Rule 497(e) and (g)
File Nos.: 002-85378
811-3462
SUPPLEMENT DATED DECEMBER 1, 2000
TO PROSPECTUS DATED APRIL 30, 2000
The accompanying Prospectus of The Flex-funds dated April 30, 2000 (the
"Prospectus") lists Delta Capital Management Inc. ("Delta Capital") as Sector
Adviser to the finance sector of the Growth Stock Portfolio (the "Portfolio), in
which all of the investable assets of The Highlands Growth Fund are invested.
Effective December 1, 2000, Sector Capital Management, L.L.C. has selected,
with the approval of the Portfolio Trustees, Matrix Asset Advisors, Inc.
("Matrix") as Sector Adviser to manage the assets of the Portfolio representing
the finance sector. Accordingly, the paragraph headed "Delta Capital Management
Inc." on page 44 of the Prospectus is deleted in its entirety and replaced by
the following paragraph:
"MATRIX ASSET ADVISORS, INC. serves as sector adviser to the financial
sector of the Growth Stock Portfolio. Matrix is a registered investment
adviser that has provided investment management services to individuals,
pension and profit sharing plans, trusts, charitable organizations and
corporations since 1986. As of October 31, 2000, the firm managed
approximately $665 million in assets. David A. Katz is the portfolio
manager primarily responsible for the day to day management of those assets
of the Growth Stock Portfolio allocated to Matrix. Mr. Katz, a co-founder
of Matrix, is the President of the firm and has served as its Chief
Investment Officer since the firm's inception. Matrix's executive offices
are located at 747 3rd Avenue, 31st Floor, New York, New York 10017."
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THE HIGHLANDS GROWTH FUND
A FUND OF THE FLEX-FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
December 1, 2000
This Statement is not a prospectus but should be read in conjunction with the
Trust's current Prospectus (dated April 30, 2000). Please retain this document
for future reference. To obtain an additional copy of the Prospectus, please
call Mutual Funds Service Co. at 1-800-325-3539. Capitalized terms used and not
otherwise defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS PAGE
Description of the Trust 2
Investment Policies and Limitations 5
Portfolio Transactions 16
Valuation of Portfolio Securities 18
Performance 19
Additional Purchase and Redemption Information 22
Distributions and Taxes 23
Investment Adviser and Manager 24
Investment Subadviser 27
Investment Sub-subadvisers 28
Distribution Plan 32
Trustees and Officers 34
Flex-funds Retirement Plans 38
Contracts With Companies Affiliated With Manager 43
Additional Information 43
Principal Holders of Outstanding Shares 44
Financial Statements 44
INVESTMENT ADVISER TRANSFER AGENT
Meeder Asset Management, Inc. Mutual Funds Service Co.
INVESTMENT SUBADVISER
Sector Capital Management, L.L.C.
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DESCRIPTION OF THE TRUST
BACKGROUND. The Trust was organized as a Massachusetts business trust on
December 31, 1991 as the successor to a Pennsylvania business trust organized on
April 30, 1982. Each of its seven constituent funds is a diversified open-end
management company. The business and affairs of the Trust are under the
direction of its Board of Trustees.
From January 1, 1997 to April 29, 1997, The Highlands Growth Fund was known
as The Highlander Fund, and prior to January 1, 1997, The Highlands Growth Fund
was known as The Growth Fund.
The Trust has no investment adviser because the Trust seeks to achieve the
investment objective of each Fund by investing each Fund's assets in the
corresponding Portfolio. Each Portfolio has retained the services of Meeder
Asset Management, Inc., formerly known as R. Meeder & Associates, Inc., as
investment adviser.
INVESTMENT STRUCTURE. Unlike other mutual funds which directly acquire and
manage their own portfolio of securities, The Highlands Growth Fund seeks to
achieve its investment objectives by investing all of its assets in the Growth
Stock Portfolio, a separate registered investment company with the same
investment objectives as the Fund. Therefore, an investor's interest in the
Portfolio's securities is indirect. In addition to selling a beneficial interest
to the Fund, the Portfolio may sell beneficial interests to other mutual funds
or institutional investors. Such investors will invest in the Portfolio on the
same terms and conditions and will pay a proportionate share of the Portfolio's
expenses. However, the other investors investing in the Portfolio are not
required to sell their shares at the same public offering price as the Fund.
Investors in the Fund should be aware that these differences may result in
differences in returns experienced by investors in the different funds that
invest in the Portfolio. Such differences in returns are also present in other
mutual fund structures. Information concerning other holders of interests in the
Portfolio is available by contacting the Trust by calling: 1-800-325-3539, or
(614) 760-2159.
The Growth Stock Portfolio is organized as a trust under the laws of the
State of New York. The Portfolio's Declaration of Trust provides that the Fund
and other entities investing in the Portfolio (e.g., other investment companies,
insurance company separate accounts, and common and commingled trust funds) will
each be liable for all obligations of the Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund's investing in the Portfolio. In addition,
whenever the Trust is requested to vote on matters pertaining to the fundamental
policies of the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast its vote as instructed by the Fund's shareholders.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
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withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility also exists for traditionally structured funds that have large or
institutional investors.) Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes in the same proportion as do the Fund's shareholders.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Trust to withdraw the Fund's interest in the
Portfolio. Any such withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
such securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund.
The Trust may withdraw the investment of any Fund from its corresponding
Portfolio at any time, if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so. Upon any such withdrawal, the
Board of Trustees would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objectives as that Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies with respect to that Fund's corresponding Portfolio. The inability to
find an adequate investment pool or investment adviser could have a significant
impact on shareholders' investment in the Fund.
The assets of the Trust received for the issue or sale of the shares of the
Fund and all income, earnings, profits, and proceeds thereof, subject only to
the rights of creditors, are especially allocated to the Fund and constitute the
underlying assets of the Fund. The underlying assets of the Fund are segregated
on the books of account, and are to be charged with the liabilities with respect
to the Fund and with a share of the general expenses of the Trust. Expenses with
respect to the Trust are to be allocated in proportion to the asset value of the
respective funds except where allocations of direct expense can otherwise be
fairly made. The officers of the Trust, subject to the general supervision of
the Board of Trustees, have the power to determine which expenses are allocable
to a given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the Trust, shareholders of each fund
are entitled to receive as a class the underlying assets of such fund available
for distribution.
As stated in "Investment Policies and Limitations," except as otherwise
expressly provided herein, the Fund's investment objectives and policies are not
fundamental and may be changed by Trustees without shareholder approval. (No
such change would be made, however, without 30 days' written notice to
shareholders.)
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For descriptions of the investment objectives and policies of the
Portfolio, see "Investment Policies and Limitations." For descriptions of the
management and expenses of the Portfolios, see "Investment Adviser and Manager"
and "Officers and Trustees."
SHARES OF BENEFICIAL INTEREST. The Trust's Declaration of Trust permits the
Trust to offer and sell an unlimited number of full and fractional shares of
beneficial interest in each of the Trust's existing funds and to create
additional funds. All shares have a par value of $.10 per share, are fully paid,
non-assessable and fully transferable when issued. All shares are issued as full
or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
Each fund of the Trust will issue its own series of shares of beneficial
interest. The shares of each fund represent an interest only in that fund's
assets (and profits or losses) and in the event of liquidation, each share of a
particular fund would have the same rights to dividends and assets as every
other share of that fund.
Each full or fractional share has a proportionate vote. On some issues,
such as the election of Trustees, all shares of the Trust vote together as one
series. On an issue affecting a particular fund, only its shares vote as a
separate series. An example of such an issue would be a fundamental investment
restriction pertaining to only one fund. In voting on a Distribution Plan,
approval of the Plan by the shareholders of a particular fund would make the
Plan effective as to that fund, whether or not it had been approved by the
shareholders of the other Funds.
Shares are fully paid and nonassessable. The Trust or any fund may be
terminated upon the sale of its assets to another open-end management investment
company, if approved by vote of the holders of a majority of the Trust or the
fund, as determined by the current value of each shareholder's investment in the
fund or Trust, or upon liquidation and distribution of its assets, if approved
by a majority of the Trustees of the Trust. If not so terminated, the Trust and
the fund will continue indefinitely.
TRUSTEE LIABILITY. The Declaration of Trust provides that the Trustees, if
they have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees against
any liability to which they would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of their office.
VOTING RIGHTS. When matters are submitted for shareholder vote,
shareholders of each fund will have one vote for each full share held and
proportionate, fractional votes for fractional shares held. A separate vote of a
fund is required on any matter affecting the fund on which shareholders are
entitled to vote. Shareholders of one fund are not entitled to vote on a matter
that does not affect that fund but that does require a separate vote of any
other fund. There normally will be no meetings of shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Any Trustee may be removed from office upon the vote of shareholders
holding at least two-thirds of the Trust's outstanding shares at a meeting
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called for that purpose. The Trustees are required to call such a meeting upon
the written request of shareholders holding at least 10% of the Trust's
outstanding shares. Shareholders have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees of a
fund by a specified number of shareholders) the right to communicate with other
shareholders in connection with requesting a meeting of shareholders for the
purpose of removing one or more Trustees.
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940) of the Fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Trustees without shareholder approval. THE FOLLOWING ARE
THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY;
PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS WILL PREVENT THE
FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN OPEN-END MANAGEMENT
INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND OR
THE PORTFOLIO MAY NOT:
(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
government of the United States, or any of its agencies or instrumentalities)
if, as a result thereof, (a) more than 5% of the Portfolio's total assets would
be invested in the securities of such issuer, or (b) the Fund would hold more
than 10% of the voting securities of such issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 5% of its total assets including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the extent
necessary to comply with the 5% limitation;
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(4) underwrite securities issued by others (except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, 25% or more of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business); or
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Portfolio from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities).
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Portfolio does not currently intend to engage in short sales, but
may engage in short sales "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
(ii) The Portfolio does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
(iii) The Portfolio may borrow money only from a bank. The Portfolio will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(iv) The Portfolio does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued, including repurchase agreements with remaining maturities in excess of
seven days or securities without readily available market quotes.
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(v) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.
(vi) The Portfolio does not currently intend to purchase securities of
other investment companies. This limitation does not apply to securities
received as dividends, through offers of exchange, or as a result of
reorganization, consolidation, or merger.
(vii) The Portfolio does not currently intend to purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. Government or
political subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of continuous
operation.
(viii) The Portfolio does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, may
be warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.
(ix) The Portfolio does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(x) The Portfolio does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the Trust and those officers and
directors of the Manager, the Subadviser, or the Sector Advisers who
individually own more than 1/2 of 1% of the securities of such issuer, together
own more than 5% of such issuer's securities.
For the Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions." For the
Portfolio's limitations on short sales, see the section entitled "Short Sales."
MONEY MARKET INSTRUMENTS
When investing in money market instruments, the Portfolio will limit its
purchases, denominated in U.S. dollars, to the following securities.
U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal or interest
by the United States or its agencies (such as the Export Import Bank of the
United States, Federal Housing Administration, and Government National Mortgage
Association) or its instrumentalities (such as the Federal Home Loan Bank,
Federal Intermediate Credit Banks and Federal Land Bank), including Treasury
bills, notes and bonds.
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Bank Obligations and Instruments Secured Thereby - obligations (including
certificates of deposit, time deposits and bankers' acceptances) of domestic
banks having total assets of $1,000,000,000 or more, instruments secured by such
obligations and obligations of foreign branches of such banks, if the domestic
parent bank is unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may also
invest in obligations (including certificates of deposit and bankers'
acceptances) of domestic branches of foreign banks having assets of
$1,000,000,000 or more, if the domestic branch is subject to the same regulation
as United States banks. The Portfolio will not invest at time of purchase more
than 25% of its assets in obligations of banks, nor will the Portfolio invest
more than 10% of its assets in time deposits.
High Quality Commercial Paper - The Portfolio may invest in commercial
paper rated no lower than "A-2" by Standard & Poor's Corporation or "Prime-2" by
Moody's Investors Services, Inc., or, if not rated, issued by a company having
an outstanding debt issue rated at least A by Standard & Poor's or Moody's.
Private Placement Commercial Paper - Private placement commercial paper
consists of unregistered securities which are traded in public markets to
qualified institutional investors, such as the Portfolio. The Portfolio's risk
is that the universe of potential buyers for the securities, should the
Portfolio desire to liquidate a position, is limited to qualified dealers and
institutions, and therefore such securities could have the effect of being
illiquid.
High Grade Corporate Obligations - obligations rated at least A by Standard
& Poor's or Moody's. See rating information below.
Repurchase Agreements - See "Repurchase Agreements" below.
The Manager exercises due care in the selection of money market
instruments. However, there is a risk that the issuers of the securities may not
be able to meet their obligations to pay interest or principal when due. There
is also a risk that some of the Portfolio's securities might have to be
liquidated prior to maturity at a price less than original amortized cost or
value, face amount or maturity value to meet larger than expected redemptions.
Any of these risks, if encountered, could cause a reduction in net income or in
the net asset value of the Portfolio.
RATINGS
1. Moody's Investors Services, Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
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Aa - Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA - Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the adverse
effect of changes in economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in their market
behavior but, to some extent, also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
3. Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
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quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is A-1, A-2, or
A-3.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
4. Description of Permitted Money Market Investments:
Commercial Paper - refers to promissory notes issued by corporations in
order to finance their short term credit needs.
U.S. Government Obligations - are bills, certificates of indebtedness notes
and bonds issued by the U.S. Treasury and agencies, authorities and
instrumentalities of the U.S. Government established under the authority of an
act of Congress. Some obligations of U.S. Government agencies, authorities and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, as for example, the Government National Mortgage Association; others
by the right of the issuer to borrow from the Treasury, as in the case of
Federal Farm Credit Banks and Federal National Mortgage Association; and others
only by the credit of the agency, authority or instrumentality; as for example,
Federal Home Loan Mortgage and Federal Home Loan Bank.
Repurchase Agreements - See "Repurchase Agreements" below.
Certificates of Deposit - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified or variable rate
of return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
Corporate Obligations - include bonds and notes issued by corporations in
order to finance longer term credit needs.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Trustees, the Manager, Subadviser
and/or Sector Advisers determine the liquidity of the Portfolio's investments
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and, through reports from the Manager, Subadviser and/or Sector Advisers, the
Board monitors investments in illiquid instruments. In determining the liquidity
of the Portfolio's investments, the Manager, Subadviser and Sector Advisers may
consider various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, over-the-counter
options, and non-government stripped fixed-rate mortgage-backed securities.
Also, the Manager, Subadviser and/or Sector Advisers may determine some
restricted securities to be illiquid. However, with respect to over-the-counter
options the Portfolio writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the Portfolio may have to close out the
option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets, or other circumstances, the
Portfolio were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Portfolio may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. The Portfolio may engage in repurchase
agreements with respect to any security in which it is authorized to invest.
While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to the Portfolio
in connection with bankruptcy proceedings), it is the Portfolio's current policy
to limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Manager.
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HEDGING STRATEGIES. The Portfolio may engage in hedging transactions in
carrying out its investment policies. A hedging program may be implemented for
the following reasons: (1) to protect the value of specific securities owned or
intended to be purchased while the Investment Adviser is implementing a change
in the Portfolio's investment position; (2) to protect portfolio values during
periods of extraordinary risk without incurring transaction costs associated
with buying or selling actual securities; and (3) to utilize the "designated
hedge" provisions of Sub-Chapter M of the Internal Revenue Code as a permitted
means of avoiding taxes that would otherwise have to be paid on gains from the
sale of portfolio securities.
A hedging program involves entering into an "option" or "futures"
transaction in lieu of the actual purchase or sale of securities. At present,
many groups of common stocks (stock market indices) may be made the subject of
futures contracts, while government securities such as Treasury Bonds and Notes
are among debt securities currently covered by futures contracts.
Financial futures contracts or related options used by the Portfolio to
implement its hedging strategies are considered derivatives. The value of
derivatives can be affected significantly by even small market movements,
sometimes in unpredictable ways.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) write call options if, as a result, more than 25% of the Portfolio's total
assets would be hedged with options under normal conditions; or (b) purchase
futures contracts if, as a result, the Portfolio's total obligations upon
settlement or exercise of purchased futures contracts would exceed 25% of its
total assets. These limitations do not apply to options attached to or acquired
or traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options.
For certain regulatory purposes, the Commodity Futures Trading Commission
("CFTC") limits the types of futures positions that can be taken in conjunction
with the management of a securities portfolio for mutual funds, such as The
Flex-funds. All futures transactions for the Portfolio will consequently be
subject to the restrictions on the use of futures contracts established in CFTC
rules, such as observation of the CFTC's definition of "hedging." In addition,
whenever the Portfolio establishes a long futures position, it will set aside
cash or cash equivalents equal to the underlying commodity value of the long
futures contracts held by the Portfolio. Although all futures contracts involve
leverage by virtue of the margin system applicable to trading on futures
exchanges, the Portfolio will not, on a net basis, have leverage exposure on any
long futures contracts that it establishes because of the cash set aside
requirement. All futures transactions can produce a gain or a loss when they are
closed, regardless of the purpose for which they have been established. Unlike
short futures contracts positions established to protect against the risk of a
decline in value of existing securities holdings, the long futures positions
established by the Portfolio to protect against reinvestment risk are intended
to protect the Portfolio against the risks of reinvesting portfolio assets that
arise during periods when the assets are not fully invested in securities.
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The Portfolio may not purchase or sell financial futures or purchase
related options if immediately thereafter the sum of the amount of margin
deposits on the Portfolio's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Portfolio's total
assets.
The above limitations on the Portfolio's investments in futures contracts
and options, and the Portfolio's policies regarding futures contracts and
options discussed elsewhere in this Statement of Additional Information, may be
changed as regulatory agencies permit.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When the Portfolio sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract.
Some currently available futures contracts are based on indices of
securities-prices, such as the Standard & Poor's 500 Composite Stock Price Index
(S&P 500). Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant (FCM), when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value.
If the value of either party's position declines, that party will be
required to make additional "variation margin" payments to settle the change in
value on a daily basis. The party that has a gain may be entitled to receive all
or a portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Portfolio's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
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WRITING CALL OPTIONS. Writing a call option obligates the Portfolio to sell
or deliver the option's underlying instrument, in return for the strike price,
upon exercise of the option. The characteristics of writing call options are
similar to those of writing put options, except that writing calls generally is
a profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange traded options and futures contracts, it is likely that the
standardized contracts available will not match the Portfolio's current or
anticipated investments exactly. The Portfolio may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts.
The Portfolio may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Portfolio's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolio to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Portfolio to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.
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ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Portfolio will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
SHORT SALES. The Portfolio may enter into short sales "against the box"
with respect to equity securities it holds. For example, if a Sector Adviser
anticipates a decline in the price of a stock the Portfolio holds, it may sell
the stock short "against the box." If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of the
stock's decline. The Portfolio currently intends to hedge no more than 15% of
its total assets with short sales "against the box" on equity securities under
normal circumstances.
When the Portfolio enters into a short sale "against the box", it will be
required to own or have the right to obtain at no added cost securities
identical to those sold short "against the box" and will be required to continue
to hold them while the short sale "against the box" is outstanding. The
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
PORTFOLIO TURNOVER.
Decisions to buy and sell securities are made by the Sector Advisers for
the assets assigned to them, and by the Manager and Sector Capital for assets
not assigned to a Sector Adviser. Currently, each portfolio representing an
industry sector has one Sector Adviser. The Manager invests the Growth Stock
Portfolio's liquidity reserves and the Manager or Sector Capital may invest the
Growth Stock Portfolio's assets in financial futures contracts and related
options. Each Sector Adviser makes decisions to buy or sell securities
independently from other Sector Advisers. In addition, when a Sector Adviser's
services are terminated and another retained, the new Sector Adviser may
significantly restructure the Growth Stock Portfolio's assets assigned to it.
These practices may increase the Growth Stock Portfolio's portfolio turnover
rates, realization of gains or losses, and brokerage commissions. The portfolio
turnover rates for the Growth Stock Portfolio may vary greatly from year to year
as well as within a year and may be affected by sales of investments necessary
to meet cash requirements for redemptions of shares. A high rate of turnover
involves correspondingly greater expenses, increased brokerage commissions and
other transaction costs, which must be borne by the Growth Stock Portfolio and
its investors. In addition, high portfolio turnover may result in increased
short-term capital gains, which, when distributed to shareholders, are treated
as ordinary income.
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The Portfolio's portfolio turnover rate for the fiscal year ended December
31, 1999 was 51% (80% in 1998).
Major changes in the portfolio have resulted in portfolio turnover rates of
as much as 338%, which is greater than that of most other investment companies,
including many which emphasize capital appreciation as a basic policy. The
policies of the Growth Stock Portfolio may be expected to result in
correspondingly heavier brokerage commissions and taxes, which ultimately must
be borne by the Trust's shareholders.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Portfolio by the Manager, Subadviser or Sector Advisers pursuant
to authority contained in the investment advisory agreement, investment
subadvisory agreement and investment sub-subadvisory agreements. The Manager,
Subadviser and Sector Advisers are also responsible for the placement of
transaction orders for accounts for which they or their affiliates act as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, the Manager, Subadviser and Sector
Advisers consider various relevant factors, including, but not limited to, the
size and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions, and arrangements for payment of Portfolio
expenses.
The Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolio or other accounts over
which the Manager, Subadviser or Sector Advisers or their affiliates exercise
investment discretion. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or the purchasers or sellers of securities;
furnishing analyses and reports concerning issuers industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). The selection of such broker-dealers
generally is made by the Manager, Subadviser and Sector Advisers (to the extent
possible consistent with execution considerations) in accordance with a ranking
of broker-dealers determined periodically by the Manager, Subadviser and Sector
Advisers' investment staffs based upon the quality of research and execution
services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the Portfolio may be useful to the Manager, Subadviser and Sector
Advisers in rendering investment management services to the Portfolio or their
other clients, and conversely, such research provided by broker-dealers who have
executed transaction orders on behalf of other Manager, Subadviser and Sector
Advisers' clients may be useful to the Manger, Subadviser and Sector Advisers in
carrying out their obligations to the Portfolio. The receipt of such research is
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not expected to reduce the Manager, Subadviser and Sector Advisers' normal
independent research activities; however, it enables the Manager, Subadviser and
Sector Advisers to avoid the additional expenses that could be incurred if the
Manager, Subadviser and Sector Advisers tried to develop comparable information
through their own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Portfolio to pay such higher commissions, the Manager, Subadviser and/or Sector
Advisers must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided by such
executing broker-dealers viewed in terms of a particular transaction or the
Manager, Subadviser and/or Sector Advisers' overall responsibilities to the
Portfolio and their other clients. In reaching this determination, the Manager,
Subadviser and/or Sector Advisers will not attempt to place a specific dollar
value on the brokerage and research services provided or to determine what
portion of the compensation should be related to those services.
The Manager, Subadviser and Sector Advisers are authorized to use research
services provided by and to place portfolio transactions with brokerage firms
that have provided assistance in the distribution of shares of the Fund or
shares of other Flex-funds funds or Meeder Advisor Funds to the extent permitted
by law.
The Manager, Subadviser and Sector Advisers may allocate brokerage
transactions to broker-dealers who have entered into arrangements with the
Manager, Subadviser and Sector Advisers under which the broker-dealer allocates
a portion of the commissions paid by the Portfolio toward payment of the
Portfolio or the Fund's expenses, such as transfer agent fees of Mutual Funds
Service Co. or custodian fees. The transaction quality must, however, be
comparable to those of other qualified broker-dealers.
The Trustees of the Portfolio periodically review the Manager, Subadviser
and Sector Advisers' performance of their responsibilities in connection with
the placement of portfolio transactions on behalf of the Portfolio and review
the commissions paid by the Portfolio over representative periods of time to
determine if they are reasonable in relation to the benefits to the Portfolio.
From time to time, the Trustees of the Portfolio will review whether the
recapture for the benefit of the Portfolio of some portion of the brokerage
commissions or similar fees paid by the Portfolio on portfolio transactions is
legally permissible and advisable.
The Portfolio seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Trustees of the Portfolio intend to continue to review
whether recapture opportunities are available and are legally permissible and,
if so, to determine in the exercise of their business judgment, whether it would
be advisable for the Portfolio to seek such recapture.
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Although the Trustees and officers of the Portfolio are substantially the
same as those of other portfolios managed by the Manager, investment decisions
for the Portfolio are made independently from those of other portfolios managed
by the Manager or accounts managed by affiliates of the Manager. It sometimes
happens that the same security is held in the portfolio of more than one of
these funds or accounts. Simultaneous transactions are inevitable when several
portfolios are managed by the same investment adviser, particularly when the
same security is suitable for the investment objective of more than one
portfolio.
When two or more portfolios are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the portfolios involved to be
equitable to each portfolio. In some cases this system could have a detrimental
effect on the price or value of the security as far as the Portfolio is
concerned. In other cases, however, the ability of the Portfolio to participate
in volume transactions will produce better executions and prices for the
Portfolio. It is the current opinion of the Trustees of the Portfolio that the
desirability of retaining the Manager as investment adviser to the Portfolio
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions. During the period from January 1, 1999 to December
31, 1999, the Growth Stock Portfolio paid total commissions of $67,629 ($78,411
in 1998; $100,888 in 1997) on the purchase and sale of securities, of which
$7,520 in commissions were paid on the purchase and sale of futures and options
contracts.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Equity securities for which the primary
market is the U.S. are valued at last sale price or, if no sale has occurred, at
the closing bid price. Short-term securities less than 60 days to maturity are
valued either at amortized cost or at original cost plus accrued interest, both
of which approximate current value. Fixed-income securities are valued primarily
by a pricing service that uses a vendor security valuation matrix which
incorporates both dealer-supplied valuations and electronic data processing
techniques.
This twofold approach is believed to more accurately reflect fair value
because it takes into account appropriate factors such as institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data without exclusive reliance
upon quoted, exchange, or over-the-counter prices.
Securities and other assets for which there is no readily available market
are valued in good faith by the Board of Trustees. The procedures set forth
above need not be used to determine the value of the securities owned by the
Portfolio if, in the opinion of the Board of Trustees, some other method (e.g.,
closing over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
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Generally, the valuation of equity securities, as well as corporate bonds,
U.S. government securities, money market instruments, and repurchase agreements,
is substantially completed each day at the close of the New York Stock Exchange
(NYSE).
The values of any such securities held by the Portfolio are determined as
of such time for the purpose of computing the Portfolio's net asset value. If an
extraordinary event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange on which that security
is traded, then the security will be valued as determined in good faith by the
Board of Trustees.
PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the Fund's net asset value over
the period. Average annual returns will be calculated by determining the growth
or decline in value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period while average annual returns are a convenient
means of comparing investment alternatives, investors should realize that the
Fund's performance is not constant over time, but changes from year to year, and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Total return is computed by finding the average annual compounded rates of
return over the length of the base periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1+T)n = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
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THE HIGHLANDS GROWTH FUND:
Period and Average Annual Total Returns
1 Year 5 Years 10 Years
Period Ended Period Ended Period Ended
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
Value of Account
At end of Period $1,211.60 $2,633.64 $3,776.08
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
---------- --------- ---------
Base Period Return $ 211.60 $1,633.64 $2,776.08
Average Total Return 21.16% 21.37% 14.21%
Values were computed according to the following formulas:
1 Year: $1,000 (1 + .2116) = $1,211.60
5 Years: $1,000 (1 + .2137)5 = $2,633.64
10 Years: $1,000 (1 + .1421)10 = $3,776.08
The Total Return performance data in this hypothetical example represents past
performance and 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.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis. Total
returns, yields, and other performance information may be quoted numerically, or
in a table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted net asset value includes any distributions paid by the
Fund and reflects all elements of its return. Unless otherwise indicated, the
Fund's adjusted net asset values are not adjusted for sales charges, if any.
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MOVING AVERAGES. The Fund may illustrate performance using moving averages.
A long-term moving average is the average of each week's adjusted closing net
asset value for a specified period. A short-term moving average is the average
of each day's adjusted closing net asset value for a specified period. Moving
Average Activity Indicators combine adjusted closing net asset values from the
last business day of each week with moving averages for a specified period to
produce indicators showing when a net asset value has crossed, stayed above, or
stayed below its moving average.
HISTORICAL FUND RESULTS. The Fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as mutual
fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the performance
of mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and total return is prepared without regard
to tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.
From time to time, the Fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of
Meeder Advisor Funds or Flex-funds funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
In advertising materials, the Trust may reference or discuss its products
and services, which may include: other Meeder Advisor Funds or Flex-funds funds;
retirement investing; the effects of periodic investment plans and dollar; cost
averaging; saving for college; and charitable giving. In addition, the Fund may
quote financial or business publications and periodicals, including model
portfolios or allocations, as they relate to Fund management, investment
philosophy, and investment techniques. The Fund may also reprint, and use as
advertising and sales literature, articles from Reflexions, a quarterly magazine
provided free of charge to Meeder Advisor Funds and Flex-funds shareholders.
VOLATILITY. The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. All measures of volatility and correlation are calculated using averages of
historical data.
MOMENTUM INDICATORS indicate the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period.
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The Fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
The Fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a 31%
rate. An equivalent tax deferred investment would have an after tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is
calculated each day the NYSE is open for trading. The NYSE has designated the
following holiday closings for 2000: New Year's Day, Martin Luther King Day
(observed), Washington's Birthday (observed), Good Friday, Memorial Day
(observed), Independence Day (observed), Labor Day, Thanksgiving Day, and
Christmas Day (observed). Although the Manager expects the same holiday schedule
to be observed in the future, the NYSE may modify its holiday schedule at any
time.
The Fund's net asset value is determined as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if
trading on the NYSE is restricted or as permitted by the SEC. To the extent that
portfolio securities are traded in other markets on days when the NYSE is
closed, the Fund's NAV may be affected on days when investors do not have access
to the Fund to purchase or redeem shares.
Shareholders of the Fund will be able to exchange their shares for shares
of any mutual fund that is a series of The Flex-funds (each a "Flex-funds'
Fund"). No fee or sales load will be imposed upon the exchange.
Additional details about the exchange privilege and prospectuses for each
of The Flex-funds' funds are available from the Fund's Transfer Agent. The
exchange privilege may be modified, terminated or suspended on 60 days' notice
and the Fund has the right to reject any exchange application relating to such
Fund's shares. The 60 day notification requirement may be waived if (i) the only
effect of a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of an
exchange, or (ii) the Fund suspends the redemption of the shares to be exchanged
as permitted under the 1940 Act or the rules and regulations thereunder, or the
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Fund to be acquired suspends the sale of its shares because it is unable to
invest amounts effectively in accordance with its investment objective and
policies.
In the Prospectus, the Fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by any
person or group if, in the Manager's judgment, the Fund would be unable to
invest effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
Any redemptions in kind made by the Fund will be of readily marketable
securities.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount
of $100 or more automatically invested in shares of the Fund monthly by
authorizing his or her bank account to be debited to invest specified dollar
amounts in shares of the Fund. The investor's bank must be a member of the
Automatic Clearing House System.
Further information about these programs and an application form can be
obtained from the Fund's Transfer Agent.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available
for shareholders having shares of the Fund with a minimum value of $10,000,
based upon the offering price. The plan provides for monthly, quarterly or
annual checks in any amount, but not less than $100 (which amount is not
necessarily recommended).
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. The Transfer Agent
acts as agent for the shareholder in redeeming sufficient full and fractional
shares to provide the amount of the periodic withdrawal payment. The plan may be
terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, the Manager, Subadviser and Sector Advisers may
reinvest your distributions at the then-current NAV. All subsequent
distributions will then be reinvested until you provide the Manager with
alternate instructions.
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DIVIDENDS. A portion of the Fund's dividends derived from certain U.S.
government obligations may be exempt from state and local taxation. The Fund
will send each shareholder a notice in January describing the tax status of
dividends and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the Fund on
the sale of securities by the Portfolio and distributed to shareholders of the
Fund are federally taxable as long-term capital gains regardless of the length
of time shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Fund and such shares are
held six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
TAX STATUS OF THE FUND. The Trust files federal income tax returns for the
Fund. The Fund is treated as a separate entity from the other funds of The
Flex-funds Trust for federal income tax purposes.
The Fund intends to qualify each year as a "regulated investment company"
for tax purposes so that it will not be liable for federal tax on income and
capital gains distributed to shareholders. In order to qualify as a "regulated
investment company" and avoid being subject to federal income or excise taxes at
the Fund level, the Fund intends to distribute substantially all of its net
investment income (consisting of the income it earns from its investment in the
Portfolio, less expenses) and net realized capital gains within each calendar
year, as well as on a fiscal year basis. The Fund intends to comply with other
tax rules applicable to regulated investment companies. The Fund might deviate
from this policy, and incur a tax liability, if this were necessary to fully
protect shareholder values. The Trust qualified as a "regulated investment
company" for each of the last fifteen fiscal years.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Fund and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
Fund distributions.
Investors should consult their tax advisers to determine whether the Fund
is suitable to their particular tax situation.
INVESTMENT ADVISER AND MANAGER
Meeder Asset Management, Inc. (the "Manager"), formerly known as R. Meeder
& Associates, Inc., is the investment adviser and manager for, and has an
Investment Advisory Contract with, the Portfolio.
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Pursuant to the Investment Advisory Contract with the Portfolio, the
Manager, subject to the supervision of the Portfolio's Board of Trustees and in
conformity with the stated objective and policies of the Portfolio, has general
oversight responsibility for the investment operations of the Portfolio. In
connection therewith, the Manager is obligated to keep certain books and records
of the Portfolio. The Manager also administers the Fund's corporate affairs, and
in connection therewith, furnishes the Fund with office facilities, together
with those ordinary clerical and bookkeeping services which are not being
furnished by Star Bank, N.A., the Portfolio's custodian and Mutual Funds Service
Co., the Fund's transfer and disbursing agent. The management services of the
Manager are not exclusive under the terms of the Investment Advisory Contract
and the Manager is free to, and does, render management services for others.
The Manager invests the Portfolio's liquidity reserves and may invest the
Portfolio's assets in financial futures contracts and related options.
The Investment Advisory Contract for the Portfolio was separately approved
by a vote of a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940) of the Portfolio. The Investment Advisory Contract is to remain in force
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days prior written notice by Majority Vote of the
Portfolio, by the Trustees of the Portfolio, or by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities that are not
readily attributable to a particular fund are allocated among all of the Trust's
funds. Thus, each fund pays its proportionate share of: the fees of the Trust's
independent auditors, legal counsel, custodian, transfer agent and accountants;
insurance premiums; the fees and expenses of Trustees who do not receive
compensation from Meeder Asset Management, Inc., Sector Capital Management,
L.L.C. or any of the Sector Advisers; association dues; the cost of printing and
mailing confirmations, prospectuses proxies, proxy statements, notices and
reports to existing shareholders; state registration fees; distribution expenses
within the percentage limitations of the Fund's distribution and service plan,
including the cost of printing and mailing of prospectuses and other materials
incident to soliciting new accounts; and other miscellaneous expenses.
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The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Manager, Subadviser or Sector Advisers; registration
fees; membership dues allocable to the Portfolio; fees and expenses of
independent accountants, and any transfer agent or accountant of the Portfolio;
insurance premiums and other miscellaneous expenses.
Expenses of the Portfolio also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions, fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager, Subadviser and Sector Advisers under the investment
advisory contracts and other miscellaneous expenses.
The Board of Trustees of the Trust believe that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if it retained the services of an
investment adviser and the assets of the Fund were invested directly in the type
of securities being held by the Portfolio.
The Manager earns an annual fee, payable in monthly installments, at the
rate of 1% of the first $50 million, 0.75% of the next $50 million, and 0.60% in
excess of $100 million, of the Portfolio's average net assets. The Manager will
receive 70% and the Subadviser 30% of the fee payable with respect to the net
assets of the Portfolio upon effectiveness of the subadvisory arrangement; then
the Manager will receive 30% and the Subadviser 70% of the fee attributable to
any additional net assets of the Portfolio up to an amount of net assets equal
to the net assets upon effectiveness of the subadvisory arrangement, then the
Manager and the Subadviser will share equally the fee attributable to any
additional net assets of the Portfolio up to $50 million of the net assets. With
respect to net assets of more than $50 million and less than $100 million, the
applicable fees of 0.75% will be shared such that the Manager would receive
0.35% and the Subadviser 0.40%. For net assets of $100 million and more, the
applicable 0.60% fee will be shared such that the Manager will receive 0.25% and
the Subadviser 0.35%. For the year ending December 31, 1999, the Growth Stock
Portfolio paid fees to the Manager totaling $570,139 ($435,886 in 1998; $317,772
in 1997).
Meeder Asset Management, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Meeder Financial, a holding company
which is controlled by Robert S. Meeder, Sr. through ownership of common stock.
Meeder Financial conducts business only through its six subsidiaries, which are
the Manager; Mutual Funds Service Co., the Trust's transfer agent; Opportunities
Management Co., a venture capital investor; Meeder Advisory Services, Inc., a
registered investment adviser; OMCO, Inc., a registered commodity trading
adviser and commodity pool operator; and Adviser Dealer Services, Inc., a
broker-dealer.
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The Manager's officers and directors are as set forth as follows: Robert S.
Meeder, Sr., Chairman and Sole Director; Philip A. Voelker, Senior Vice
President and Chief Investment Officer; Donald F. Meeder, Vice President and
Secretary; Robert S. Meeder, Jr., President; Thomas E. Line, Chief Operating
Officer; Michael J. Sullivan, Vice President of Sales and Marketing, and Wesley
F. Hoag, Vice President and General Counsel. Mr. Robert S. Meeder, Sr. is
President and a Trustee of the Trust and each Portfolio. Mr. Robert S. Meeder,
Jr. and Philip A. Voelker each are a Trustee and officer of the Trust and each
Portfolio. Each of Messrs. Donald F. Meeder, Wesley F. Hoag and Thomas E. Line
is an officer of the Trust and each Portfolio.
INVESTMENT SUBADVISER
Sector Capital Management L.L.C. serves as the Portfolio's subadviser. The
Subadviser is a Georgia limited liability company. William L. Gurner and John K.
Donaldson control the Subadviser. Messrs. Gurner and Donaldson are Managers and
Members of the Subadviser. The Subadviser's officers are as set forth as
follows: William L. Gurner, President and Administrator; George S. Kirk,
Director, Sales and Marketing; and Kenneth L. Riffle, Director, Client
Relations. Mr. Gurner is a Trustee of the Trust and the Portfolio. The
Investment Subadvisory Agreement provides that the Subadviser shall furnish
investment advisory services in connection with the management of the Portfolio.
The Portfolio and the Manager have entered into an Investment Subadvisory
Agreement with the Subadviser which, in turn, has entered into a investment
sub-subadvisory agreement with each of the Sector Advisers selected for the
Portfolio. Under the Investment Subadvisory Agreement, the Subadviser is
required to (i) supervise the general management and investment of the assets
and securities portfolio of the Portfolio; (ii) provide overall investment
programs and strategies for the Portfolio and (iii) select Sector Advisers for
the Portfolio, except as otherwise provided, and allocate the Portfolio's assets
among such Sector Advisers. The Subadviser is obligated to keep certain books
and records of the Portfolio. The Manager continues to have responsibility for
all investment advisory services pursuant to the Investment Advisory Agreement
and supervises the Subadviser's performance of such services. Under the
Investment Subadvisory Agreement, the Manager pays the Subadviser an investment
advisory fee in an amount described above under "Investment Adviser and
Manager."
The Subadviser may invest the Portfolio's assets in financial futures contracts
and related options.
The Investment Subadvisory Agreement provides that the Subadviser will not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Portfolio, except a loss resulting from misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment
Subadvisory Agreement provides that it will terminate automatically if assigned,
and that it may be terminated by the Manager without penalty to the Fund or the
Portfolio by the Manager, the Trustees of the Portfolio or by the vote of a
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majority of the outstanding voting securities of the Portfolio upon not less
than 30 days written notice. The Investment Subadvisory Agreement will continue
in effect for a period of more than two years from the date of execution only so
long as such continuance is specifically approved at least annually in
conformity with the 1940 Act. The Investment Subadvisory Agreement was approved
by the Board of Trustees of the Portfolio, including all of the Trustees who are
not parties to the contract or "interested persons" of any such party, and by
the shareholders of the Portfolio.
INVESTMENT SUB-SUBADVISERS
Except as otherwise described above under "Investment Adviser and Manager"
and "Investment Subadviser", the assets of the Portfolio are managed by asset
managers (each a "Sector Manager" and collectively, the "Sector Managers")
selected by the Subadviser, subject to the review and approval of the Trustees
of the Portfolio. The Subadviser recommends, to the Trustees of the Portfolio,
Sector Advisers for each industry sector based upon its continuing quantitative
and qualitative evaluation of the Sector Advisers' skills in managing assets
pursuant to specific investment styles and strategies. The Portfolio has
received an exemptive order from the SEC permitting the Subadviser, subject to
certain conditions, to enter into sub-subadvisory agreements with Sector
Advisers approved by the Trustees of the Portfolio, but without the requirement
of shareholder approval. At a meeting held on December 20, 1996, the
shareholders of the Portfolio approved the operation of the Portfolio in this
manner. Pursuant to the terms of the SEC's exemptive order, the Subadviser is
able, subject to the approval of the Trustees of the Portfolio, but without
shareholder approval, to employ new Sector Advisers for the Portfolio. Although
shareholder approval is not required for the termination of sub-subadvisory
agreements, shareholders of the Portfolio will continue to have the right to
terminate such agreements for the Portfolio at any time by a vote of a majority
of outstanding voting securities of the Portfolio.
Except as otherwise provided above under "Investment Adviser and Manager"
and "Investment Subadviser," the assets of the Portfolio are allocated by the
Subadviser among the Sector Advisers selected for the Portfolio. Each Sector
Adviser has discretion, subject to oversight by the Trustees and the Subadviser,
to purchase and sell portfolio assets, consistent with the Portfolio's
investment objectives, policies and restrictions. For its services, the
Subadviser receives a management fee from the Manager. A part of the fee paid to
the Subadviser is used by the Subadviser to pay the advisory fees of the Sector
Advisers. Each Sector Adviser is paid a fee for its investment advisory services
that is computed daily and paid monthly based on the value of the average net
assets of the Portfolio assigned by the Subadviser to the Sector Adviser at an
annual rate equal to .25%.
Investors should be aware that the Subadviser may be subject to a conflict
of interest when making decisions regarding the retention and compensation of
particular Sector Advisers. However, the Subadviser's decisions regarding the
selection of Sector Advisers and specific amount of the compensation to be paid
to Sector Advisers, are subject to review and approval by a majority of the
Board of Trustees of the Growth Stock Portfolio.
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Although the Subadviser and the Sector Advisers' activities are subject to
general oversight by the Board of Trustees and the officers of the Growth Stock
Portfolio, neither the Board nor the officers evaluate the investment merits of
any Sector Adviser's individual security selections. The Board of Trustees will
review regularly the Growth Stock Portfolio's performance compared to the
applicable indices and also will review the Growth Stock Portfolio's compliance
with its investment objectives and policies.
The Investment Sub-subadvisory Agreements provide that the Sector Advisers
will not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
portfolio transactions for the Portfolio, except a loss resulting from
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Investment Sub-subadvisory Agreements provide that they will terminate
automatically if assigned, and that they may be terminated without penalty to
the Fund or the Portfolio by the Subadviser, the Trustees of the Portfolio or by
the vote of a majority of the outstanding voting securities of the Portfolio
upon not less than 15 days written notice. The Investment Sub-subadvisory
Agreements will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the 1940 Act. The Investment Sub-subadvisory
Agreements were approved by the Board of Trustees of the Portfolio, including
all of the Trustees who are not parties to the contract or "interested persons"
of any such party, and by the shareholders of the Portfolio.
A Sector Adviser may also serve as a discretionary or non-discretionary
investment adviser to management or advisory accounts unrelated in any manner to
the Portfolio or its affiliates. The investment subadvisory agreements among the
Sector Advisers, the Portfolio and the Subadviser require fair and equitable
treatment to the Portfolio in the selection of the Portfolio investments and the
allocation of investment opportunities, but does not obligate the Sector
Advisers to give the Portfolio exclusive or preferential treatment.
Although the Sector Advisers make investment decisions for the Portfolio
independent of those for their other clients, it is likely that similar
investment decisions will be made from time to time. When the Portfolio and
another client of a Sector Adviser are simultaneously engaged in the purchase or
sale of the same security, the transactions are, to the extent feasible and
practicable, averaged as to price and allocated as to amount between the
Portfolio and the other client(s). In specific cases, this system could have
detrimental effect on the price or volume of the security to be purchased or
sold, as far as the Portfolio is concerned. However, the Trustees of the
Portfolio believe, over time, that coordination and the ability to participate
in volume transactions should be to the benefit of the Portfolio.
Listed below are the Sector Advisers selected by the Subadviser to invest
certain of the Portfolio's assets:
MILLER/HOWARD INVESTMENTS, INC. serves as sector adviser to the utilities
and transportation sectors of the Growth Stock Portfolio. Miller/Howard is a
registered investment adviser that has been providing investment services to
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broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1999, Miller/Howard managed approximately $272 million in assets.
Lowell G. Miller, President and CIO of Miller/Howard, controls Miller\Howard
through stock ownership. Mr. Miller is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Growth Stock
Portfolio allocated to Miller/Howard. Mr. Miller has been associated with
Miller/Howard since 1984. Miller/Howard is also the subadviser to the Utilities
Stock Portfolio, a corresponding portfolio to The Flex-funds' Total Return
Utilities Fund and the Meeder Advisor Funds' Utility Growth Fund.
Miller/Howard's principal executive offices are located at 141 Upper Byrdcliffe
Road, Post Office Box 549, Woodstock, New York 12498.
HALLMARK CAPITAL MANAGEMENT, INC. serves as sector adviser to the capital
goods sector of the Growth Stock Portfolio. Hallmark is a registered investment
adviser that has been providing investment services to individuals; banks;
pension, profit sharing, and other retirement plans; trusts; endowments;
foundations; and other charitable organizations since 1986. As of December 31,
1999, Hallmark managed approximately $190 million in assets. Peter S. Hagerman,
Chairman of the Board, President, and Chief Executive Officer; Katherine A.
Swieralski, Senior Vice President, Treasurer, Chief Financial and Administrative
Officer; and Jeffrey P. Braff each owns more than 10% of the outstanding voting
securities of Hallmark, as would Thomas S. Moore, Senior Vice President and
Chief Investment Officer, if his options were exercised. Mr. Hagerman is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Hallmark. Mr. Hagerman has
been associated with Hallmark since 1986. Hallmark's principal executive offices
are located at One Greenbrook Corporate Center, 100 Passaic Avenue, Fairfield,
New Jersey 07004.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as sector adviser to the
consumer durable and non-durable sectors of the Growth Stock Portfolio. Barrow
is a registered investment adviser that has been providing investment services
to banks; investment companies; pension and profit sharing plans; charitable
organizations and corporations since 1979. As of December 31, 1999, Barrow
managed approximately $29.1 billion in assets. Jane Gilday, CFA, is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Barrow. From 1993 to 1998, Ms.
Gilday worked as a securities analyst at Hancock Institutional Equity Services
and Advest Inc. Ms. Gilday has been associated with Barrow since 1998. Barrow's
principal executive offices are located at 3232 McKinney Avenue, 15th Floor,
Dallas, Texas 75204-2429.
THE MITCHELL GROUP, INC. serves as sector adviser to the energy sector of
the Growth Stock Portfolio. The Mitchell Group is a registered investment
adviser that has been providing investment services to individuals; banks;
investment companies; pension and profit sharing plans; charitable
organizations, corporations and other institutions since 1989. As of December
31, 1999, The Mitchell Group held discretionary investment authority over
approximately $311 million in assets. Rodney Mitchell, President, Chief
Executive Officer, and Chief Financial Officer of The Mitchell Group, owns more
than 10% of the outstanding voting securities of The Mitchell Group. Mr.
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Mitchell is the portfolio manager primarily responsible for the day-to-day
management of those assets of the Growth Stock Portfolio allocated to The
Mitchell Group. Mr. Mitchell has been associated with The Mitchell Group since
1989. The Mitchell Group's principal executive offices are located at 1100
Louisiana, #4810, Houston, Texas 77002.
ASHLAND MANAGEMENT INCORPORATED serves as sector adviser to the materials
and services sector of the Growth Stock Portfolio. Ashland is a registered
investment adviser that has been providing investment services to individuals,
pension and profit sharing plans, charitable organizations, corporations and
other institutions since 1975. As of December 31, 1999, Ashland managed
approximately $2.1 billion in assets. Charles C. Hickox, Chairman of the Board
and Chief Executive Officer, and Parry v.S. Jones, President and Chief Operating
Officer, each owns more than 10% of the outstanding voting securities of
Ashland. Terence J. McLaughlin, Managing Director of Ashland, and Deborah C.
Ohl, a Vice President and Portfolio Manager, are the portfolio managers
primarily responsible for the day-to-day management of those assets of the
Growth Stock Portfolio allocated to Ashland. Mr. McLaughlin has been associated
with Ashland since 1984. Ms. Ohl has been employed by Ashland since August 1992
and has served as a Portfolio Manager for Ashland since 1993. Ashland's
principal executive offices are located at 26 Broadway, New York, New York
10004.
MATRIX ASSET ADVISORS, INC. serves as sector adviser to the financial
sector of the Growth Stock Portfolio. Matrix is a registered investment adviser
that has provided investment management services to individuals, pension and
profit sharing plans, trusts, charitable organizations and corporations since
1986. As of October 31, 2000, the firm managed approximately $665 million in
assets. David A. Katz is the portfolio manager primarily responsible for the day
to day management of those assets of the Growth Stock Portfolio allocated to
Matrix. Mr. Katz, a co-founder of Matrix, is the President of the firm and has
served as its Chief Investment Officer since the firm's inception. Matrix's
executive offices are located at 747 3rd Avenue, 31st Floor, New York, New York
10017.
DRESDNER RCM GLOBAL INVESTORS LLC. (formerly RCM Capital Management,
L.L.C.) serves as sector adviser to the technology sector of the Growth Stock
Portfolio. Dresdner RCM is a registered investment adviser that provides
investment services to institutional and individual clients and registered
investment companies. Dresdner RCM was established in April 1996 as the
successor to the business and operations of RCM Capital Management, a California
Limited Partnership that, with its predecessors, has been in operation since
1970. As of December 31, 1999, Dresdner RCM had approximately $82.7 billion
under management and advice. This includes approximately $47.0 billion under
management and advice in San Francisco and an additional $35.7 billion by
affiliates in London, Hong Kong, and San Diego. Walter C. Price and Huachen
Chen, each Managing Directors of Dresdner RCM, are the portfolio managers
primarily responsible for the day-to-day management of those assets of the
Growth Stock Portfolio allocated to Dresdner RCM. Messrs. Price and Chen have
managed equity portfolios on behalf of Dresdner RCM since 1985. Dresdner RCM's
principal executive offices are located at Four Embarcadero Center, San
Francisco, CA 94111.
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ALLIANCE CAPITAL MANAGEMENT L.P. serves as sector adviser to the health
sector of the Growth Stock Portfolio. Alliance, a registered investment adviser,
is an international investment manager supervising client accounts with assets
as of December 31, 1999 totaling approximately $368 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. The general partner of Alliance, Alliance Capital Management Corporation,
is an indirect subsidiary of, and is controlled by, AXA, a French insurance
holding company. Alliance Capital conducts no other business. Raphael L.
Edelman, Vice President of Alliance, is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Growth Stock
Portfolio allocated to Alliance. Mr. Edelman, who has seventeen years of
investment experience, joined Alliance's research department in 1986 as an
analyst after working two years as a manager in Alliance's mutual fund division.
Alliance's principal executive offices are located at 1345 Avenue of the
Americas, New York, NY 10105.
DISTRIBUTION PLAN
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the
"Act") describes the circumstances under which an investment company such as the
Fund may, directly or indirectly, bear the expenses of distributing its shares.
The Rule defines such distribution expenses to include the cost of any activity
which is primarily intended to result in the sale of Fund shares.
The Distribution Plan permits, among other things, payment for distribution
in the form of commissions and fees, advertising the services of public
relations consultants, and direct solicitation. Possible recipients include
securities brokers, attorneys, accountants, investment advisers, investment
performance consultants, pension actuaries, and service organizations. Another
class of recipients is banks. Currently, The Glass-Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting, selling or distributing securities. Since the only
function of banks who may be engaged as participating organizations, is to
perform administrative and shareholder servicing functions, the Fund believes
that such laws should not preclude banks from acting as participating
organizations; however, future changes in either federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as judicial or administrative decisions or
interpretations of statutes or regulations, could prevent a bank from continuing
to perform all or a part of its shareholder service activities. If a bank were
prohibited from so acting, its shareholder customers would be permitted to
remain Fund shareholders and alternative means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the Fund might occur and a shareholder being serviced by such bank might no
longer be able to avail himself, or itself, of any automatic investment or other
services then being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
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occurrences. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
The Fund may expend as much as, but not more than, .20% of its average net
assets annually pursuant to the Plan. A report of the amounts so expended by the
Fund and the purpose of the expenditures must be made to and reviewed by the
Board of Trustees at least quarterly. In addition, the Plan provides that it may
not be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Plan without shareholder approval of the Plan, and
that other material amendments of the Plan must be approved by the Board of
Trustees, and by the Trustees who are not "interested persons" of the Trust (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan or in the related service agreements, by vote cast in
person at a meeting called for the purpose of voting on the Plan.
The Plan is terminable at any time by vote of a majority of the Trustees
who are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Plan or in any of the related service
agreements or by vote of a majority of the Fund's shares. Any service agreement
terminates upon assignment and is terminable without penalty at any time by a
vote of a majority of the Trustees who are not "interested persons" and who have
no direct or indirect financial interest in the operation of the Plan or in the
related service agreements, upon not more than 60 days written notice to the
service organization, or by the vote of the holders of a majority of the Fund's
shares, or, upon 15 days notice, by a party to a service agreement.
The Plan was approved by the Trust's Board of Trustees who made a
determination that there is a reasonable likelihood that the Plan will benefit
the Fund. The Plan was approved by shareholders and it will continue in effect
only if approved at least annually by the Board of Trustees. Although the
objective of the Trust is to pay Consultants for a portion of the expenses they
incur, and to provide them with some incentive to be of assistance to the Trust
and its shareholders, no effort has been made to determine the actual expenses
incurred by Consultants. If any Consultant's expenses are in excess of what the
Trust pays, such excess will not be paid by the Trust. Conversely, if the
Consultant's expenses are less than what the Trust pays, the Consultant is not
obligated to refund the excess, and this excess could represent a profit for the
Consultant.
The Trust has entered into an agreement with Walter L. Ogle whereby Mr.
Ogle is paid for his assistance in explaining and interpreting the Funds, their
investment objectives and policies, and the Trust's retirement plans to clients.
See "Compensation Table" for more information.
Total payments made by the Fund to parties with service agreements for the
year ended December 31, 1999 amounted to $25,697. In addition, expenditures were
approved by the Board of Trustees in the amount of $11,521 for the printing and
mailing of prospectuses, periodic reports and other sales materials to
prospective investors; $5,161 for advertising, $4,138 for the services of public
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relations and marketing consultants; and $1,858 for the cost of special
telephone service to encourage the sale of Fund shares.
TRUSTEES AND OFFICERS
The Trust and the Portfolio are managed by their trustees and officers.
Their names, positions and principal occupations during the past five years are
listed below. Except as indicated, each individual has held the office shown or
other offices in the same company for the last five years. Except as otherwise
shown, all persons named as Trustees also serve in similar capacities for all
other mutual funds advised by the Manager, including The Flex-funds, the Meeder
Advisor Funds and the corresponding portfolios of The Flex-funds and Meeder
Advisor Funds (collectively, the "Fund Complex"). Unless otherwise noted, the
business address of each Trustee and officer is 6000 Memorial Drive, Dublin,
Ohio 43017, which is also the address of the Manager. Those Trustees who are
"interested persons" (as defined in the Investment Company Act of 1940) by
virtue of their affiliation with the Fund Complex, or the Fund Manager, are
indicated by an asterisk (*).
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
ROBERT S. MEEDER, SR.*+, 71 Trustee/President Chairman of Meeder Asset
Management, Inc., an
investment adviser;
Chairman and Director of
Mutual Funds Service Co.,
the Funds' transfer agent.
MILTON S. BARTHOLOMEW, 71 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
each Fund's Audit
Committee.
ROGER D. BLACKWELL, 59 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior,
3380 Tremont Road The Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
ROBERT S. MEEDER, JR.*, 39 Trustee and President of Meeder Asset
Vice President Management, Inc.
WALTER L. OGLE, 61 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
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CHARLES A. DONABEDIAN, 57 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
management companies; CEO,
Winston Advisors, Inc., an
investment adviser.
JAMES W. DIDION, 69 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm
(1991-1997).
JACK W. NICKLAUS II, 39 Trustee Designer, Nicklaus Design,
11780 U.S. Highway #1 a golf course design firm
North Palm Beach, FL 33408 and division of Golden
Bear International, Inc.
PHILIP A. VOELKER*+, 46 Trustee and Vice Senior Vice President and
President Chief Investment Officer
of Meeder Asset
Management, Inc.
DONALD F. MEEDER*+, 61 Secretary Vice President of Meeder
Asset Management, Inc.;
Secretary of Mutual Funds
Service Co., the Funds'
transfer agent.
WESLEY F. HOAG*+, 43 Vice President Vice President and General
Counsel of Meeder Asset
Management, Inc. and
Mutual Funds Service Co.
(since July 1993);
Attorney, Porter, Wright,
Morris & Arthur, a law
firm (October 1984 to June
1993).
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THOMAS E. LINE*+, 32 Treasurer President, Mutual Funds
Service Co., the
Portfolio's transfer
agent, and Chief Operating
Officer, Meeder Asset
Management, Inc., the
Portfolio's investment
adviser (since June 1998);
Vice President and
Treasurer, BISYS Fund
Services (December 1996 to
June 1998); Senior Manager
- Financial Services,
KPMG, LLP (Sept. 1989 to
December 1996).
BRUCE E. MCKIBBEN*+, 30 Assistant Treasurer Manager/Fund Accounting
and Financial Reporting,
Mutual Funds Service Co.,
the Funds' transfer agent
(since April 1997);
Assistant Treasurer and
Manager/Fund Accounting,
The Ohio Company, a
broker-dealer (April 1991
to April 1997).
* Interested Person of the Trust (as defined in the Investment Company Act of
1940), The Flex-funds, Meeder Advisor Funds and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F.
Meeder's uncle.
The following table shows the compensation paid by the Portfolios and the
Fund Complex as a whole to the Trustees of the Portfolios and the Fund Complex
during the fiscal year ended December 31, 1999.
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COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits from
Aggregate Accrued as Estimated Registrant and
Compensation Part of Annual Fund Complex
from the Portfolio Benefits Upon Paid
TRUSTEE PORTFOLIO1 EXPENSE RETIREMENT TO TRUSTEE1,2
------- ---------- ------- ---------- -------------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $2,762 None None $16,734
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $2,617 None None $16,2343
Philip A. Voelker None None None None
Roger A. Blackwell $2,450 None None $15,234
Charles A. Donabedian $2,864 None None $17,734
James Didion None None None None
Jack W. Nicklaus II $2,665 None None $15,984
1 Compensation figures include cash and amounts deferred at the election of
certain non-interested Trustees. For the calendar year ended December 31, 1999,
participating non-interested Trustees accrued deferred compensation from the
Portfolios as follows: Milton S. Bartholomew - $2,762, Roger A. Blackwell -
$2,450, Charles A. Donabedian - $2,864, Jack W. Nicklaus II - $2,665 and Walter
L. Ogle - $1,435.
2 The Fund Complex consists of 19 investment companies.
3 The Trust has entered into an agreement with Walter L. Ogle whereby Mr. Ogle
is paid for his assistance in explaining and interpreting the Funds, their
investment objectives and policies, and the Trust's retirement plans to clients.
Mr. Ogle's compensation figure includes $1,694 paid out by the Trust pursuant to
this agreement.
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios. In addition, each such Trustee
earns an annual fee, payable quarterly, based on the average net assets in each
Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of
the amount of average net assets between $500 million and $1 billion; 0.00025%
of the amount of average net assets exceeding $1 billion. For the other six
Portfolios, including the Portfolio, each Trustee is paid a fee of 0.00375% of
the amount of each Portfolio's average net assets exceeding $15 million. Members
of the Audit and Strategic Planning Committees for each of the Meeder Advisor
Funds and The Flex-funds trusts, and the Portfolios are paid $500 for each
Committee meeting attended. Trustees fees for the Portfolio totaled $27,375 for
the year ended December 31, 1999 ($15,022 in 1998). All other officers and
Trustees serve without compensation from the Trust.
The Trustees and officers of the Fund and the Portfolio own, in the
aggregate, less than 1% of the Fund's total outstanding shares.
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The Trust, the Portfolio, and the Manager have each adopted a Code of
Ethics that permits personnel subject to the Code to invest in securities,
including, under certain circumstances and subject to certain restrictions,
securities that may be purchased or held by the Portfolio. However, each such
Code restricts personal investing practices by directors and officers of the
Manager and its affiliates, and employees of the Manager with access to
information about the purchase or sale of Portfolio securities. The Code of
Ethics for the Trust and the Portfolio also restricts personal investing
practices of trustees of the Trust and the Portfolio who have knowledge about
recent Portfolio trades. Among other provisions, each Code of Ethics requires
that such directors and officers and employees with access to information about
the purchase or sale of Portfolio securities obtain preclearance before
executing personal trades. Each Code of Ethics prohibits acquisition of
securities without preclearance in, among other events, an initial public
offering or a limited offering, as well as profits derived from the purchase and
sale of the same security within 60 calendar days. These provisions are designed
to put the interests of Fund shareholders before the interest of people who
manage the Portfolio in which the Fund invests.
FLEX-FUNDS RETIREMENT PLANS
The Trust offers retirement plans which are described in the Prospectus.
Minimum purchase requirements for retirement plan accounts are subject to the
same requirements as regular accounts, except for an IRA, which has a $500
minimum purchase requirement. Information concerning contribution limitations
for IRA accounts and Roth IRA accounts are described below.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA):
DEDUCTIBLE CONTRIBUTIONS
All contributions (other than certain rollover contributions) must be made
in cash and are subject to the following limitations:
REGULAR. Contributions to an IRA (except for rollovers or employer
contributions under a simplified employee pension) may not exceed the amount of
compensation includible in gross income for the tax year or $2,000, whichever is
less. If neither you nor your spouse is an active participant in an employer
plan, you may make a contribution up to this limit and take a deduction for the
entire amount contributed. If you or your spouse is an active participant and
your adjusted gross income (AGI) is below a certain level you may also make a
contribution and take a deduction for the entire amount contributed. However, if
you or your spouse is an active participant and your AGI is above the specified
level, the dollar limit of the deductible contribution you make to your IRA may
be reduced or eliminated.
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<PAGE>
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. You do not have to file an itemized federal
tax return to take an IRA deduction. Deductions are not allowed for any
contribution in excess of the deduction limit. Contributions for a year may be
made during such year or by the tax return filing date for such year (not
including extensions), if irrevocably designated for such year, in writing, when
such contribution is made.
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA. The contribution
limits apply separately to the compensation of each of you, without regard to
the community property laws of your state, if any.
SPOUSAL. You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
If you are the compensated (or higher compensated) spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established by
your spouse as the depositor or grantor of his or her own IRA and your spouse
becomes subject to all of the privileges, rules, and restrictions generally
applicable to IRAs. This includes conditions of eligibility for distribution;
penalties for premature distribution, excess accumulation (failure to take a
required distribution) and prohibited transaction; designation of beneficiaries
and distribution in the event of your spouse's death; income and estate tax
treatment of withdrawals and distributions.
ADJUSTED GROSS INCOME (AGI). If you are an active participant or are
considered an active participant, the amount of your AGI for the year (if you
and your spouse file a joint tax return, your combined AGI) will be used to
determine if you can make a deductible IRA contribution. The instructions for
your tax return will show you how to calculate your AGI for this purpose. If you
are at or below a certain AGI level, called the Threshold Level, you can make a
deductible contribution under the same rules as a person who is not an active
participant. This AGI level may change each year. The instructions for your tax
return will show you the AGI level in effect for that year.
For example, if you are single, or treated as being single, your AGI
Threshold Level is $32,000 in 1999. If you are married and file a joint tax
return, your AGI Threshold Level is $52,000 in 1999. If you are not an active
participant, but you file a joint tax return with your spouse who is an active
participant, your AGI Threshold Level is $150,000. If you are married, file a
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<PAGE>
separate tax return, and live with your spouse for any part of the year, your
AGI Threshold Level is $0.
If your AGI is less than $10,000* above your AGI Threshold Level, you will
still be able to make a deductible contribution, but it will be limited in
amount. The amount by which your AGI exceeds your AGI Threshold Level (AGI minus
AGI Threshold Level) is called your Excess AGI. The Maximum Allowable Deduction
is $2,000 per individual. You may determine your Deduction Limit by using the
following formula:
($10,000* - EXCESS AGI ) Maximum Allowable = Deduction
--------------------- X Deduction Limit
$10,000*
Round the result up to the next higher multiple of $10 (the next higher
whole dollar amount that ends in zero). If the final result is below $200, but
above zero, your Deduction Limit is $200. Your Deduction Limit cannot exceed
100% of your compensation.
*For years after 2006, $20,000 if you are married, filing jointly.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make rollover
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS (ROTH IRA):
CONTRIBUTIONS:
All contributions must be made in cash and are subject to the following
limitations:
REGULAR. Contributions to a Roth IRA (except for rollovers) cannot exceed
the amount of compensation includible in gross income for the tax year or
$2,000, whichever is less. If our adjusted gross income (AGI) is below a certain
level, you may contribute the maximum amount. However, if your AGI is above a
specified level, the dollar limit of the contribution you make to your Roth IRA
may be reduced or eliminated.
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If you are single, and your adjusted gross income (AGI) is $95,000 or less
($150,000 or less if married and filing jointly, or $0 or less if married and
filing separately) you are eligible to contribute the full amount to a Roth IRA.
Contributions to a Roth IRA are aggregated with Traditional IRA
contributions for the purpose of the annual contribution limit. Therefore, you
may contribute up to the lesser of $2,000 or 100% of earned income per year to a
Traditional IRA and a Roth IRA combined.
SPOUSAL. You may make spousal Roth IRA contributions for a year, if: 1)
your spouse has "compensation" that is includible in gross income for such year;
2) you have less compensation than your spouse for such year; and 3) you file a
joint federal income tax return for such year.
If you are the higher compensated spouse, your contribution must be made in
accordance with the regular contribution rules above. If you are the
noncompensated (or lower compensated) spouse, your contribution may not exceed
the lesser of $2,000 or 100% of the combined compensation of you and your
spouse, reduced by the amount of your spouse's Roth IRA contribution.
Contributions for your spouse must be made to a separate Roth IRA
established by your spouse as the depositor or grantor of his or her own Roth
IRA and your spouse becomes subject to all of the privileges, rules, and
restrictions generally applicable to Roth IRAs. This includes conditions of
eligibility for distribution; designation of beneficiaries and distribution in
the event of your spouse's death; tax treatment of withdrawals and
distributions. This form may be used to establish such Roth IRA.
NO MAXIMUM AGE LIMIT. There is no maximum age limit for making a Roth IRA
contribution. Attainment of age 70 1/2 does not prevent you from contributing to
a Roth IRA.
APRIL 15 FUNDING DEADLINE. Contributions to a Roth IRA for the previous tax
year must be made by the tax-filing deadline (not including extensions) for
filing your federal income tax return. If you are a calendar-year taxpayer, your
deadline is usually April 15. If April 15 falls on a Saturday, Sunday, or legal
holiday, the deadline is the following business day.
LOWER CONTRIBUTION LIMITS. To determine the maximum contribution to a Roth
IRA if your AGI is between $95,000 and $110,000 (between $150,000 and $160,000
if married, filing jointly or between $0 and $10,000 if married, filing
separately), the following steps must be taken:
(a) Subtract your AGI from $110,000 ($160,000 if married, filing jointly;
$10,000 if married, filing separately).
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(b) Multiply the result in Step `a' by .1333 (.20 if married).
(c) If the result in Step `b' is not a multiple of $10, round up to the
next multiple of $10.
(d) The result in Step `c' is your allowable contribution limit. If it is
more than $0, but less that $200, your allowable contribution limit is
$200.
INDIVIDUALS NOT ELIGIBLE TO MAKE CONTRIBUTIONS. If you are a single
taxpayer and your AGI is $110,000 or above ($160,000 or above if married and
filing jointly, or $10,000 or above if married and filing separately), you are
not permitted to make a Roth IRA contribution for the year. For this purpose, a
deductible Traditional IRA contribution is not allowed as a deduction in
computing AGI, and any amount of a rollover-conversion from a Traditional IRA to
a Roth IRA is not taken into account. Whether an individual, or his spouse, is
an active participant in an employer retirement plan is irrelevant for
determining whether he may make a Roth contribution.
EXCESS ROTH CONTRIBUTIONS. Excess contributions to a Roth IRA are subject
to a 6% penalty tax unless removed (along with attributable earnings) by your
tax-filing deadline (plus extensions). An excess contribution could occur for
many reasons including, for example, if you contribute more than $2,000 or 100%
of earned income, or if you are not permitted to make a Roth contribution
because your AGI is too high.
CONVERSION OF TRADITIONAL CONTRIBUTIONS TO ROTH CONTRIBUTIONS. Generally,
if you make a contribution to a Traditional IRA, you may transfer the
contribution plus attributable earnings to a Roth IRA by your tax-filing
deadline (not including extensions). The transferred contribution amount is not
taxable if no deduction was allowed for the contribution. Such a contribution is
treated as a Roth IRA contribution.
ROLLING OVER/CONVERTING TRADITIONAL IRAS TO ROTH IRAS
You are allowed to roll over, transfer, or "convert" your Traditional IRAs
to Roth IRAs beginning in 1998. Regardless of whether a Traditional IRA is
rolled over/converted to a Roth IRA in 1998 or afterwards, the
rollover/conversion amount is subject to federal income taxation (but no 10%
penalty tax).
$100,000 AGI LIMIT FOR ROLLOVER. If you are a single taxpayer, or a married
individual who files jointly, you may roll over, transfer, or convert your
Traditional IRAs to Roth IRAs if your AGI is $100,000 or less. If you are a
single taxpayer (or a married individual who files jointly) with AGI of more
than $100,000 you may not roll over, transfer, or convert your Traditional IRAs
to Roth IRAs. Also, if you are a taxpayer who is married, but files separately,
you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs
regardless of AGI.
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ROLLOVER/CONVERSION AFTER 1998. If you roll over a Traditional IRA
distribution received after 1998 to a Roth IRA, the taxable portion of the
Traditional IRA distribution is included in your income for the year in which
the Traditional IRA distribution is received, but the amount is not subject to
the IRS 10% early distribution penalty. No special tax treatments apply.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio 43017, a wholly
owned subsidiary of Meeder Financial and a sister company of Meeder Asset
Management, Inc., provides accounting, administrative, stock transfer, dividend
disbursing, and shareholder services to the Fund and the Portfolio. The minimum
annual fee for accounting services for the Portfolio is $7,500. Subject to the
applicable minimum fee, the Portfolio's annual fee, payable monthly, is computed
at the rate of 0.15% of the first $10 million, 0.10% of the next $20 million,
0.02% of the next $50 million and 0.01% in excess of $80 million of the
Portfolio's average net assets. Subject to a $4,000 annual minimum fee, the Fund
will incur an annual fee, payable monthly, which will be the greater of $15 per
shareholder account or 0.12% of the Fund's average net assets, payable monthly,
for stock transfer and dividend disbursing services.
Mutual Funds Service Co. also serves as Administrator to the Fund pursuant
to an Administration Services Agreement. Services provided to the Fund include
coordinating and monitoring any third party services to the Fund; providing the
necessary personnel to perform administrative functions for the Fund; assisting
in the preparation, filing and distribution of proxy materials, periodic reports
to Trustees and shareholders, registration statements and other necessary
documents. The Fund incurs an annual fee, payable monthly, of .05% of the Fund's
average net assets. These fees are reviewable annually by the respective
Trustees of the Trust and the Portfolio.
For the year ended December 31, 1999, total payments to Mutual Funds
Service Co. by the Fund and the Portfolio amounted to $72,606 and $40,870,
respectively.
ADDITIONAL INFORMATION
CUSTODIAN. Firstar, N.A., 425 Walnut Street, Cincinnati, OH 45202, is
custodian of the assets of the Portfolio. The custodian is responsible for the
safekeeping of the Portfolio's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the investment
policies of the Portfolio or in deciding which securities are purchased or sold
by the Portfolio. The Portfolio may, however, invest in obligations of the
custodian and may purchase or sell securities from or to the custodian.
AUDITORS. KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215, serves as
the trust's independent auditors. The auditors audit financial statements for
the Fund and provide other assurance, tax, and related services.
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PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of March 31, 2000, no persons owned 5% or more of the Fund's outstanding
shares of beneficial interest.
FINANCIAL STATEMENTS
The financial statements and independent accountants' report required to be
included in this Statement of Additional Information are incorporated herein by
reference to the Trust's Annual Report to Shareholders for the fiscal year ended
December 31, 1999. The Fund will provide the Annual Report without charge at
written request or request by telephone.
44
