.S. Government Securities 92%
10 Years 7.12% Cash Equivalents 8%
Life of Fund 7.19%
- ---------------------
The Flex-funds 1998 Semi-Annual Report * page 11
<PAGE>
The Flex-funds Semi-Annual Report * June 30th, 1998
THE MONEY MARKET FUND
[PHOTO] Philip A. Voelker, Portfolio Manager
Since its inception in 1985, The Money Market Fund continues to post the highest
cumulative total return of all general purpose money market funds monitored by
Lipper Analytical Services Inc., with a cumulative total return of 118.89%.
During the first half of 1998, The Money Market Fund placed among the nation's
leading money market funds, according to Lipper. The survey ranked The Money
Market Fund among the top 8% of 309 general purpose money market funds. The
Fund's total return has always placed among the top 10% of all money market
funds for any 12-month period since inception.
As of the close of business June 30, 1998, The Money Market Fund's 6-month total
return was 2.64%. The Fund's 7-day simple yield as of that date was 5.35%, while
its 7-day compound yield then was 5.48%.
PERFORMANCE PERSPECTIVE
PERIOD AND AVERAGE ANNUAL THE MONEY LIPPER MONEY MARKET
TOTAL RETURNS AS OF 6/30/98 MARKET FUND FUND AVERAGE
- --------------------------- ----------- ------------
3 months 1.31% 1.20%
6 months 2.64% 2.42%
12 months 5.42% 4.96%
3 years 5.40% 4.94%
5 years 4.96% 4.54%
10 years 5.77% 5.34%
MARKET PERSPECTIVE
We continued our neutral stance in regard to interest rates during the first
half of 1998. As a result, we continued to reduce the average maturity of
securities within the portfolio of The Money Market Fund during the second
quarter, from about 60 days at the beginning of April to 45 days in mid-June.
The trend in short-term interest rates through the last six months has been
relatively flat. The Federal Reserve Board continues to walk a tightrope between
raising rates to stave off inflation, and lowering rates to counter the
decelerating pressures of the Asian financial crisis.
When interest rates are stable or falling -- as they did slide slightly toward
the end of the second quarter -- it gives us confidence that the Fed is not
going to raise rates. At the same time, we are not aggressively pursuing longer
maturity investments, because there is very little difference between six-month
Treasury bills and the Fed's overnight rate, which was 5.5%. This is a
conservative position, in case the Fed does move or shocks lead to increased
interest rates in the bond market. It also allows us to move dramatically if
economic conditions do change.
Currently, we do not expect to make a significant change to the portfolio for
some time. There is little economic reason to do so, with long-term bonds
trading at a lower rate than overnight Federal Reserve funds. There is only a
narrow advantage in owning riskier, long-term securities rather than safer,
short-term securities.
7-DAY SIMPLE YIELD PORTFOLIO HOLDINGS (6/30/98)
as of 6/30/98 5.35% ---------------------------
[GRAPH] The following was
7-DAY COMPOUND YIELD presented as a pie
as of 6/30/98 5.48% chart:
PERIOD AND AVERAGE Commercial Paper 37%
ANNUAL TOTAL RETURNS* Corporate Obligations 24%
- --------------------- Repurchase Agreements 18%
Year to date 2.64% Floating Rate Notes 18%
1 Year 5.42% U.S. Government Obligations 3%
3 Years 5.40%
5 Years 4.96%
10 Years 5.77%
Life of Fund 6.09%
- ---------------------
The Flex-funds 1998 Semi-Annual Report * page 12
<PAGE>
THE FLEX-FUNDS
1998 Semi-Annual Report [PHOTO] Pocketwatch
Portfolio Holdings & Financial Statements
The Flex-funds 1998 Semi-Annual Report 13
<PAGE>
GROWTH STOCK PORTFOLIO
Portfolio of Investments as of June 30, 1998 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
COMMON STOCKS - 78.6%
AEROSPACE/DEFENSE - 1.2%
Boeing Co. 3,590 $ 159,979
Cordant Technologies, Inc. 350 16,144
General Dynamics Corp. 1,000 46,500
General Motors Corp. - Class H 330 15,531
Gulfstream Aerospace Corp. # 150 6,975
Lockheed Martin Corp. 530 56,114
Northrup Grumman Corp. 200 20,625
Raytheon Co. - Class B # 1,070 63,264
Textron, Inc. 1,060 75,989
United Technologies Corp. 1,400 129,500
-------
590,621
AIR TRANSPORTATION - 0.3%
AMR Corp. # 750 62,437
Delta Air Lines, Inc. 315 40,714
Southwest Airlines 890 26,311
USAir Group # 340 26,945
-------
156,407
ALUMINUM - 0.1%
Aluminum Company of America 860 56,706
APPAREL - 0.5%
Fruit of the Loom, Inc. # 4,800 159,300
Polo Ralph Lauren Corp. # 2,100 58,800
-------
218,100
AUTO & TRUCK - 1.7%
Chrysler Corp. 2,200 124,025
Ford Motor Co. 6,500 383,500
General Motors Corp. 4,000 267,250
Paccar, Inc. 178 9,300
TRW, Inc. 770 42,061
-------
826,136
BANKING - 0.4%
J.P. Morgan & Co. 1,000 117,063
Washington Mutual Savings Bank 1,755 76,233
-------
193,296
BEVERAGE--ALCOHOLIC - 0.5%
Anheuser-Busch Cos., Inc. 2,400 113,250
Canadaigua Wine Co. # 2,600 127,887
-------
241,137
BEVERAGE--SOFT DRINK - 1.5%
Coca-Cola Co. 5,100 436,050
Pepsico, Inc. 6,500 267,719
-------
703,769
BUILDING MATERIALS - 0.3%
Crane Co. 280 13,597
Foster Wheeler Corp. 2,712 58,139
Masco Corp. 800 48,400
Willbros Group # 1,500 23,438
-------
143,574
CAPITAL GOODS - 0.1%
Cooper Industries 260 14,284
Eaton Corp. 166 12,906
Ingersoll-Rand 356 15,686
------
42,876
CHEMICAL--DIVERSIFIED - 1.4%
Air Products & Chemicals, Inc. 1,070 42,800
E.I. du Pont de Nemours & Co. 5,350 399,578
Monsanto Corp. 2,840 158,685
Praxair, Inc. 650 30,428
Rohm & Haas Co. 335 34,798
Union Carbide Corp. 460 24,552
-------
690,841
14 The Flex-funds 1998 Semi-Annual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
CHEMICAL--SPECIALTY - 0.0%
Sigma Aldrich 440 15,455
COMMERCIAL SERVICES - 0.2%
Cognizant Corp. 750 47,250
Dun & Bradstreet 1,260 45,360
------
92,610
COMPUTERS & PERIPHERALS - 2.3%
Allied Waste Industries, Inc. # 1,080 25,920
Compaq Computer Corp. 3,660 103,852
Dell Computer Corp. # 3,310 307,209
EMC Corp./Mass # 4,210 188,661
EVI Weatherford, Inc. # 760 28,120
IBM 3,420 392,659
Micron Technology, Inc. # 500 12,406
Sun Microsystems # 940 40,831
---------
1,099,658
COMPUTER SOFTWARE & SERVICES - 4.2%
America Online, Inc. # 610 64,126
Cambridge Technologies Partners, Inc. # 640 34,960
Ceridian Co. # 600 35,250
Citrix Systems, Inc. # 700 47,863
Computer Associates International, Inc. 2,555 141,962
Computer Sciences Corp. # 560 35,840
DST Systems, Inc. # 350 19,600
First Data Corp. 1,600 53,300
Manugistics Group, Inc. # 125 3,094
Microsoft Corp. # 11,174 1,210,982
National Data Corp. 900 39,375
Network Associates, Inc. # 1,140 54,577
Oracle Corp. # 3,430 84,249
Parametric Technology Co. # 600 16,275
Peoplesoft, Inc. # 1,500 70,500
Sapient Corp. # 300 15,825
Saville Systems plc - Sponsored ADR # 280 14,035
Sterling Commerce, Inc. # 1,050 50,925
Sungard Data Systems, Inc. # 770 29,549
Wind River Systems # 600 21,525
---------
2,043,812
COMPUTER SYSTEMS - 0.1%
Visio Corp. # 700 33,425
CONSUMER NON-DURABLE - 3.7%
Chattem, Inc. # 7,500 200,625
The Clorox Co. 1,900 181,688
Haggar Corp. 11,500 146,625
Procter & Gamble Co. 7,900 719,394
Rubbermaid, Inc. 11,400 376,200
Tupperware Corp. 6,500 182,812
---------
1,807,344
COPPER - 0.0%
Phelps Dodge Corp. 240 13,725
COSMETICS - 1.4%
Avon Products, Inc. 400 30,975
International Flavors & Fragrances, Inc. 3,900 169,406
Kimberly-Clark Corp. 2,300 105,513
Playtex Products, Inc. # 22,500 358,594
-------
664,488
DATA PROCESSING - 0.1%
Fiserv, Inc. # 650 27,605
I2 Technologies, Inc. # 360 12,645
------
40,250
DIVERSIFIED - 1.2%
Allied Signal, Inc. 2,200 97,625
Corning, Inc. 740 25,715
Minnesota Mining & Manufacturing Co. 900 73,969
National Service Industries 430 21,876
Norfolk Southern Corp. 1,550 46,209
PPG Industries, Inc. 970 52,259
Ralston Purina 600 70,088
Tenneco 559 21,277
Tyco International 2,470 155,610
-------
564,628
The Flex-funds 1998 Semi-Annual Report 15
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
DRUG - 6.4%
Abbott Labs 5,530 226,730
Bristol Myers Squibb 5,170 594,227
Eli Lilly & Co. 3,270 216,637
Merck & Co., Inc. 5,660 757,025
Pfizer, Inc. 6,180 671,689
Schering Plough Corp. 4,390 402,234
Warner Lambert Co. 3,210 222,694
---------
3,091,236
DRUGSTORE - 0.1%
Longs Drug Stores 2,000 57,750
ELECTRIC--INTEGRATED - 0.6%
FPL Group, Inc. 780 49,140
Houston Industries, Inc. 1,510 46,527
Texas Utilities Co. 2,590 107,809
Unicom Corp. 3,050 106,941
-------
310,417
ELECTRIC PRODUCTION - 0.0%
Sundstrand Corp. 350 20,037
ELECTRIC UTILITY - 0.5%
American Electric Power, Inc. 1,130 51,274
Duke Power Co. 1,530 90,652
Southern Co. 2,890 80,017
-------
221,943
ELECTRICAL EQUIPMENT - 2.7%
General Electric Corp. 14,295 1,299,058
Thomas & Betts 330 16,253
---------
1,315,311
ELECTRONIC COMPONENT SEMICONDUCTORS - 1.6%
Intel 7,970 590,776
KLA -Tencor Corp. # 350 9,691
Linear Tech Corp. 200 12,063
Motorola, Inc. 240 12,615
Texas Instruments, Inc. 2,200 128,287
-------
753,432
ELECTRONIC COMPONENTS - 0.2%
Emerson Electric 1,729 104,388
ELECTRONIC MEASUREMENT - 0.0%
Teradyne, Inc. # 390 10,433
ELECTRONICS - 0.1%
Altera Corp. # 480 14,190
Rockwell International Corp. 700 33,600
------
47,790
ENERGY - 0.0%
Western Atlas # 200 16,975
FINANCE - 7.9%
Banc One Corp. 3,300 184,181
Bank of Boston Corp. 1,600 89,000
Bankers Trust New York Co. 600 69,638
Chase Manhattan Corp. 6,600 498,300
Citicorp 2,300 343,275
Equifax, Inc. 1,070 38,854
Federal Home Loan Mortgage Corp. 1,900 89,419
Federal National Mortgage Corp. 2,300 139,725
First Chicago NBD Corp. 1,700 150,662
First Union Corp. 6,068 353,461
Firstplus Financial Group # 7,100 255,600
Fleet Financial Group, Inc. 1,200 100,200
Green Tree Financial Corp. 1,700 72,781
Lehman Brothers Holdings, Inc. 1,300 100,831
Mellon Bank Corp. 3,000 209,063
Merrill Lynch & Co. 600 55,350
NationsBank Corp. 5,225 400,692
Norwest Corp. 6,200 232,500
PNC Bank Corp. 2,400 129,300
Ryder Systems, Inc. 310 9,784
SunTrust Banks, Inc. 900 73,181
Wells Fargo & Co. 600 221,400
---------
3,817,197
FINANCIAL SERVICES - 2.3%
American Express Co. 1,500 170,625
Associates First Capital 3,400 261,587
Avery Dennison Corp. 720 38,700
BankAmerica Corp. 4,400 380,600
16 The Flex-funds 1998 Semi-Annual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
Capital One Financial Corp. 1,700 211,119
HF Ahmanson & Co. 800 56,800
---------
1,119,431
FOREST PRODUCTS - 0.2%
Georgia Pacific Corp. 430 25,343
Weyerhauser Co. 1,120 51,730
Willamette Industries, Inc. 640 20,480
------
97,553
HEALTH - 1.4%
American Home Products 5,950 307,913
Humana, Inc. # 1,160 36,177
Johnson & Johnson 4,300 318,200
-------
662,290
HOTEL/GAMING - 0.3%
Hilton Hotels Corp. 5,100 145,988
INSTRUMENTS--CONTROLS - 0.2%
Honeywell, Inc. 630 52,644
Johnson Controls, Inc. 197 11,389
Parker Hannifin Corp. 246 9,379
------
73,412
INSTRUMENTS--SCIENTIFIC - 0.0%
Perkin Elmer Corp. 250 15,547
INSURANCE--LIFE - 0.8%
AmerUs Life Holdings, Inc. 7,841 253,852
Transamerica Corp. 1,100 126,637
-------
380,489
INSURANCE--MULTILINE - 2.2%
Allstate 1,800 164,813
American International Group 2,250 328,500
Conseco, Inc. 5,700 267,187
Travelers Group, Inc. 4,847 293,849
---------
1,054,349
LASERS--SYSTEMS & COMPONENTS - 0.0%
Uniphase Corp. # 330 20,718
MACHINERY - 0.4%
Deere & Co. 2,140 113,086
Dover Corp. 514 17,605
Lancer Corp. # 3,700 59,662
W.W. Grainger 234 11,656
-------
202,009
MACHINERY--CONSTRUCTION & MINING - 0.4%
Case Corp. 176 8,492
Caterpillar, Inc. 1,395 73,804
Halliburton Co. 1,300 57,769
NACCO Industries, Inc. 375 48,469
-------
188,534
MANUFACTURING - 0.2%
Mueller Industries, Inc. # 1,500 55,688
Owens Illinois # 670 29,982
------
85,670
MARKETING SERVICES - 0.1%
Omnicom Group, Inc. 975 48,628
MATERIALS & SERVICES - 0.6%
Champion International Corp. 425 20,905
Dana Corp. 370 19,703
Deluxe Corp. 490 17,517
Ecolab, Inc. 600 18,600
Hercules, Inc. 570 23,441
Illinois Tool Works, Inc. 1,490 99,364
Service Corp. International 1,350 57,881
Sherwin-Williams Co. 920 30,475
-------
287,886
MEDICAL PRODUCTS - 0.8%
Algos Pharmaceutical Corp. # 1,880 50,760
Centor, Inc. # 2,080 75,400
GelTex Pharmaceuticals, Inc. # 2,670 49,729
IDEC Pharmaceuticals Corp. # 1,160 27,332
MedImmune, Inc. # 1,990 124,126
Neurex Corp. # 990 30,071
PhyCor, Inc. # 1,480 24,513
-------
381,931
The Flex-funds 1998 Semi-Annual Report 17
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
MEDICAL SERVICES - 0.4%
Columbia/HCA Healthcare Corp. 1,400 40,775
Genzyme Corp. # 1,370 35,021
HBO & Co. 2,370 83,543
Shared Medical Systems 420 30,844
-------
190,183
MEDICAL SUPPLIES - 0.6%
Boston Scientific Co. # 738 52,859
IDEXX Laboratories, Inc. # 1,280 31,840
Medtronic, Inc. 2,850 181,688
-------
266,387
MEDICAL--HMO - 0.2%
United Healthcare Co. 1,740 110,816
MINING - 0.2%
Barrick Gold Corp. 1,800 34,650
Newmont Mining Corp. 1,300 30,712
Tubos de Acero de Mexico SA # 1,900 24,344
------
89,706
MULTIMEDIA - 0.4%
Gannett Co., Inc. 2,900 206,081
NATURAL GAS DISTRIBUTOR - 0.1%
Williams Companies, Inc. 1,300 43,875
NETWORKING PRODUCTS - 1.0%
3Com Corp. # 470 14,423
Cisco Systems, Inc. # 5,175 476,423
-------
490,846
OFFICE AUTOMATION & EQUIPMENT - 1.0%
Hewlett Packard 3,980 238,303
Pitney Bowes, Inc. 1,760 84,700
Xerox Corp. 1,450 147,356
-------
470,359
OIL/GAS--DOMESTIC - 1.7%
Amoco Corp. 4,000 167,000
Apache Corp. 200 6,300
Atlantic Richfield 1,100 85,937
Baker Hughes 1,100 38,019
Burlington Resources 1,500 64,594
Devon Energy 700 24,456
Enron Corp. 400 21,625
Mobil Corp. 3,600 275,850
Murphy Oil Corp. 400 20,275
Noble Drilling Co. # 1,300 31,281
Sonat, Inc. 400 15,450
USX Marathon Group 1,800 61,763
-------
812,550
OIL/GAS--INTERNATIONAL - 2.1%
Chevron Corp. 2,800 234,500
Exxon Corp. 11,050 788,694
---------
1,023,194
OILFIELD SERVICES/EQUIPMENT - 0.4%
Dresser Industries 600 26,438
Enron Exchangeable Notes 1,000 20,000
Schlumberger LTD 2,200 150,287
Union Pacific Resources 800 14,050
-------
210,775
OIL & NATURAL GAS - 0.2%
Amerada Hess 500 27,156
Ocean Energy, Inc. # 1,560 30,518
Seagull Energy Corp. # 2,900 48,031
-------
105,705
PAPER & FOREST PRODUCTS - 0.3%
Bemis Co., Inc. 310 12,671
Bowater, Inc. 220 10,395
Fort James Corp. 910 40,609
International Paper 1,385 59,555
Mead Corp. 720 22,860
Union Camp Corp. 340 16,872
-------
162,962
PETROLEUM--INTEGRATED - 1.5%
Occidental Petroleum Corp. 400 10,800
Phillips Petroleum 1,400 67,463
18 The Flex-funds 1998 Semi-Annual Report
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
Royal Dutch Petroleum 9,400 515,237
Texaco 1,900 113,406
Unocal Corp. 1,000 35,750
-------
742,656
PRINTING--COMMERCIAL - 0.3%
World Color Press, Inc. # 3,500 122,500
PROTECTION--SAFETY EQUIPMENT - 0.7%
Lo-Jack Corp. # 25,500 317,156
PUBLISHING - 0.4%
The Reader's Digest Association, Inc. 6,700 181,738
RAILROAD TRANSPORTATION - 0.2%
Burlington Northern Santa Fe 620 60,876
Union Pacific Corp. 1,020 44,880
-------
105,756
RENTAL--AUTO/EQUIPMENT - 0.4%
Budget Group Inc. # 3,400 108,588
The Hertz Corp. 2,200 90,475
-------
199,063
RESTAURANT - 0.6%
McDonald's Corp. 1,600 110,400
Wendy's International, Inc. 7,300 171,550
-------
281,950
RETAIL GROCERY - 0.3%
Albertsons, Inc. 2,500 129,531
RETAIL STORE - 3.3%
Kmart # 34,100 656,425
OfficeMax # 11,700 193,050
Sears, Roebuck & Co. 4,000 244,250
WalMart Stores, Inc. 8,000 486,000
---------
1,579,725
SERVICES - 0.2%
Automatic Data Processing, Inc. 1,210 88,179
Paychex, Inc. 787 32,021
-------
120,200
TELECOMMUNICATION EQUIPMENT - 1.8%
Advanced Fibre Communication, Inc. # 810 32,451
General Signal Corp. 1,641 59,076
Loral Space & Communications Ltd. # 4,240 119,780
Newbridge Networks Corp. # 4,000 96,125
Nokia Corp. - ADR - A 1,980 144,045
Northern Telecom LTD 2,370 134,497
P-Com, Inc. # 6,140 56,219
QUALCOMM, Inc. # 2,250 126,422
Telecomunicacoes Brasileiras SA - ADR 1,140 124,260
-------
892,875
TELECOMMUNICATION SERVICES - 6.6%
Airtouch Communications # 2,070 120,966
AT&T 8,230 470,139
Bell Atlantic Corp. 4,160 189,800
BellSouth Corp. 4,240 284,610
Cablevision Systems Corp. # 400 33,400
Frontier Corp. 2,740 86,310
GTE Corp. 4,050 225,281
Lucent Technologies, Inc. 6,000 499,125
MediaOne Group, Inc. # 2,390 105,011
MCI Communication 2,820 163,913
SBC Communications 12,300 494,306
Sprint Corp. 1,510 106,455
Telefonaktiebolaget LM Ericsson - ADR 470 13,454
Tellabs, Inc. # 940 67,328
U.S. West, Inc. 1,350 63,197
Worldcom, Inc. # 5,580 270,281
---------
3,193,576
TOBACCO - 2.0%
Gallaher Group, plc - ADR 2,800 61,250
Imperial Tobacco 4,400 63,580
Philip Morris Companies 14,400 567,000
UST, Inc. 10,900 294,300
-------
986,130
TRANSPORTATION - 0.1%
FDX Corp. # 578 36,270
The Flex-funds 1998 Semi-Annual Report 19
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
TRUCKING/TRANSPORTATION LEASING - 0.1%
CSX, Corp. 867 39,448
UTILITIES - 0.2%
PT Indosat - Sponsored ADR 6,700 74,538
WASTE DISPOSAL--NON-HAZARDOUS - 0.1%
USA Waste Services, Inc. # 1,398 69,025
================================================================================
TOTAL COMMON STOCKS
(Cost $29,466,026 ) 38,025,778
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 0.8%
U.S. Treasury Bills
* 4.99%, 09/03/98 400,000 396,469
** 5.02%, 01/07/99 6,000 5,839
================================================================================
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $402,293 ) 402,308
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 20.4%
Merrill Lynch, 6.30%, 07/01/98,
(Collateralized by $10,273,000
Daimler-Benz Yankee Commercial Paper,
09/25/98, market value - $10,273,000) 9,936,000 9,936,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $9,936,000 ) 9,936,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $39,804,319 ) $48,364,086
- --------------------------------------------------------------------------------
FUTURES CONTRACTS CONTRACTS VALUE
Long, S&P 500 Futures, face amount $6,378,575
expiring September 1998. 23 $6,572,250
================================================================================
TOTAL FUTURES CONTRACTS $6,572,250
- --------------------------------------------------------------------------------
ADR American Depositary Receipt
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
# Represents non-income producing securities.
See accompanying notes to financial statements.
20 The Flex-funds 1998 Semi-Annual Report
<PAGE>
UTILITIES STOCK PORTFOLIO
Portfolio of Investments as of June 30, 1998 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
COMMON STOCKS - 98.9%
DIVERSIFIED UTILITY - 1.0%
Citizens Utilities Co.--Class B # 13,911 $133,889
ELECTRIC/GAS UTILITY - 8.5%
AGL Resources, Inc. 16,100 318,981
MDU Resources Group, Inc. 6,000 214,125
NIPSCO Industries, Inc. 9,400 263,200
UtiliCorp United, Inc. 10,000 376,875
---------
1,173,181
ELECTRIC UTILITY - 12.0%
Cinergy Corp. 7,800 273,000
Enersis S.A. - ADR 10,550 257,816
LG&E Energy Corp. 13,944 377,360
New Century Energies, Inc. 5,600 254,450
PacifiCorp 9,800 221,725
TECO Energy, Inc. 10,400 278,850
---------
1,663,201
ENERGY - 1.7%
CalEnergy Co., Inc. # 8,000 240,500
NATURAL GAS (DISTRIBUTOR) - 15.8%
Bay State Gas Co. 11,100 425,269
Consolidated Natural Gas Co. 8,200 482,775
KeySpan Energy Corp. 19,100 643,431
MCN Corp. 6,000 150,000
TransCanada Pipelines Ltd. 8,100 180,225
UGI Corp. 1,900 47,262
WICOR, Inc. 11,200 259,000
---------
2,187,962
OIL/GAS (DOMESTIC) - 10.7%
El Paso Natural Gas Co. 8,440 322,830
Enron Corp. 7,830 423,309
Kinder Morgan Energy Partners, L.P. 14,824 535,517
Questar Corp. 10,200 200,175
---------
1,481,831
TELECOMMUNICATION EQUIPMENT - 14.6%
Loral Space & Communications Ltd. # 14,890 420,643
P-Com, Inc. # 30,000 274,687
QUALCOMM, Inc. # 10,000 561,875
Telecomunicacoes Brasileiras S.A. - ADR 7,000 763,000
---------
2,020,205
TELECOMMUNICATION SERVICES - 31.3%
AirTouch Communications, Inc. # 5,400 315,563
Alltel Corp. 7,900 367,350
Bell Atlantic Corp. 4,600 209,875
Frontier Corp. 19,300 607,950
GTE Corp. 5,000 278,125
Hong Kong Telecommunications Ltd. - ADR 18,240 344,280
LCI International, Inc. # 15,000 542,812
PT Indosat - ADR 20,000 222,500
SBC Communications, Inc. 17,740 709,600
Sprint Corp. 4,300 303,150
Telecom New Zealand - ADR 5,000 163,750
U.S. West Communications Group 5,900 276,194
---------
4,341,149
WATER UTILITY - 3.3%
American Water Works Co., Inc. 14,900 461,900
================================================================================
TOTAL COMMON STOCKS
(Cost $11,130,406) 13,703,818
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS - 0.0%
* 5.02%, due 01/07/99 1,000 974
================================================================================
TOTAL U.S. TREASURY BILLS
(Cost $974) 974
- --------------------------------------------------------------------------------
The Flex-funds 1998 Semi-Annual Report 21
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
REPURCHASE AGREEMENTS - 1.1%
Merrill Lynch, 6.30%, 07/01/98,
(Collateralized by $162,000
Daimler-Benz Yankee Commercial Paper,
09/25/98, market value - $162,000) 157,000 157,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $157,000 ) 157,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $11,288,380 ) $13,861,792
- --------------------------------------------------------------------------------
ADR American Depositary Receipt
* Pledged as collateral on Letter of Credit.
# Represents non-income producing securities.
See accompanying notes to financial statements.
22 The Flex-funds 1998 Semi-Annual Report
<PAGE>
MUTUAL FUND PORTFOLIO
Portfolio of Investments as of June 30, 1998 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
COMMON STOCKS - 12.0%
AEROSPACE/DEFENSE - 0.7%
Boeing Co. 7,000 $311,937
United Technologies Corp. 7,000 647,500
-------
959,437
ALUMINUM - 0.4%
Aluminum Company of America 7,000 461,562
AUTO AND TRUCK - 0.4%
General Motors Corp. 7,000 467,688
BANKING - 0.6%
J.P. Morgan & Co. 7,000 819,437
BEVERAGE -- SOFT DRINK - 0.5%
Coca-Cola Co. 7,000 598,500
CHEMICAL -- DIVERSIFIED - 0.7%
E.I. du Pont de Nemours & Co. 7,000 522,813
Union Carbide Corp. 7,000 373,625
-------
896,438
COMPUTERS & PERIPHERALS - 0.6%
IBM 7,000 796,687
Raytheon Co. - Class A 446 25,701
-------
822,388
CONSUMER NON-DURABLE - 0.5%
Proctor & Gamble Co. 7,000 637,438
DIVERSIFIED - 0.7%
Allied-Signal, Inc. 7,000 310,625
Minnesota Mining & Manufacturing Co. 7,000 575,312
-------
885,937
DRUG - 0.7%
Merck & Co., Inc. 7,000 936,250
ELECTRICAL EQUIPMENT - 0.5%
General Electric Corp. 7,000 636,125
FINANCIAL SERVICES - 0.6%
American Express Co. 7,000 796,250
HEALTH - 0.4%
Johnson & Johnson 7,000 518,000
INSURANCE -- MULTILINE - 0.3%
Travelers Group, Inc. 7,000 424,375
MACHINERY -- CONSTRUCTION & MINING - 0.3%
Caterpillar, Inc. 7,000 370,344
MULTIMEDIA - 0.6%
Walt Disney Co. 7,000 735,438
OFFICE AUTOMATION & EQUIPMENT - 0.3%
Hewlett Packard 7,000 419,125
OIL/GAS -- INTERNATIONAL - 0.8%
Chevron Corp. 7,000 586,250
Exxon Corp. 7,000 499,625
---------
1,085,875
PAPER & FOREST PRODUCTS - 0.2%
International Paper 7,000 301,000
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 0.4%
Eastman Kodak Co. 7,000 511,437
RESTAURANT - 0.4%
McDonald's Corp. 7,000 483,000
The Flex-funds 1998 Semi-Annual Report 23
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
RETAIL STORE - 0.7%
Sears, Roebuck & Co. 7,000 427,438
WalMart Stores, Inc. 7,000 425,250
-------
852,688
TELECOMMUNICATION SERVICES - 0.3%
AT&T 7,000 399,875
TIRE & RUBBER - 0.3%
Goodyear Tire & Rubber 7,000 451,062
TOBACCO - 0.2%
Philip Morris Companies, Inc. 7,000 275,625
================================================================================
TOTAL COMMON STOCKS
(Cost$13,792,960 ) 15,745,294
- --------------------------------------------------------------------------------
MUTUAL FUNDS - 61.8%
Aim Constellation Fund 94 $2,785
Aim Weingarten Equity Fund 116 2,732
Federated S&P 500 Maxcap Fund 72,452 1,711,315
Gabelli Growth 51,251 1,710,250
Gabelli Value 684,932 11,602,740
Janus Twenty Fund 311,382 13,106,086
Legg Mason Value Trust Fund 251,388 12,996,785
MFS Investor Growth - Class A 843,478 12,997,997
Mutual Shares Fund 321 7,299
PBHG Growth Fund 624 16,960
Rydex OTC Fund 419,604 12,755,958
Safeco Growth Fund 531,696 13,967,649
T. Rowe Price New Era Fund 147 3,928
T. Rowe Price New Horizons Fund 155 3,893
================================================================================
TOTAL MUTUAL FUNDS
(Cost $75,648,286 ) 80,886,377
- --------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS - 2.2%
Charles Schwab Money Market Fund 2,617,312 2,617,312
Fidelity Core Money Market Fund 307,835 307,835
================================================================================
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $2,925,147 ) 2,925,147
- --------------------------------------------------------------------------------
U.S.TREASURY BILLS - 1.2%
* 4.99%, due 09/03/98 $1,500,000 1,486,756
** 5.02%, due 01/07/99 30,100 29,294
================================================================================
TOTAL U.S. TREASURY BILLS
(Cost $1,515,996 ) 1,516,050
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 22.8%
Merrill Lynch, 6.30%, 07/01/98,
(Collateralized by $30,815,000 Daimler-Benz
Yankee Commercial Paper, 09/25/98,
market value - $30,815,000) 29,805,000 29,805,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost$29,805,000 ) 29,805,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $123,687,389) $130,877,868
- --------------------------------------------------------------------------------
FUTURES CONTRACTS CONTRACTS VALUE
Long, S&P 500 Futures, face amount
$29,184,125 expiring September 1998. 103 $29,432,250
================================================================================
TOTAL FUTURES CONTRACTS $29,432,250
- --------------------------------------------------------------------------------
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
See accompanying notes to financial statements.
24 The Flex-funds 1998 Semi-Annual Report
<PAGE>
BOND PORTFOLIO
Portfolio of Investments as of June 30, 1998 (Unaudited)
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
U.S.TREASURY OBLIGATIONS - 89.4%
U.S. Treasury Bills
* 4.99%, 09/03/98 100,000 99,117
** 5.02%, 01/07/99 4,800 4,672
103,789
U.S. Treasury Bonds
6.13%, 08/15/07 7,500,000 7,797,656
5.50%, 02/15/08 1,500,000 1,498,359
9,296,015
================================================================================
TOTAL U.S.TREASURY OBLIGATIONS
(Cost $9,080,214 ) 9,399,804
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 10.6%
Merrill Lynch, 6.30%, 07/01/98,
(Collateralized by $1,154,000 Daimler-Benz
Yankee Commercial Paper, 09/25/98,
market value - $1,154,000) 1,116,000 1,116,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $1,116,000 ) 1,116,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $10,196,214 ) 10,515,804
- --------------------------------------------------------------------------------
FUTURES CONTRACTS CONTRACTS VALUE
10-Year Bond Futures, face amount $566,094
expiring September 1998 5 $569,219
================================================================================
TOTAL FUTURES CONTRACTS $569,219
- --------------------------------------------------------------------------------
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
See accompanying notes to financial statements.
The Flex-funds 1998 Semi-Annual Report 25
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
Portfolio of Investments as of June 30, 1998 (Unaudited)
<CAPTION>
COUPON/ AMORTIZED
YIELD MATURITY FACE AMOUNT COST
----- -------- ----------- ----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER - 36.9%
American Honda Finance Corp. 5.51% 07/30/98 20,000,000 19,911,228
American Trading & Production Corp.*** 5.53% 07/07/98 2,000,000 1,998,157
Caterpillar Financial Services Corp. 5.47% 12/08/98 6,714,000 6,550,775
Credit Suisse First Boston 5.50% 08/10/98 25,000,000 24,847,222
Duff & Phelps Utility and Corporate Bond Trust, Inc.*** 5.65% 07/02/98 5,000,000 4,999,215
Duff & Phelps Utility and Corporate Bond Trust, Inc.*** 5.44% 09/10/98 5,000,000 4,946,356
Duff & Phelps Utility and Corporate Bond Trust, Inc.*** 5.43% 10/15/98 3,075,000 3,025,836
Eaton Corp. 5.49% 11/17/98 17,700,000 17,324,804
General Electric Capital Corp. 5.37% 08/26/98 20,000,000 19,832,933
General Electric Capital Corp. 5.40% 10/15/98 5,000,000 4,920,500
General Electric Capital Corp. 5.48% 12/04/98 12,000,000 11,715,040
Greenwich Asset Funding, Inc.*** 5.42% 10/09/98 5,300,000 5,220,205
Greenwich Asset Funding, Inc.*** 5.44% 10/09/98 20,000,000 19,697,778
J.P. Morgan & Co., Inc. 5.35% 07/15/98 35,000,000 34,927,181
LG&E Capital Corp.*** 5.43% 09/11/98 19,160,000 18,951,923
Merrill Lynch & Co., Inc. 5.30% 10/07/98 10,000,000 9,855,722
Merrill Lynch & Co., Inc. 5.52% 10/20/98 10,000,000 9,829,800
Monsanto Co. 5.50% 08/20/98 20,000,000 19,851,198
TECO Finance, Inc.*** 5.50% 08/07/98 6,215,000 6,179,868
TECO Finance, Inc.*** 5.50% 08/20/98 7,500,000 7,442,708
===============================================================================================================
TOTAL COMMERCIAL PAPER
(Cost$252,028,449 ) 252,028,449
- ---------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 42.3%
ABT 95 Series A-3 5.65%* 07/15/98 20,000,000 20,000,000
American General Finance Corp. 8.50% 08/15/98 2,200,000 2,207,327
Associates Corp., N.A. 8.80% 08/01/98 1,000,000 1,002,572
Associates Corp., N.A. 5.25% 09/01/98 180,000 179,747
Associates Corp., N.A. 6.50% 09/09/98 5,225,000 5,234,282
Aquarium Holdings KY 5.67%* 07/02/98 12,000,000 12,000,000
Bankers Trust 5.53%* 07/07/98 3,000,000 2,999,955
Barnett Banks, Inc. 6.25% 07/28/98 1,500,000 1,500,412
Bear Stearns Corp. 5.73%* 07/07/98 20,000,000 20,000,000
Bear Stearns Corp. 5.70% 11/12/98 10,000,000 9,794,919
Bell Atlantic 5.30% 09/01/98 500,000 499,558
CIT Group Holdings, Inc. 5.88% 12/28/98 25,000,000 25,016,995
CPC International, Inc. 6.15% 09/18/98 8,197,000 8,207,625
Care Life Project 5.69%* 07/02/98 1,275,000 1,275,000
Carolina Power & Light 5.01% 09/15/98 1,000,000 998,553
Caterpillar Financial Services Corp. 6.07% 02/09/99 2,135,000 2,138,174
Chrysler Financial Corp. 7.85% 10/13/98 2,350,000 2,365,151
Clark Grave Vault Co. 5.67%* 07/02/98 2,850,000 2,850,000
Coughlin Family Properties, Inc. 5.67%* 07/02/98 4,470,000 4,470,000
D.E.D.E. Realty 5.67%* 07/02/98 3,850,000 3,850,000
Danis Construction Co. 5.67%* 07/02/98 1,000,000 1,000,000
Deere Capital 7.14% 09/15/98 9,800,000 9,831,591
Doren, Inc. 5.69%* 07/02/98 600,000 600,000
Espanola/Nambe 5.69%* 07/02/98 2,315,000 2,315,000
Ford Motor Credit Co. 5.63% 12/15/98 400,000 399,936
Franklin Universal Trust 5.63% 09/01/98 17,000,000 16,994,698
General Motors Acceptance Corp. 6.05% 10/09/98 1,850,000 1,851,371
General Motors Acceptance Corp. 6.00% 12/07/98 100,000 100,036
General Motors Acceptance Corp. 7.75% 01/15/99 100,000 100,968
Hartford Financial 8.20% 10/15/98 2,500,000 2,516,825
Hancor, Inc. 5.69%* 07/02/98 700,000 700,000
Huntington National Bank 6.15% 10/15/98 4,200,000 4,203,987
IBM Credit Corp. 5.90% 08/10/98 2,050,000 2,050,008
International Lease Finance Corp. 5.75% 07/01/98 100,000 100,000
Isaac Tire, Inc. 6.20%* 07/02/98 1,000,000 1,000,000
J.C. Penney Co., Inc. 5.38% 11/15/98 11,330,000 11,317,145
John Hancock Capital 6.43% 09/03/98 10,000,000 10,014,032
MCA Funding Corp. 5.15% 10/05/98 7,000,000 6,987,566
Mubea, Inc. 5.69%* 07/02/98 10,375,000 10,375,000
NationsBank Corp. 5.13% 09/15/98 1,840,000 1,837,964
NationsBank Corp. 8.50% 03/01/99 1,095,000 1,114,130
New England Education Loan Marketing Corp. 6.13% 07/17/98 23,200,000 23,205,561
New York Telephone Co. 5.25% 09/01/98 2,000,000 1,998,353
Norwest Corp. 5.75% 11/16/98 700,000 700,087
O.K.I. Supply Co. 5.67%* 07/02/98 2,150,000 2,150,000
Osco Industries, Inc. 5.69%* 07/02/98 3,000,000 3,000,000
Pacific Gas & Electric Co. 5.38% 08/01/98 305,000 304,895
Pepsico, Inc. 7.63% 12/18/98 2,000,000 2,019,102
Presrite Corp. 5.69%* 07/02/98 2,040,000 2,040,000
Pro Tire, Inc. 6.20%* 07/02/98 1,200,000 1,200,000
R.I. Lampus Co. 5.69%* 07/02/98 2,440,000 2,440,000
RSD Technology 5.69%* 07/02/98 4,400,000 4,400,000
Salomon, Inc. 6.04% 07/09/98 5,950,000 5,950,538
Salomon, Inc. 5.80% 07/12/98 1,000,000 999,856
26 The Flex-funds 1998 Semi-Annual Report
<PAGE>
COUPON/ AMORTIZED
YIELD MATURITY FACE AMOUNT COST
----- -------- ----------- ----
Salomon, Inc. 5.90% 07/15/98 250,000 250,313
Salomon, Inc. 5.90% 08/24/98 1,000,000 1,000,194
Salomon, Inc. 5.97% 12/01/98 1,025,000 1,026,264
Seariver Maritime, Inc. 5.64%* 07/01/98 6,700,000 6,700,000
Surgery Financing Co. 5.69%* 07/02/98 6,585,000 6,585,000
Salomon Smith Barney Holding, Inc. 5.63% 11/15/98 260,000 259,968
Virginia Electric Power 9.35% 10/19/98 400,000 404,418
Wachovia Corp. 5.25% 07/13/98 1,000,000 999,897
White Castle Project 5.69%* 07/02/98 9,250,000 9,250,000
Wisconsin Public Service Corp. 5.25% 07/01/98 320,000 320,000
===============================================================================================================
TOTAL CORPORATE OBLIGATIONS
(Cost$289,204,973 ) 289,204,973
- ---------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.3%
Federal National Mortgage Assoc. 5.10% 07/22/98 1,000,000 999,626
Federal National Mortgage Assoc. 7.85% 09/10/98 100,000 100,375
Federal National Mortgage Assoc. 7.05% 12/10/98 100,000 100,527
FICO Strip 5.56%* 09/07/98 5,000,000 4,948,239
Student Loan Marketing Assoc. 5.30%* 07/07/98 5,000,000 5,000,000
Student Loan Marketing Assoc. 5.38%* 07/07/98 4,350,000 4,351,593
===============================================================================================================
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $15,500,360 ) 15,500,360
- ---------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 0.7%
** U.S. Treasury Bill 5.02% 01/07/99 63,100 61,428
U.S. Treasury Note 6.00% 09/30/98 5,000,000 5,003,281
================================================================================================================
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $5,064,709 ) 5,064,709
- ----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 17.8%
Merrill Lynch, (Collateralized by $118,722,000
various Commercial Paper, 07/07/98-09/25/98,
market value - $118,722,000) 6.30%* 07/01/98 115,932,000 115,932,000
State Street Bank, (Collateralized by $5,760,000
U.S. Treasury Note, 6.63%, 07/31/01
market value - $6,082,819) 5.25%* 07/01/98 5,960,000 5,960,000
================================================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $121,892,000 ) 121,892,000
- ----------------------------------------------------------------------------------------------------------------
================================================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost$683,690,491 )(a) $683,690,491
- ----------------------------------------------------------------------------------------------------------------
<FN>
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate security. Interest rate is as of June 30, 1998. Maturity date
reflects the next rate change da
** Pledged as collateral on Letter of Credit.
*** Security is restricted as to resale to institutional investors, but has
been deemed liquid in accordance with guidelines approved by the Board of
Trustees.
</FN>
</TABLE>
See accompanying notes to financial statements.
The Flex-funds 1998 Semi-Annual Report 27
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
<CAPTION>
THE THE THE U.S. THE
THE HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets:
Investment in corresponding portfolio at value $116,875,454 $46,569,757 $11,053,040 $10,704,771 $149,259,572
Receivable for capital stock issued 885,756 752,064 49,292 --- ---
Unamortized organization costs --- --- 9,743 --- ---
Other assets 16,643 33,741 19,319 3,357 191,745
Total Assets 117,777,853 47,355,562 11,131,394 10,708,128 149,451,317
===============================================================================================================================
Liabilities:
Payable for capital stock redeemed 812,977 742,312 19,399 969 ---
Dividends payable 610,032 65,296 131 41,700 724,318
Accrued 12b-1 distribution fees 174,565 33,351 --- 431 22,950
Accrued transfer agent and administrative fees 22,476 6,352 1,139 973 8,838
Other accrued liabilities 11,892 4,504 19,502 4,816 14,366
Total Liabilities 1,631,942 851,815 40,171 48,889 770,472
===============================================================================================================================
Net Assets 116,145,911 46,503,747 11,091,223 10,659,239 148,680,845
===============================================================================================================================
Net Assets:
Capital 108,578,536 34,880,317 8,940,008 11,195,801 148,680,845
Accumulated undistributed (distributions in
excess of) net investment income (109,813) 11,885 (4,606) --- ---
Accumulated undistributed net realized
gain (loss) from investments 631,831 2,895,196 245,566 (859,275) ---
Net unrealized appreciation of investments 7,045,357 8,716,349 1,910,255 322,713 ---
Net Assets $116,145,911 $46,503,747 $11,091,223 $10,659,239 $148,680,845
===============================================================================================================================
Capital Stock Outstanding 20,140,284 2,165,168 590,319 500,116 148,680,845
(indefinite number of shares authorized,
$0.10 par value)
Net Asset Value, Offering and Redemption Price
Per Share $5.77 $21.48 $18.79 $21.31 $1.00
</TABLE>
See accompanying notes to financial statements
28 The Flex-funds 1998 Semi-Annual Report
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
<CAPTION>
THE THE THE U.S. THE
THE HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Investment Income from Corresponding Portfolio:
============================================================================================================================
Interest $1,420,959 $215,268 $12,464 $424,204 $4,617,134
Dividends 319,592 234,578 138,463 --- ---
Expenses (544,225) (261,052) (72,484) (39,587) (145,301)
Total Net Investment Income from Corresponding Portfolio 1,196,326 188,794 78,443 384,617 4,471,833
============================================================================================================================
Fund Expenses:
============================================================================================================================
Administrative fee 29,725 10,278 2,317 3,630 40,727
Transfer agent fees 59,451 20,556 4,634 4,356 59,532
Audit fees 1,461 1,163 1,085 1,065 1,581
Legal fees 1,254 10,145 1,804 1,225 1,235
Printing 9,651 7,149 905 1,795 17,328
Amortization of organizational costs --- --- 2,380 --- ---
Distribution plan 133,406 41,138 11,585 13,111 86,633
Postage 18,058 5,423 886 2,181 21,640
Registration and filing fees 9,532 9,566 3,125 3,088 15,061
Insurance 922 201 32 130 1,041
Other expenses 8,768 5,983 1,856 2,562 13,408
Total Expenses 272,228 111,602 30,609 33,143 258,186
============================================================================================================================
Expenses reimbursed by investment adviser --- --- (15,332) --- (77,642)
Net Expenses 272,228 111,602 15,277 33,143 180,544
============================================================================================================================
NET INVESTMENT INCOME 924,098 77,192 63,166 351,474 4,291,289
============================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
============================================================================================================================
Net realized gains (losses) from futures contracts (2,816,423) 618,215 (10,566) (11,720) ---
Net realized gains (losses) from investments 2,118,055 2,366,310 256,120 301,544 ---
Net change in unrealized appreciation
of investments 7,047,412 2,848,578 233,673 (212,645) ---
NET GAIN (LOSS) FROM INVESTMENTS 6,349,044 5,833,103 479,227 77,179 ---
============================================================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $7,273,142 $5,910,295 $542,393 $428,653 $4,291,289
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Semi-Annual Report 29
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
<CAPTION>
THE THE THE U.S. THE
THE HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
==============================================================================================================================
OPERATIONS:
==============================================================================================================================
Net investment income $924,098 $77,192 $63,166 $351,474 $4,291,289
Net realized gain (loss) from investments
and futures contracts (698,368) 2,984,525 245,554 289,824 ---
Net change in unrealized appreciation
(depreciation) of investments 7,047,412 2,848,578 233,673 (212,645) ---
Net increase in net assets
resulting from operations 7,273,142 5,910,295 542,393 428,653 4,291,289
==============================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (924,098) (65,307) (63,166) (351,474) (4,291,289)
In excess of net investment income (109,813) --- (4,606) --- ---
Net realized gain from investments
and futures contracts --- --- --- --- ---
Net decrease in net assets resulting
from dividends and distributions (1,033,911) (65,307) (67,772) (351,474) (4,291,289)
==============================================================================================================================
CAPITAL TRANSACTIONS:
Issued 6,743,932 36,351,812 4,095,920 1,171,839 213,833,695
Reinvested 420,185 --- 66,430 292,699 3,492,121
Redeemed (28,040,030) (29,444,926) (1,950,736) (7,855,397) (237,979,845)
Net increase (decrease) in net assets resulting
from capital share transactions (20,875,913) 6,906,886 2,211,614 (6,390,859) (20,654,029)
TOTAL INCREASE (DECREASE) IN NET ASSETS (14,636,682) 12,751,874 2,686,235 (6,313,680) (20,654,029)
==============================================================================================================================
NET ASSETS - Beginning of period 130,782,593 33,751,873 8,404,988 16,972,919 169,334,874
NET ASSETS - End of period $116,145,911 $46,503,747 $11,091,223 $10,659,239 $148,680,845
==============================================================================================================================
SHARE TRANSACTIONS:
Issued 1,204,945 1,779,732 219,440 54,973 213,833,695
Reinvested 73,976 --- 3,616 13,767 3,492,121
Redeemed (5,049,871) (1,434,057) (107,002) (369,786) (237,979,845)
Change in shares (3,770,950) 345,675 116,054 (301,046) (20,654,029)
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<CAPTION>
THE THE THE U.S. THE
THE HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
===============================================================================================================================
OPERATIONS:
===============================================================================================================================
Net investment income $2,146,951 $95,527 $97,709 $806,473 $7,351,758
Net realized gain (loss) from investments
and futures contracts 19,804,321 5,300,839 534,844 (256,151) ---
Net change in unrealized appreciation
of investments (579,123) 2,704,273 1,123,897 649,920 ---
Net increase in net assets
resulting from operations 21,372,149 8,100,639 1,756,450 1,200,242 7,351,758
===============================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,146,950) (95,536) (97,709) (806,470) (7,351,758)
Net realized gain from investments
and futures contracts (18,486,618) (4,050,674) (534,832) --- ---
Net decrease in net assets resulting
from dividends and distributions (20,633,568) (4,146,210) (632,541) (806,470) (7,351,758)
===============================================================================================================================
CAPITAL TRANSACTIONS:
Issued 27,440,621 40,445,381 2,971,480 4,843,059 440,552,839
Reinvested 20,501,858 4,073,675 609,798 771,226 7,195,653
Redeemed (39,233,074) (38,925,468) (1,374,317) (6,817,743) (398,631,115)
Net increase (decrease) in net assets resulting
from capital share transactions 8,709,405 5,593,588 2,206,961 (1,203,458) 49,387,377
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,447,986 9,548,017 3,330,870 (809,686) 49,387,377
===============================================================================================================================
NET ASSETS - Beginning of period 121,334,607 24,203,856 5,074,118 17,782,605 119,947,497
NET ASSETS - End of period $130,782,593 $33,751,873 $8,404,988 $16,972,919 $169,334,874
===============================================================================================================================
SHARE TRANSACTIONS:
Issued 4,484,460 2,120,698 186,359 236,594 440,552,839
Reinvested 3,695,889 220,003 34,996 37,521 7,195,653
Redeemed (6,468,067) (1,996,447) (85,714) (334,564) (398,361,115)
Change in shares 1,712,282 344,254 135,641 (60,449) 49,387,377
</TABLE>
See accompanying notes to financial statements
30 The Flex-funds 1998 Semi-Annual Report
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE HIGHLANDS GROWTH FUND
Six Months Ended
June 30, 1998 Years Ended December 31,
(Unaudited) -------------------------------------------------------------
----------- 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $18.55 $16.41 $15.34 $13.08 $13.45 $12.70
Income from Investment Operations
Net Investment Income 0.04 0.06 0.31 0.50 0.27 0.09
Net Gains or Losses from Securities
(both realized and unrealized) 2.92 4.73 1.07 2.68 (0.37) 0.82
Total From Investment Operations 2.96 4.79 1.38 3.18 (0.10) 0.91
Less Distributions
Dividends (from net investment income) (0.03) (0.06) (0.31) (0.50) (0.27) (0.16)
Distributions (from capital gains) --- (2.59) -- (0.42) -- --
Total Distributions (0.03) (2.65) (0.31) (0.92) (0.27) (0.16)
Net Asset Value, End of Period $21.48 $18.55 $16.41 $15.34 $13.08 $13.45
Total Return 15.96%(1) 29.28% 9.08% 24.61% -0.69% 7.21%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $46,504 $33,752 $24,204 $24,631 $22,176 $26,171
Ratio of Expenses to Average Net Assets 1.81%(2) 1.87% 1.65% 1.64% 1.63% 1.51%
Ratio of Net Investment Income to
Average Net Assets 0.38%(2) 0.30% 1.92% 3.38% 1.95% 0.69%
Ratio of Expenses to Average Net Assets
before waiver of fees 1.83%(3) 1.87% 1.65% 1.64% 1.63% 1.51%
Ratio of Net Investment Income to Average
Net Assets before waiver of fees 0.36%(3) 0.30% 1.92% 3.38% 1.95% 0.69%
Portfolio Turnover Rate4 42.63% 129.79% 81.66% 337.57% 102.76% 99.54%
<FN>
1 Not Annualized
2 Annualized
3 Annualized ratio includes fees waived in corresponding portfolio
4 Represents turnover rate of corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Semi-Annual Report 31
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE TOTAL RETURN UTILITIES FUND
Six Months Ended Period
June 30, 1998 Year Ended December 31, June 21, 1995*
Unaudited 1997 1996 to Dec. 31, 1995
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $17.72 $14.98 $14.14 $12.50
Income from Investment Operations
Net Investment Income 0.12 0.25 0.37 0.21
Net Gains or Losses from Securities
(both realized and unrealized) 1.08 3.99 1.48 1.64
Total From Investment Operations 1.20 4.24 1.85 1.85
Less Distributions
Dividends (from net investment income) (0.13) (0.25) (0.37) (0.21)
Distributions (from capital gains) --- (1.25) (0.64) --
Total Distributions (0.13) (1.50) (1.01) (0.21)
Net Asset Value, End of Period $18.79 $17.72 $14.98 $14.14
Total Return 6.80%(1) 28.68% 13.33% 15.00%(1)
Ratios/Supplemental Data
Net Assets, End of Period ($000) $11,091 $8,405 $5,074 $2,881
Ratio of Expenses to Average Net Assets 1.80%(2) 1.80% 1.25% 1.25%(2)
Ratio of Net Investment Income to
Average Net Assets 1.29%(2) 1.57% 2.55% 3.18%(2)
Ratio of Expenses to Average Net Assets,
before waiver of fees(3) 2.11%(2) 2.51% 2.95% 4.35%(2)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees(3) 0.98%(2) 0.86% 0.85% 0.08%(2)
Portfolio Turnover Rate(4) 19.86% 41.22% 50.79% 5.06%
<FN>
(1) Not Annualized
(2) Annualized
(3) Includes directed brokerage payments in corresponding portfolio.
(4) Turnover rate of corresponding portfolio
* Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
32 The Flex-funds 1998 Semi-Annual Report
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE MUIRFIELD FUND
Six Months Ended Years Ended December 31,
June 30, 1998 ------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $5.47 $5.47 $5.73 $5.34 $5.36 $6.25
Income from Investment Operations
Net Investment Income 0.04 0.11 0.10 0.06 0.14 (0.01)
Net Gains or Losses from Securities
(both realized and unrealized) 0.31 0.91 0.25 1.31 - 0.45
Total From Investment Operations 0.35 1.02 0.35 1.37 0.14 0.44
Less Distributions
Dividends (from net investment income) (0.05) (0.11) (0.10) (0.06) (0.14) (0.02)
Distributions (from capital gains) --- (0.91) (0.51) (0.92) (0.02) (1.31)
Total Distributions (0.05) (1.02) (0.61) (0.98) (0.16) (1.33)
Net Asset Value, End of Period $5.77 $5.47 $5.47 $5.73 $5.34 $5.36
Total Return 6.41%(1) 18.59% 5.99% 25.82% 2.70% 8.11%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $116,146 $130,783 $121,335 $111,751 $83,119 $73,063
Ratio of Expenses to Average Net Assets 1.36%(2) 1.29% 1.19% 1.26% 1.22% 1.26%
Ratio of Net Investment Income to
Average Net Assets 1.54%(2) 1.69% 1.54% 0.97% 2.55% -0.13%
Portfolio Turnover Rate3 114.68% 395.42% 297.41% 186.13% 168.17% 279.56%
<FN>
(1) Not Annualized
(2) Annualized
(3) Turnover rate of corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Semi-Annual Report 33
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE U.S. GOVERNMENT BOND FUND
Six Months Ended Years Ended December 31,
June 30, 1998 ------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $21.19 $20.64 $21.58 $19.25 $20.18 $19.46
Income from Investment Operations
Net Investment Income 0.51 0.99 0.96 1.11 0.72 0.86
Net Gains or Losses from Securities
(both realized and unrealized) 0.12 0.55 (0.94) 2.33 (0.93) 0.71
Total From Investment Operations 0.63 1.54 0.02 3.44 (0.21) 1.57
Less Distributions
Dividends (from net investment income) (0.51) (0.99) (0.96) (1.11) (0.72) (0.85)
Total Distributions (0.51) (0.99) (0.96) (1.11) (0.72) (0.85)
Net Asset Value, End of Period $21.31 $21.19 $20.64 $21.58 $19.25 $20.18
Total Return 3.01%(1) 7.70% 0.15% 18.32% -0.99% 8.21%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $10,659 $16,973 $17,783 $16,048 $12,983 $13,137
Ratio of Expenses to Average Net Assets 1.00%(2) 1.00% 1.00% 1.00% 1.00% 0.99%
Ratio of Net Investment Income to
Average Net Assets 4.83%(2) 4.85% 4.61% 5.41% 3.71% 4.25%
Ratio of Expenses to Average Net Assets,
before waiver of fees(3) 1.20%(2) 1.14% 1.06% 1.14% 1.14% 1.09%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees(3) 4.63%(2) 4.71% 4.55% 5.27% 3.57% 4.15%
Portfolio Turnover Rate(4) 12.34% 375.64% 778.59% 232.34% 707.57% 235.74%
<FN>
(1) Not annualized
(2) Annualized
(3) Annualized ration includes fees waived in corresponding portfolio
(4) Represents turnover rate of corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
34 The Flex-funds 1998 Semi-Annual Report
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
MONEY MARKET FUND
Six Months Ended Years Ended December 31,
June 30, 1998 -------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income 0.026 0.053 0.05 0.06 0.04 0.03
Total From Investment Operations 0.026 0.053 0.05 0.06 0.04 0.03
Less Distributions
Dividends (from net investment income) (0.026) (0.053) (0.05) (0.06) (0.04) (0.03)
Total Distributions (0.026) (0.053) (0.05) (0.06) (0.04) (0.03)
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 2.64%(1) 5.38% 5.27% 5.85% 4.10% 2.98%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $148,681 $169,335 $119,947 $141,087 $164,838 $200,030
Ratio of Expenses to Average Net Assets 0.40%(2) 0.40% 0.40% 0.40% 0.37% 0.37%
Ratio of Net Investment Income to
Average Net Assets 5.27%(2) 5.26% 5.15% 5.70% 4.02% 2.94%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.62%(2) 0.59% 0.58% 0.64% 0.57% 0.57%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees(1) 5.05%(2) 5.07% 4.97% 5.46% 3.82% 2.74%
<FN>
(1) Includes fees waived in corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Semi-Annual Report 35
<PAGE>
THE FLEX-FUNDS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
1. ORGANIZATION
The Flex-funds Trust (the "Trust") was organized in 1982 and is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Trust offers five separate series,
and it is presently comprised of five separate funds as follows: The Muirfield
Fund, The Highlands Growth Fund (formerly The Growth Fund), The Total Return
Utilities Fund, The U.S. Government Bond Fund and The Money Market Fund (each a
"Fund" and collectively the "Funds"). Each Fund invests all of its 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. Each Fund, each Portfolio into which the Fund invests and
the percentage of each Portfolio owned by the respective Fund is as follows:
PERCENTAGE OF PORTFOLIO
OWNED BY FUND AS OF
FUND PORTFOLIO JUNE 30, 1998
- ---- --------- -------------
The Muirfield Fund Mutual Fund Portfolio 89%
The Highlands Growth Fund Growth Stock Portfolio 97%
The Total Return Utilities Fund Utilities Stock Portfolio 80%
The U.S. Government Bond Fund Bond Portfolio 100%
The Money Market Fund Money Market Portfolio 22%
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
Each Fund values its investment in the corresponding Portfolio at fair value.
Valuation of securities held by each Portfolio is further described at Note 2 of
the Portfolios' Notes to Financial Statements which are included on Page 43 of
this report.
INCOME TAXES
It is each Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income and net capital gains
to its shareholders. Therefore, no Federal income tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders are recorded on the ex-dividend date. The Muirfield
Fund and The Highlands Growth Fund declare dividends from net investment income
on a quarterly basis. The Total Return Utilities Fund declares dividends from
net investment income on a monthly basis. The U.S. Government Bond Fund and The
Money Market Fund declare dividends from net investment income on a daily basis
and pay such dividends on a monthly basis. Each Fund distributes net capital
gains, if any, on an annual basis.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
deferrals of certain losses, expiring capital loss carryforwards, and differing
treatment of unrealized gains and losses of futures contracts held by the Fund's
corresponding Portfolio. Permanent book and tax basis differences have been
reclassified among the components of net assets.
36 The Flex-funds 1998 Semi-Annual Report
<PAGE>
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 Muirfield Fund, The Highlands Growth Fund,
The U.S. Government Bond Fund, and The Money Market Fund have been fully
amortized.
EXPENSES
Expenses incurred by the Trust that do not specifically relate to an individual
Fund of the Trust are allocated to the Funds based on each Fund's relative net
assets or other appropriate basis.
3. AGREEMENTS AND TRANSACTIONS 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. Under separate Investment Subadvisory
Agreements with RMA, Sector Capital Management, Inc. and Miller/Howard
Investments, Inc. serve as subadvisor of the Growth Stock Portfolio and the
Utilities Stock Portfolio, respectively. Sub-subadvisers, selected by Sector
Capital Management, Inc., subject to the review and approval of the Trustees of
the Growth Stock Portfolio, are responsible for the selection of individual
portfolio securities for the assets of the Portfolio assigned to them by Sector
Capital Management, Inc.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
stock transfer, dividend disbursing and shareholder services agent for each
Fund. In compensation for such services, each Fund pays MFSCo an annual fee
calculated as follows. For The Muirfield Fund, The Highlands Growth Fund, and
The Total Return Utilities Fund, such fee is equal to the greater of $15 per
active shareholder account or 0.10% of the Fund's average daily net assets. For
The U.S. Government Bond Fund, such fee is equal to the greater of $15 per
active shareholder account or 0.06% of the Fund's average daily net assets. For
The Money Market Fund, such fee is equal to the greater of $20 per active
shareholder account or 0.06% of the Fund's average daily net assets. MFSCo is
entitled to receive an annual minimum fee of $4,000 for each Fund.
MFSCo provides the Trust with certain administrative services. In compensation
for such services, each Fund pays MFSCo an annual fee equal to 0.05% of each
Fund's average daily net assets.
RMA has voluntarily agreed to reimburse The Money Market Fund and The Total
Return Utilities Fund for the amount by which annual expenses of such Funds
including expenses allocated from the respective Portfolio (excluding interest,
taxes, brokerage fees, and extraordinary expenses) exceed 0.40% and 1.80% of
average daily net assets of The Money Market Fund and The Total Return Utilities
Fund, respectively. Such reimbursement is limited to the total of fees charged
the Fund by RMA and MFSCo.
Pursuant to Rule 12b-1 of the Act, each Fund has adopted a Distribution Plan
(the "Plan"). Under the provisions of each Plan, the Fund may incur certain
expenses associated with the distribution of fund shares in amounts not to
exceed an annual limitation. Such limitation, on an annual basis, is 0.20% of
the average daily net assets of each Fund, 0.25% of the average daily net assets
of The Total Return Utilities Fund.
Certain officers of the Funds and trustees of the Trust and the Portfolios are
also officers or directors of MII, RMA and MFSCo.
The Flex-funds 1998 Semi-Annual Report 37
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998 (Unaudited)
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at market value* $101,072,868 $38,428,086 $13,704,792 $9,399,804 $561,798,491
Repurchase agreements, at cost* 29,805,000 9,936,000 157,000 1,116,000 121,892,000
Cash 131 465 891 13 91,710
Receivable for securities sold --- 114,241 --- --- ---
Receivable for net variation margin on futures --- --- --- 938 ---
contracts
Interest receivable 113,876 1,739 27 203,701 2,984,132
Dividends receivable 23,887 37,217 13,719 --- ---
Prepaid/Other assets --- 5,695 --- 163 5,467
Unamortized organization costs --- --- 3,839 --- ---
Total Assets 131,015,762 48,523,443 13,880,268 10,720,619 686,771,800
=====================================================================================================================
Liabilites:
Payable for securities purchased --- 143,451 --- --- ---
Payable for net variation margin on futures 237,150 85,200 --- --- ---
contracts
Payable to investment adviser 86,239 38,260 11,363 1,049 89,831
Accrued audit fees 4,778 5,189 4,422 4,465 8,619
Accrued legal fees 1,992 --- 1,595 2,342 504
Accrued custodian fees 4,712 9,482 1,409 3,525 4,732
Accrued trustee fees 17,115 2,235 2,641 2,522 ---
Accrued fund accounting fees 3,587 3,225 1,576 1,037 9,083
Other accrued liabilities 3,796 163 1,716 763 1,830
Total Liabilities 359,369 287,205 24,722 15,703 114,599
=====================================================================================================================
Net Assets $130,656,393 $48,236,238 $13,855,546 $10,704,916 $686,657,201
=====================================================================================================================
Net Assets:
=====================================================================================================================
Capital 123,465,914 39,676,471 11,282,134 10,385,326 686,657,201
Net unrealized appreciation from investments 7,190,479 8,559,767 2,573,412 319,590 ---
Net Assets $130,656,393 $48,236,238 $13,855,546 $10,704,916 $686,657,201
=====================================================================================================================
*Securities at cost $123,687,389 $39,804,319 $11,288,380 $10,196,214 $683,690,491
</TABLE>
See accompanying notes to financial statements
38 The Flex-funds 1998 Semi-Annual Report
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
================================================================================================================
Interest $1,546,506 $210,773 $18,085 $424,207 $19,532,846
Dividends 399,688 247,193 174,678 --- ---
Total Investment Income 1,946,194 457,966 192,763 424,207 19,532,846
================================================================================================================
Expenses:
================================================================================================================
Investment advisory fees 539,179 209,559 61,999 29,159 934,598
Audit fees 4,907 5,368 4,567 4,589 8,795
Custodian fees 8,296 21,101 2,201 4,077 22,680
Trustees fees and expenses 23,500 4,707 3,518 3,872 5,160
Legal fees 1,715 5,032 1,305 1,746 1,709
Amortization of organization cost --- --- 4,449 --- ---
Accounting fees 25,061 19,048 9,203 9,769 52,757
Insurance 1,014 151 43 145 3,136
Other expenses 5,106 3,730 4,876 545 4,385
Total Expenses 608,778 268,696 92,161 53,902 1,033,220
================================================================================================================
Investment advisory fees waived --- (3,114) --- (14,316) (418,469)
Total Net Expenses 608,778 265,582 92,161 39,586 614,751
NET INVESTMENT INCOME 1,337,416 192,384 100,602 384,621 18,918,095
================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
================================================================================================================
Net realized gain (loss) from futures contracts (3,106,475) 826,086 --- (16,056) ---
Net realized gain (loss) from investments 2,367,480 2,399,251 329,415 309,008 ---
Net change in unrealized appreciation
of investments 7,884,956 2,687,032 306,427 (215,768) ---
NET GAIN (LOSS) ON INVESTMENTS 7,145,961 5,912,369 635,842 77,184 ---
================================================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $8,483,377 $6,104,753 $736,444 $461,805 $18,918,095
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Semi-Annual Report 39
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
==============================================================================================================================
OPERATIONS:
==============================================================================================================================
Net investment income $1,337,416 $192,384 $100,602 $384,621 $18,918,095
Net realized gain (loss) from investments
and futures contracts (738,995) 3,225,337 329,415 292,952 ---
Net change in unrealized appreciation
(depreciation) of investments 7,884,956 2,687,032 306,427 (215,768) ---
Net increase in net assets
resulting from operations 8,483,377 6,104,753 736,444 461,805 18,918,095
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
==============================================================================================================================
Contributions 8,192,893 38,536,220 4,640,821 1,252,449 1,795,005,841
Withdrawals (30,552,570) (29,798,698) (2,191,437) (7,918,012)(1,714,285,382)
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests (22,359,677) 8,737,522 2,449,384 (6,665,563) 80,720,459
TOTAL INCREASE (DECREASE) IN NET ASSETS (13,876,300) 14,842,275 3,185,828 (6,203,758) 99,638,554
==============================================================================================================================
NET ASSETS - Beginning of period 144,532,693 33,393,963 10,669,718 16,908,674 587,018,647
NET ASSETS - End of period $130,656,393 $48,236,238 $13,855,546 $10,704,916 $686,657,201
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
==============================================================================================================================
OPERATIONS:
==============================================================================================================================
Net investment income $2,965,765 $264,643 $158,538 $877,445 $28,315,164
Net realized gain (loss) from investments
and futures contracts 22,734,137 5,302,202 769,055 (256,151) ---
Net change in unrealized appreciation
(depreciation) of investments (1,244,081) 2,709,218 1,487,258 649,921 ---
Net increase in net assets
resulting from operations 24,455,821 8,276,063 2,414,851 1,271,215 28,315,164
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
==============================================================================================================================
Contributions 27,375,051 40,513,401 2,517,724 4,973,499 3,784,994,914
Withdrawals (42,837,747) (39,809,183) (2,227,211) (7,127,634)(3,579,221,656)
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests (15,462,696) 704,218 290,513 (2,154,135) 205,773,258
TOTAL INCREASE (DECREASE) IN NET ASSETS 8,993,125 8,980,281 2,705,364 (882,920) 234,088,422
==============================================================================================================================
NET ASSETS - Beginning of period 135,539,568 24,413,682 7,964,354 17,791,594 352,930,225
NET ASSETS - End of period $144,532,693 $33,393,963 $10,669,718 $16,908,674 $587,018,647
</TABLE>
See accompanying notes to financial statements
40 The Flex-funds 1998 Semi-Annual Report
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
GROWTH STOCK PORTFOLIO
<CAPTION>
Six Months Ended
June 30, 1998 Years Ended December 31,
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $48,236 $33,394 $24,414 $24,537 $22,169 $26,172
Ratio of Expenses to Average Net Assets 1.27(1) 1.34% 1.24% 1.25% 1.23% 1.23%
Ratio of Net Investment Income to
Average Net Assets 0.92(1) 0.83% 2.33% 3.78% 2.35% 0.99%
Ratio of Expenses to Average Net Assets
before waiver of fees 1.28(1) 1.34% 1.24% 1.25% 1.23% 1.23%
Ratio of Net Investment Income to Average
Net Assets before waiver of fees 0.91(1) 0.83% 2.33% 3.78% 2.35% 0.99%
Portfolio Turnover Rate 42.63% 129.79% 81.66% 337.57% 102.76% 99.54%
</TABLE>
<TABLE>
UTILITIES STOCK PORTFOLIO
<CAPTION>
Six Months Ended Period
June 30, 1998 Years Ended December 31, June 21, 1995* to
(unaudited) 1997 1996 December 31, 1995
<S> <C> <C> <C> <C>
Net Assets, End of Period ($000) $13,856 $10,670 $7,964 $4,291
Ratio of Expenses to Average Net Assets 1.49%(1) 1.60% 1.61% 2.32%(1)
Ratio of Net Investment Income to
Average Net Assets 1.62%(1) 1.79% 2.24% 2.09%(1)
Ratio of Expenses to Average Net Assets
before directed brokerage payments 1.49%(1) 1.65% 1.66% 2.40%(1)
Ratio of Net Investment Income to Average Net
Assets before directed brokerage payments 1.62%(1) 1.74% 2.19% 2.01%(1)
Portfolio Turnover Rate 19.86% 41.22% 50.79% 5.06%
</TABLE>
<TABLE>
MUTUAL FUND PORTFOLIO
<CAPTION>
Six Months Ended
June 30, 1998 Year Ended December 31,
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $130,656 $144,533 $135,540 $122,109 $83,185 $81,605
Ratio of Expenses to Average Net Assets* 0.91%(1) 0.89% 0.87% 0.95% 1.01% 1.03%
Ratio of Net Investment Income to
Average Net Assets 1.99%(1) 2.08% 1.86% 1.26% 2.76% 0.09%
Portfolio Turnover Rate 114.68% 395.42% 297.41% 186.13% 168.17% 279.56%
</TABLE>
(1) Annualized
* Date of commencement of operations
See accompanying notes to financial statements
The Flex-funds 1998 Semi-Annual Report 41
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
BOND PORTFOLIO
<CAPTION>
Six Months Ended
June 30, 1998 Year Ended December 31,
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $10,705 $15,274 $17,792 $16,066 $13,008 $13,178
Ratio of Expenses to Average Net Assets 0.54%(1) 0.57% 0.61% 0.57% 0.56% 0.60%
Ratio of Net Investment Income to
Average Net Assets 5.28%(1) 5.27% 4.99% 5.82% 4.15% 4.62%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.74%(1) 0.71% 0.68% 0.71% 0.70% 0.71%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.08%(1) 5.13% 4.92% 5.68% 4.01% 4.51%
Portfolio Turnover Rate 12.34% 375.64% 778.59% 232.34% 707.57% 235.74%
</TABLE>
<TABLE>
MONEY MARKET PORTFOLIO
<CAPTION>
Six Months Ended
June 30, 1998 Year Ended December 31,
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $686,657 $587,019 $352,930 $256,126 $224,523 $200,148
Ratio of Expenses to Average Net Assets 0.18%(1) 0.18% 0.19% 0.21% 0.19% 0.19%
Ratio of Net Investment Income to
Average Net Assets 5.49%(1) 5.47% 5.34% 5.87% 4.28% 3.09%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.30%(1) 0.31% 0.33% 0.37% 0.39% 0.40%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.37%(1) 5.34% 5.20% 5.70% 4.08% 2.88%
</TABLE>
(1) Annualized
See accompanying notes to financial statements
42 The Flex-funds 1998 Semi-Annual Report
<PAGE>
MUTUAL FUND PORTFOLIO, GROWTH STOCK PORTFOLIO, UTILITIES STOCK PORTFOLIO,
BOND PORTFOLIO, MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
1. ORGANIZATION
Each Fund of The Flex-funds Trust (the "Trust") invests all of its 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. Each Portfolio is registered under the Investment Company
Act of 1940, as amended (the "Act"), 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
each Portfolio, to issue beneficial interests in each Portfolio. Each Fund, each
Portfolio into which the Fund invests and the percentage of each Portfolio owned
by the respective Fund is as follows:
PERCENTAGE OF PORTFOLIO
OWNED BY FUND AS OF
FUND PORTFOLIO JUNE 30, 1998
- ---- --------- -------------
The Muirfield Fund Mutual Fund Portfolio 89%
The Highlands Growth Fund Growth Stock Portfolio 97%
The Total Return Utilities Fund Utilities Stock Portfolio 80%
The U.S. Government Bond Fund Bond Portfolio 100%
The Money Market Fund Money Market Portfolio 22%
The investment objective of each Portfolio is as follows:
The Mutual Fund Portfolio seeks growth of capital through investment in the
shares of other mutual funds.
The Growth Stock Portfolio seeks capital growth by investing 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").
The Utilities Stock Portfolio seeks a high level of current income and growth of
income by investing primarily in equity securities of domestic and foreign
public utility companies; however, it 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.
The Bond Portfolio seeks to maximize current income through investment in
securities, which are issued or guaranteed as to payment of principal and
interest, by the U.S. government or any of its agencies or instrumentalities.
The Money Market Portfolio seeks current income and stable net asset values
through investment in a portfolio of money market instruments.
The financial statements of the Funds are included elsewhere in this report.
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.
INVESTMENTS
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
over-the-counter 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 as reported by the underlying
fund. The Bond Portfolio values the securities held at 3:00 pm eastern time. The
Portfolios obtain prices from independent pricing services which use valuation
techniques approved by the Board of Trustees.
The Flex-funds 1998 Semi-Annual Report 43
<PAGE>
Money market securities held in the Money Market Portfolio are valued at
amortized cost, which approximates market value. 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.
REPURCHASE AGREEMENTS
Each Portfolio may engage in repurchase agreement transactions whereby the
Portfolio takes possession of an underlying debt instrument subject to an
obligation of the seller to repurchase the instrument from the Portfolio and an
obligation of the Portfolio to resell the instrument at an agreed upon price and
term. At all times, the Portfolio maintains the value of collateral, including
accrued interest, at least 100% of the amount of the repurchase agreement, plus
accrued interest. If the seller defaults or the fair value of the collateral
declines, realization of the collateral by the Portfolios may be delayed or
limited.
FUTURES & OPTIONS
Each Portfolio, except the Money Market Portfolio, may engage in transactions in
financial futures contracts and options contracts in order to manage the risk of
unanticipated changes in market values of securities held in the portfolio, or
which it intends to purchase. Such transactions may be considered trading
activity under generally accepted accounting principles. 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 an initial margin, which is either cash or
securities in an amount equal to a certain percentage of the contract value.
Subsequently, the variation margin, which is equal to changes in the daily
settlement price or last sale price on the exchanges where they trade, is
received or paid. The Portfolios record realized gains or losses for the daily
variation margin when they are recorded as a gains or losses from 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 appreciation or depreciation until closed, exercised or expired.
The Portfolios may write covered call or put options for which premiums received
are recorded in as liabilities and are subsequently adjusted to current market
value of the options written. When written options are closed or exercised,
premiums received are offset against the proceeds paid, and the Portfolio
records realized gains or losses for the difference. When written options
expire, the liability is eliminated, and the Portfolio records realized gains
for the entire amount of premiums received.
During the six months ended June 30, 1998 the Portfolios had the following
activity in futures contracts and written option contracts:
LONG CONTRACTS
Number of contracts Notional amount
- --------------------------------------------------------------------------------
Mutual Fund Portfolio:
Outstanding, beginning of year 110 $25,064,900
Contracts opened 561 11,313,150
Contracts closed (568) (7,193,925)
Outstanding, end of period 103 29,184,125
=================================== ======================== ===================
Growth Stock Portfolio:
Outstanding, beginning of year 7 $1,711,037
Contracts opened 194 50,243,175
Contracts closed (178) (45,575,637)
Outstanding, end of period 23 6,378,575
=================================== ======================== ===================
Bond Portfolio:
Outstanding, beginning of year --- ---
Contracts opened 56 $6,315,656
Contracts closed (51) (5,749,562)
Outstanding, end of period 5 566,094
=================================== ======================== ===================
44 The Flex-funds 1998 Semi-Annual Report
<PAGE>
COVERED PUT OPTIONS COVERED CALL OPTIONS
Number of Number of
contracts Premiums contracts Premiums
- --------------------------------------------------------------------------------
Mutual Fund Portfolio:
Outstanding, beginning
of year 4,000 $7,391,887 4,000 $11,991,787
Options written --- --- --- ---
Options exercised (4,000) (7,391,887) (4,000) (11,991,787)
Outstanding, end of year --- --- --- ---
========================== ============ ============= =========== ============
INCOME TAXES
It is each Portfolio's 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 Portfolio have been deferred and
are being amortized by the Portfolio on a straight-line basis over a five-year
period. Such costs for Mutual Fund Portfolio, Growth Stock Portfolio, Bond
Portfolio and Money Market Portfolio have been fully amortized.
SECURITIES TRANSACTIONS
The Portfolios record security transactions on the trade date. Gains and losses
realized from the sale of securities are determined on the specific
identification basis. Dividend income is recognized on the ex-dividend date, and
interest income (including amortization of premium and accretion of discount) is
recognized as earned.
3. AGREEMENTS AND TRANSACTIONS 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. Under separate Investment Subadvisory
Agreements with RMA, Sector Capital Management, Inc. and Miller/Howard
Investments, Inc. serve as subadvisor of the Growth Stock Portfolio and the
Utilities Stock Portfolio, respectively. Sub-subadvisers, selected by Sector
Capital Management, Inc., subject to the review and approval of the Trustees of
the Growth Stock Portfolio, are responsible for the selection of individual
portfolio securities for the assets of the Portfolio assigned to them by Sector
Capital Management, Inc.
For such services the Portfolios pay monthly a fee at the following annual
rates: Mutual Fund Portfolio, Growth Stock Portfolio, and Utilities Stock
Portfolio, 1.00% of average daily net assets up to $50 million, 0.75% of average
daily net assets exceeding $50 million up to $100 million and 0.60% of average
daily net assets exceeding $100 million; Bond Portfolio, 0.40% of average daily
net assets up to $100 million and 0.20% of average daily net assets exceeding
$100 million; Money Market Portfolio, 0.40% of average daily net assets up to
$100 million and 0.25% of average daily net assets exceeding $100 million.
During the six months ended June 30, 1998, RMA voluntarily waived a portion of
its investment advisory fees in the Money Market and Bond Portfolios.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
accounting services agent for each Portfolio. In compensation for such services,
each Portfolio pays MFSCo an annual fee equal to the greater of:
a. 0.15% of the first $10 million of average daily net assets,
0.10% of the next $20 million of average daily net assets,
0.02% of the next $50 million of average daily net assets, and
0.01% in excess of $80 million of average daily net assets, or
b. $7,500 for each Portfolio, except $30,000 for the Money Market
Portfolio.
Certain officers and trustees of the Portfolios are also officers or directors
of MII, RMA and MFSCo.
The Flex-funds 1998 Semi-Annual Report 45
<PAGE>
4. SECURITIES TRANSACTIONS
For the six months ended June 30, 1998, the cost of purchases and proceeds from
sales or maturities of long-term investments for the Portfolios were as follows:
Portfolio Purchases Sales
Mutual Fund Portfolio $137,451,076 $176,802,677
Growth Stock Portfolio 14,951,737 15,075,303
Utilities Stock Portfolio 5,072,323 2,367,157
Bond Portfolio 1,510,168 7,772,404
As of June 30, 1998, the aggregate cost basis of investments and unrealized
appreciation (depreciation) for Federal income tax was as follows:
Portfolio Net
Cost basis of Unrealized Unrealized unrealized
investments appreciation depreciation appreciation
Mutual Fund Portfolio $123,687,389 $7,516,370 ($325,891) $7,190,479
Growth Stock Portfolio 39,804,319 9,374,265 (814,498) 8,559,767
Utilities Stock Portfolio 11,288,380 2,773,712 (200,300) 2,573,412
Bond Portfolio 10,196,214 326,037 (6,447) 319,590
Money Market Portfolio 683,690,491 --- --- ---
46 The Flex-funds 1998 Semi-Annual Report
<PAGE>
MANAGER AND INVESTMENT ADVISER
R. Meeder & Associates
6000 Memorial Drive
P.O. Box 7177
Dublin, Ohio 43017
SUBADVISER/THE UTILITIES STOCK PORTFOLIO
Miller/Howard Investments, Inc.
141 Upper Byrdcliffe Road, P.O. Box 549
Woodstock, New York 12498
SUBADVISER/THE GROWTH STOCK PORTFOLIO
Sector Capital Management L.L.C.
5350 Poplar Avenue, Suite 490
Memphis, Tennesse 38119
BOARD OF TRUSTEES
Milton S. Bartholomew
Dr. Roger D. Blackwell
James Didion
Charles Donabedian
John M. Emery
Richard A. Farr
William L. Gurner
Robert S. Meeder, Sr.
Robert S. Meeder, Jr.
Russel G. Means
Lowell G. Miller
Jack Nicklaus II
Walter L. Ogle
Philip A. Voelker
CUSTODIAN
Star Bank, N.A. Cincinnati
Cincinnati, Ohio 45201
TRANSFER AGENT DIVIDEND DISBURSING AGENT
Mutual Funds Service Co.
6000 Memorial Drive
Dublin, Ohio 43017
AUDITORS
KPMG Peat Marwick LLP
Columbus, Ohio 43215
<PAGE>
THE FLEX-FUNDS
P.O. Box 7177
Dublin, Ohio 43017
