THE FLEX-FUNDS P.O. Box 7177, Dublin, OH 43017 (800)325-3539 www.flexfunds.com
[PHOTO] Sextant 1998 ANNUAL REPORT
December 31, 1998
<PAGE>
PERFORMANCE CAPSULE Period & Average Annual Total Returns as of 12/31/98
<TABLE>
<CAPTION>
The Muirfield The Highlands The Total Return The U.S. Government The Money
Fund Growth Fund Utilities Fund Bond Fund Market Fund
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year 29.33% 23.67%* 8.77% 9.62% 5.31%
Three Year 17.58% 20.37%* 16.62% 5.76% 5.32%
Five Year 16.00% 16.63%* -- 6.74% 5.18%
Ten Year 13.90% 13.13%* -- 7.72% 5.61%
Since Inception 14.00%(1) 10.90%*(2) 18.57%(3) 7.40%(4) 6.05%(5)
1998 by Quarters
- ----------------------------------------------------------------------------------------------------------------------
1st Quarter 4.20% 13.21% 10.11% 1.30% 1.32%
2nd Quarter 2.11% 2.43% -3.01% 1.69% 1.31%
3rd Quarter -3.12% -10.99% -10.29% 7.48% 1.31%
4th Quarter 25.45% 19.82% 13.53% -0.99% 1.27%
</TABLE>
MONEY MARKET FUND YIELDS AS OF 12/31/98(++)
7-DAY SIMPLE YIELD: 4.96%
7-DAY COMPOUND YIELD: 5.07%
To obtain a prospectus containing more complete information about The
Flex-funds, including other fees and expenses that apply to a continued
investment in the Fund, you may call The Flex-funds at (800)325-3539 or write
P.O. Box 7177, Dublin OH 43017. Please read the prospectus carefully before
investing.
*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 over the life of the fund reflect a combination of the
Fund's previous tactical asset allocation discipline and the new Sector
discipline.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. All performance
figures represent total returns and average annual total returns for the periods
ended 12/31/98. 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, when redeemed, may be worth more or less than their original cost. The
Investment Adviser waived a portion of its management fees and/or reimbursed
expenses in order to reduce the operating expenses of The Money Market, U.S.
Government Bond, and Total Return Utilities funds during each of the periods
shown above. The Investment Adviser waived a portion of its management fee
during 1998 in order to reduce the operating expenses of The Highlands Growth
Fund. An investment in The Money Market Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other governmental agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund.
++Yield quotations more closely reflect the current earnings of the Money Market
Fund than do total return quotations. 1Inception Date 8/10/88. 2 Inception Date
3/20/85. 3 Inception Date 6/21/95. 4 Inception Date 5/9/85. 5Inception Date
3/27/85.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
A Look Back 4
A Look Ahead 6
The Flex-funds family of no-load mutual funds 7
The Muirfield Fund 8
The Highlands Growth Fund 10
The Total Return Utilities Fund 12
The U.S. Government Bond Fund 14
The Money Market Fund 16
Portfolio Holdings & Financial Statements 18
ON THE COVER
The sextant was a valuable instrument for many ship captains, used to determine
location and direction based upon the position of the stars. The sextant
represents our commitment to providing sound investment instruments to help
shareholders navigate their way to financial security.
THE FLEX-FUNDS P.O. Box 7177, Dublin, OH 43017 (800)325-3539 www.flexfunds.com
The Flex-funds 1998 Annual Report Page 3
<PAGE>
R. MEEDER & ASSOCIATES Founded in
Columbus, OH on April 1, 1974 with
three employees and $100,000 in assets
under management.
A LOOK BACK . . .
1974 was not a particularly good year to start an investment management
firm. The stock market was stuck in a severe downturn, hitting its lowest level
in almost ten years. Inflation was rampant as energy prices skyrocketed in
response to the Arab oil embargo. The Watergate scandal had crippled the U.S.
Government, and the nation was stricken with apprehension and uncertainty about
the country's economy.
Despite all the doom and gloom that afflicted the financial markets during this
time, investing had become an integral part of many people's lives -- for higher
education, for retirement, and for overall security. However, the risks
associated with investing in the stock market, especially during bear markets
when nearly all stocks lose value, can outweigh the potential rewards. A need
developed in the financial marketplace for investment management services that
would help investors achieve positive returns during times of market strength,
and preserve these values during times of market weakness.
Robert S. Meeder Sr. saw this opportunity and set out to create an investment
management firm that would reach out to investors with a unique investment
discipline, offering the potential of shelter from the downside risk of a
declining stock market with the potential of achieving substantial gains when
the market is strong.
The investment discipline developed by Mr. Meeder -- Defensive Investing --
became the cornerstone of R. Meeder & Associates, which opened for business in
Columbus, Ohio in the thick of the `74 bear market. Defensive Investing seeks to
maximize shareholder returns when the risk/reward relationships in the market
are positive. When the risk/reward relationships in the market are negative,
Defensive Investing seeks to preserve values by moving out of the stock and bond
markets into more stable money market instruments.
Defensive Investing became the core investment philosophy of the first accounts
managed by R. Meeder & Associates in 1974, and the original Flex-fund launched
in 1982. The U.S. Government Bond Fund was launched a few years later as part of
The Flex-funds family, applying the principles of Defensive Investing to the
fixed income markets. The Muirfield Fund, launched in 1988, brought these same
principles to the equity markets, offering investors the potential for
substantial returns during bull markets while seeking to preserve investment
gains during bear markets.
The Flex-funds 1998 Annual Report Page 4
<PAGE>
Defensive Investing has proven to be a successful discipline for R. Meeder &
Associates and The Flex-funds. The R. Meeder Defensive Equity Mutual Fund
Portfolios has never experienced a loss for any calendar year since inception in
1974. And The Muirfield Fund, which is a part of the RMA Defensive Equity Mutual
Fund Portfolios, has never had a negative return for any calendar year since
inception in 1988. Few equity investments can make this claim.
Our Defensive Investing discipline has rewarded many investors over the 25-year
history of R. Meeder & Associates. However, recognizing that the financial needs
and goals of every investor are different, The Flex-funds have broadened our
mutual fund to offer a wider range of investment options to investors. Our
equity mutual funds now include the "sector neutral, style neutral" investment
discipline of The Highlands Growth Fund, and the socially-conscious investment
policies of The Total Return Utilities Fund. Most recently, Flex-funds
shareholders have been able to purchase shares of The Flex-Partners
International Equity Fund at net asset value.
Furthermore, The Flex-funds Money Market Fund has been recognized as one of the
best funds in its peer group, ranking as the #1 general purpose money market
fund for total cumulative return since its inception in March 1985*, and
consistently placing among the top 10% of general purpose money market funds for
total return for any 12-month period since inception in 1985.
Each mutual fund in The Flex-funds family is managed by an investment specialist
who has financial expertise in a particular field of concentration. By tapping
the expertise of these managers, The Flex-funds provide investors with access to
some of the best stock analysts and investment advisers in the country. Whether
you are an individual or an institutional investor, you can now invest with the
experts at The Flex-funds to help meet your own financial goals.
As the scope of our investment products and services has broadened, we continue
to remain focused on the individual needs and objectives of our shareholders.
While the future will undoubtedly bring change to R. Meeder & Associates and The
Flex-funds, we will not change the commitment we made to investors when our
company was founded 25 years ago -- to provide sound investment management
services to our clients and shareholders so that they may achieve financial
prosperity and security.
* Out of 87 general purpose money market funds per Lipper, Inc.
[LINE GRAPH] The following information was depicted as a graph:
Value of $1,000 from 1974 to 1998 for the Dow Jones Industrial Average, the
10 Year Treasury Bond, and the S&P 500. Other events plotted on the graph
include:
Carter elected President
Gas prices skyrocket as energy crisis hits the U.S.
Inflation reaches 14%, Reagan elected President
The original Flex-fund is launched
Dow Jones Industrial Average crosses 1000
The Flex-funds Money Market Fund and U.S. Government Bond Fund are launched
Crash of 1987 - Stocks fall more than 500 points on Black Monday
The Flex-funds Muirfield Fund is launched
Collapse of the Berlin Wall marks the end of communism in Europe
Clinton elected President
Dow Jones Industrial Average crosses 5000
The Flex-funds Total Return Utilities Fund is launched
The Highlands Growth Fund adopts "Sector Plus" investment strategy
The Flex-Partners International Equity Fund available to Flex-funds
shareholders at NAV
Today R. Meeder & Associates manages $1.4 billion in assets with a staff of 45
professionals from headquarters located in Dublin, OH.
The Flex-funds 1998 Annual Report Page 5
<PAGE>
A LOOK AHEAD . . .
Today is a very exciting time -- and a scary time -- to be an investor.
With the tremendous advances in technology and communications over the last
25 years, the financial markets have entered what seems to be a brave new world.
The inventions and innovations of the pioneering companies in these industries
have contributed greatly to the prosperity of our economy. But just because it
is a brave new world for the financial markets does not mean it is a world free
from risk and adversity. The possibilities that the future may bring to the
marketplace are at the same time dynamic and daunting.
As an investor, there are two ways you can approach investing in this brave
new world: 1) you can spend much of your free time researching companies and
watching the markets, then making investment decisions based on your
observations; or 2) you can choose a team of investment advisers who will
monitor the markets for you and manage your investments with your financial
goals in mind.
Investment firms are successful not because of profits or returns or assets
under management, but because of the confidence they earn from clients.
Confidence comes from discipline and, like an investment, grows substantially
over time.
For 25 years, investors have placed their confidence in the investment
discipline of R. Meeder & Associates and The Flex-funds, seeking to take full
advantage of the opportunities the financial markets present while attempting to
avoid the risks of downside loss that will always be inherent in investing. Our
success has been driven by the commitment we have made to every client since we
opened for business in 1974. This commitment will continue to be the core value
upon which we build our business in the future.
The scope of our investment services is now broader than our founding
principle of "defensive investing." After 25 years of serving investors, we have
built a network of investment specialists who are experts in their chosen fields
and have successfully helped investors of all types meet their financial goals.
Now, through investments offered exclusively by The Flex-funds, you can take
advantage of the skills and research usually available only to large
institutions. With this network of investment experts, we believe we can
continue to provide you with the means to achieve your financial objectives well
into the future.
It is our objective to continue developing new investment solutions that
utilize the abilities of the best and brightest in the financial world. We are
also committed to improving the services we offer to all Flex-funds
shareholders, to make investing with the experts more convenient and more
successful for you.
The Flex-funds 1998 Annual Report Page 6
<PAGE>
THE FLEX-FUNDS FAMILY OF NO-LOAD MUTUAL FUNDS
THE TOTAL RETURN
UTILITIES FUND offers
investors a socially-
THE U.S. GOVERNMENT conscious approach to
BOND FUND applies the utilities industry
principles of "defensive investing, by not owning
investing" to the fixed stock in companies that
income markets. generate nuclear power.
- --------------------------------------------------------------------------------
CONSERVATIVE AGGRESSIVE
- --------------------------------------------------------------------------------
THE MONEY MARKET FUND THE MUIRFIELD FUND THE HIGHLANDS GROWTH
invests primarily in invests in the shares FUND utilizes a
first-tier commercial of other mutual funds "sector neutral,
paper and cash equivalents. under the "defensive style neutral"
investing" discipline investment strategy
with a team of 10
sector specialists.
The Flex-funds 1998 Annual Report Page 7
<PAGE>
The Flex-funds 1998 Annual Report
THE MUIRFIELD FUND
[PHOTO] Robert S. Meeder, Jr., Portfolio Manager
While many funds struggled throughout the volatile market environment of
1998, The Muirfield Fund was able to outperform its peer group with an
impressive total return of 29.33% for 1998, versus the 12.25% total return of
the average asset allocation fund according to Morningstar, as well as the 28.5%
total return of the S&P 500 for 1998. Additionally, The Muirfield Fund's total
return for 1998 ranked among the top 2% of asset allocation funds, according to
Morningstar.* For the 3-, 5-, and 10-year periods, the Fund also ranks in the
top 25% of asset allocation funds for average annual total return.
The Fund's performance during the volatile market of 1998 was an excellent
demonstration of the effectiveness of our "defensive investing" philosophy,
which seeks to maximize shareholder return with investments in equity mutual
funds when the risk/reward relationships in the stock market are favorable, and
to protect shareholder gains with investments in cash equivalents when the
risk/reward relationships are negative.
Our evaluation of market conditions through the first half of the year
caused us to approach our equity mutual fund investments with caution, as we
periodically maintained defensive positions in cash equivalents. The stock
market had been overvalued for some time, according to many fundamental
measurements of market performance. Moreover, technical measurements also raised
doubts about the health of the market during 1998.
The third quarter confirmed our assessment of overvaluation, as the stock
market suffered its worst decline in many years. Timely decisions to adopt a
more defensive position as the market began to decline significantly helped the
Fund preserve year-to-date gains and avoid losses that affected most other
equity funds.
- --------------------------------------------------------------------------------
1998 FUND HIGHLIGHTS
* The Muirfield Fund's fourth-quarter return of 25.45% was the best quarterly
performance in the history of the Fund.
* The Muirfield Fund ranked #1 out of 289 asset allocation funds for 1998
fourth-quarter total return, and in the top 2% of 269 asset allocation fund
for total return in 1998, according to Morningstar.*
- --------------------------------------------------------------------------------
Our investment discipline prompted us to return to a fully invested
position by late October, once our evaluation of the risk/reward relationships
in the stock market turned positive again. Another contributing factor to the
exceptional performance of the Fund during the fourth quarter was our
well-researched selection of equity mutual funds. Through most of the quarter,
The Fund's portfolio was split rather evenly between Nasdaq-oriented funds that
favor the technology sector, and growth funds that are pegged to the S&P 500
Index.
We expect volatility and narrowness to continue its hold on the financial
markets through 1999. The risks of stock market investing remain as high as
ever, although potential rewards do exist. We will continue to monitor the
equity markets for investment opportunities in mutual funds that are weighted
toward the growth sectors of the market, and plan to take advantage of them when
our evaluation of the risk/reward relationships are favorable.
* Rankings based on total return as reported by Morningstar Principia. The
Muirfield Fund's period and average annual total returns for 3 month, 1, 5, and
10 year periods as of 12/31/98 rank among asset allocation funds as follows: 3
month - 1 out of 289; 1 year - 5 out of 269; 5 year - 21 out of 84; 10 year - 9
out of 37.
The Flex-funds 1998 Annual Report Page 8
<PAGE>
Performance Update
- --------------------------------------------------------
Period & Average Annual Total Returns as of 12/31/98
1 year ............................... 29.33%
3 years .............................. 17.58%
5 years .............................. 16.00%
10 years ............................. 13.90%
Since Inception (8/10/88)............. 14.00%
Quarterly Performance
- --------------------------------------------------------
Quarterly Total Returns for 1998
First Quarter ........................ 4.20%
Second Quarter ....................... 2.11%
Third Quarter ........................ -3.12%
Fourth Quarter ....................... 25.45%
PORTFOLIO HOLDINGS as of 12/31/98
- -----------------------------------------------------------------------
[CHART] The following information was presented as a pie chart:
Fidelity OTC 25.67%
Janus Twenty 20.02%
Gabelli Growth 17.52%
Federated Max-Cap 11.03%
Rydex OTC 10.66%
MFS Investors Growth A 7.55%
S&P Futures 4.28%
Cash Equivalents 3.27%
GROWTH OF $10,000
- ----------------------------------------------------------
[GRAPH] The following information was presented as a line graph:
Morningstar Avg
Period Muirfield Fund Asset Allocation Fund
- ------ -------------- ---------------------
January 1, 1989 $10,000 $10,000
March 31, 1989 $10,068 $10,372
June 30, 1989 $10,712 $10,954
September 30, 1989 $11,747 $11,529
December 31, 1989 $11,337 $11,661
March 31, 1990 $11,459 $11,553
June 30, 1990 $11,906 $12,028
September 30, 1990 $11,169 $11,224
December 31, 1990 $11,593 $11,799
March 31, 1991 $13,555 $12,859
June 30, 1991 $13,575 $12,928
September 30, 1991 $13,903 $13,581
December 31, 1991 $15,042 $14,499
March 31, 1992 $14,992 $14,501
June 30, 1992 $14,941 $14,661
September 30, 1992 $15,150 $15,185
December 31, 1992 $16,186 $15,733
March 31, 1993 $16,400 $16,402
June 30, 1993 $16,634 $16,699
September 30, 1993 $17,509 $17,301
December 31, 1993 $17,501 $17,545
March 31, 1994 $17,502 $17,115
June 30, 1994 $17,618 $16,975
September 30, 1994 $17,775 $17,413
December 31, 1994 $17,974 $17,308
March 31, 1995 $18,849 $18,358
June 30, 1995 $20,477 $19,663
September 30, 1995 $22,650 $20,656
December 31, 1995 $22,615 $21,463
March 31, 1996 $23,168 $21,969
June 30, 1996 $24,115 $22,479
September 30, 1996 $23,208 $22,974
December 31, 1996 $23,971 $24,131
March 31, 1997 $24,365 $24,100
June 30, 1997 $27,433 $26,402
September 30, 1997 $29,778 $28,065
December 31, 1997 $28,375 $28,192
March 31, 1998 $29,623 $30,255
June 30, 1998 $30,249 $30,590
September 30, 1998 $29,305 $28,815
December 31, 1998 $36,764 $31,423
Past performance does not guarantee future results.
Please see additional fund performance information on page 2
The Flex-funds 1998 Annual Report Page 9
<PAGE>
The Flex-funds 1998 Annual Report
THE HIGHLANDS GROWTH FUND
[PHOTO] William L. Gurner, Portfolio Manager
Two words can best describe the performance of the stock market during
1998: "volatile" and "narrow." While the first six months of the year were
relatively calm, with the market performing much to our expectations, the second
six months were anything but.
Investors received a cold shot of reality during the third quarter, as
equity markets plunged in response to financial crises in many emerging markets
and concerns about the effect of these crises on U.S. corporate earnings. By
early October, the Dow Jones Industrial Average had given back nearly all of its
year-to-date gains. However, the spectacular market comeback of the fourth
quarter helped the Dow and other large-cap market indexes finish the year in or
near record territory.
This may seem like good news to many casual market watchers. But looking
more closely at the composition of these indexes, it is apparent how narrow and
risky the stock market was in 1998. In the S&P 500, 11 stocks contributed more
than 50% of the index's gains for the year, and 55 stocks contributed more than
90% of the index's gains. Moreover, a total of 206 S&P 500 stocks (more than 40%
of the index's total) finished 1998 in negative territory.
These facts underscore the inherent risks of investing in the equity
markets, as well as the benefits of the Fund's "sector neutral, style neutral"
approach to managing these risks for investors. Through the whipsaw volatility
and extreme narrowness that characterized the performance of the stock market in
1998, The Highlands Growth Fund adhered to its investment strategy by remaining
nearly fully invested in equities throughout the year. While such exposure may
have left some investors feeling queasy at times, especially during the market
corrections of the third quarter, our position ultimately helped us achieve
strong returns in the fourth quarter and for all of 1998.
- --------------------------------------------------------------------------------
1998 FUND HIGHLIGHTS
* The Highlands Growth Fund outperformed its peer group during 1998 with a
total annual return of 23.67%, compared with the 19.37% total return for
the average growth fund, according to Morningstar.
* Since adopting its new investment strategy on 12/31/96, the Highlands
Growth Fund ranks in the top 32% of 1150 growth funds for average annual
return, per Morningstar.*
- --------------------------------------------------------------------------------
For the year, The Highlands Growth Fund gained 23.67%, outperforming the
19.37% annual return for the average growth fund according to Morningstar, but
underperforming the 28.5% total return of the S&P 500 Index for the year.
We expect to see continued narrowness and volatility in the stock market as
we begin 1999. The technology and health sectors should remain strong, while
lower commodity prices could hamper the performance of the energy and raw
materials sectors. Fears about Y2K may hurt the market later in the year, but we
should continue to see opportunities for stock selection both within and outside
the S&P 500 that could benefit shareholders in the long-term.
* Rankings based on total return as reported by Morningstar Principia. The
Highland Growth Fund's average annual total returns for 1, 2, 5, and 10 year
periods as of 12/31/98 rank among growth funds as follows: 1 year - 578 out of
1473; 2 year - 365 out of 1150; 5 year - 352 out of 529; 10 year - 201 out of
232.
The Flex-funds 1998 Annual Report Page 10
<PAGE>
Performance Update
- ---------------------------------------------------------
Period & Average Annual Total Returns as of 12/31/98
1 year*................................ 23.67%
2 years*............................... 26.45%
3 years ............................... 20.37%
5 years ............................... 16.63%
10 years ......................... 13.13%
Since Inception (3/20/85).............. 10.90%
* 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 returns 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.
Quarterly Performance
- ---------------------------------------------------------
Quarterly Total Returns for 1998
First Quarter ......................... 13.21%
Second Quarter ........................ 2.43%
Third Quarter .........................-10.99%
Fourth Quarter ........................ 19.82%
SECTOR WEIGHTINGS as of 12/31/98
- -----------------------------------------------------------------------
[CHART] The following information was presented as a pie chart:
Sector (Manager) % of Portfolio
------------------------------------------------
Technology (RCM) 19.20%
Finance (Delta Capital) 15.33%
Consumer Non-Durables 13.74%
(Barrow-Hanley)
Health (Alliance) 11.79%
Utilities (Miller/Howard) 10.61%
Consumer Durables 6.77%
(Barrow-Hanley)
Energy (Mitchell Group) 6.30%
Materials & Services 5.55%
(Ashland)
Consumer Goods (Hallmark) 4.39%
Transportation 0.92%
(Miller/Howard)
S&P 500 Futures 4.20%
Cash Equivalents 1.20%
GROWTH OF $10,000
- ----------------------------------------------------------
[GRAPH] The following information was presented as a line graph:
Morningstar Average
The Highlands Growth Fund Growth Fund
------------------------- -------------------
January 1, 1989 $10,000.00 $10,000.00
March 31, 1989 $10,218.54 $10,752.93
June 30, 1989 $11,007.71 $11,643.49
September 30, 1989 $11,859.19 $12,859.16
December 31, 1989 $11,017.15 $12,730.51
March 31, 1990 $11,017.26 $12,451.14
June 30, 1990 $11,177.15 $13,317.84
September 30, 1990 $10,974.62 $11,212.88
December 31, 1990 $11,492.61 $12,150.03
March 31, 1991 $13,417.45 $14,339.72
June 30, 1991 $13,241.66 $14,199.99
September 30, 1991 $13,382.21 $15,276.59
December 31, 1991 $13,958.85 $16,685.65
March 31, 1992 $14,746.54 $16,572.69
June 30, 1992 $14,162.44 $16,144.46
September 30, 1992 $14,194.96 $16,642.57
December 31, 1992 $14,845.91 $18,201.97
March 31, 1993 $15,572.02 $18,725.55
June 30, 1993 $15,192.14 $18,942.53
September 30, 1993 $15,536.21 $19,957.60
December 31, 1993 $15,916.26 $20,439.81
March 31, 1994 $15,819.86 $19,793.05
June 30, 1994 $15,498.95 $19,258.25
September 30, 1994 $15,638.54 $20,370.94
December 31, 1994 $15,806.20 $20,092.16
March 31, 1995 $16,724.64 $21,588.56
June 30, 1995 $17,847.80 $23,614.13
September 30, 1995 $19,067.33 $25,715.52
December 31, 1995 $19,696.77 $26,364.45
March 31, 1996 $20,428.59 $27,863.95
June 30, 1996 $20,853.88 $29,166.59
September 30, 1996 $20,348.76 $30,068.73
December 31, 1996 $21,485.42 $31,667.51
March 31, 1997 $21,524.81 $31,132.80
June 30, 1997 $24,976.86 $36,010.96
September 30, 1997 $27,156.79 $40,143.84
December 31, 1997 $27,768.64 $39,591.64
March 31, 1998 $31,436.23 $44,616.00
June 30, 1998 $32,199.87 $44,999.30
September 30, 1998 $28,662.12 $38,512.22
December 31, 1998 $34,342.45 $47,038.24
Past performance does not guarantee future results.
Please see additional fund performance information on page 2
The Flex-funds 1998 Annual Report Page 11
<PAGE>
The Flex-funds 1998 Annual Report
THE TOTAL RETURN UTILITIES FUND
[PHOTO] Lowell G. Miller, Portfolio Manager
1998 proved to be a challenging year for The Total Return Utilities Fund.
Following the Fund's strong first quarter performance, this summer's market
downturn adversely affected the Fund's returns for the year. A robust 13.53%
gain in the fourth quarter helped the Fund finish 1998 on a positive note with
an annual total return of 8.77%, below the 18.08% return of the average utility
fund according to Morningstar.
The strong performance of the leading utility funds was mostly due to the
"flight to quality" of investors fleeing the turmoil of the world's equity
markets, as well as higher than normal gains by many electric utility companies
that generate nuclear power. The Fund's socially-conscious investment policy
prevents us from investing in these equities, for we consider the risks and
strict regulatory environment of the nuclear power industry to be a hindrance to
the long-term profitability of these companies.
Many investors who rushed into large-cap electric utilities during the
market turmoil of the spring and summer did so not with any intentions of
staying in the sector for the long-term. Rather, these investors were simply
seeking a safe place for their capital while the rest of the market declined. We
expect this recent surge among the nuclear-based utilities to subside, and our
portfolio to return to its better than peer group performance during 1999.
There were some bright spots in the Fund's portfolio that aided our
performance for the year. Telecommunications stocks continued to ring up robust
gains, and this sector comprised nearly 40% of the Fund's portfolio by year-end.
- --------------------------------------------------------------------------------
1998 FUND HIGHLIGHTS
* For the fourth quarter of 1998, The Total Return Utilities Fund
outperformed the average utility fund, with a total 3-month return of
13.53% compared with the 10.78% average return according to Morningstar.
* Portfolio holdings that enjoyed strong gains in 1998: MCI-Worldcom (4.03%
of portfolio), Qwest Communications (5.10% of portfolio) and, AirTouch
Communications (2.96% of portfolio).
- --------------------------------------------------------------------------------
Merger activity in the broad utilities industry also benefited the Fund: MCI
united with Worldcom; and Pacificorp accepted Scottish Power's invitation to
join forces. We expect industry consolidation to continue, especially in the gas
and electric distribution markets. Our focus for stock selection in the coming
year will be on companies in these sectors that are prime candidates for merger
or acquisition.
We continue to believe the telecommunications stocks are at present fully
valued, even though several of these issues show no signs of exhaustion
following their rapid ascent into record territory. We have been concerned about
the high valuations of these companies for some time, and looking forward we may
reduce some of our exposure to this sector in our portfolio should they begin to
falter.
The Fed's willingness to lower interest rates in response to contagious
global economic crises is a positive sign. As long as interest rates remain low,
we see many opportunities for stock selection in the various utilities
industries that hold excellent potential for growth in the coming year.
The Flex-funds 1998 Annual Report Page 12
<PAGE>
Performance Update
- -------------------------------------------------------------
Period & Average Annual Total Returns as of 12/31/98
1 year .................................8.77%
2 years ...............................18.31%
3 years ...............................16.62%
Since Inception (6/21/95)..............18.57%
Quarterly Performance
- -------------------------------------------------------------
Quarterly Total Returns for 1998
First Quarter .........................10.11%
Second Quarter ........................-3.01%
Third Quarter ........................-10.29%
Fourth Quarter ........................13.53%
SECTOR WEIGHTINGS as of 12/31/98
- -----------------------------------------------------------------------
[CHART] The following information was presented as a pie chart:
Telecomm. Services 40.00%
Natural Gas (Distributor) 21.10%
Oil/Gas (Domestic) 11.80%
Electric Utility 10.90%
Electric/Gas Utility 8.00%
Telecomm. Equipment 2.90%
Water Utility 2.80%
Cash Equivalents 2.50%
GROWTH OF $10,000
- ----------------------------------------------------------
[GRAPH] The following information was presented as a line graph:
Morningstar Average
Total Return Utilities Fund Utility Fund
--------------------------- -------------------
June 21, 1995 $10,000.00 $10,000.00
September 30, 1995 $10,553.11 $10,700.07
December 31, 1995 $11,639.39 $11,428.47
March 31, 1996 $11,553.42 $11,413.64
June 30, 1996 $12,249.73 $11,867.44
September 30, 1996 $12,186.48 $11,659.67
December 31, 1996 $13,141.10 $12,623.85
March 31, 1997 $12,835.12 $12,510.16
June 30, 1997 $13,864.28 $13,607.55
September 30, 1997 $15,022.69 $14,344.97
December 31, 1997 $16,909.78 $15,818.85
March 31, 1998 $18,618.83 $17,435.98
June 30, 1998 $18,058.77 $17,150.35
September 30, 1998 $16,200.59 $16,867.31
December 31, 1998 $18,393.02 $18,678.37
Past performance does not guarantee future results.
Please see additional fund performance information on page 2
The Flex-funds 1998 Annual Report Page 13
<PAGE>
The Flex-funds 1998 Annual Report
THE U.S. GOVERNMENT BOND FUND
[PHOTO] Joseph A. Zarr, Portfolio Manager
During 1998, we witnessed some of the wildest swings in interest rates in
many years, as the market pendulum swayed from serenity to fear then back again.
Throughout all the emotional oscillations of the financial markets in 1998, The
U.S. Government Bond Fund posted an annual total return of 9.62%, outperforming
the 7.34% return of the average government bond fund, according to Morningstar.
The Fund's strong performance for the year was due mostly to our adherance
to our investment discipline to raise or lower exposure to U.S. Treasury bonds
in response to the events which shaped the markets in 1998. Early in the year,
the Federal Reserve was prepared to raise rates in order to offset an expanding
economy and creeping inflation. Accordingly through the first half of the year,
the U.S. Government Bond Fund gradually increased its cash equivalents holdings
as yields inched up slowly.
Everything changed upon the arrival of summer. Nervousness over a failing
world economy spread like wildfire, as Russia became the latest casualty of the
global economic blight. Fears that the U.S. would also succumb to the Asian
contagion soon rattled investors. Equity markets began to buckle in July,
lowering intermediate- and long-term yields as investors rushed to the safety of
U.S. Treasury bonds in a "flight to quality."
Credit spreads widened further once it became clear that loans the IMF had
made to Russia had found their way into individual Swiss bank accounts. A
confluence of related events (anxiety over the collapse of other emerging
markets such as Brazil, and the failure of hedge-fund manager Long Term Capital
Management) at last persuaded Fed Chairman Alan Greenspan to lower short-term
- --------------------------------------------------------------------------------
1998 FUND HIGHLIGHTS
* The U.S. Government Bond Fund ranked among THE TOP 6% of 386 general
government bond funds for total return for 1998, according to Morningstar.*
* The U.S. Government Bond Fund ranked among THE TOP 12% of 218 general
government bond funds for average annual total return for the 5 years ended
12/31/98, according to Morningstar.*
- --------------------------------------------------------------------------------
interest rates three times in two months. The reduction effectively added badly
needed liquidity to the wobbling financial markets and shored up the gaping
credit spreads. In response to these events, the Fund reduced its exposure to
10-year Treasuries from mid-September through mid-November. Stability returned
to the markets in December, and we finished 1998 fully-invested in 10-year
Treasuries.
The Fed's decision to lower rates and to add liquidity to the market came
with a caveat. Back when the Dow Jones Industrial Average was breaking records
in the 7000 range, Fed Chairman Alan Greenspan made his famous speech
characterizing the "irrational exuberance" of the stock market. Almost two years
later, the Federal Reserve essentially recharged the party as investors
celebrated the Fed's three interest rate cuts by pushing the Dow over 9300.
Would the Fed risk bursting this balloon with an increase in interest rates in
early 1999? We will watch carefully to see.
* Rankings based on total return as reported by Morningstar Principia. The
Fund's average annual total returns for 1, 5, and 10 year periods as of 12/31/98
rank among general government bond funds as follows: 1 year - 20 out of 386; 5
year - 24 out of 218; 10 year - 49 out of 90.
The Flex-funds 1998 Annual Report Page 14
<PAGE>
Performance Update
- --------------------------------------------------------------
Period & Average Annual Total Returns as of 12/31/98
1 year .................................9.62%
3 years ................................5.76%
5 years ................................6.74%
10 years ...............................7.72%
Since Inception (5/9/85)................7.40%
Quarterly Performance
- --------------------------------------------------------------
Quarterly Total Returns for 1998
First Quarter ..........................1.30%
Second Quarter .........................1.69%
Third Quarter ..........................7.48%
Fourth Quarter ........................-0.99%
PORTFOLIO HOLDINGS as of 12/31/98
- -----------------------------------------------------------------------
[CHART] The following information was presented as a pie chart:
10-Year U.S. Treasury Notes 99%
Repurchase Agreements 1%
GROWTH OF $10,000
- ----------------------------------------------------------
[GRAPH] The following information was presented as a line graph:
Morningstar Average General
U.S. Government Bond Fund Government Bond Fund
------------------------- ---------------------------
January 1, 1989 $10,000.00 $10,000.00
March 31, 1989 $10,204.36 $10,094.63
June 30, 1989 $10,431.95 $10,713.81
September 30, 1989 $10,653.62 $10,812.80
December 31, 1989 $10,869.09 $11,169.53
March 31, 1990 $11,069.31 $11,104.77
June 30, 1990 $11,278.05 $11,445.34
September 30, 1990 $11,287.70 $11,560.87
December 31, 1990 $11,776.09 $12,120.30
March 31, 1991 $12,028.86 $12,367.78
June 30, 1991 $12,140.25 $12,534.76
September 30, 1991 $12,791.65 $13,183.21
December 31, 1991 $13,577.99 $13,813.43
March 31, 1992 $13,027.80 $13,611.62
June 30, 1992 $13,476.20 $14,089.68
September 30, 1992 $14,292.45 $14,611.69
December 31, 1992 $14,020.31 $14,622.95
March 31, 1993 $14,420.92 $15,118.46
June 30, 1993 $14,701.13 $15,442.07
September 30, 1993 $15,234.18 $15,781.85
December 31, 1993 $15,172.71 $15,750.75
March 31, 1994 $14,768.99 $15,355.10
June 30, 1994 $14,728.30 $15,148.67
September 30, 1994 $14,873.55 $15,190.04
December 31, 1994 $15,021.56 $15,199.45
March 31, 1995 $15,568.65 $15,818.43
June 30, 1995 $16,751.95 $16,588.87
September 30, 1995 $16,929.43 $16,856.24
December 31, 1995 $17,773.69 $17,486.26
March 31, 1996 $17,358.34 $17,183.31
June 30, 1996 $17,572.19 $17,225.81
September 30, 1996 $17,503.47 $17,490.23
December 31, 1996 $17,794.15 $17,931.91
March 31, 1997 $17,588.00 $17,843.62
June 30, 1997 $17,900.28 $18,377.45
September 30, 1997 $18,439.04 $18,882.46
December 31, 1997 $19,165.00 $19,345.57
March 31, 1998 $19,414.03 $19,587.94
June 30, 1998 $19,747.51 $19,969.32
September 30, 1998 $21,217.35 $20,782.57
December 31, 1998 $21,007.47 $20,774.10
Past performance does not guarantee future results.
Please see additional fund performance information on page 2
The Flex-funds 1998 Annual Report Page 15
<PAGE>
The Flex-funds 1998 Annual Report
THE MONEY MARKET FUND
[PHOTO] Philip A. Voelker, Portfolio Manager
1998 was another chart-topping year for The Money Market Fund, as we
extended our streak as the #1 general purpose money market fund for total
cumulative return since inception in March 1985, according to Lipper.** The
Flex-funds Money Market Fund also continues to rank among the top 10% of all
general purpose money market funds for total return for any 12-month period
since inception.
While money market funds may not get the attention they used to receive
nearly twenty years ago, they remain an integral part of many investors'
portfolios -- sometimes as a conservative investment and sometimes as a
temporary parking place for cash. Back in the early 80's, money market funds
sported double-digit yields and chatty investors talked them up in most
cocktail-party conversations. Nowadays, double-digit yields are available in
hours not years, and most investors chat on the Internet about the latest
high-tech IPO, not money market funds.
The problem is the returns on these trendy investments can work both ways
- -- for you or against you. Your money market fund, however, is generally more
stable over the long run. It always helps, of course, to have a strong
management team behind the Fund, working to maximize yields no matter what
occurs in other financial markets.
1998 was a challenging year for many money managers. The first six months
of the year were relatively quiet, and the Fund maintained an average maturity
of approximately 60 days. The second half of the year, however, was marked first
by widening quality spreads, then by rapidly falling rates as the Federal
Reserve cut short-term interest rates three times in two months. The Fed's
decision to lower rates was made primarily in an attempt to provide liquidity to
a debt-laden domestic economy and to help the economy fight off the infections
of the global economic flu, which had spread to Russia and Brazil during 1998.
During the last six months of the year, the Fund's average maturity had been
extended to 70 days, and quite often over 85 days. Our decision to extend the
average maturity of the Fund just before the Fed lowered interest rates helped
us continue to provide exceptional money market returns for investors.
Double-digit money market fund yields are long gone, and inflation has
gradually been wrung out of our economy. In 15 of the last 19 years, short-term
interest rates have ended the year unchanged or lower -- a remarkable record
that has benefited the U.S. economy greatly. The global trend toward
disinflation has ultimately led to deflation and disaster in many high-growth,
highly-leveraged economies of the developing world. Once these areas of weakness
stabilize, and assuming that domestic demand continues at a robust pace,
inflationary fears could rise once again in the U.S. We do not think this would
happen until much later in 1999, at the earliest.
For the short-term, we are planning to maintain a relatively long average
maturity in the portfolio, while monitoring developments in the financial
markets for signs of continued economic changes.
- --------------------------------------------------------------------------------
1998 FUND HIGHLIGHTS
* The Flex-funds Money Market Fund RANKED #1 out of 87 general purpose money
market funds for total cumulative return since inception in March 1985.*
* The Flex-funds Money Market Fund ranks AMONG THE TOP 10% of general purpose
money market funds for total return for any 12-month period since
inception.*
- --------------------------------------------------------------------------------
* Rankings based on total return as reported by Lipper, Inc. The Fund's average
annual total returns for 1, 5, and 10 year periods as of 12/31/98 rank among
general purpose money market funds as follows: 1 year - 22 out of 309; 5 year -
9 out of 201; 10 year - 5 out of 125.
** Out of 87 general purpose money market funds.
The Flex-funds 1998 Annual Report Page 16
<PAGE>
Performance Update
- ----------------------------------------------------------
Period & Average Annual Total Returns as of 12/31/98
1 year .................................5.31%
3 years ................................5.32%
5 years ................................5.18%
10 years ...............................5.61%
Since Inception (3/27/85)...............6.05%
Current & Effective Yields
- ----------------------------------------------------------
as of 12/31/98
7-day Simple Yield ........................4.96%
7-day Compound Yield ......................5.07%
Quarterly Performance
- ----------------------------------------------------------
Quarterly Total Returns for 1998
First Quarter ..........................1.32%
Second Quarter .........................1.31%
Third Quarter ..........................1.31%
Fourth Quarter .........................1.27%
PORTFOLIO HOLDINGS as of 12/31/98
- -----------------------------------------------------------------------
[CHART] The following information was presented as a pie chart:
Corporate Obligations 76%
Variable Rate Notes 22%
Repurchase Agreements 2%
Please see additional fund performance information on page 2
The Flex-funds 1998 Annual Report Page 17
<PAGE>
THE FLEX-FUNDS
1998 ANNUAL REPORT
Portfolio Holdings & Financial Statements
December 31, 1998
The Flex-funds 1998 Annual Report Page 18
<PAGE>
Growth Stock Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
COMMON STOCKS - 94.3%
ADVERTISING SALES - 0.4%
Outdoor Systems, Inc. # 7,600 $ 228,000
AEROSPACE/DEFENSE - 1.3%
B.F. Goodrich Co. 1,891 67,840
Boeing Co. 3,900 127,481
General Dynamics Corp. 440 25,960
Lockheed Martin Corp. 820 69,495
Northrup Grumman Corp. 250 18,281
Raytheon Co. - Class B # 2,000 106,500
Textron, Inc. 1,240 94,163
United Technologies Corp. 1,480 160,950
670,670
AIR TRANSPORTATION - 0.3%
AMR Corp. # 910 54,031
Delta Air Lines, Inc. 770 40,040
Southwest Airlines 1,685 38,228
USAir Group # 470 24,440
156,739
ALUMINUM - 0.2%
Aluminum Company of America 1,230 91,712
AUTO & TRUCK - 1.5%
Ford Motor Co. 6,500 381,469
General Motors Corp. 5,000 357,812
TRW, Inc. 620 34,759
774,040
BANKING - 0.2%
Washington Mutual Savings Bank 2,303 88,378
BEVERAGE--ALCOHOLIC - 0.6%
Anheuser-Busch Cos., Inc. 2,400 157,500
Canadaigua Wine Co. # 2,400 138,750
296,250
BEVERAGE--SOFT DRINK - 1.8%
Coca-Cola Co. 6,000 402,000
Pepsico, Inc. 7,300 298,388
Whitman Corp. 9,400 238,525
938,913
BUILDING MATERIALS - 0.2%
Crane Co. 495 14,943
Masco Corp. 1,860 53,475
Willbros Group # 1,500 8,344
76,762
CAPITAL GOODS - 0.1%
Ingersoll-Rand 611 28,870
CHEMICAL--DIVERSIFIED - 1.1%
Air Products & Chemicals, Inc. 1,550 62,000
E.I. du Pont de Nemours & Co. 4,780 255,730
Monsanto Corp. 2,950 140,125
Praxair, Inc. 1,140 40,185
Rohm & Haas Co. 1,685 50,761
548,801
CHEMICAL--SPECIALTY - 0.1%
Sigma Aldrich 910 26,731
COMMERCIAL SERVICES - 0.1%
Dun & Bradstreet 1,470 46,397
The Flex-funds 1998 Annual Report Page 19
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
COMPUTERS & PERIPHERALS - 4.5%
Allied Waste Industries, Inc. # 1,260 29,768
Compaq Computer Corp. 8,850 371,700
Dell Computer Corp. # 6,100 446,444
EMC Corp./Mass # 2,825 240,125
Gateway 2000, Inc. # 600 30,712
IBM 4,890 901,594
Micron Technology, Inc. # 1,270 64,214
Seagate Technology, Inc. # 1,470 44,468
Sun Microsystems # 1,880 160,975
2,290,000
COMPUTER SOFTWARE & SERVICES - 4.6%
America Online, Inc. # 210 32,550
BMC Software, Inc. # 1,260 56,149
Ceridian Co. # 420 29,321
Computer Associates International, Inc. 2,895 123,399
Computer Sciences Corp. # 600 38,550
Electronic Data System Corp. 1,700 85,319
Microsoft Corp. # 12,110 1,679,506
National Data Corp. 770 37,489
Network Associates, Inc. # 400 26,500
Novell, Inc. # 1,800 32,625
Oracle Corp. # 4,940 213,038
Parametric Technology Co. # 1,400 22,750
2,377,196
CONSTRUCTION - 0.1%
Centex Corp. 830 37,402
CONSUMER NON-DURABLE - 2.7%
Fortune Brands, Inc. 7,800 246,675
Haggar Corp. 11,500 131,531
Procter & Gamble Co. 10,000 913,125
Tupperware Corp. 6,500 106,844
1,398,175
CONTAINERS - METAL/GLASS - 0.0%
Crown Cork & Seal Co., Inc. 670 20,644
COPPER - 0.0%
Phelps Dodge Corp. 380 19,332
COSMETICS - 1.3%
International Flavors & Fragrances, Inc. 6,700 296,056
Playtex Products, Inc. # 23,300 374,256
670,312
DATA PROCESSING - 0.6%
Automatic Data Processing, Inc. 1,800 144,337
Fiserv, Inc. # 920 47,323
First Data Corp. 2,820 89,888
281,548
DIVERSIFIED - 1.2%
Allied Signal, Inc. 2,190 97,044
Minnesota Mining & Manufacturing Co. 1,650 117,356
National Service Industries 500 19,000
Norfolk Southern Corp. 1,830 57,988
PPG Industries, Inc. 1,130 65,752
Tyco International 3,483 262,749
619,889
DRUG - 8.2%
Abbott Labs 6,700 328,300
Bristol Myers Squibb 5,940 794,846
Elan Corp. plc # 451 31,507
Eli Lilly & Co. 4,290 381,274
Merck & Co., Inc. 5,800 855,500
Pfizer, Inc. 7,780 972,500
Schering Plough Corp. 10,500 580,125
Warner Lambert Co. 3,730 280,449
4,224,501
The Flex-funds 1998 Annual Report Page 20
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
DRUGSTORE - 0.1%
Longs Drug Stores 2,000 75,000
ELECTRIC--INTEGRATED - 0.4%
Edison International 1,830 51,011
FPL Group, Inc. 860 52,998
Texas Utilities Co. 1,930 90,107
194,116
ELECTRIC UTILITY - 0.6%
AES Corp. 3,850 182,394
American Electric Power, Inc. 740 34,826
Duke Power Co. 1,690 108,266
325,486
ELECTRICAL EQUIPMENT - 3.3%
General Electric Corp. 16,519 1,684,938
ELECTRONIC COMPONENT SEMICONDUCTORS - 3.3%
Applied Materials, Inc. # 1,880 80,252
Intel 9,880 1,171,398
KLA -Tencor Corp. # 700 30,362
Linear Tech Corp. 250 22,391
Motorola, Inc. 2,960 180,745
STMicroelectronic NV # 250 19,516
Texas Instruments, Inc. 2,300 196,938
1,701,602
ELECTRONIC COMPONENTS - 0.4%
AMP, Inc. 900 46,856
Emerson Electric 2,544 153,912
200,768
ELECTRONICS - 0.1%
Rockwell International Corp. 1,360 66,045
FINANCE - 9.4%
Banc One Corp. 8,926 455,784
Bank of Boston Corp. 3,300 128,494
Chase Manhattan Corp. 3,900 276,900
Citigroup, Inc, 7,997 397,351
Equifax, Inc. 1,250 42,734
Federal Home Loan Mortgage Corp. 5,700 367,294
Federal National Mortgage Corp. 6,600 488,400
First Union Corp. 7,968 484,554
Fleet Financial Group, Inc. 3,100 138,531
Lehman Brothers Holdings, Inc. 1,500 66,094
Mellon Bank Corp. 3,600 247,500
Merrill Lynch & Co. 800 53,400
Morgan Stanley Dean Witter & Co. 1,800 127,800
Metris Cos., Inc. 2,200 110,687
PNC Bank Corp. 3,100 167,400
Providian Financial Corp. 7,350 551,250
Ryder Systems, Inc. 360 9,360
SunTrust Banks, Inc. 900 68,850
Wells Fargo & Co. 15,900 635,006
4,817,389
FINANCIAL SERVICES - 3.9%
American Express Co. 1,700 174,250
Associates First Capital 10,400 440,700
Avery Dennison Corp. 620 27,939
BankAmerica Corp. 10,214 614,117
Capital One Financial Corp. 6,200 713,000
H&R Block, Inc. 1,370 61,650
2,031,656
FOOD - MISCELLANEOUS - 0.5%
International Home Foods, Inc. # 14,900 251,437
FOREST PRODUCTS - 0.2%
Georgia Pacific Corp. 430 25,182
Weyerhauser Co. 1,120 56,910
The Flex-funds 1998 Annual Report Page 21
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
Willamette Industries, Inc. 640 21,440
103,532
HEALTH - 1.4%
American Home Products 5,670 319,646
Johnson & Johnson 5,040 422,730
742,376
INSTRUMENTS--CONTROLS - 0.2%
Honeywell, Inc. 500 37,656
Parker Hannifin Corp. 1,770 57,967
95,623
INSTRUMENTS--SCIENTIFIC - 0.0%
Perkin Elmer Corp. 190 18,537
INSURANCE--LIFE - 0.5%
AFLAC, Inc. 2,000 87,750
SunAmerica, Inc. 2,000 164,000
251,750
INSURANCE--MULTILINE - 1.6%
Allstate 4,400 169,400
American International Group 6,725 649,803
819,203
MACHINERY - 0.4%
Caterpillar, Inc. 1,499 68,954
Deere & Co. 2,484 81,662
Dover Corp. 840 30,765
Lancer Corp. # 3,700 40,700
222,081
MACHINERY--CONSTRUCTION & MINING - 0.2%
Case Corp. 3,192 69,626
Halliburton Co. 1,900 56,287
125,913
MANUFACTURING - 0.2%
Corning, Inc. 1,110 49,950
Mueller Industries, Inc. # 1,750 35,547
Owens Illinois # 780 23,888
109,385
MARKETING SERVICES - 0.1%
Omnicom Group, Inc. 1,135 65,830
MATERIALS & SERVICES - 0.7%
Champion International Corp. 425 17,213
Dana Corp. 970 39,649
Deluxe Corp. 910 33,272
Ecolab, Inc. 1,970 71,289
Hercules, Inc. 660 17,985
Illinois Tool Works, Inc. 1,730 100,340
Service Corp. International 1,570 59,758
Sherwin-Williams Co. 1,070 31,431
370,937
MEDICAL PRODUCTS - 1.0%
Algos Pharmaceutical Corp. # 2,240 58,240
Amgen, Inc. # 900 94,106
Centor, Inc. # 1,500 67,688
GelTex Pharmaceuticals, Inc. # 5,140 116,293
IDEC Pharmaceuticals Corp. # 1,020 47,940
MedImmune, Inc. # 1,550 154,128
538,395
MEDICAL SERVICES - 0.8%
Columbia/HCA Healthcare Corp. 2,620 64,845
Genzyme Corp. # 2,050 101,987
Genzyme Molecular Oncology # 1 2
HBO & Co. 3,940 113,029
IMS Health, Inc. 540 40,736
Shared Medical Systems 490 24,439
Tenet Healthcare Corp. # 1,820 47,775
392,813
The Flex-funds 1998 Annual Report Page 22
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
MEDICAL SUPPLIES - 0.5%
Boston Scientific Co. # 1,000 26,813
IDEXX Laboratories, Inc. # 1,370 36,862
Medtronic, Inc. 2,860 212,444
276,119
MINING - 0.1%
Barrick Gold Corp. 2,090 40,755
Newmont Mining Corp. 1,510 27,558
68,313
MULTIMEDIA - 0.5%
CBS Corp. # 7,300 239,531
NATURAL GAS DISTRIBUTOR - 0.1%
Williams Companies, Inc. 1,300 40,544
NETWORKING PRODUCTS - 1.6%
3Com Corp. # 1,900 85,144
Cisco Systems, Inc. # 8,027 745,006
830,150
OFFICE AUTOMATION & EQUIPMENT - 1.1%
Hewlett Packard 5,770 394,163
Pitney Bowes, Inc. 1,325 87,533
Xerox Corp. 890 105,020
586,716
OIL/GAS--DOMESTIC - 1.7%
Amoco Corp. 4,000 238,000
Atlantic Richfield 1,100 71,912
Baker Hughes 1,640 28,905
Burlington Resources 1,500 53,719
Devon Energy 1,200 36,825
Enron Corp. 400 22,825
Mobil Corp. 4,000 348,500
Murphy Oil Corp. 400 16,500
Noble Drilling Co. # 1,300 16,819
USX Marathon Group 1,800 54,225
888,230
OIL/GAS--INTERNATIONAL - 2.1%
Chevron Corp. 3,500 290,281
Exxon Corp. 11,050 808,031
1,098,312
OILFIELD SERVICES/EQUIPMENT - 0.4%
Coastal Corp. 1,900 66,737
Kerr-McGee Corp. 1,000 38,250
Schlumberger LTD 2,200 101,888
Union Pacific Resources 1,500 13,594
220,469
OIL & NATURAL GAS - 0.4%
Amerada Hess 500 24,875
K N Energy, Inc. # 1,100 41,319
MCN Energy Group, Inc. 4,840 92,263
Ocean Energy, Inc. # 1,560 9,945
Seagull Energy Corp. # 2,900 18,306
186,708
PAPER & FOREST PRODUCTS - 0.3%
Bemis Co., Inc. 360 13,657
Fort James Corp. 1,060 42,400
International Paper 1,615 72,372
Mead Corp. 840 24,623
153,052
PETROLEUM--INTEGRATED - 1.6%
Occidental Petroleum Corp. 1,600 27,000
Phillips Petroleum 1,600 68,200
The Flex-funds 1998 Annual Report Page 23
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
Royal Dutch Petroleum 11,400 545,775
Texaco 2,900 153,700
Unocal Corp. 1,000 29,188
823,863
PROTECTION--SAFETY EQUIPMENT - 0.6%
Lo-Jack Corp. # 25,500 302,812
PUBLISHING - 0.7%
The Reader's Digest Association, Inc. 14,000 352,625
RADIO - 0.8%
Chancellor Media Corp. # 4,900 234,587
Infinity Broadcasting Corp. # 6,200 169,725
404,312
RAILROAD TRANSPORTATION - 0.3%
Burlington Northern Santa Fe 2,370 81,172
Union Pacific Corp. 1,240 55,877
137,049
RENTAL--AUTO/EQUIPMENT - 0.6%
Budget Group Inc. # 9,400 149,225
The Hertz Corp. 3,600 164,250
313,475
RESTAURANT - 1.2%
Brinker International, Inc. # 8,300 239,662
Wendy's International, Inc. 17,100 372,994
612,656
RETAIL GROCERY - 0.6%
Albertsons, Inc. 5,000 318,438
RETAIL STORE - 3.4%
Kmart # 40,000 612,500
PETsMART, Inc. # 22,500 247,500
Sears, Roebuck & Co. 5,000 212,500
WalMart Stores, Inc. 8,000 651,500
1,724,000
SERVICES - 0.1%
Paychex, Inc. 1,397 71,858
TELECOMMUNICATION EQUIPMENT - 1.0%
General Instrument Corp. # 620 21,041
Loral Space & Communications Ltd. # 5,460 97,256
Newbridge Networks Corp. # 1,700 51,638
Nokia Corp. - ADR - A 380 45,766
Northern Telecom LTD 2,470 123,500
P-Com, Inc. # 8,760 34,903
QUALCOMM, Inc. # 2,550 132,122
506,226
TELECOMMUNICATION SERVICES - 10.5%
Airtouch Communications # 2,730 197,754
Ameritech Corp. 5,510 349,196
Ascend Communications, Inc. # 1,280 84,160
AT&T 9,000 681,750
BCE, Inc. 3,420 129,746
Bell Atlantic Corp. 7,730 417,420
BellSouth Corp. 9,600 478,800
Frontier Corp. 3,470 117,980
GTE Corp. 4,580 297,700
Leap Wireless International, Inc. # 550 3,987
Lucent Technologies, Inc. 6,205 682,162
MediaOne Group, Inc. # 3,130 147,110
MCI Communication 10,288 738,164
PT Indosat - ADR 7,370 90,282
Qwest Communications International, Inc. # 4,240 212,000
The Flex-funds 1998 Annual Report Page 24
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
SBC Communications 7,550 404,869
Sprint Corp. 1,890 158,996
Sprint Corp. - PCS Group # 945 21,853
Tellabs, Inc. # 820 56,221
U.S. West, Inc. 1,825 117,941
5,388,091
TOBACCO - 3.2%
Gallaher Group, plc - ADR 7,200 195,750
Imperial Tobacco 5,000 105,625
Philip Morris Companies 16,900 904,150
UST, Inc. 12,000 418,500
1,624,025
TRANSPORTATION - 0.1%
FDX Corp. # 738 65,820
TRUCKING/TRANSPORTATION LEASING - 0.1%
CSX, Corp. 1,097 45,525
WASTE DISPOSAL--NON-HAZARDOUS - 0.3%
Waste Management, Inc. 3,048 142,113
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost 37,878,933 ) 48,537,106
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 0.8%
U.S. Treasury Bills
** 5.02%, 01/07/99 6,000 5,996
* 4.33%, 02/04/99 200,000 199,182
* 4.37%, 03/04/99 200,000 198,470
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost 403,673 ) 403,648
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 4.9%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $2,468,000 FNMA Remic Series
Pool #93020J, 7.00%, 03/25/23,
market value - $2,557,465) 2,509,000 2,509,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost 2,509,000 ) 2,509,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost 40,791,606 ) 51,449,754
- --------------------------------------------------------------------------------
FUTURES CONTRACTS CONTRACTS VALUE
Long, S&P 500 Futures, face amount $2,055,875
expiring March 1999 7 2,179,625
- --------------------------------------------------------------------------------
TOTAL FUTURES CONTRACTS 2,179,625
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION***
Flex-funds Highlands Growth Fund 230 4,888
Flex-funds Muirfield Fund 247 1,702
Flex-funds Total Return Utilities Fund 30 573
Flex-Partners International Equity Fund 154 2,234
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost 8,594) 9,397
- --------------------------------------------------------------------------------
ADR American Depositary Receipt
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
# Represents non-income producing securities.
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
***Assets of affiliates to the Growth Stock Portfolio held for the benefit of
the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.
See accompanying notes to financial statements.
The Flex-funds 1998 Annual Report Page 25
<PAGE>
Mutual Fund Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
MUTUAL FUNDS - 96.6%
Federated S&P 500 Maxcap Fund 632,669 $ 16,057,133
Fidelity OTC Portfolio Fund 856,653 37,375,785
Gabelli Growth 720,481 25,505,045
Janus Twenty Fund 546,887 29,149,088
MFS Investor Growth - Class A 690,955 10,993,091
Mutual Shares Fund 352 6,870
Rydex OTC Fund 375,152 15,516,274
- --------------------------------------------------------------------------------
TOTAL MUTUAL FUNDS
(Cost $111,404,738) 134,603,286
- --------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS - 1.9%
Charles Schwab Money Market Fund 889,006 889,006
Fidelity Core Money Market Fund 1,771,471 1,771,471
- --------------------------------------------------------------------------------
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $2,660,477 ) 2,660,477
- --------------------------------------------------------------------------------
U.S.TREASURY BILLS - 1.4%
** 5.02%, due 01/07/99 30,100 30,075
* 4.39%, due 02/04/99 $2,000,000 1,991,708
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY BILLS
(Cost $2,021,783 ) 2,021,783
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.1%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $90,000 FNMA Remic
Series Pool #93020J, 7.00%, 03/25/23,
market value - $93,263) 91,000 91,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $91,000 ) 91,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost $116,177,998) $139,376,546
- --------------------------------------------------------------------------------
FUTURES CONTRACT CONTRACTS VALUE
Long, S&P 500 Futures, face amount $6,274,000
expiring March 1999 20 $6,227,500
- --------------------------------------------------------------------------------
TOTAL FUTURES CONTRACT $6,227,500
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION***
Flex-funds Highlands Growth Fund 687 14,585
Flex-funds Muirfield Fund 778 5,355
Flex-funds Total Return Utilities Fund 76 1,437
Flex Partners International Equity Fund 442 6,390
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $25,368 ) $27,767
- --------------------------------------------------------------------------------
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
***Assets of affiliates to the Mutual Fund Portfolio held for the benefit of the
Portfolio's Trustees in connection with the Trustee Deferred Compensation
Plan.
See accompanying notes to financial statements.
The Flex-funds 1998 Annual Report Page 26
<PAGE>
Utilities Stock Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
COMMON STOCKS - 97.5%
ELECTRIC/GAS UTILITY - 8.0%
AGL Resources, Inc. 12,100 $ 279,056
MDU Resources Group, Inc. 5,000 131,562
NIPSCO Industries, Inc. 9,400 286,113
UtiliCorp United, Inc. 10,000 366,875
1,063,606
ELECTRIC UTILITY - 10.9%
Cinergy Corp. 7,800 268,125
LG&E Energy Corp. 13,944 394,789
New Century Energies, Inc. 5,600 273,000
PacifiCorp 9,800 206,413
TECO Energy, Inc. 10,400 293,150
1,435,477
NATURAL GAS (DISTRIBUTOR) - 21.1%
Bay State Gas Co.
Consolidated Natural Gas Co. 8,200 442,800
KeySpan Energy Corp. 22,100 685,100
MCN Corp. 22,270 424,522
Peoples Energy Corp. 6,990 278,726
TransCanada Pipelines Ltd. 8,100 119,475
WICOR, Inc. 11,200 244,300
Williams Cos., Inc. 19,140 596,929
2,791,852
OIL/GAS (DOMESTIC) - 11.8%
El Paso Natural Gas Co. 8,440 293,817
Enron Corp. 5,830 332,674
Kinder Morgan Energy Partners, L.P. 14,824 537,370
Questar Corp. 20,200 391,375
1,555,236
TELECOMMUNICATION EQUIPMENT - 2.9%
Loral Space & Communications Ltd. 14,890 265,228
P-Com, Inc. # 30,000 119,531
384,759
TELECOMMUNICATION SERVICES - 40.0%
AT&T Corp. 4,000 303,000
AirTouch Communications, Inc. # 5,400 391,162
Alltel Corp. 7,900 472,519
BCE, Inc. 12,040 456,768
Frontier Corp. 19,300 656,200
GTE Corp. 5,000 325,000
MCI WorldCom, Inc. # 7,420 532,385
Qwest Communications International, Inc.# 13,491 674,550
SBC Communications, Inc. 12,740 683,183
Sprint Corp. 4,300 361,737
Sprint Corp. - PCS Group # 2,150 49,719
U.S. West Communications Group 5,900 381,288
5,287,511
WATER UTILITY - 2.8%
American Water Works Co., Inc. 10,900 367,875
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $9,492,932 ) $12,886,316
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS - 0.0%
* 5.02%, due 01/07/99 1,000 999
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY BILLS
(Cost $999 ) 999
- --------------------------------------------------------------------------------
The Flex-funds 1998 Annual Report Page 27
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
REPURCHASE AGREEMENT - 2.5%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $320,00 FNMA Remic
Series Pool #93020J, 7.00%, 03/25/23,
market value - $331,600 325,000 325,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $325,000 ) 325,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost $9,818,931 ) $13,212,315
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION**
Flex-funds Highlands Growth Fund 120 2,550
Flex-funds Muirfield Fund 120 826
Flex-funds Total Return Utilities 14 274
Flex Partners International Equit 85 1,231
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $4,465 ) $4,881
- --------------------------------------------------------------------------------
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
# Represents non-income producing securities.
* Pledged as collateral on Letter of Credit.
** Assets of affiliates to the Utility Stock Portfolio held for the benefit
with the Trustees Deferred Compensation Plan.
See accompanying notes to financial statements.
The Flex-funds 1998 Annual Report Page 28
<PAGE>
Bond Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE VALUE
-------------------------- -------------- -----
U.S.TREASURY OBLIGATIONS - 99.5%
U.S. Treasury Bills
* 5.02%, 01/07/99 4,800 $ 4,796
4,796
U.S. Treasury Bonds
5.63%, 05/15/08 3,300,000 3,521,719
4.75%, 11/15/08 7,300,000 7,357,031
10,878,750
- --------------------------------------------------------------------------------
TOTAL U.S.TREASURY OBLIGATIONS
(Cost $10,939,407 ) 10,883,546
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.5%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $52,000 FNMA Remic Series
Pool #93020J, 7.00%, 03/25/23,
market value - $53,885) 53,000 53,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $53,000 ) 53,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost $10,992,407 ) 10,936,546
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION**
Flex-funds Highlands Growth Fund 124 2,625
Flex-funds Muirfield Fund 124 854
Flex-funds Total Return Utilities Fund 14 273
Flex Partners International Equity Fund 87 1,257
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $4,582 ) $5,009
- --------------------------------------------------------------------------------
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
* Pledged as collateral on Letter of Credit.
** Assets of affiliates to the Bond Portfolio held for the benefit of the
Portfolio's with the Trustee Deferred Compensation Plan.
See accompanying notes to financial statements.
The Flex-funds 1998 Annual Report Page 29
<PAGE>
Money Market Portfolio
Portfolio of Investments as of December 31, 1998
<TABLE>
<CAPTION>
COUPON/ FACE
YIELD MATURITY AMOUNT AMORTIZED COST
----- -------- ------ --------------
COMMERCIAL PAPER - 56.2%
<S> <C> <C> <C> <C>
AlliedSignal, Inc. 5.60% 01/29/99 30,000,000 $ 29,869,333
American Home Products Corp.*** 5.10% 02/19/99 5,000,000 4,965,292
American Home Products Corp.*** 5.00% 03/12/99 3,000,000 2,970,833
American Honda Finance Corp. 5.20% 01/29/99 22,000,000 21,911,022
Bankers Trust Corp. 5.04% 05/10/99 25,000,000 24,548,500
CSW Credit, Inc. 5.22% 03/12/99 32,650,000 32,318,603
Carolina Power & Light Co. 4.82% 08/20/99 20,000,000 19,381,433
Credit Suisse First Boston 5.20% 02/24/99 15,350,000 15,230,270
Duff & Phelps Utility and Corporate Bond Trust, Inc. 5.00% 04/20/99 1,000,000 984,861
Duff & Phelps Utility and Corporate Bond Trust, Inc. 5.00% 04/28/99 6,815,000 6,704,256
Duff & Phelps Utility and Corporate Bond Trust, Inc. 4.92% 05/13/99 5,000,000 4,909,800
Duff & Phelps Utility and Corporate Bond Trust, Inc. 4.95% 05/17/99 7,000,000 6,869,100
Eaton Corp.*** 5.38% 03/02/99 10,000,000 9,910,333
Eaton Corp.*** 4.87% 07/19/99 7,475,000 7,273,771
Edison International*** 5.51% 01/22/99 22,227,000 22,156,722
Ford Motor Credit Co. 5.46% 02/17/99 30,000,000 29,786,150
General Electric Capital Corp. 5.44% 03/09/99 20,000,000 19,797,511
Greenwich Asset Funding, Inc.*** 5.34% 01/14/99 30,000,000 29,942,150
J.P. Morgan & Co., Inc. 5.05% 02/19/99 18,311,000 18,185,137
LG&E Capital Corp. 4.92% 05/21/99 25,000,000 24,521,667
Monsanto Co. 5.10% 03/02/99 21,300,000 21,109,897
S.C. Johnson & Son, Inc. 5.20% 03/09/99 20,000,000 19,806,445
Signet Finance*** 5.51% 01/26/99 25,000,000 24,904,340
Toronto-Dominion Holdings USA, Inc. 5.46% 02/02/99 35,000,000 34,830,133
Xerox Credit Corp. 5.47% 02/03/99 7,000,000 6,964,901
Xerox Credit Corp. 5.40% 05/03/99 7,000,000 6,871,900
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost$446,724,360 ) 446,724,360
- ----------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 41.1%
ABT 95 Series A-3 5.54%* 01/15/99 20,000,000 20,000,000
Aquarium Holdings KY*** 5.60%* 01/07/99 12,000,000 12,000,000
Bank One Corp. 5.75% 05/17/99 500,000 500,060
Bank One Wisconsin 5.74% 05/11/99 1,000,000 1,000,082
Bear Stearns Corp. 5.24%* 01/05/99 20,000,000 20,000,000
Boeing Capital Corp. 5.87%* 02/27/99 5,000,000 5,011,669
Care Life Project*** 5.30%* 01/07/99 1,225,000 1,225,000
Caterpillar Financial Services Corp. 6.07% 02/09/99 2,135,000 2,135,556
Caterpillar, Inc. 6.80% 08/24/99 500,000 503,499
Chase Manhattan Bank 8.50% 02/15/99 8,300,000 8,326,515
Chase Manhattan Bank 10.00% 06/15/99 3,750,000 3,819,869
Chrysler Financial Corp. 6.37% 06/21/99 2,700,000 2,708,468
Clark Grave Vault Co.*** 5.60%* 01/07/99 2,700,000 2,700,000
Comerica 9.75% 05/01/99 5,000,000 5,061,659
Consolidated Edison*** 5.44%* 01/04/99 8,250,000 8,251,244
Coughlin Family Properties, Inc.*** 5.60%* 01/07/99 4,220,000 4,220,000
D.E.D.E. Realty*** 5.60%* 01/07/99 3,850,000 3,850,000
Danis Construction Co.*** 5.60%* 01/07/99 900,000 900,000
Doren, Inc.*** 5.30%* 01/07/99 500,000 500,000
Eaton Corp. 6.38% 04/01/99 1,742,000 1,745,032
Espanola/Nambe*** 5.30%* 01/07/99 2,115,000 2,115,000
First USA/Bank One 5.75% 01/15/99 1,000,000 999,996
First USA/Bank One 5.42% 01/15/99 5,000,000 5,000,313
Ford Motor Credit Co. 5.63% 01/15/99 1,100,000 1,099,938
General America Life Insurance**** 5.35%* 03/21/99 10,000,000 10,000,000
General Motors Acceptance Corp. 7.75% 01/15/99 100,000 100,068
General Motors Acceptance Corp. 6.55% 06/04/99 2,400,000 2,408,192
General Motors Acceptance Corp. 8.63% 06/15/99 5,420,000 5,489,411
Hancor, Inc.*** 5.30%* 01/07/99 600,000 600,000
Household Finance 7.13% 04/30/99 10,000,000 10,044,817
Isaac Tire, Inc.*** 5.60%* 01/07/99 1,000,000 1,000,000
J.C. Penney Co., Inc. 6.88% 06/15/99 1,000,000 1,004,847
John Deere 6.43% 08/09/99 10,000,000 10,044,974
Key Corp. 6.63% 06/01/99 20,000,000 20,103,102
Merrill Lynch 7.75% 03/01/99 1,650,000 1,655,294
The Flex-funds 1998 Annual Report Page 30
<PAGE>
COUPON/ FACE
YIELD MATURITY AMOUNT AMORTIZED COST
----- -------- ------ --------------
Merrill Lynch 6.38% 03/30/99 500,000 501,270
Merrill Lynch 5.49%* 02/25/99 10,280,000 10,292,233
Morgan Stanley 5.63% 03/01/99 4,850,000 4,849,711
Mubea, Inc.*** 5.30%* 01/07/99 5,400,000 5,400,000
Mubea, Inc.*** 5.30%* 01/07/99 3,750,000 3,750,000
National City Bank 6.00% 03/23/99 14,200,000 14,211,842
NationsBank Corp. 5.39%* 03/17/99 3,000,000 3,003,134
NationsBank Corp. 8.50% 03/01/99 1,095,000 1,099,645
O.K.I. Supply Co.*** 5.60%* 01/07/99 2,150,000 2,150,000
Osco Industries, Inc.*** 5.30%* 01/07/99 2,700,000 2,700,000
Presrite Corp.*** 5.30%* 01/07/99 1,870,000 1,870,000
Pro Tire, Inc.*** 5.60%* 01/07/99 1,200,000 1,200,000
R.I. Lampus Co.*** 5.30%* 01/07/99 2,275,000 2,275,000
RSD Technology*** 5.30%* 01/07/99 4,305,000 4,305,000
Seariver Maritime, Inc. 5.20%* 01/04/99 6,400,000 6,400,000
Surgery Financing Co.*** 5.30%* 01/07/99 6,585,000 6,585,000
Signa Finance 5.71% 03/02/99 3,000,000 3,000,660
Signature Brands (called 8/15/99) 13.00% 08/15/02 18,500,000 20,767,190
SunAmerica, Inc. 9.00% 01/15/99 2,500,000 2,502,839
Transamerica Finance 6.80% 03/15/99 6,435,000 6,452,728
Travelers 5.50% 01/15/99 500,000 500,002
Triangle Funding 5.32%* 03/29/99 7,500,000 7,500,000
Westpac Banking Corp. 5.67% 01/07/99 10,000,000 9,999,787
White Castle Project*** 5.30%* 01/07/99 9,000,000 9,000,000
World Trade Finance 5.48%* 03/01/99 20,000,000 20,000,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost$326,440,646 ) 326,440,646
- ----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.5%
Student Loan Marketing Assoc. 4.89% 08/03/99 4,350,000 4,350,856
- ----------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $4,350,856 ) 4,350,856
- ----------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 0.0%
** U.S. Treasury Bill 5.02% 01/07/99 63,100 63,048
- ----------------------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $63,048 ) 63,048
- ----------------------------------------------------------------------------------------------------------------
The Flex-funds 1998 Annual Report Page 31
<PAGE>
COUPON/ FACE
YIELD MATURITY AMOUNT AMORTIZED COST
----- -------- ------ --------------
REPURCHASE AGREEMENTS - 2.2%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $16,750,00001/04/99
FNMA Remic Series Pool #93020J, 7.00%, 03/25/23,
market value - $17,357,188) 5.10% 01/04/99 17,022,000 17,022,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $17,022,000 ) 17,022,000
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost$794,600,910 )(a) $794,600,910
- ----------------------------------------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION***** SHARES VALUE
Flex-funds Highlands Growth Fund 260 5,573
Flex-funds Muirfield Fund 351 2,429
Flex-funds Total Return Utilities Fund 56 1,074
Flex Partners International Equity Fund 167 2,429
- ----------------------------------------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $10,454 ) $11,505
- ----------------------------------------------------------------------------------------------------------------
<FN>
(a)Cost for federal income tax and financial reporting purposes are the same.
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
* Variable rate security. Interest rate is as of December 31, 1998. Maturity
date reflects the next rate change date.
** 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.
****Illiquid security. The sale or disposition of such security would not be
possible in the ordinary course of business within seven days at which the
Fund has valued the security.
*****Assets of affiliates to the Money Market Portfolio held for the benefit of
the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.
</FN>
</TABLE>
See accompanying notes to financial statements.
The Flex-funds 1998 Annual Report Page 32
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S.
HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
Assets:
<S> <C> <C> <C> <C> <C>
Investment in corresponding portfolio at value $125,718,419 $43,171,779 $10,372,337 $10,995,474 $154,100,549
Receivable for capital stock issued 2,739,456 869,483 303,616 311,456 ---
Unamortized organization costs --- --- 7,294 --- ---
Other assets 13,415 24,501 3,394 5,502 205,030
Total Assets 128,471,290 44,065,763 10,686,641 11,312,432 154,305,579
Liabilities:
Payable for capital stock redeemed 2,768,083 99,345 217,988 7,108 ---
Dividends payable 18,646 21,572 149 3,120 6,725
Accrued 12b-1 distribution fees 115,045 26,781 --- 3,006 18,115
Accrued transfer agent and administrative fees 14,119 5,988 896 888 18,959
Other accrued liabilities 8,104 4,333 12,958 4,303 6,483
Total Liabilities 2,923,997 158,019 231,991 18,425 50,282
Net Assets 125,547,293 43,907,744 10,454,650 11,294,007 154,255,297
Net Assets:
Capital 97,401,143 32,701,737 8,298,985 11,198,026 154,255,297
Accumulated undistributed (distributions in
excess of) net investment income 1,263 131 (15) 151,839 ---
Accumulated undistributed net realized
gain (loss) from investments 6,742,388 1,050,367 (358,941) --- ---
Net unrealized appreciation (depreciation) of 21,402,499 10,155,509 2,514,621 (55,858) ---
investments
Net Assets $125,547,293 $43,907,744 $10,454,650 $11,294,007 $154,255,297
Capital Stock Outstanding 18,244,445 2,068,262 549,849 510,117 154,255,297
(indefinite number of shares authorized,
$0.10 par value)
Net Asset Value, Offering and
Redemption Price Per Share $6.88 $21.23 $19.01 $22.14 $1.00
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 33
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S.
HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
Net Investment Income from Corresponding Portfolio:
<S> <C> <C> <C> <C> <C>
Interest $2,539,630 $338,939 $19,497 $704,131 $9,551,155
Dividends 344,142 500,212 294,037 --- ---
Expenses net of waivers and/or reimbursements (1,060,689) (517,523) (142,878) (72,356) (307,115)
Total Net Investment Income from Corresponding Portfolio 1,823,083 321,628 170,656 631,775 9,244,040
Fund Expenses:
Administrative fee 57,417 20,994 4,777 6,373 85,423
Transfer agent fees 114,835 41,988 9,554 7,648 124,669
Audit fees 4,609 4,203 3,915 3,137 3,513
Legal fees 1,964 8,947 758 867 2,054
Printing 19,968 13,589 3,061 3,583 40,888
Amortization of organizational costs --- --- 4,830 --- ---
Distribution plan 126,517 58,827 23,886 24,085 161,737
Postage 19,144 8,743 3,489 3,101 31,392
Registration and filing fees 28,730 22,921 8,462 3,328 32,060
Insurance 1,735 397 70 240 2,003
Other expenses 12,957 11,925 2,469 2,877 12,688
Total Expenses 387,876 192,534 65,271 55,239 496,427
Expenses reimbursed by investment adviser --- --- (28,865) --- (120,223)
Net Expenses 387,876 192,534 36,406 55,239 376,204
NET INVESTMENT INCOME 1,435,207 129,094 134,250 576,536 8,867,836
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
Net realized gains from futures contracts 3,409,301 975,030 --- 27,219 ---
Net realized gains (losses) from investments 3,910,704 3,317,148 (358,953) 1,075,370 ---
Net change in unrealized appreciation (depreciation)
of investments 21,404,554 4,287,738 838,039 (591,216) ---
NET GAIN FROM INVESTMENTS 28,724,559 8,579,916 479,086 511,373 ---
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $30,159,766 $8,709,010 $613,336 $1,087,909 $8,867,836
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 34
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S.
HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income $1,435,207 $129,094 $134,250 $576,536 $8,867,836
Net realized gain (loss) from investments
and futures contracts 7,320,005 4,292,178 (358,953) 1,102,589 ---
Net change in unrealized appreciation
(depreciation) of investments 21,404,554 4,287,738 838,039 (591,216) ---
Net increase in net assets
resulting from operations 30,159,766 8,709,010 613,336 1,087,909 8,867,836
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,433,944) (128,963) (134,265) (576,536) (8,867,836)
Net realized gain from investments
and futures contracts (1,907,816) (3,152,482) --- (37,210) ---
Net decrease in net assets resulting
from dividends and distributions (3,341,760) (3,281,445) (134,265) (613,746) (8,867,836)
CAPITAL TRANSACTIONS:
Issued 21,967,180 64,413,686 5,724,377 2,306,810 478,112,579
Reinvested 3,296,460 3,254,744 131,606 576,374 8,641,621
Redeemed (57,316,946) (62,940,124) (4,285,392) (9,036,259) (501,833,777)
Net increase (decrease) in net assets resulting
from capital share transactions (32,053,306) 4,728,306 1,570,591 (6,153,075) (15,079,577)
TOTAL INCREASE (DECREASE) IN NET ASSETS (5,235,300) 10,155,871 2,049,662 (5,678,912) (15,079,577)
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 $125,547,293 $43,907,744 $10,454,650 $11,294,007 $154,255,297
SHARE TRANSACTIONS:
Issued 3,737,873 3,158,058 309,337 106,049 478,112,579
Reinvested 521,019 153,489 7,373 26,662 8,641,621
Redeemed (9,925,681) (3,062,778) (241,126) (423,756) (501,833,777)
Change in shares (5,666,789) 248,769 75,584 (291,045) (15,079,577)
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
THE THE THE U.S. THE
THE HIGHLANDS TOTAL RETURN GOVERNMENT MONEY
MUIRFIELD GROWTH UTILITIES BOND MARKET
FUND FUND FUND FUND FUND
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C> <C>
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
The Flex-funds 1998 Annual Report Page 35
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE HIGHLANDS GROWTH FUND
Years Ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $18.55 $16.41 $15.34 $13.08 $13.45
Income from Investment Operations
Net Investment Income 0.06 0.06 0.31 0.50 0.27
Net Gains or Losses from Securities
(both realized and unrealized) 4.32 4.73 1.07 2.68 (0.37)
Total From Investment Operations 4.38 4.79 1.38 3.18 (0.10)
Less Distributions
Dividends (from net investment income) (0.06) (0.06) (0.31) (0.50) (0.27)
Distributions (from capital gains) (1.64) (2.59) -- (0.42) --
Total Distributions (1.70) (2.65) (0.31) (0.92) (0.27)
Net Asset Value, End of Period $21.23 $18.55 $16.41 $15.34 $13.08
Total Return 23.67% 29.28% 9.08% 24.61% -0.69%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $43,908 $33,752 $24,204 $24,631 $22,176
Ratio of Expenses to Average Net Assets 1.69% 1.87% 1.65% 1.64% 1.63%
Ratio of Net Investment Income to
Average Net Assets 0.31% 0.30% 1.92% 3.38% 1.95%
Ratio of Expenses to Average Net Assets
before waiver of fees 1.70%(1) 1.87% 1.65% 1.64% 1.63%
Ratio of Net Investment Income to Average
Net Assets 0.30%(1) 0.30% 1.92% 3.38% 1.95%
Portfolio Turnover Rate(2) 79.98% 129.79% 81.66% 337.57% 102.76%
<FN>
1 Ratio includes fees waived in corresponding portfolio
2 Represents turnover rate of corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 36
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE TOTAL RETURN UTILITIES FUND
Years Ended December 31, Period
------------------------------------------ June 21, 1995*
1998 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 0.25 0.25 0.37 0.21
Net Gains or Losses from Securities
(both realized and unrealized) 1.29 3.99 1.48 1.64
Total From Investment Operations 1.54 4.24 1.85 1.85
Less Distributions
Dividends (from net investment income) (0.25) (0.25) (0.37) (0.21)
Distributions (from capital gains) --- (1.25) (0.64) --
Total Distributions (0.25) (1.50) (1.01) (0.21)
Net Asset Value, End of Period $19.01 $17.72 $14.98 $14.14
Total Return 8.77% 28.68% 13.33% 15.00%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $10,455 $8,405 $5,074 $2,881
Ratio of Expenses to Average Net Assets 1.80% 1.80% 1.25% 1.25%(1)
Ratio of Net Investment Income to
Average Net Assets 1.35% 1.57% 2.55% 3.18%(1)
Ratio of Expenses to Average Net Assets,
before waiver of fees(2) 2.11% 2.51% 2.95% 4.35%(1)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees(2) 1.04% 0.86% 0.85% 0.08%(1)
Portfolio Turnover Rate(3) 51.36% 41.22% 50.79% 5.06%
<FN>
(1) Annualized
(2) Includes directed brokerage payments in corresponding portfolio.
(3) Turnover rate of corresponding portfolio
* Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 37
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE MUIRFIELD FUND
Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $5.47 $5.47 $5.73 $5.34 $5.36
Income from Investment Operations
Net Investment Income 0.08 0.11 0.10 0.06 0.14
Net Gains or Losses from Securities
(both realized and unrealized) 1.51 0.91 0.25 1.31 -
Total From Investment Operations 1.59 1.02 0.35 1.37 0.14
Less Distributions
Dividends (from net investment income) (0.08) (0.11) (0.10) (0.06) (0.14)
Distributions (from capital gains) (0.10) (0.91) (0.51) (0.92) (0.02)
Total Distributions (0.18) (1.02) (0.61) (0.98) (0.16)
Net Asset Value, End of Period $6.88 $5.47 $5.47 $5.73 $5.34
Total Return 29.33% 18.59% 5.99% 25.82% 2.70%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $125,547 $130,783 $121,335 $111,751 $83,119
Ratio of Expenses to Average Net Assets 1.24% 1.29% 1.19% 1.26% 1.22%
Ratio of Net Investment Income to
Average Net Assets 1.23% 1.69% 1.54% 0.97% 2.55%
Portfolio Turnover Rate* 128.31% 395.42% 297.41% 186.13% 168.17%
<FN>
*Turnover rate of corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 38
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
THE U.S. GOVERNMENT BOND FUND
Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $21.19 $20.64 $21.58 $19.25 $20.18
Income from Investment Operations
Net Investment Income 0.97 0.99 0.96 1.11 0.72
Net Gains or Losses from Securities
(both realized and unrealized) 1.02 0.55 (0.94) 2.33 (0.93)
Total From Investment Operations 1.99 1.54 0.02 3.44 (0.21)
Less Distributions and Dividends
From net investment income (0.97) (0.99) (0.96) (1.11) (0.72)
From net realized gains (0.07) -- -- -- --
Total Distributions (1.04) (0.99) (0.96) (1.11) (0.72)
Net Asset Value, End of Period $22.14 $21.19 $20.64 $21.58 $19.25
Total Return 9.62% 7.70% 0.15% 18.32% -0.99%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $11,294 $16,973 $17,783 $16,048 $12,983
Ratio of Expenses to Average Net Assets 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to
Average Net Assets 4.52% 4.85% 4.61% 5.41% 3.71%
Ratio of Expenses to Average Net Assets,
before waiver of fees(1) 1.16% 1.14% 1.06% 1.14% 1.14%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees(1) 4.36% 4.71% 4.55% 5.27% 3.57%
Portfolio Turnover Rate(2) 225.11% 375.64% 778.59% 232.34% 707.57%
<FN>
(1) Ratio includes fees waived in corresponding portfolio
(2) Represents turnover rate of corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 39
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
MONEY MARKET FUND
Years Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income 0.052 0.053 0.05 0.06 0.04
Total From Investment Operations 0.052 0.053 0.05 0.06 0.04
Less Distributions
Dividends (from net investment income) (0.052) (0.053) (0.05) (0.06) (0.04)
Total Distributions (0.052) (0.053) (0.05) (0.06) (0.04)
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return 5.31% 5.38% 5.27% 5.85% 4.10%
Ratios/Supplemental Data
Net Assets, End of Period ($000) $154,255 $169,335 $119,947 $141,087 $164,838
Ratio of Expenses to Average Net Assets 0.40% 0.40% 0.40% 0.40% 0.37%
Ratio of Net Investment Income to
Average Net Assets 5.19% 5.26% 5.15% 5.70% 4.02%
Ratio of Expenses to Average Net Assets,
before waiver of fees(1) 0.59% 0.59% 0.58% 0.64% 0.57%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees(1) 5.00% 5.07% 4.97% 5.46% 3.82%
<FN>
(1) Ratio includes fees waived in corresponding portfolio
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 40
<PAGE>
THE FLEX-FUNDS ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 December 31, 1998
- ---- --------- -----------------
The Muirfield Fund Mutual Fund Portfolio 89%
The Highlands Growth Fund Growth Stock Portfolio 84%
The Total Return Utilities Fund Utilities Stock Portfolio 79%
The U.S. Government Bond Fund Bond Portfolio 100%
The Money Market Fund Money Market Portfolio 19%
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.
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.
The Flex-funds 1998 Annual Report Page 41
<PAGE>
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.
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.
Investment Income & Expenses
The Funds record daily their proportionate share of the Portfolios' income,
expenses, and realized and unrealized gains and losses. In addition, the Funds
accrue their own 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 Annual Report Page 42
<PAGE>
4. Federal Income Tax Information (unaudited)
During the year ended December 31, 1998, the Funds declared long-term capital
distributions in the following amounts:
Amount
The Muirfield Fund $1,907,816
The Highlands Growth Fund 2,730,137
At December 31, 1998, The Total Return Utilities Fund had unused capital loss
carryforwards of $357,103 available to offset future gains, if any, for Federal
income tax purposes. The capital loss carryforward expires 2006.
The Flex-funds 1998 Annual Report Page 43
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of The Flex-funds:
We have audited the accompanying statements of assets and liabilities of The
Flex-funds (including, respectively, The Muirfield Fund, The Highlands Growth
Fund, The Total Return Utilities Fund, The U.S. Government Bond Fund, and The
Money Market Fund), as of December 31, 1998, and the related statements of
operations, statements of changes in net assets and the financial highlights for
each of the periods indicated herein. These financial statements and the
financial highlights are the responsibility of the Flex-funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Flex-funds at December 31, 1998, and
the results of their operations, the changes in their net assets and the
financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 19, 1999
The Flex-funds 1998 Annual Report Page 44
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
Assets:
<S> <C> <C> <C> <C> <C>
Investments, at market value* $139,285,546 $48,940,754 $12,887,315 $10,883,546 $777,578,910
Repurchase agreements, at cost* 91,000 2,509,000 325,000 53,000 17,022,000
Trustee deferred compensation investments, at 27,767 9,397 4,881 5,009 11,505
market value
Cash 3,600 3,954 3,499 2,920 59,912
Receivable for securities sold 12,500,000 --- --- --- ---
Receivable for net variation margin on futures 16,350 5,300 --- --- ---
Interest receivable 8,018 356 46 69,118 4,790,576
Dividends receivable --- 45,431 22,698 --- ---
Prepaid/Other assets 13,925 1,819 3,437 507 8,722
Total Assets 151,946,206 51,516,011 13,246,876 11,014,100 799,471,625
Liabilites:
Payable for securities purchased 11,000,000 262,923 --- --- ---
Payable for Trustee Deferred Compensation Plan 27,767 9,397 4,881 5,009 11,505
Payable to corresponding Fund --- --- --- --- 1,055,191
Payable to investment adviser 92,531 43,454 10,658 3,202 107,200
Accrued audit fees 6,136 5,775 6,356 5,518 9,231
Accrued legal fees 919 458 915 1,630 660
Accrued custodian fees 3,293 5,131 799 625 6,635
Accrued trustee fees 2,108 --- --- --- ---
Accrued fund accounting fees 4,447 3,470 1,547 1,414 10,510
Other accrued liabilities 1,318 17,660 2,175 1,081 1,370
Total Liabilities 11,138,519 348,268 27,331 18,479 1,202,302
Net Assets $140,807,687 $51,167,743 $13,219,545 $10,995,621 $798,269,323
Net Assets:
Capital 117,592,789 40,504,295 9,826,161 11,051,482 798,269,323
Net unrealized appreciation (depreciation) 23,214,898 10,663,448 3,393,384 (55,861) ---
from investments
Net Assets $140,807,687 $51,167,743 $13,219,545 $10,995,621 $798,269,323
*Securities at cost $116,177,998 $40,791,606 $9,818,931 $10,992,407 $794,600,910
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 45
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
NET INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Interest $2,842,845 $351,842 $24,854 $704,138 $41,916,923
Dividends 385,119 526,542 375,953 --- ---
Total Investment Income 3,227,964 878,384 400,807 704,138 41,916,923
Expenses:
Investment advisory fees 1,058,035 435,886 126,301 50,844 2,029,468
Audit fees 9,823 9,599 10,135 8,937 15,235
Custodian fees 13,496 27,603 3,257 3,678 49,680
Trustees fees and expenses 44,320 15,022 7,382 8,213 24,375
Legal fees 1,576 10,572 1,066 1,807 5,664
Amortization of organization cost 224 --- 8,357 --- ---
Accounting fees 50,050 38,204 18,154 17,711 112,179
Insurance 1,918 373 88 285 5,759
Other expenses 7,553 10,278 9,568 1,465 9,492
Total Expenses 1,186,995 547,537 184,308 92,940 2,251,852
Investment advisory fees waived --- (4,431) --- (20,584) (901,787)
Directed brokerage payments received --- --- (2,246) --- ---
Total Net Expenses 1,186,995 543,106 182,062 72,356 1,350,065
NET INVESTMENT INCOME 2,040,969 335,278 218,745 631,782 40,566,858
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
Net realized gain from futures contracts 3,842,750 1,087,862 --- 27,219 ---
Net realized gain (loss) from investments 4,379,433 3,495,938 (364,390) 1,075,386 ---
Net change in unrealized appreciation
(depreciation) of investments 23,909,375 4,790,713 1,126,399 (591,219) ---
NET GAIN ON INVESTMENTS 32,131,558 9,374,513 762,009 511,386 ---
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $34,172,527 $9,709,791 $980,754 $1,143,168 $40,566,858
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 46
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income $2,040,969 $335,278 $218,745 $631,782 $40,566,858
Net realized gain (loss) from investments
and futures contracts 8,222,183 4,583,800 (364,390) 1,102,605 ---
Net change in unrealized appreciation
(depreciation) of investments 23,909,375 4,790,713 1,126,399 (591,219) ---
Net increase in net assets
resulting from operations 34,172,527 9,709,791 980,754 1,143,168 40,566,858
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 21,876,913 74,136,798 6,977,776 2,292,244 3,894,846,315
Withdrawals (59,774,446) (66,072,809) (5,408,703) (9,348,465)(3,724,162,497)
Net increase (decrease) in net assets resulting
from transactions of investors' beneficial
interests (37,897,533) 8,063,989 1,569,073 (7,056,221) 170,683,818
TOTAL INCREASE (DECREASE) IN NET ASSETS (3,725,006) 17,773,780 2,549,827 (5,913,053) 211,250,676
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 $140,807,687 $51,167,743 $13,219,545 $10,995,621 $798,269,323
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C> <C>
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
The Flex-funds 1998 Annual Report Page 47
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
MUTUAL FUND PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $140,808 $144,533 $135,540 $122,109 $83,185
Ratio of Expenses to Average Net Assets 0.91% 0.89% 0.87% 0.95% 1.01%
Ratio of Net Investment Income to
Average Net Assets 1.56% 2.08% 1.86% 1.26% 2.76%
Portfolio Turnover Rate 128.31% 395.42% 297.41% 186.13% 168.17%
</TABLE>
<TABLE>
GROWTH STOCK PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $51,168 $33,394 $24,414 $24,537 $22,169
Ratio of Expenses to Average Net Assets 1.25% 1.34% 1.24% 1.25% 1.23%
Ratio of Net Investment Income to
Average Net Assets 0.77% 0.83% 2.33% 3.78% 2.35%
Ratio of Expenses to Average Net Assets
before waiver of fees 1.26% 1.34% 1.24% 1.25% 1.23%
Ratio of Net Investment Income to Average
Net Assets before waiver of fees 0.76% 0.83% 2.33% 3.78% 2.35%
Portfolio Turnover Rate 79.98% 129.79% 81.66% 337.57% 102.76%
</TABLE>
<TABLE>
UTILITIES STOCK PORTFOLIO
<CAPTION>
Period
Year Ended December 31, June 21, 1995* to
1998 1997 1996 December 31, 1995
<S> <C> <C> <C> <C>
Net Assets, End of Period ($000) $13,220 $10,670 $7,964 $4,291
Ratio of Expenses to Average Net Assets 1.44% 1.60% 1.61% 2.32%(1)
Ratio of Net Investment Income to
Average Net Assets 1.73% 1.79% 2.24% 2.09%(1)
Ratio of Expenses to Average Net Assets
before directed brokerage payments 1.46% 1.65% 1.66% 2.40%(1)
Ratio of Net Investment Income to Average Net
Assets before directed brokerage payments 1.71% 1.74% 2.19% 2.01%(1)
Portfolio Turnover Rate 51.36% 41.22% 50.79% 5.06%
<FN>
(1) Annualized
* Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 48
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
BOND PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $10,996 $15,274 $17,792 $16,066 $13,008
Ratio of Expenses to Average Net Assets 0.57% 0.57% 0.61% 0.57% 0.56%
Ratio of Net Investment Income to
Average Net Assets 4.97% 5.27% 4.99% 5.82% 4.15%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.73% 0.71% 0.68% 0.71% 0.70%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 4.81% 5.13% 4.92% 5.68% 4.01%
Portfolio Turnover Rate 225.11% 375.64% 778.59% 232.34% 707.57%
</TABLE>
<TABLE>
MONEY MARKET PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $798,269 $587,019 $352,930 $256,126 $224,523
Ratio of Expenses to Average Net Assets 0.18% 0.18% 0.19% 0.21% 0.19%
Ratio of Net Investment Income to
Average Net Assets 5.39% 5.47% 5.34% 5.87% 4.28%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.30% 0.31% 0.33% 0.37% 0.39%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.27% 5.34% 5.20% 5.70% 4.08%
</TABLE>
See accompanying notes to financial statements
The Flex-funds 1998 Annual Report Page 49
<PAGE>
MUTUAL STOCK PORTFOLIO, GROWTH STOCK PORTFOLIO,
UTILITIES STOCK PORTFOLIO, BOND PORTFOLIO,
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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:
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 Annual Report Page 50
<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.
Deferred Trustee Compensation
Under a Deferred Compensation Plan (the "Plan") non-interested Trustees may
elect to defer receipt of a portion of their annual compensation. Under the
Plan, deferred amounts are invested in the shares of the Flex-funds and
Flex-Partners Funds. Deferred amounts remain in the Portfolios until distributed
in accordance with the Plan.
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.
The Flex-funds 1998 Annual Report Page 51
<PAGE>
During the year ended December 31, 1998 the Portfolios had the following
activity in futures contracts and written option contracts:
Long futures contracts Number of contracts Notional amount
- ---------------------- ------------------- ---------------
Mutual Fund Portfolio:
Outstanding, beginning of year 110 $25,064,900
Contracts opened 1,282 132,898,050
Contracts closed (1,372) (151,688,950)
Outstanding, end of period 20 6,274,000
Growth Stock Portfolio:
Outstanding, beginning of year 7 $1,711,037
Contracts opened 321 82,010,900
Contracts closed (321) (81,666,062)
Outstanding, end of period 7 2,055,875
Bond Portfolio:
Outstanding, beginning of year 0 $0
Contracts opened 90 10,320,938
Contracts closed (90) (10,320,938)
Outstanding, end of period 0 0
Letter of Credit
Each Portfolio has pledged as collateral a U.S. Government Security, cash or
other high-grade debt security solely for the benefit of ICI Mutual Insurance
Co. for the Portfolios' fidelity bond coverage.
Income Taxes
The Prtfolios will be treated as a partnership for Federal income tax purposes.
As such, each investor in the Portfolios will be subject to taxation on its
share of the Portfolios' ordinary income and capital gains. 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, Utility
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.
The Flex-funds 1998 Annual Report Page 52
<PAGE>
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 year ended December 31, 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.
4. SECURITIES TRANSACTIONS
For the year ended December 31, 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 $199,485,528 $145,269,691
Growth Stock Portfolio 37,169,893 29,958,979
Utilities Stock Portfolio 7,985,042 6,219,080
Bond Portfolio 23,126,049 28,533,409
As of December 31, 1998, the aggregate cost basis of investments and unrealized
appreciation (depreciation) for Federal income tax was as follows:
Net unrealized
Cost basis of Unrealized Unrealized appreciation
Portfolio investments appreciation depreciation (depreciation)
- --------- ----------- ------------ ------------ --------------
Mutual Fund Portfolio $116,197,093 $23,275,127 ($79,324) $23,195,803
Growth Stock Portfolio 40,817,038 11,886,639 (1,248,623) 10,638,016
Utilities Stock Portfolio 9,818,931 3,663,864 (270,480) 3,393,384
Bond Portfolio 10,996,767 0 (60,221) (60,221)
Money Market Portfolio 794,600,910 --- --- ---
The Flex-funds 1998 Annual Report Page 53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio:
We have audited the accompanying statements of assets and liabilities of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio (Portfolios), including the portfolios of
investments, as of December 31, 1998, and the related statements of operations,
statements of changes in net assets and the financial highlights for each of the
periods indicated herein. These financial statements and the financial
highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1998, by confirmation with the custodian and brokers and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio at December 31, 1998, the results of their
operations, the changes in their net assets and the financial highlights for
each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
February 19, 1999
The Flex-funds 1998 Annual Report Page 54
<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
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 LLP
Columbus, Ohio 43215
The Flex-funds 1998 Annual Report Page 55
<PAGE>
THE FLEX-FUNDS
P.O. Box 7177
Dublin, Ohio 43017
