As filed with the Securities and Exchange Commission on April 30, 1999.
File No. 811-6647
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 10
TO
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
GROWTH STOCK PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
P.O. Box 7177, 6000 Memorial Drive
Dublin, Ohio 43017
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 614-766-7000
Donald F. Meeder, P.O. Box 7177, 6000 Memorial Drive, Dublin, OH 43017
(Name and Address of Agent for Service)
Copy to:
James B. Craver
P. O. Box 811
Dover, MA 02030-0811
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EXPLANATORY NOTE
This Amendment to the Registration Statement of Growth Stock Portfolio has
been filed by the Registrant pursuant to Section 8(b) of the Investment Company
Act of 1940, as amended (the "1940 Act"). However, beneficial interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), since such interests will be offered solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" as defined in Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any beneficial interests in the Registrant.
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PART A
Responses to Items 1 through 3 have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Growth Stock Portfolio (the "Portfolio") is a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on November 1, 1991.
Beneficial interests in the Portfolio are offered solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Portfolio may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities which are "accredited investors" as defined in
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
The Portfolio's investment adviser and investment subadviser are R. Meeder
& Associates, Inc. (the "Manager" or "Adviser")and Sector Capital Management,
L.L.C. (the "Subadviser"), respectively. The Portfolio seeks growth of capital.
To pursue this goal, the Portfolio invests in a diversified portfolio of
domestic common stocks with greater than average growth characteristics selected
primarily from the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500"). Current income is not a primary objective. Normally, at least 80% of the
Portfolio's total assets will be invested in domestic common stocks and at least
65% of the Portfolio's total assets will be invested in growth stocks. At least
70% of the assets of the Portfolio's assets invested in common stocks will be
invested in S&P 500 stocks.
The Portfolio consists of investment portfolios representing each of the
industry sectors (identified by the Subadviser) comprising the S&P 500:
utilities, transportation, capital goods, consumer durables, consumer
non-durables, energy, materials and services, finance, technology and health.
The assets of the Portfolio will be allocated to each of these industry sectors
in approximately the same proportion as these industry sectors are represented
in the S&P 500 on a market capitalization-weighted basis.
The assets of the Portfolio representing each of these industry sectors are
managed by one or more separate investment advisers.
The Portfolio may invest in "traditional" derivatives, such as financial
futures contracts and related options as a hedge against changes, resulting from
market conditions, in the value of securities held or intended to be held by the
Portfolio.
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Under normal conditions, at least 80% of the Portfolio's total assets will
be invested in domestic common stocks and at least 65% of the Portfolio's total
assets will be invested in growth stocks.
The manager selects for the Portfolio common stocks from all domestic
publicly traded common stocks; however, at least 70% of the assets of the
Portfolio invested in common stocks will be invested in common stocks which are
included in the S&P 500.
The Portfolio consists of investment portfolios representing each of the
industry sectors (identified by the Portfolio's subadviser) comprising the S&P
500. The assets of the Portfolio will be allocated to each of these industry
sectors in approximately the same proportion as these industry sectors are
represented in the S&P 500 on a market capitalization-weighted basis. The
subadviser continuously reviews the representation of the industry sectors in
the S&P 500 and continuously groups domestic publicly traded common stocks into
a specific industry sector.
The Portfolio Subadviser compares the total market value of the common
stocks in each industry sector of the S&P 500 to the total market value of all
common stocks in the S&P 500 to determine each industry sector's weighting in
the S&P 500. If the weighting of any industry sector in the Portfolio varies
from the weighting on a market-capitalization basis of that industry sector in
the S&P 500 at the end of any month, the Portfolio Subadviser will reallocated
the amount of assets in the Portfolio allocated to that industry sector. The
Subadviser may reallocate more frequently than monthly if it chooses to do so in
its sole discretion. These reallocations may cause additional transaction costs
to the extent that securities may be sold as part of such reallocations.
The assets of the Portfolio representing each of these industry sectors are
managed on a discretionary basis by one or more separate investment advisers
(the "Sector Advisers") selected by the Portfolio Subadviser. The Portfolio
Subadviser's selection of Sector Advisers is reviewed and approved by the
trustees of the Portfolio.
Assets of the Portfolio representing each of the industry sectors are
managed by one or more Sector Advisers. However, if an advisory agreement
between the Sector Advisor and the Portfolio is terminated leaving no Sector
Adviser to manage the assets of the Portfolio representing an industry sector,
the Subadviser will, upon termination and until a new Sector Adviser were
selected, manage and "index" the assets of the Portfolio representing its
industry sector by selling any stocks representing the industry sector that are
not included in the S&P 500 and investing the assets comprising the industry
sector in S&P 500 stocks identified by the Portfolio's Subadviser as belonging
to that industry sector in the same proportion as those stocks are represented
in the S&P 500 on a market capitalization-weighted basis.
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Each Sector Adviser is limited to the list of companies identified by the
Subadviser which represents the Sector Adviser's specific industry sector. Each
Sector Adviser then selects those common stocks which, in its opinion, best
represent the industry sector the Sector Adviser has been assigned. In selecting
securities for the Portfolio, the Sector Advisers evaluate factors believed to
be favorable to long-term growth of capital including specific financial
characteristics of the issuer such as historical earnings growth, sales growth,
profitability and return on equity. The Sector Advisers also analyze the
issuer's position within its industry sector as well as the quality and
experience of the issuer's management.
Up to 20% of the Portfolio's assets may be invested in temporary defensive
investments such as money market instruments and investment grade bonds. See
"Additional Investment Policies - Money Market Instruments and Bonds." The
Portfolio may purchase stock index futures contracts and related options. See
"Additional Investment Policies - Hedging Strategies and Option Strategies". Up
to 5% of the total assets of the Portfolio may be invested in American
Depositary Receipts.
ADDITIONAL INVESTMENT POLICIES
MONEY MARKET INSTRUMENTS AND BONDS
When investing in money market instruments or bonds, the Portfolio will
limit its purchases to the following securities:
o U.S. Government Securities and Securities of its Agencies and
Instrumentalities.
o Bank Obligations and Instruments Secured Thereby.
o High Quality Commercial Paper -- The Portfolio may invest in
commercial paper rated no lower than "A-2" by Standard & Poor's
Corporation or "Prime-2" by Moody's Investors Services, Inc., or, if
not rated, issued by a company having an outstanding debt issue rated
at least A by Standard & Poor's or Moody's.
o Private Placement Commercial Paper -- unregistered securities which
are traded in public markets to qualified institutional investors,
such as the Portfolio.
o High Grade Corporate Obligations -- obligations rated at least A by
Standard & Poor's or Moody's.
o Repurchase Agreements Pertaining to the Above -- The Portfolio may
invest in any of the above securities subject to repurchase agreements
with any Federal Reserve reporting dealer or member bank of the
Federal Reserve System. Repurchase agreements usually are for short
periods, such as one week or less, but could be longer. The Portfolio
will not invest more than 10% of its assets, at time of purchase, in
repurchase agreements which mature in excess of seven days or in other
illiquid or not readily marketable securities.
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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 gain equity market exposure for unallocated and uninvested cash
balances of the Portfolio; (2) To protect the value of specific securities owned
or intended to be purchased while the Investment Adviser, Subadviser or a Sector
Adviser is implementing a change in the Portfolio's investment position; (3) To
protect portfolio values during periods of extraordinary risk without incurring
transaction costs associated with buying or selling actual securities; and (4)
To utilize the "designated hedge" provisions of Subchapter 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.
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, security or index.
Accordingly, these financial futures contracts 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. They do not necessarily increase
risk, and may in fact reduce risk.
The Portfolio will not engage in transactions in financial futures
contracts or related options for speculation but only as a hedge against changes
in the market value of securities held in the Portfolio, securities which it
intends to purchase or to gain market exposure for unallocated and uninvested
cash balances. The Portfolio will only enter in such transactions when they are
economically appropriate to meeting portfolio investment objectives and to the
reduction of risks inherent in the ongoing management of the Portfolio.
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 a mutual fund, such as the
Fund. 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
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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.
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 Portfolio expects that any gain or loss on hedging transactions will be
substantially offset by any gain or loss on the securities underlying the
contracts or being considered for purchase. There can be no guaranty that the
Portfolio will be able to realize this objective and, as noted below under "Risk
Factors," there are some risks in utilizing a hedging strategy.
OPTION STRATEGIES
The Portfolio may write (sell) covered call options. The purpose of such
transactions is to: (1) hedge against changes in the market value of specific
securities held by the Portfolio; and/or (2) to generate incremental income by
capturing the proceeds of options sold.
The Portfolio may write (sell) call options, but only if such options are
covered and remain covered as long as the Portfolio is obligated as a writer of
the option (seller). A call option is "covered" if the Portfolio owns the
underlying security covered by the call. If a "covered" call option expires
un-exercised, the writer realizes a gain in the amount of the premium received.
If the covered call option is exercised, the writer realizes either a gain or a
loss from the sale of the underlying security with the proceeds to the writer
being increased by the amount of the premium. Prior to its expiration, a call
option may be closed out by means of a purchase of an identical option. Any gain
or loss from such transaction will depend on whether the amount paid is more or
less than the premium received for the option plus related transaction costs.
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Portfolio's Board of Trustees provides broad supervision over the
affairs of the Portfolio. The address of the Adviser is P.O. Box 7177, 6000
Memorial Drive, Dublin, Ohio 43017. A majority of the Portfolio's Trustees are
not affiliated with the Adviser. Firstar, N.A., Cincinnati ("Firstar") is the
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Portfolio's custodian and Mutual Funds Service Co. is the Portfolio's transfer
agent and dividend paying agent. The address of the custodian is 425 Walnut
Street, Cincinnati, Ohio 45202 and the address of Mutual Funds Service Co. is
6000 Memorial Drive, Dublin, Ohio 43017.
The Portfolio has not retained the services of a principal underwriter or
distributor, as interests in the Portfolio are offered solely in private
placement transactions.
The Manager and the Subadviser have the ultimate responsibility for the
investment performance of the Portfolio due to the Manager's responsibility to
oversee the Subadviser and the Subadviser's responsibility to oversee the Sector
Advisers and recommend their hiring, termination and replacement.
R. Meeder & Associates, Inc., has been an adviser to individuals and
retirement plans since 1974 and has served as investment adviser to registered
investment companies since 1982. The Manager serves the Portfolio pursuant to an
Investment Advisory Agreement under the terms of which it has agreed to provide
an investment program within the limitations of the Portfolio's investment
policies and restrictions, and to furnish all executive, administrative, and
clerical services required for the transaction of Portfolio business, other than
accounting services and services which are provided by the Portfolio's
custodian, transfer agent, independent accountants and legal counsel. The
Manager invests the Portfolio's liquidity reserves and may invest the
Portfolio's financial futures contracts and related options.
The Manager was incorporated in Ohio in 1974 and maintains its principal
offices at 6000 Memorial Drive, Dublin, Ohio 43017. The Adviser is a
wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"). MII is controlled
by Robert S. Meeder, Sr. through ownership of voting common stock. MII conducts
business only through its six subsidiaries which are the Manager; Mutual Funds
Service Co., the Portfolio's transfer agent; Adviser Dealer Services, Inc., a
registered broker-dealer; Opportunities Management Co., a venture capital
investor; Meeder Advisory Services, Inc., a registered investment adviser and
OMCO, Inc., a registered commodity trading adviser and commodity pool operator.
The Manager's officers and directors are as follows: Robert S. Meeder, Sr.,
Chairman and Sole Director; Robert S. Meeder, Jr., President; Philip A. Voelker,
Senior Vice President and Chief Investment Officer; Donald F. Meeder, Vice
President and Secretary; Thomas E. Line, Chief Operating Officer; Michael J.
Sullivan, Vice President, Sales and Marketing; and Wesley F. Hoag, Vice
President and General Counsel.
Philip A. Voelker is primarily responsible for managing the liquidity
reserve of the Portfolio and managing the futures contracts and related options
of the Portfolio on behalf of the Manager. Mr. Voelker is a Vice President and
Trustee of the Portfolio, Vice President and Trustee of The Flex-funds and The
Flex-Partners and Senior Vice President and Chief Investment Officer of the
Manager. Mr. Voelker has been associated with the Manager since 1975.
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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.
All compensation to the Manager will be shared by the Subadviser and the
Manager out of the Manager's fee from the Portfolio in accordance with a formula
such that 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 Subadviser will receive 70% and the Manager
30% of the fee attributable to any additional net assets of the Portfolio up to
an amount of net assets equal to the net assets at 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 fee of 0.75% will be shared such that
the Manager will 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 Subadviser 0.35%.
Accounting, stock transfer, dividend disbursing, and shareholder services
are provided to the Portfolio by Mutual Funds Service Co., 6000 Memorial Drive,
Dublin, Ohio 40317, a wholly-owned subsidiary of MII. The minimum annual fee,
payable monthly, for accounting services in the Portfolio is $7,500. Subject to
the applicable minimum fee, the fee 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.
For the year ended December 31, 1998, total payments to Mutual Funds
Service Co. amounted to $38,204 for the Portfolio.
SUBADVISER
Sector Capital Management, L.L.C. (the "Subadviser"), 5350 Poplar Avenue,
Suite 490, Memphis, Tennessee 38119, serves as the Growth Stock Portfolio's
subadviser under an Investment Subadvisory Agreement among the Portfolio, the
Manager and the Subadviser. The Subadviser furnishes investment advisory
services in connection with the management of the Growth Stock Portfolio.
The Subadviser is a Georgia limited liability company that has been a
registered investment adviser to individuals, pension and profit sharing plans,
trusts, charitable organizations, corporations and other institutions since
January, 1995. As of December 31, 1998, the Subadviser held discretionary
investment authority over approximately $550 million of assets. The Subadviser
is controlled by William L. Gurner and John K. Donaldson. Mr. Gurner is
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primarily responsible for the day-to-day management of the Portfolio through
interaction with each of the Sector Advisers. Mr. Gurner is also primarily
responsible for managing the futures contracts and related options of the
Portfolio on behalf of the Subadviser. Mr. Gurner has been associated with the
Subadviser since its inception in January, 1995. Mr. Gurner, President,
Administrator, Manager and a Member of the Subadviser, is a trustee of The
Growth Stock Portfolio, The Flex-funds and The Flex-Partners, mutual funds whose
corresponding portfolios are also advised by the Manager.
The Subadviser and the Portfolio have entered into a Sub-subadvisory
Agreement with each Sector Adviser selected for the Portfolio. It is the
Subadviser's responsibility to select, subject to the review and approval of the
Board of Trustees, the Sector Advisers who have distinguished themselves by able
performance in respective areas of expertise in sector management and to review
their continued performance. In addition, it is the Subadviser's responsibility
to categorize publicly traded domestic common stocks into a specific industry
sector. The Subadviser may also invest the Portfolio's financial futures
contracts and related options.
Subject to the supervision and direction of the Portfolio's Board of
Trustees, the Subadviser provides to the Portfolio investment management
evaluation services principally by performing initial due diligence on
prospective Sector Advisers for the Portfolio and thereafter monitoring Sector
Adviser performance through quantitative and qualitative analysis as well as
periodic in-person, telephonic and written consultations with Sector Advisers.
In evaluating prospective Sector Advisers, the Subadviser considers among other
factors, each Sector Advisers level of expertise; relative performance and
consistency of performance, level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. The Subadviser has responsibility for communicating
performance expectations and evaluations to Sector Advisers and ultimately
recommending to the Board of Trustees of the Portfolio whether Sector Advisers'
contracts should be renewed, modified, or terminated. The Subadviser provides
reports to the Portfolio's Board of Trustees regarding the results of its
evaluation and monitoring functions.
The Subadviser pays each Sector Adviser 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 0.25%.
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 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 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 Portfolio's performance compared to the applicable indices and
also will review the Portfolio's compliance with its investment objectives and
policies.
While the investment professionals of the Subadviser have experience in
asset management and the selection of investment advisers, prior to the
Subadviser becoming the subadviser to the Portfolio, on December 31, 1996, it
did not have previous experience in providing investment advisory services to an
investment company.
The Growth Stock Portfolio has received an exemptive order from the
Securities and Exchange Commission (the "SEC") which permits the Growth Stock
Portfolio and the Subadviser to enter into and materially amend Investment
Sub-subadvisory Agreements with Sector Advisers without such agreements being
approved by the Growth Stock Portfolio's investors or the Funds' shareholders
except for Investment Sub-subadvisory Agreements with an affiliated person of
the Growth Stock Portfolio, the Manager or the Subadviser other than by reason
of such affiliated person serving as an existing Sector Adviser to the Growth
Stock Portfolio. The exemptive order also permits the Growth Stock Portfolio and
the Funds to disclose, on an aggregate basis, the fees paid to Sector Advisers
who are not such affiliated persons. In addition, the exemptive order includes
the condition that within 90 days of the hiring of any new Sector Advisers, the
Manager and the Subadviser will furnish shareholders of the Funds with an
information statement about the new Sector Adviser and Investment
Sub-subadvisory Agreement. Any changes to the Investment Advisory Contract
between the Growth Stock Portfolio and the Manager or the Investment Subadvisory
Agreement among the Growth Stock Portfolio, Manager and the Subadviser will
still require shareholder approval. In accordance with the terms of the
exemptive order, a majority of the shareholders of each of the Funds has
approved the operation of the Funds in accordance with the exemption.
SECTOR ADVISERS: The Sector Advisers have agreed to an investment advisory
fee based on the average net assets of the Portfolio assigned to them by the
Subadviser at an annual rate equal to .25%, which is generally lower than the
fees they charge to institutional accounts for which they serve as investment
adviser, and for which they perform all administrative responsibilities.
Subject to the supervision and direction of the Subadviser and, ultimately,
the Board of Trustees of the Portfolio, each Sector Adviser's responsibilities
are limited to managing its portion of the securities held by the Portfolio in
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accordance with the Portfolio's stated investment objective and policies, making
investment decisions for the Portfolio and placing orders to purchase and sell
securities on behalf of the Portfolio.
The following sets forth certain information about each of the Sector
Advisers:
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
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1998, Miller/Howard held discretionary investment authority over
approximately $165 million of assets. Lowell G. Miller, President and Secretary
of Miller/Howard, 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 served as President and portfolio manager of
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 Flex-Partners' 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 which 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,
1998, Hallmark held discretionary investment authority over approximately $180
million of assets. Peter S. 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 Chairman of the Board,
President, and Chief Executive Officer of Hallmark since 1994 and 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, 1998, Barrow
managed approximately $36.3 billion in assets. Michael C. Mewhinney is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Barrow. Mr. Mewhinney has
served as a portfolio manager and Principal for Barrow since 1979. Barrow's
principal executive offices are located at 3232 McKinney Avenue, 15th Floor,
Dallas, Texas 75204-2429.
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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, 1998, The Mitchell Group managed approximately $269 million of assets.
Rodney Mitchell, President, Chief Executive Officer, Chief Financial Officer of
The Mitchell Group, 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, 1998, Ashland managed
approximately $1.5 billion in assets. Terrence J. McLaughlin, Managing Director
of Ashland and Deborah C. Ohl, a 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.
DELTA CAPITAL MANAGEMENT, INC. serves as Sector Adviser to the finance
sector of the Growth Stock Portfolio. Delta Capital is a registered investment
adviser that has been providing investment services to individuals, endowments,
corporations and other institutions since 1992. As of December 31, 1998, Delta
Capital managed approximately $700 million of assets. Jonathan Kay is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Portfolio allocated to Delta Capital. Mr. Kay has been a portfolio
manager for Delta Capital since April 1998. From 1993 to March 1998, Mr. Kay was
a portfolio manager for Scudder Kemper Investments, Inc., a registered
investment adviser. Delta Capital's principal executive offices are located at
745 Fifth Avenue, Suite 816, New York, NY 10151.
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
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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, 1998, Dresdner RCM managed approximately $34 billion in
assets. 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.
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, 1998 totaling approximately $286.7 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. 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 sixteen 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.
TRANSFER AGENT AND CUSTODIAN
The Portfolio has entered into an Administration and Accounting Services
Agreement with Mutual Funds Service Co. pursuant to which Mutual Funds Service
Co. acts as transfer agent for the Portfolio, maintains an account for each
investor in the Portfolio, performs other transfer agency functions, and acts as
dividend disbursing agent for the Portfolio. Pursuant to a Custody Agreement,
Firstar acts as the custodian of the Portfolio's assets. See Part B for more
detailed information concerning custodial arrangements.
EXPENSES
The expenses of the Portfolio include the compensation of its Trustees who
are not affiliated with the Adviser; governmental fees; interest charges; taxes;
fees and expenses of independent auditors, of legal counsel and of any transfer
agent, custodian, registrar or dividend disbursing agent of the Portfolio;
insurance premiums; expenses of calculating the net asset value of, and the net
income on, the Portfolio; all fees under its Administration and Accounting
Services and Subadministrative Services Agreements; 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
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governmental officers and commissions; expenses of meetings of investors and
Trustees; and the advisory fees payable to the Adviser under the Investment
Advisory Agreement.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of New
York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (E.G., 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 an investor in the Portfolio 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.
The net income of the Portfolio is determined each day on which the
N.Y.S.E. is open for trading (and on such other days as are deemed necessary in
order to comply with Rule 22c-1 under the 1940 Act) ("Fund Business Day"). This
determination is made once during each such day. All the net income of the
Portfolio, as defined below, so determined is allocated PRO RATA among the
investors in the Portfolio at the time of such determination.
For this purpose the net income of the Portfolio (from the time of the
immediately preceding determination thereof) shall consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity and any net realized
gains or losses on the assets of the Portfolio.
Investments in the Portfolio have no preemptive or conversion rights and
are fully paid and nonassessable, except as set forth below. The Portfolio is
not required to hold annual meetings of investors but the Portfolio will hold
special meetings of investors when in the judgment of the Trustees it is
necessary or desirable to submit matters for an investor vote. Investors have
the right to communicate with other investors to the extent provided in Section
16(c) of the 1940 Act in connection with requesting a meeting of investors for
the purpose of removing one or more Trustees, which removal requires a
two-thirds vote of the Portfolio's beneficial interests. Investors also have
under certain circumstances the right to remove one or more Trustees without a
meeting. Upon liquidation or dissolution of the Portfolio, investors would be
entitled to share PRO RATA in the net assets of the Portfolio available for
distribution to investors.
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<PAGE>
Under the anticipated method of operation of the Portfolio, the Portfolio
will not be subject to any income tax. However, each investor in the Portfolio
will be taxable on its share (as determined in accordance with the governing
instruments of the Portfolio) of the Portfolio's taxable income, gain, loss,
deductions and credits in determining its income tax liability. The
determination of such share will be made in accordance with the Internal Revenue
Code of 1986, as amended, and regulations promulgated thereunder.
The Portfolio's assets, income and distributions are managed in such a way
that an investor in the Portfolio will be able to satisfy the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended, assuming that the
investor invested all of its investable assets in the Portfolio.
Investor inquiries may be directed the Portfolio at 6000 Memorial Drive,
Dublin, Ohio 43017.
ITEM 7. PURCHASE OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities which are
"accredited investors" as defined in Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load at the net
asset value next determined after an order is received in "good order" by the
Portfolio.
There is no minimum initial or subsequent investment in the Portfolio.
However, since the Portfolio intends to be as fully invested at all times as is
reasonably practicable in order to enhance the return on its assets, investments
must be made in federal funds (I.E., monies credited to the account of the
Portfolio's custodian bank by a Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any time
or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Fund Business Day. As of 4:00 p.m., New York time, on each
such day, the value of each investor's beneficial interest in the Portfolio will
be determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
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reductions, which are to be effected as of 4:00 p.m., New York time, on such
day, will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of 4:00 p.m., New York time, on such day plus or
minus, as the case may be, the amount of net additions to or reductions in the
investor's investment in the Portfolio effected as of 4:00 p.m., New York time,
on such day, and (ii) the denominator of which is the aggregate net asset value
of the Portfolio as of 4:00 p.m., New York time, on such day, plus or minus, as
the case may be, the amount of net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of 4:00 p.m., New York time, on the following Fund
Business Day.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may reduce any portion or all of its
investment at any time at the net asset value next determined after a request in
"good order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
business day after the reduction is effected, but in any event within seven
days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any reduction
may be suspended or the payment of the proceeds therefrom postponed during any
period in which the N.Y.S.E. is closed (other than weekends or holidays) or
trading on such Exchange is restricted, or, to the extent otherwise permitted by
the 1940 Act, if an emergency exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
Page
General Information and History . . . . . . . . . . . B-1
Investment Objective and Policies . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . B-11
Control Persons and Principal Holders of Securities . B-15
Investment Advisory and Other Services . . . . . . . B-15
Brokerage Allocation and Other Practices . . . . . . B-23
Capital Stock and Other Securities . . . . . . . . . B-25
Purchase, Redemption and Pricing of Securities . . . B-27
Tax Status . . . . . . . . . . . . . . . . . . . . . B-28
Underwriters . . . . . . . . . . . . . . . . . . . . B-28
Calculation of Performance Data . . . . . . . . . . . B-28
Financial Statements . . . . . . . . . . . . . . . . B-28
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
Part A contains additional information about the investment objective and
policies of the Growth Stock Portfolio (the "Portfolio"). This Part B should
only be read in conjunction with Part A.
The investment policies are not fundamental and may be changed by the
Trustees of the Portfolio without investor approval. No such change would be
made, however, without 30 days' written notice to investors.
The portfolio turnover rate for the Portfolio was 80% for the year ended
December 31, 1998 (130% in 1997).
MONEY MARKET INSTRUMENTS AND BONDS
When investing in money market instruments or bonds, the Portfolio will
limit its purchases, denominated in U.S. dollars, to the following securities:
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<PAGE>
o 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.
o 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.
o High Quality Commercial Paper--the Portfolio may invest in commercial
paper rated no lower than "A-2" by Standard & Poor's Corporation
("Standard & Poor's") or "Prime-2" by Moody's Investors Service, Inc.
("Moody's"), or, if not rated, issued by a company having an
outstanding debt issue rated at least A by Standard & Poor's or
Moody's.
o Private Placement Commercial Paper--private placement commercial paper
("Rule 144A securities") 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. A
position in such Rule 144A securities would ordinarily be subject to a
10% limitation. The Board of Trustees of the Portfolio has identified
the market for, and the categories of qualified buyers of, Rule 144A
securities and has determined that it is sufficient to consider such
securities to be liquid and not subject to the 10% illiquid asset
limitation. The Trustees have determined that the Portfolio may invest
up to 35% of its assets, at cost on the date of purchase, in private
placement commercial paper.
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o High Grade Corporate Obligations--obligations rated at least A by
Standard & Poor's or by Moody's. See rating information below.
o Repurchase Agreements Pertaining to the Above--the Portfolio may
invest without limit in any of the above securities subject to
repurchase agreements with any Federal Reserve reporting dealer or
member bank of the Federal Reserve System. A repurchase agreement is
an instrument under which the purchaser (I.E., the Portfolio) acquires
ownership of a debt security and the seller agrees, at the time ----
of the sale, to repurchase the obligation at a mutually agreed upon
time and price, thereby determining the yield during the purchaser's
holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. The underlying securities
could be any of those described above, some of which might bear
maturities exceeding one year. The Portfolio's risk is that the seller
may fail to repurchase the security on the delivery date. If the
seller defaults, the underlying security constitutes collateral for
the seller's obligation to pay. It is a policy of the Portfolio to
make settlement on repurchase agreements only upon proper delivery of
the underlying collateral. Repurchase agreements usually are for short
periods, such as one week or less, but could be longer. The Portfolio
may enter into repurchase agreements with its custodian (Star Bank,
N.A., Cincinnati) when it is advantageous to do so. The Portfolio will
not invest more than 10% of its assets, at time of purchase, in
repurchase agreements which mature in excess of seven days.
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
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
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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.
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
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securities that incorporate features similar to options. The above limitations
on the Portfolio's investments in futures contracts and options, and the
Portfolio's policies regarding futures contracts and options discussed elsewhere
in this Statement of Additional Information, may be changed as regulatory
agencies permit.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When the Portfolio sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract.
Some currently available futures contracts are based on 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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<PAGE>
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
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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.
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.
RATINGS
1. Moody's Corporate Bond Ratings:
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 of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard & Poor's Corporate Bond Ratings:
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 adverse effects 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.
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3. A-1 and P-1 Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is A-1, A-2, or
A-3.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
4. Description of Permitted Money Market Instruments:
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 such as, for example, the Government National Mortgage Association;
others by the right of the issuer to borrow from the Treasury, authority or
instrumentality such as, for example, Federal Home Loan Mortgage and Federal
Home Loan Bank.
Repurchase Agreements--a repurchase transaction occurs when an investor
buys a security and simultaneously agrees to resell it at a later date to the
person from whom it was bought, at a higher price. The price differential
represents interest for the period the security is held. Repurchase transactions
will normally be entered into with banks and securities brokers. The Portfolio
could suffer a loss if the bank or securities broker with which the Portfolio
had a repurchase agreement were to default.
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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.
Corporation Obligations--include bonds and notes issued by corporations in
order to finance longer term credit needs.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Portfolio as
fundamental policies. Under the Investment Company Act of 1940 (the "1940 Act"),
a "fundamental" policy may not be changed without the vote of a majority of the
outstanding voting securities of the Portfolio, which is defined in the 1940 Act
with respect to the Portfolio as the lesser of (a) 67 percent or more of the
Portfolio's beneficial interests represented at a meeting of investors if the
holders of more than 50 percent of the outstanding beneficial interests are
present or represented by proxy, or (b) more than 50 percent of the outstanding
beneficial interests ("Majority Vote"). The percentage limitations contained in
the restrictions listed below apply at the time of the purchase of the
securities.
The Portfolio may not: (a) Issue senior securities; (b) Borrow money except
as a temporary measure, and then only in an amount not to exceed 5% of the value
of its net assets (whichever is less) taken at the time the loan is made, or
pledge its assets taken at value to any extent greater than 15% of its gross
assets taken at cost; (c) Act as underwriter of securities of other issuers; (d)
Invest in real estate except for office purposes; (e) Purchase or sell
commodities or commodity contracts, except that it may purchase or sell
financial futures contracts involving U.S. Treasury securities, corporate
securities, or financial indexes; (f) Lend its funds or other assets to any
other person; however, the purchase of a portion of publicly distributed bonds,
debentures or other debt instruments, the purchase of certificates of deposit,
U.S. Treasury debt securities, and the making of repurchase agreements are
permitted, provided repurchase agreements with fixed maturities in excess of
seven days do not exceed 10% of its total assets; (g) Purchase more than 10% of
any class of securities, including voting securities of any issuer, except that
the purchase of U.S. Treasury debt instruments shall not be subject to this
limitation; (h) Invest more than 5% of its total assets (taken at value) in the
securities of any one issuer, other than obligations of the U.S. Treasury; (i)
Purchase securities on margin, or participate in any joint or joint and several
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trading account; (j) Make any so-called "short" sales of securities, except
against an identical portfolio position (I.E., a "short sale against the box");
(k) Invest 25% or more of its total assets at time of purchase (taken at value)
in the securities of companies in any one industry; (l) Purchase the securities
of another investment company except where such purchase is part of a plan of
merger or consolidation; (m) Purchase or retain any securities of an issuer, any
of whose officers, directors or security holders is an officer or director of
the Portfolio, if such officer or director owns beneficially more than 1/2 of 1%
of the issuer's securities or together they own beneficially more than 5% of
such securities; (n) Invest in securities of companies which have a record of
less than three years' continuous operation, if at the time of such purchase,
more than 5% of its assets (taken at value) would be so invested; (o) Purchase
participations or other direct interests in oil, gas or other mineral
exploration or development programs; (p) Invest in warrants; and (q) Invest more
than 10% of its assets in restricted securities and securities for which market
quotations are not readily available and repurchase agreements which mature in
excess of seven days; however, this shall not prohibit the purchase of money
market instruments or other securities which are not precluded by other
particular restrictions.
In order to comply with certain state investment restrictions, the
Portfolio's operating policy is not to: (a) Notwithstanding (b) above, pledge
assets having a value in excess of 10% of its gross assets; (b) Invest in oil,
gas or mineral leases or programs; and (c) Purchase real estate limited
partnerships.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Portfolio. Unless otherwise
indicated, the address of each Trustee and officer is P.O. Box 7177, 6000
Memorial Drive, Dublin, Ohio 43017.
TRUSTEES AND OFFICERS
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
ROBERT S. MEEDER, SR.*+, 70 Trustee/President Chairman of R. Meeder &
Associates, Inc., an
investment adviser;
Chairman and Director of
Mutual Funds Service Co.,
the Funds' transfer agent.
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MILTON S. BARTHOLOMEW, 70 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, 58 Trustee Professor of Marketing and
Blackwell Associates, Inc. Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
ROBERT S. MEEDER, JR.*, 38 Trustee and President of R. Meeder &
Vice President Associates, Inc.
WALTER L. OGLE, 60 Trustee Executive Vice President
400 Interstate North Parkway of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
CHARLES A. DONABEDIAN, 56 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive provides a variety of
Suite 200 marketing and consulting
Milford, OH 45150 services to investment
management companies; CEO,
Winston Advisors, Inc., an
investment adviser.
JAMES W. DIDION, 68 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, 38 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.
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PHILIP A. VOELKER*+, 45 Trustee and Vice Senior Vice President and
President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 55 Assistant Secretary Assistant Secretary and
42 Miller Hill Road Assistant Treasurer of
Box 811 Adviser Dealer Services,
Dover, MA 02030 Inc.; Practicing Attorney;
Special Counsel to
Flex-Partners, Flex-funds
and their Portfolios;
Senior Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 60 Secretary/Treasurer Vice President of R.
Meeder & Associates, Inc.;
Secretary of Mutual Funds
Service Co., the Funds'
transfer agent.
WESLEY F. HOAG*+, 42 Vice President Vice President and General
Counsel of R. Meeder &
Associates, Inc. and
Mutual Funds Service Co.
(since July 1993);
Attorney, Porter, Wright,
Morris & Arthur, a law
firm (October 1984 to
June 1993).
RICHARD A. CLEMENS*+, 31 Assistant Treasurer Manager/Financial
Reporting, Mutual Funds
Service Co., the Funds'
transfer agent (since
March 1997); Manager,
Financial Administration,
BISYS Fund Services (May
1995 to February 1997);
Supervising Senior
Accountant, Ernst & Young
LLP (October 1990 to
May 1995)
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* Interested Person of the Trust (as defined in the Investment Company Act of
1940), The Flex-funds, Flex-Partners and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is Donald F. Meeder's uncle and Robert S. Meeder,
Jr's. father.
Each Trustee and each officer of the Portfolio hold the same positions with
other Portfolios, each a corresponding Portfolio of The Flex-funds or
Flex-Partners, each a Massachusetts business trust consisting of several
separate series.
The following table shows the compensation paid by the Portfolio and all
other mutual funds advised by the Adviser, including The Flex-funds, The
Flex-Partners and the corresponding portfolios of The Flex-Partners and The
Flex-funds (collectively, the "Fund Complex") as a whole to the Trustees of the
Portfolio during the fiscal year ended December 31, 1998.
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 TO
TRUSTEE PORTFOLIO(1) EXPENSE RETIREMENT TRUSTEE(1)(2)
----------- ------- ------------- -----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $2,013 None None $13,525
John M. Emery $1,481 None None $9,867
Richard A. Farr $1,457 None None $9,367
William F. Gurner None None None None
Russel G. Means $1,207 None None $36,913
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $2,059 None None $16,582
Philip A. Voelker None None None None
Roger A. Blackwell $2,016 None None $13,525
Charles A. Donabedian $1,791 None None $12,525
James W. Didion None None None None
Jack W. Nicklaus II $1,050 None None $6,325
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(1) Compensation figures include cash and amounts deferred at the election of
certain non-interested Trustees accrued deferred compensation from the
Portfolios as follows: Milton S. Bartholomew - $1,071, Roger A. Blackwell -
$2,016, Charles A. Donabedian - $1,791, and Jack W. Nicklaus II - $1,050.
(2) The Fund Complex consists of 15 investment companies.
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios. In addition, each such Trustee
earns an annual fee, payable quarterly, based on the average net assets in each
Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of
the amount of average net assets between $500 million and $1 billion; 0.0025% of
the amount of average net assets exceeding $1 billion. For the other four
Portfolios, including the Portfolio, each Trustee is paid a fee of 0.00375% of
the amount of each Portfolio's average net assets exceeding $15 million. Members
of the Audit and Strategic Planning Committees for each of The Flex-funds and
The Flex-Partners Trusts, and the Portfolios are paid $500 for each Committee
meeting. All other officers and Trustees serve without compensation from the
Portfolio. Trustee fees for the Growth Stock Portfolio totaled $15,042 for the
year ended December 31, 1998 ($9,347 in 1997).
The Declaration of Trust provides that the Portfolio will indemnify its
Trustees and officers as described below under Item 18.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of April 21, 1999, the Flex-funds The Highlands Growth Fund and The
Flex-Partners Core Equity Fund (collectively, the "Funds") have an investment in
the Portfolio equaling approximately 81% and 19%, respectively, of the
Portfolio's interests. No Trustee or officer of the Portfolio or any other
person, except the Funds, own in the aggregate more than a 1% interest in the
Portfolio as of the date of this Registration Statement.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
ADVISER
R. Meeder & Associates, Inc. (the "Adviser") is the investment adviser and
manager for, and has an Investment Advisory Contract with, the Portfolio.
Pursuant to the Investment Advisory Contract with the Portfolio, the
Manager, subject to the supervision of the Portfolio's Board of Trustees and in
conformity with the stated objective and policies of the 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 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.
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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.
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 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
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<PAGE>
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, 1998, the Growth Stock
Portfolio paid fees to the Manager totaling $435,886 ($317,772 in 1997; $258,239
in 1996).
R. Meeder & Associates, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors 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 of Vice President, Sales and Marketing; and Wesley
F. Hoag, Vice President and General Counsel. Mr. Robert S. Meeder, Sr. is
President and a Trustee of the Portfolio. Each of Donald F. Meeder and Wesley F.
Hoag is an officer of the Portfolio. Mr. Robert S. Meeder Jr. and Philip A.
Voelker are Trustees and officers of the 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 Growth Stock Portfolio, The
Flex-funds, and The Flex-Partners, mutual funds whose corresponding portfolios
are also advised by the Manager. The Investment Subadvisory Agreement provides
that the Subadviser shall furnish investment advisory services in connection
with the management of the Portfolio. 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, 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
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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 without penalty to the Fund or the Portfolio by
the Manager, the Trustees of the Portfolio or by the vote of a majority of the
outstanding voting securities of the Portfolio upon not less than 30 days
written notice. The Investment Subadvisory Agreement will continue in effect for
a period of more than two years from the date of execution only so long as such
continuance is specifically approved at least annually in conformity with the
1940 Act. The Investment Subadvisory Agreement was approved by the Board of
Trustees of the Portfolio, including all of the Trustees who are not parties to
the contract or "interested persons" of any such party, and by the shareholders
of the Portfolio.
INVESTMENT SUB-SUBADVISERS
Except as otherwise described above under "Adviser" 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 investors of
the Portfolio approved the operation of the Portfolio in this manner. Pursuant
to the terms of the exemptive order, the Subadviser is to be 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
will not be 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.
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Except as otherwise provided under "General Description of Registrant" in
Part A attached hereto, 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 Subadvisor to the Sector Adviser at an
annual rate equal to .25%.
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.
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<PAGE>
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
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1998, Miller/Howard held discretionary investment authority over
approximately $165 million of assets. Lowell G. Miller, President and Secretary
of Miller/Howard, 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 served as President and portfolio manager of
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 Flex-Partners' 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 which 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,
1998, Hallmark held discretionary investment authority over approximately $180
million of assets. Peter S. 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 Chairman of the Board,
President, and Chief Executive Officer of Hallmark since 1994 and 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, 1998, Barrow
managed approximately $36.3 billion in assets. Michael C. Mewhinney is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Barrow. Mr. Mewhinney has
served as a portfolio manager and Principal for Barrow since 1979. Barrow's
principal executive offices are located at 3232 McKinney Avenue, 15th Floor,
Dallas, Texas 75204-2429.
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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, 1998, The Mitchell Group managed approximately $269 million of assets.
Rodney Mitchell, President, Chief Executive Officer, Chief Financial Officer of
The Mitchell Group, 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, 1998, Ashland managed
approximately $1.5 billion in assets. Terrence J. McLaughlin, Managing Director
of Ashland and Deborah C. Ohl, a 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.
DELTA CAPITAL MANAGEMENT, INC. serves as Sector Adviser to the finance
sector of the Growth Stock Portfolio. Delta Capital is a registered investment
adviser that has been providing investment services to individuals, endowments,
corporations and other institutions since 1992. As of December 31, 1998, Delta
Capital managed approximately $700 million of assets. Jonathan Kay is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Portfolio allocated to Delta Capital. Mr. Kay has been a portfolio
manager for Delta Capital since April 1998. From 1993 to March 1998, Mr. Kay was
a portfolio manager for Scudder Kemper Investments, Inc., a registered
investment adviser. Delta Capital's principal executive offices are located at
745 Fifth Avenue, Suite 816, New York, NY 10151.
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
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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, 1998, Dresdner RCM managed approximately $34 billion in
assets. 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.
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, 1998 totaling approximately $286.7 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. 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 sixteen 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.
TRANSFER AGENT
The Portfolio has entered into an Administration and Accounting Services
Agreement with Mutual Funds Service Co., which acts as transfer agent for the
Portfolio. Mutual Funds Service Co. maintains an account for each investor in
the Portfolio, performs other transfer agency functions and acts as dividend
disbursing agent for the Portfolio.
CUSTODIAN
Pursuant to a Custody Agreement, Firstar, N.A., Cincinnati, acts as the
custodian of the Portfolio's assets (the "Custodian"). The Custodian's
responsibilities include safeguarding and controlling the Portfolio's cash and
securities, handling the receipt and delivery of securities, determining income
and collecting interest on the Portfolio's investments and maintaining books of
original entry for Portfolio accounting and other required books and accounts.
Securities held by the Portfolio may be deposited into the Federal
Reserve-Treasury Department Book Entry System or the Depository Trust Company
and may be held by a subcustodian bank if such arrangements are reviewed and
approved by the Trustees of the Portfolio. The Custodian does not determine the
investment policies of the Portfolio or decide which securities the Portfolio
will buy or sell. The Portfolio may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities
transactions. For its services, the Custodian will receive such compensation as
may from time to time be agreed upon by it and the Portfolio.
B-22
<PAGE>
INDEPENDENT AUDITORS
KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215, serves as the
Portfolio's independent auditors. The auditors audit financial statements for
the Portfolio and provide other assurance, tax, and related services.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
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 and 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
B-23
<PAGE>
Advisers' clients may be useful to the Manager, Subadviser and Sector Advisers
in carrying out their obligations to the Portfolio. The receipt of such research
is 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 Funds or
shares of other Flex-funds funds or Flex-Partners 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 Portfolio may effect portfolio transactions with or through the
Manager, Subadviser or Sector Advisers, or their affiliates, when the Manager,
Subadviser or Sector Advisers, as appropriate, determine that the Portfolio will
receive the best net price and execution. This standard would allow the Manager,
Subadviser or Sector Advisers, or their affiliates, to receive no more than the
remuneration that would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction.
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.
B-24
<PAGE>
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.
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, 1998 to December
31, 1998, the Growth Stock Portfolio paid total commissions of $78,411 ($100,888
in 1997; $22,474 in 1996) on the purchase and sale of common stocks. Brokerage
commissions paid on the purchases and sales by the Portfolio of futures and
option contracts for the year ending December 31, 1998 were $8,025.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate PRO
RATA in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share PRO RATA in the Portfolio's net assets available for distribution to its
B-25
<PAGE>
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees of the Portfolio if they
choose to do so and in such event the other investors in the Portfolio would not
be able to elect any Trustee. The Portfolio is not required to hold annual
meetings of investors but the Portfolio will hold special meetings of investors
when in the judgment of the Portfolio's Trustees it is necessary or desirable to
submit matters for an investor vote. No material amendment may be made to the
Portfolio's Declaration of Trust without the affirmative majority vote of
investors (with the vote of each being in proportion to the amount of their
investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two-thirds of its
investors (with the vote of each being in proportion to the amount of their
investment), except that if the Trustees of the Portfolio recommend such sale of
assets, the approval by vote of a majority of the investors (with the vote of
each being in proportion to the amount of their investment) will be sufficient.
The Portfolio may also be terminated (i) upon liquidation and distribution of
its assets, if approved by the vote of two-thirds of its investors (with the
vote of each being in proportion to the amount of their investment), or (ii) by
the Trustees of the Portfolio by written notice to its investors.
The Portfolio is organized as a trust under the laws of the State of New
York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial interest in the Portfolio. The Declaration of Trust also provides
that the Portfolio shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the Portfolio
are not binding upon the Trustees individually but only upon the property of the
Portfolio and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
B-26
<PAGE>
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust provides that
the trustees and officers will be indemnified by the Portfolio against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Portfolio, unless, as to
liability to the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Portfolio may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities which are "accredited investors" as defined in
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
The Portfolio determines its net asset value as of 4:00 p.m., New York
time, each Fund Business Day by dividing the value of the Portfolio's net assets
by the value of the investment of the investors in the Portfolio at the time the
determination is made. (As of the date of this Registration Statement, the New
York Stock Exchange is open for trading every weekday except for the following
holidays (or days on which such holiday is observed): New Year's Day, Martin
Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas.) Purchases and reductions will be
effected at the time of determination of net asset value next following the
receipt of any purchase or reduction order.
Securities owned by the Portfolio and listed or traded on any national
securities exchange are valued at each closing of the N.Y.S.E. on the basis of
the last sale on such exchange each day that the exchange is open for business.
If there is no sale on that day, or if the security is not listed, it is valued
B-27
<PAGE>
at its last bid quotation on the exchange or, in the case of unlisted
securities, as obtained from an established market maker. Futures contracts are
valued on the basis of the cost of closing out the liability; I.E., at the
settlement price of a closing contract or at the asked quotation for such a
contract if there is no sale. Money market instruments having maturities of 60
days or less are valued at amortized cost if not materially different from
market value. Portfolio securities for which market quotations are not readily
available are to be valued by the Adviser in good faith at its own expense under
the direction of the Trustees.
ITEM 20. TAX STATUS.
The Portfolio is organized as a trust under New York law. Under the method
of operation of the Portfolio, the Portfolio is not subject to any income tax.
However, each investor in the Portfolio is taxable on its share (as determined
in accordance with the governing instruments of the Portfolio) of the
Portfolio's ordinary income and capital gain in determining its income tax
liability. The determination of such share is made in accordance with the
Internal Revenue Code of 1986, as amended, and regulations promulgated
thereunder.
The Portfolio's taxable year-end is December 31. Although, as described
above, the Portfolio is not subject to federal income tax, it files appropriate
federal income tax returns.
The Portfolio's assets, income and distributions are managed in such a way
that an investor in the Portfolio will be able to satisfy the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended, assuming that the
investor invested all of its investable assets in the Portfolio.
ITEM 21. UNDERWRITERS.
The Portfolio has not retained the services of a principal underwriter or
distributor, as interests in the Portfolio are offered solely in private
placement transactions. Investment companies, insurance company separate
accounts, common and commingled trust funds and similar organizations and
entities may continuously invest in the Portfolio.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The following financial statements are intended to provide information only
with respect to the Growth Stock Portfolio. Persons interested in obtaining
information about any of the other Portfolios should contact the Investment
Adviser to obtain a copy of such Portfolio's current Registration Statement.
B-28
<PAGE>
Growth Stock Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
COMMON STOCKS - 94.3%
ADVERTISING SALES - 0.4%
Outdoor Systems, Inc. # 7,600 $ 228,000
AEROSPACE/DEFENSE - 1.3%
B.F. Goodrich Co. 1,891 67,840
Boeing Co. 3,900 127,481
General Dynamics Corp. 440 25,960
Lockheed Martin Corp. 820 69,495
Northrup Grumman Corp. 250 18,281
Raytheon Co. - Class B # 2,000 106,500
Textron, Inc. 1,240 94,163
United Technologies Corp. 1,480 160,950
670,670
AIR TRANSPORTATION - 0.3%
AMR Corp. # 910 54,031
Delta Air Lines, Inc. 770 40,040
Southwest Airlines 1,685 38,228
USAir Group # 470 24,440
156,739
ALUMINUM - 0.2%
Aluminum Company of America 1,230 91,712
AUTO & TRUCK - 1.5%
Ford Motor Co. 6,500 381,469
General Motors Corp. 5,000 357,812
TRW, Inc. 620 34,759
774,040
BANKING - 0.2%
Washington Mutual Savings Bank 2,303 88,378
BEVERAGE--ALCOHOLIC - 0.6%
Anheuser-Busch Cos., Inc. 2,400 157,500
Canadaigua Wine Co. # 2,400 138,750
296,250
BEVERAGE--SOFT DRINK - 1.8%
Coca-Cola Co. 6,000 402,000
Pepsico, Inc. 7,300 298,388
Whitman Corp. 9,400 238,525
938,913
BUILDING MATERIALS - 0.2%
Crane Co. 495 14,943
Masco Corp. 1,860 53,475
Willbros Group # 1,500 8,344
76,762
CAPITAL GOODS - 0.1%
Ingersoll-Rand 611 28,870
CHEMICAL--DIVERSIFIED - 1.1%
Air Products & Chemicals, Inc. 1,550 62,000
E.I. du Pont de Nemours & Co. 4,780 255,730
Monsanto Corp. 2,950 140,125
Praxair, Inc. 1,140 40,185
Rohm & Haas Co. 1,685 50,761
548,801
CHEMICAL--SPECIALTY - 0.1%
Sigma Aldrich 910 26,731
COMMERCIAL SERVICES - 0.1%
Dun & Bradstreet 1,470 46,397
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
COMPUTERS & PERIPHERALS - 4.5%
Allied Waste Industries, Inc. # 1,260 29,768
Compaq Computer Corp. 8,850 371,700
Dell Computer Corp. # 6,100 446,444
EMC Corp./Mass # 2,825 240,125
Gateway 2000, Inc. # 600 30,712
IBM 4,890 901,594
Micron Technology, Inc. # 1,270 64,214
Seagate Technology, Inc. # 1,470 44,468
Sun Microsystems # 1,880 160,975
2,290,000
COMPUTER SOFTWARE & SERVICES - 4.6%
America Online, Inc. # 210 32,550
BMC Software, Inc. # 1,260 56,149
Ceridian Co. # 420 29,321
Computer Associates International, Inc. 2,895 123,399
Computer Sciences Corp. # 600 38,550
Electronic Data System Corp. 1,700 85,319
Microsoft Corp. # 12,110 1,679,506
National Data Corp. 770 37,489
Network Associates, Inc. # 400 26,500
Novell, Inc. # 1,800 32,625
Oracle Corp. # 4,940 213,038
Parametric Technology Co. # 1,400 22,750
2,377,196
CONSTRUCTION - 0.1%
Centex Corp. 830 37,402
CONSUMER NON-DURABLE - 2.7%
Fortune Brands, Inc. 7,800 246,675
Haggar Corp. 11,500 131,531
Procter & Gamble Co. 10,000 913,125
Tupperware Corp. 6,500 106,844
1,398,175
CONTAINERS - METAL/GLASS - 0.0%
Crown Cork & Seal Co., Inc. 670 20,644
COPPER - 0.0%
Phelps Dodge Corp. 380 19,332
COSMETICS - 1.3%
International Flavors & Fragrances, Inc. 6,700 296,056
Playtex Products, Inc. # 23,300 374,256
670,312
DATA PROCESSING - 0.6%
Automatic Data Processing, Inc. 1,800 144,337
Fiserv, Inc. # 920 47,323
First Data Corp. 2,820 89,888
281,548
DIVERSIFIED - 1.2%
Allied Signal, Inc. 2,190 97,044
Minnesota Mining & Manufacturing Co. 1,650 117,356
National Service Industries 500 19,000
Norfolk Southern Corp. 1,830 57,988
PPG Industries, Inc. 1,130 65,752
Tyco International 3,483 262,749
619,889
DRUG - 8.2%
Abbott Labs 6,700 328,300
Bristol Myers Squibb 5,940 794,846
Elan Corp. plc # 451 31,507
Eli Lilly & Co. 4,290 381,274
Merck & Co., Inc. 5,800 855,500
Pfizer, Inc. 7,780 972,500
Schering Plough Corp. 10,500 580,125
Warner Lambert Co. 3,730 280,449
4,224,501
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
DRUGSTORE - 0.1%
Longs Drug Stores 2,000 75,000
ELECTRIC--INTEGRATED - 0.4%
Edison International 1,830 51,011
FPL Group, Inc. 860 52,998
Texas Utilities Co. 1,930 90,107
194,116
ELECTRIC UTILITY - 0.6%
AES Corp. 3,850 182,394
American Electric Power, Inc. 740 34,826
Duke Power Co. 1,690 108,266
325,486
ELECTRICAL EQUIPMENT - 3.3%
General Electric Corp. 16,519 1,684,938
ELECTRONIC COMPONENT SEMICONDUCTORS - 3.3%
Applied Materials, Inc. # 1,880 80,252
Intel 9,880 1,171,398
KLA -Tencor Corp. # 700 30,362
Linear Tech Corp. 250 22,391
Motorola, Inc. 2,960 180,745
STMicroelectronic NV # 250 19,516
Texas Instruments, Inc. 2,300 196,938
1,701,602
ELECTRONIC COMPONENTS - 0.4%
AMP, Inc. 900 46,856
Emerson Electric 2,544 153,912
200,768
ELECTRONICS - 0.1%
Rockwell International Corp. 1,360 66,045
FINANCE - 9.4%
Banc One Corp. 8,926 455,784
Bank of Boston Corp. 3,300 128,494
Chase Manhattan Corp. 3,900 276,900
Citigroup, Inc, 7,997 397,351
Equifax, Inc. 1,250 42,734
Federal Home Loan Mortgage Corp. 5,700 367,294
Federal National Mortgage Corp. 6,600 488,400
First Union Corp. 7,968 484,554
Fleet Financial Group, Inc. 3,100 138,531
Lehman Brothers Holdings, Inc. 1,500 66,094
Mellon Bank Corp. 3,600 247,500
Merrill Lynch & Co. 800 53,400
Morgan Stanley Dean Witter & Co. 1,800 127,800
Metris Cos., Inc. 2,200 110,687
PNC Bank Corp. 3,100 167,400
Providian Financial Corp. 7,350 551,250
Ryder Systems, Inc. 360 9,360
SunTrust Banks, Inc. 900 68,850
Wells Fargo & Co. 15,900 635,006
4,817,389
FINANCIAL SERVICES - 3.9%
American Express Co. 1,700 174,250
Associates First Capital 10,400 440,700
Avery Dennison Corp. 620 27,939
BankAmerica Corp. 10,214 614,117
Capital One Financial Corp. 6,200 713,000
H&R Block, Inc. 1,370 61,650
2,031,656
FOOD - MISCELLANEOUS - 0.5%
International Home Foods, Inc. # 14,900 251,437
FOREST PRODUCTS - 0.2%
Georgia Pacific Corp. 430 25,182
Weyerhauser Co. 1,120 56,910
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
Willamette Industries, Inc. 640 21,440
103,532
HEALTH - 1.4%
American Home Products 5,670 319,646
Johnson & Johnson 5,040 422,730
742,376
INSTRUMENTS--CONTROLS - 0.2%
Honeywell, Inc. 500 37,656
Parker Hannifin Corp. 1,770 57,967
95,623
INSTRUMENTS--SCIENTIFIC - 0.0%
Perkin Elmer Corp. 190 18,537
INSURANCE--LIFE - 0.5%
AFLAC, Inc. 2,000 87,750
SunAmerica, Inc. 2,000 164,000
251,750
INSURANCE--MULTILINE - 1.6%
Allstate 4,400 169,400
American International Group 6,725 649,803
819,203
MACHINERY - 0.4%
Caterpillar, Inc. 1,499 68,954
Deere & Co. 2,484 81,662
Dover Corp. 840 30,765
Lancer Corp. # 3,700 40,700
222,081
MACHINERY--CONSTRUCTION & MINING - 0.2%
Case Corp. 3,192 69,626
Halliburton Co. 1,900 56,287
125,913
MANUFACTURING - 0.2%
Corning, Inc. 1,110 49,950
Mueller Industries, Inc. # 1,750 35,547
Owens Illinois # 780 23,888
109,385
MARKETING SERVICES - 0.1%
Omnicom Group, Inc. 1,135 65,830
MATERIALS & SERVICES - 0.7%
Champion International Corp. 425 17,213
Dana Corp. 970 39,649
Deluxe Corp. 910 33,272
Ecolab, Inc. 1,970 71,289
Hercules, Inc. 660 17,985
Illinois Tool Works, Inc. 1,730 100,340
Service Corp. International 1,570 59,758
Sherwin-Williams Co. 1,070 31,431
370,937
MEDICAL PRODUCTS - 1.0%
Algos Pharmaceutical Corp. # 2,240 58,240
Amgen, Inc. # 900 94,106
Centor, Inc. # 1,500 67,688
GelTex Pharmaceuticals, Inc. # 5,140 116,293
IDEC Pharmaceuticals Corp. # 1,020 47,940
MedImmune, Inc. # 1,550 154,128
538,395
MEDICAL SERVICES - 0.8%
Columbia/HCA Healthcare Corp. 2,620 64,845
Genzyme Corp. # 2,050 101,987
Genzyme Molecular Oncology # 1 2
HBO & Co. 3,940 113,029
IMS Health, Inc. 540 40,736
Shared Medical Systems 490 24,439
Tenet Healthcare Corp. # 1,820 47,775
392,813
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
MEDICAL SUPPLIES - 0.5%
Boston Scientific Co. # 1,000 26,813
IDEXX Laboratories, Inc. # 1,370 36,862
Medtronic, Inc. 2,860 212,444
276,119
MINING - 0.1%
Barrick Gold Corp. 2,090 40,755
Newmont Mining Corp. 1,510 27,558
68,313
MULTIMEDIA - 0.5%
CBS Corp. # 7,300 239,531
NATURAL GAS DISTRIBUTOR - 0.1%
Williams Companies, Inc. 1,300 40,544
NETWORKING PRODUCTS - 1.6%
3Com Corp. # 1,900 85,144
Cisco Systems, Inc. # 8,027 745,006
830,150
OFFICE AUTOMATION & EQUIPMENT - 1.1%
Hewlett Packard 5,770 394,163
Pitney Bowes, Inc. 1,325 87,533
Xerox Corp. 890 105,020
586,716
OIL/GAS--DOMESTIC - 1.7%
Amoco Corp. 4,000 238,000
Atlantic Richfield 1,100 71,912
Baker Hughes 1,640 28,905
Burlington Resources 1,500 53,719
Devon Energy 1,200 36,825
Enron Corp. 400 22,825
Mobil Corp. 4,000 348,500
Murphy Oil Corp. 400 16,500
Noble Drilling Co. # 1,300 16,819
USX Marathon Group 1,800 54,225
888,230
OIL/GAS--INTERNATIONAL - 2.1%
Chevron Corp. 3,500 290,281
Exxon Corp. 11,050 808,031
1,098,312
OILFIELD SERVICES/EQUIPMENT - 0.4%
Coastal Corp. 1,900 66,737
Kerr-McGee Corp. 1,000 38,250
Schlumberger LTD 2,200 101,888
Union Pacific Resources 1,500 13,594
220,469
OIL & NATURAL GAS - 0.4%
Amerada Hess 500 24,875
K N Energy, Inc. # 1,100 41,319
MCN Energy Group, Inc. 4,840 92,263
Ocean Energy, Inc. # 1,560 9,945
Seagull Energy Corp. # 2,900 18,306
186,708
PAPER & FOREST PRODUCTS - 0.3%
Bemis Co., Inc. 360 13,657
Fort James Corp. 1,060 42,400
International Paper 1,615 72,372
Mead Corp. 840 24,623
153,052
PETROLEUM--INTEGRATED - 1.6%
Occidental Petroleum Corp. 1,600 27,000
Phillips Petroleum 1,600 68,200
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
Royal Dutch Petroleum 11,400 545,775
Texaco 2,900 153,700
Unocal Corp. 1,000 29,188
823,863
PROTECTION--SAFETY EQUIPMENT - 0.6%
Lo-Jack Corp. # 25,500 302,812
PUBLISHING - 0.7%
The Reader's Digest Association, Inc. 14,000 352,625
RADIO - 0.8%
Chancellor Media Corp. # 4,900 234,587
Infinity Broadcasting Corp. # 6,200 169,725
404,312
RAILROAD TRANSPORTATION - 0.3%
Burlington Northern Santa Fe 2,370 81,172
Union Pacific Corp. 1,240 55,877
137,049
RENTAL--AUTO/EQUIPMENT - 0.6%
Budget Group Inc. # 9,400 149,225
The Hertz Corp. 3,600 164,250
313,475
RESTAURANT - 1.2%
Brinker International, Inc. # 8,300 239,662
Wendy's International, Inc. 17,100 372,994
612,656
RETAIL GROCERY - 0.6%
Albertsons, Inc. 5,000 318,438
RETAIL STORE - 3.4%
Kmart # 40,000 612,500
PETsMART, Inc. # 22,500 247,500
Sears, Roebuck & Co. 5,000 212,500
WalMart Stores, Inc. 8,000 651,500
1,724,000
SERVICES - 0.1%
Paychex, Inc. 1,397 71,858
TELECOMMUNICATION EQUIPMENT - 1.0%
General Instrument Corp. # 620 21,041
Loral Space & Communications Ltd. # 5,460 97,256
Newbridge Networks Corp. # 1,700 51,638
Nokia Corp. - ADR - A 380 45,766
Northern Telecom LTD 2,470 123,500
P-Com, Inc. # 8,760 34,903
QUALCOMM, Inc. # 2,550 132,122
506,226
TELECOMMUNICATION SERVICES - 10.5%
Airtouch Communications # 2,730 197,754
Ameritech Corp. 5,510 349,196
Ascend Communications, Inc. # 1,280 84,160
AT&T 9,000 681,750
BCE, Inc. 3,420 129,746
Bell Atlantic Corp. 7,730 417,420
BellSouth Corp. 9,600 478,800
Frontier Corp. 3,470 117,980
GTE Corp. 4,580 297,700
Leap Wireless International, Inc. # 550 3,987
Lucent Technologies, Inc. 6,205 682,162
MediaOne Group, Inc. # 3,130 147,110
MCI Communication 10,288 738,164
PT Indosat - ADR 7,370 90,282
Qwest Communications International, Inc. # 4,240 212,000
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
SBC Communications 7,550 404,869
Sprint Corp. 1,890 158,996
Sprint Corp. - PCS Group # 945 21,853
Tellabs, Inc. # 820 56,221
U.S. West, Inc. 1,825 117,941
5,388,091
TOBACCO - 3.2%
Gallaher Group, plc - ADR 7,200 195,750
Imperial Tobacco 5,000 105,625
Philip Morris Companies 16,900 904,150
UST, Inc. 12,000 418,500
1,624,025
TRANSPORTATION - 0.1%
FDX Corp. # 738 65,820
TRUCKING/TRANSPORTATION LEASING - 0.1%
CSX, Corp. 1,097 45,525
WASTE DISPOSAL--NON-HAZARDOUS - 0.3%
Waste Management, Inc. 3,048 142,113
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost 37,878,933 ) 48,537,106
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 0.8%
U.S. Treasury Bills
** 5.02%, 01/07/99 6,000 5,996
* 4.33%, 02/04/99 200,000 199,182
* 4.37%, 03/04/99 200,000 198,470
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost 403,673 ) 403,648
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 4.9%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $2,468,000 FNMA Remic Series
Pool #93020J, 7.00%, 03/25/23,
market value - $2,557,465) 2,509,000 2,509,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost 2,509,000 ) 2,509,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost 40,791,606 ) 51,449,754
- --------------------------------------------------------------------------------
FUTURES CONTRACTS CONTRACTS VALUE
Long, S&P 500 Futures, face amount $2,055,875
expiring March 1999 7 2,179,625
- --------------------------------------------------------------------------------
TOTAL FUTURES CONTRACTS 2,179,625
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION***
Flex-funds Highlands Growth Fund 230 4,888
Flex-funds Muirfield Fund 247 1,702
Flex-funds Total Return Utilities Fund 30 573
Flex-Partners International Equity Fund 154 2,234
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost 8,594) 9,397
- --------------------------------------------------------------------------------
ADR American Depositary Receipt
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
# Represents non-income producing securities.
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
***Assets of affiliates to the Growth Stock Portfolio held for the benefit of
the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.
See accompanying notes to financial statements.
<PAGE>
Mutual Fund Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
MUTUAL FUNDS - 96.6%
Federated S&P 500 Maxcap Fund 632,669 $ 16,057,133
Fidelity OTC Portfolio Fund 856,653 37,375,785
Gabelli Growth 720,481 25,505,045
Janus Twenty Fund 546,887 29,149,088
MFS Investor Growth - Class A 690,955 10,993,091
Mutual Shares Fund 352 6,870
Rydex OTC Fund 375,152 15,516,274
- --------------------------------------------------------------------------------
TOTAL MUTUAL FUNDS
(Cost $111,404,738) 134,603,286
- --------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS - 1.9%
Charles Schwab Money Market Fund 889,006 889,006
Fidelity Core Money Market Fund 1,771,471 1,771,471
- --------------------------------------------------------------------------------
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $2,660,477 ) 2,660,477
- --------------------------------------------------------------------------------
U.S.TREASURY BILLS - 1.4%
** 5.02%, due 01/07/99 30,100 30,075
* 4.39%, due 02/04/99 $2,000,000 1,991,708
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY BILLS
(Cost $2,021,783 ) 2,021,783
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.1%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $90,000 FNMA Remic
Series Pool #93020J, 7.00%, 03/25/23,
market value - $93,263) 91,000 91,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $91,000 ) 91,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost $116,177,998) $139,376,546
- --------------------------------------------------------------------------------
FUTURES CONTRACT CONTRACTS VALUE
Long, S&P 500 Futures, face amount $6,274,000
expiring March 1999 20 $6,227,500
- --------------------------------------------------------------------------------
TOTAL FUTURES CONTRACT $6,227,500
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION***
Flex-funds Highlands Growth Fund 687 14,585
Flex-funds Muirfield Fund 778 5,355
Flex-funds Total Return Utilities Fund 76 1,437
Flex Partners International Equity Fund 442 6,390
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $25,368 ) $27,767
- --------------------------------------------------------------------------------
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
***Assets of affiliates to the Mutual Fund Portfolio held for the benefit of the
Portfolio's Trustees in connection with the Trustee Deferred Compensation
Plan.
See accompanying notes to financial statements.
<PAGE>
Utilities Stock Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
COMMON STOCKS - 97.5%
ELECTRIC/GAS UTILITY - 8.0%
AGL Resources, Inc. 12,100 $ 279,056
MDU Resources Group, Inc. 5,000 131,562
NIPSCO Industries, Inc. 9,400 286,113
UtiliCorp United, Inc. 10,000 366,875
1,063,606
ELECTRIC UTILITY - 10.9%
Cinergy Corp. 7,800 268,125
LG&E Energy Corp. 13,944 394,789
New Century Energies, Inc. 5,600 273,000
PacifiCorp 9,800 206,413
TECO Energy, Inc. 10,400 293,150
1,435,477
NATURAL GAS (DISTRIBUTOR) - 21.1%
Bay State Gas Co.
Consolidated Natural Gas Co. 8,200 442,800
KeySpan Energy Corp. 22,100 685,100
MCN Corp. 22,270 424,522
Peoples Energy Corp. 6,990 278,726
TransCanada Pipelines Ltd. 8,100 119,475
WICOR, Inc. 11,200 244,300
Williams Cos., Inc. 19,140 596,929
2,791,852
OIL/GAS (DOMESTIC) - 11.8%
El Paso Natural Gas Co. 8,440 293,817
Enron Corp. 5,830 332,674
Kinder Morgan Energy Partners, L.P. 14,824 537,370
Questar Corp. 20,200 391,375
1,555,236
TELECOMMUNICATION EQUIPMENT - 2.9%
Loral Space & Communications Ltd. 14,890 265,228
P-Com, Inc. # 30,000 119,531
384,759
TELECOMMUNICATION SERVICES - 40.0%
AT&T Corp. 4,000 303,000
AirTouch Communications, Inc. # 5,400 391,162
Alltel Corp. 7,900 472,519
BCE, Inc. 12,040 456,768
Frontier Corp. 19,300 656,200
GTE Corp. 5,000 325,000
MCI WorldCom, Inc. # 7,420 532,385
Qwest Communications International, Inc.# 13,491 674,550
SBC Communications, Inc. 12,740 683,183
Sprint Corp. 4,300 361,737
Sprint Corp. - PCS Group # 2,150 49,719
U.S. West Communications Group 5,900 381,288
5,287,511
WATER UTILITY - 2.8%
American Water Works Co., Inc. 10,900 367,875
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $9,492,932 ) $12,886,316
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS - 0.0%
* 5.02%, due 01/07/99 1,000 999
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY BILLS
(Cost $999 ) 999
- --------------------------------------------------------------------------------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- -------------------------- --------------------- -----
REPURCHASE AGREEMENT - 2.5%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $320,00 FNMA Remic
Series Pool #93020J, 7.00%, 03/25/23,
market value - $331,600 325,000 325,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $325,000 ) 325,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost $9,818,931 ) $13,212,315
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION**
Flex-funds Highlands Growth Fund 120 2,550
Flex-funds Muirfield Fund 120 826
Flex-funds Total Return Utilities 14 274
Flex Partners International Equit 85 1,231
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $4,465 ) $4,881
- --------------------------------------------------------------------------------
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
# Represents non-income producing securities.
* Pledged as collateral on Letter of Credit.
** Assets of affiliates to the Utility Stock Portfolio held for the benefit
with the Trustees Deferred Compensation Plan.
See accompanying notes to financial statements.
<PAGE>
Bond Portfolio
Portfolio of Investments as of December 31, 1998
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE VALUE
-------------------------- -------------- -----
U.S.TREASURY OBLIGATIONS - 99.5%
U.S. Treasury Bills
* 5.02%, 01/07/99 4,800 $ 4,796
4,796
U.S. Treasury Bonds
5.63%, 05/15/08 3,300,000 3,521,719
4.75%, 11/15/08 7,300,000 7,357,031
10,878,750
- --------------------------------------------------------------------------------
TOTAL U.S.TREASURY OBLIGATIONS
(Cost $10,939,407 ) 10,883,546
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.5%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $52,000 FNMA Remic Series
Pool #93020J, 7.00%, 03/25/23,
market value - $53,885) 53,000 53,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $53,000 ) 53,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost $10,992,407 ) 10,936,546
- --------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION**
Flex-funds Highlands Growth Fund 124 2,625
Flex-funds Muirfield Fund 124 854
Flex-funds Total Return Utilities Fund 14 273
Flex Partners International Equity Fund 87 1,257
- --------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $4,582 ) $5,009
- --------------------------------------------------------------------------------
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
* Pledged as collateral on Letter of Credit.
** Assets of affiliates to the Bond Portfolio held for the benefit of the
Portfolio's with the Trustee Deferred Compensation Plan.
See accompanying notes to financial statements.
<PAGE>
Money Market Portfolio
Portfolio of Investments as of December 31, 1998
<TABLE>
<CAPTION>
COUPON/ FACE
YIELD MATURITY AMOUNT AMORTIZED COST
----- -------- ------ --------------
COMMERCIAL PAPER - 56.2%
<S> <C> <C> <C> <C>
AlliedSignal, Inc. 5.60% 01/29/99 30,000,000 $ 29,869,333
American Home Products Corp.*** 5.10% 02/19/99 5,000,000 4,965,292
American Home Products Corp.*** 5.00% 03/12/99 3,000,000 2,970,833
American Honda Finance Corp. 5.20% 01/29/99 22,000,000 21,911,022
Bankers Trust Corp. 5.04% 05/10/99 25,000,000 24,548,500
CSW Credit, Inc. 5.22% 03/12/99 32,650,000 32,318,603
Carolina Power & Light Co. 4.82% 08/20/99 20,000,000 19,381,433
Credit Suisse First Boston 5.20% 02/24/99 15,350,000 15,230,270
Duff & Phelps Utility and Corporate Bond Trust, Inc. 5.00% 04/20/99 1,000,000 984,861
Duff & Phelps Utility and Corporate Bond Trust, Inc. 5.00% 04/28/99 6,815,000 6,704,256
Duff & Phelps Utility and Corporate Bond Trust, Inc. 4.92% 05/13/99 5,000,000 4,909,800
Duff & Phelps Utility and Corporate Bond Trust, Inc. 4.95% 05/17/99 7,000,000 6,869,100
Eaton Corp.*** 5.38% 03/02/99 10,000,000 9,910,333
Eaton Corp.*** 4.87% 07/19/99 7,475,000 7,273,771
Edison International*** 5.51% 01/22/99 22,227,000 22,156,722
Ford Motor Credit Co. 5.46% 02/17/99 30,000,000 29,786,150
General Electric Capital Corp. 5.44% 03/09/99 20,000,000 19,797,511
Greenwich Asset Funding, Inc.*** 5.34% 01/14/99 30,000,000 29,942,150
J.P. Morgan & Co., Inc. 5.05% 02/19/99 18,311,000 18,185,137
LG&E Capital Corp. 4.92% 05/21/99 25,000,000 24,521,667
Monsanto Co. 5.10% 03/02/99 21,300,000 21,109,897
S.C. Johnson & Son, Inc. 5.20% 03/09/99 20,000,000 19,806,445
Signet Finance*** 5.51% 01/26/99 25,000,000 24,904,340
Toronto-Dominion Holdings USA, Inc. 5.46% 02/02/99 35,000,000 34,830,133
Xerox Credit Corp. 5.47% 02/03/99 7,000,000 6,964,901
Xerox Credit Corp. 5.40% 05/03/99 7,000,000 6,871,900
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost$446,724,360 ) 446,724,360
- ----------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 41.1%
ABT 95 Series A-3 5.54%* 01/15/99 20,000,000 20,000,000
Aquarium Holdings KY*** 5.60%* 01/07/99 12,000,000 12,000,000
Bank One Corp. 5.75% 05/17/99 500,000 500,060
Bank One Wisconsin 5.74% 05/11/99 1,000,000 1,000,082
Bear Stearns Corp. 5.24%* 01/05/99 20,000,000 20,000,000
Boeing Capital Corp. 5.87%* 02/27/99 5,000,000 5,011,669
Care Life Project*** 5.30%* 01/07/99 1,225,000 1,225,000
Caterpillar Financial Services Corp. 6.07% 02/09/99 2,135,000 2,135,556
Caterpillar, Inc. 6.80% 08/24/99 500,000 503,499
Chase Manhattan Bank 8.50% 02/15/99 8,300,000 8,326,515
Chase Manhattan Bank 10.00% 06/15/99 3,750,000 3,819,869
Chrysler Financial Corp. 6.37% 06/21/99 2,700,000 2,708,468
Clark Grave Vault Co.*** 5.60%* 01/07/99 2,700,000 2,700,000
Comerica 9.75% 05/01/99 5,000,000 5,061,659
Consolidated Edison*** 5.44%* 01/04/99 8,250,000 8,251,244
Coughlin Family Properties, Inc.*** 5.60%* 01/07/99 4,220,000 4,220,000
D.E.D.E. Realty*** 5.60%* 01/07/99 3,850,000 3,850,000
Danis Construction Co.*** 5.60%* 01/07/99 900,000 900,000
Doren, Inc.*** 5.30%* 01/07/99 500,000 500,000
Eaton Corp. 6.38% 04/01/99 1,742,000 1,745,032
Espanola/Nambe*** 5.30%* 01/07/99 2,115,000 2,115,000
First USA/Bank One 5.75% 01/15/99 1,000,000 999,996
First USA/Bank One 5.42% 01/15/99 5,000,000 5,000,313
Ford Motor Credit Co. 5.63% 01/15/99 1,100,000 1,099,938
General America Life Insurance**** 5.35%* 03/21/99 10,000,000 10,000,000
General Motors Acceptance Corp. 7.75% 01/15/99 100,000 100,068
General Motors Acceptance Corp. 6.55% 06/04/99 2,400,000 2,408,192
General Motors Acceptance Corp. 8.63% 06/15/99 5,420,000 5,489,411
Hancor, Inc.*** 5.30%* 01/07/99 600,000 600,000
Household Finance 7.13% 04/30/99 10,000,000 10,044,817
Isaac Tire, Inc.*** 5.60%* 01/07/99 1,000,000 1,000,000
J.C. Penney Co., Inc. 6.88% 06/15/99 1,000,000 1,004,847
John Deere 6.43% 08/09/99 10,000,000 10,044,974
Key Corp. 6.63% 06/01/99 20,000,000 20,103,102
Merrill Lynch 7.75% 03/01/99 1,650,000 1,655,294
<PAGE>
COUPON/ FACE
YIELD MATURITY AMOUNT AMORTIZED COST
----- -------- ------ --------------
Merrill Lynch 6.38% 03/30/99 500,000 501,270
Merrill Lynch 5.49%* 02/25/99 10,280,000 10,292,233
Morgan Stanley 5.63% 03/01/99 4,850,000 4,849,711
Mubea, Inc.*** 5.30%* 01/07/99 5,400,000 5,400,000
Mubea, Inc.*** 5.30%* 01/07/99 3,750,000 3,750,000
National City Bank 6.00% 03/23/99 14,200,000 14,211,842
NationsBank Corp. 5.39%* 03/17/99 3,000,000 3,003,134
NationsBank Corp. 8.50% 03/01/99 1,095,000 1,099,645
O.K.I. Supply Co.*** 5.60%* 01/07/99 2,150,000 2,150,000
Osco Industries, Inc.*** 5.30%* 01/07/99 2,700,000 2,700,000
Presrite Corp.*** 5.30%* 01/07/99 1,870,000 1,870,000
Pro Tire, Inc.*** 5.60%* 01/07/99 1,200,000 1,200,000
R.I. Lampus Co.*** 5.30%* 01/07/99 2,275,000 2,275,000
RSD Technology*** 5.30%* 01/07/99 4,305,000 4,305,000
Seariver Maritime, Inc. 5.20%* 01/04/99 6,400,000 6,400,000
Surgery Financing Co.*** 5.30%* 01/07/99 6,585,000 6,585,000
Signa Finance 5.71% 03/02/99 3,000,000 3,000,660
Signature Brands (called 8/15/99) 13.00% 08/15/02 18,500,000 20,767,190
SunAmerica, Inc. 9.00% 01/15/99 2,500,000 2,502,839
Transamerica Finance 6.80% 03/15/99 6,435,000 6,452,728
Travelers 5.50% 01/15/99 500,000 500,002
Triangle Funding 5.32%* 03/29/99 7,500,000 7,500,000
Westpac Banking Corp. 5.67% 01/07/99 10,000,000 9,999,787
White Castle Project*** 5.30%* 01/07/99 9,000,000 9,000,000
World Trade Finance 5.48%* 03/01/99 20,000,000 20,000,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost$326,440,646 ) 326,440,646
- ----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.5%
Student Loan Marketing Assoc. 4.89% 08/03/99 4,350,000 4,350,856
- ----------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $4,350,856 ) 4,350,856
- ----------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 0.0%
** U.S. Treasury Bill 5.02% 01/07/99 63,100 63,048
- ----------------------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $63,048 ) 63,048
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
COUPON/ FACE
YIELD MATURITY AMOUNT AMORTIZED COST
----- -------- ------ --------------
REPURCHASE AGREEMENTS - 2.2%
Prudential Securities, 5.10%, 01/04/99,
(Collateralized by $16,750,00001/04/99
FNMA Remic Series Pool #93020J, 7.00%, 03/25/23,
market value - $17,357,188) 5.10% 01/04/99 17,022,000 17,022,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $17,022,000 ) 17,022,000
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.0%
(Cost$794,600,910 )(a) $794,600,910
- ----------------------------------------------------------------------------------------------------------------
TRUSTEE DEFERRED COMPENSATION***** SHARES VALUE
Flex-funds Highlands Growth Fund 260 5,573
Flex-funds Muirfield Fund 351 2,429
Flex-funds Total Return Utilities Fund 56 1,074
Flex Partners International Equity Fund 167 2,429
- ----------------------------------------------------------------------------------------------------------------
TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $10,454 ) $11,505
- ----------------------------------------------------------------------------------------------------------------
<FN>
(a)Cost for federal income tax and financial reporting purposes are the same.
FNMA Federal National Mortgage Association
Remic Real Estate Mortgage Investment Conduit
* Variable rate security. Interest rate is as of December 31, 1998. Maturity
date reflects the next rate change date.
** Pledged as collateral on Letter of Credit.
***Security is restricted as to resale to institutional investors, but has been
deemed liquid in accordance with guidelines approved by the Board of
Trustees.
****Illiquid security. The sale or disposition of such security would not be
possible in the ordinary course of business within seven days at which the
Fund has valued the security.
*****Assets of affiliates to the Money Market Portfolio held for the benefit of
the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
Assets:
<S> <C> <C> <C> <C> <C>
Investments, at market value* $139,285,546 $48,940,754 $12,887,315 $10,883,546 $777,578,910
Repurchase agreements, at cost* 91,000 2,509,000 325,000 53,000 17,022,000
Trustee deferred compensation investments, at 27,767 9,397 4,881 5,009 11,505
market value
Cash 3,600 3,954 3,499 2,920 59,912
Receivable for securities sold 12,500,000 --- --- --- ---
Receivable for net variation margin on futures 16,350 5,300 --- --- ---
Interest receivable 8,018 356 46 69,118 4,790,576
Dividends receivable --- 45,431 22,698 --- ---
Prepaid/Other assets 13,925 1,819 3,437 507 8,722
Total Assets 151,946,206 51,516,011 13,246,876 11,014,100 799,471,625
Liabilites:
Payable for securities purchased 11,000,000 262,923 --- --- ---
Payable for Trustee Deferred Compensation Plan 27,767 9,397 4,881 5,009 11,505
Payable to corresponding Fund --- --- --- --- 1,055,191
Payable to investment adviser 92,531 43,454 10,658 3,202 107,200
Accrued audit fees 6,136 5,775 6,356 5,518 9,231
Accrued legal fees 919 458 915 1,630 660
Accrued custodian fees 3,293 5,131 799 625 6,635
Accrued trustee fees 2,108 --- --- --- ---
Accrued fund accounting fees 4,447 3,470 1,547 1,414 10,510
Other accrued liabilities 1,318 17,660 2,175 1,081 1,370
Total Liabilities 11,138,519 348,268 27,331 18,479 1,202,302
Net Assets $140,807,687 $51,167,743 $13,219,545 $10,995,621 $798,269,323
Net Assets:
Capital 117,592,789 40,504,295 9,826,161 11,051,482 798,269,323
Net unrealized appreciation (depreciation) 23,214,898 10,663,448 3,393,384 (55,861) ---
from investments
Net Assets $140,807,687 $51,167,743 $13,219,545 $10,995,621 $798,269,323
*Securities at cost $116,177,998 $40,791,606 $9,818,931 $10,992,407 $794,600,910
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
NET INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Interest $2,842,845 $351,842 $24,854 $704,138 $41,916,923
Dividends 385,119 526,542 375,953 --- ---
Total Investment Income 3,227,964 878,384 400,807 704,138 41,916,923
Expenses:
Investment advisory fees 1,058,035 435,886 126,301 50,844 2,029,468
Audit fees 9,823 9,599 10,135 8,937 15,235
Custodian fees 13,496 27,603 3,257 3,678 49,680
Trustees fees and expenses 44,320 15,022 7,382 8,213 24,375
Legal fees 1,576 10,572 1,066 1,807 5,664
Amortization of organization cost 224 --- 8,357 --- ---
Accounting fees 50,050 38,204 18,154 17,711 112,179
Insurance 1,918 373 88 285 5,759
Other expenses 7,553 10,278 9,568 1,465 9,492
Total Expenses 1,186,995 547,537 184,308 92,940 2,251,852
Investment advisory fees waived --- (4,431) --- (20,584) (901,787)
Directed brokerage payments received --- --- (2,246) --- ---
Total Net Expenses 1,186,995 543,106 182,062 72,356 1,350,065
NET INVESTMENT INCOME 2,040,969 335,278 218,745 631,782 40,566,858
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
Net realized gain from futures contracts 3,842,750 1,087,862 --- 27,219 ---
Net realized gain (loss) from investments 4,379,433 3,495,938 (364,390) 1,075,386 ---
Net change in unrealized appreciation
(depreciation) of investments 23,909,375 4,790,713 1,126,399 (591,219) ---
NET GAIN ON INVESTMENTS 32,131,558 9,374,513 762,009 511,386 ---
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $34,172,527 $9,709,791 $980,754 $1,143,168 $40,566,858
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income $2,040,969 $335,278 $218,745 $631,782 $40,566,858
Net realized gain (loss) from investments
and futures contracts 8,222,183 4,583,800 (364,390) 1,102,605 ---
Net change in unrealized appreciation
(depreciation) of investments 23,909,375 4,790,713 1,126,399 (591,219) ---
Net increase in net assets
resulting from operations 34,172,527 9,709,791 980,754 1,143,168 40,566,858
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 21,876,913 74,136,798 6,977,776 2,292,244 3,894,846,315
Withdrawals (59,774,446) (66,072,809) (5,408,703) (9,348,465)(3,724,162,497)
Net increase (decrease) in net assets resulting
from transactions of investors' beneficial
interests (37,897,533) 8,063,989 1,569,073 (7,056,221) 170,683,818
TOTAL INCREASE (DECREASE) IN NET ASSETS (3,725,006) 17,773,780 2,549,827 (5,913,053) 211,250,676
NET ASSETS - Beginning of period 144,532,693 33,393,963 10,669,718 16,908,674 587,018,647
NET ASSETS - End of period $140,807,687 $51,167,743 $13,219,545 $10,995,621 $798,269,323
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MUTUAL GROWTH UTILITIES MONEY
FUND STOCK STOCK BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income $2,965,765 $264,643 $158,538 $877,445 $28,315,164
Net realized gain (loss) from investments
and futures contracts 22,734,137 5,302,202 769,055 (256,151) ---
Net change in unrealized appreciation
(depreciation) of investments (1,244,081) 2,709,218 1,487,258 649,921 ---
Net increase in net assets
resulting from operations 24,455,821 8,276,063 2,414,851 1,271,215 28,315,164
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 27,375,051 40,513,401 2,517,724 4,973,499 3,784,994,914
Withdrawals (42,837,747) (39,809,183) (2,227,211) (7,127,634)(3,579,221,656)
Net increase (decrease) in net assets resulting
from transactions of investors' beneficial
interests (15,462,696) 704,218 290,513 (2,154,135) 205,773,258
TOTAL INCREASE (DECREASE) IN NET ASSETS 8,993,125 8,980,281 2,705,364 (882,920) 234,088,422
NET ASSETS - Beginning of period 135,539,568 24,413,682 7,964,354 17,791,594 352,930,225
NET ASSETS - End of period $144,532,693 $33,393,963 $10,669,718 $16,908,674 $587,018,647
</TABLE>
See accompanying notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
MUTUAL FUND PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $140,808 $144,533 $135,540 $122,109 $83,185
Ratio of Expenses to Average Net Assets 0.91% 0.89% 0.87% 0.95% 1.01%
Ratio of Net Investment Income to
Average Net Assets 1.56% 2.08% 1.86% 1.26% 2.76%
Portfolio Turnover Rate 128.31% 395.42% 297.41% 186.13% 168.17%
</TABLE>
<TABLE>
GROWTH STOCK PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $51,168 $33,394 $24,414 $24,537 $22,169
Ratio of Expenses to Average Net Assets 1.25% 1.34% 1.24% 1.25% 1.23%
Ratio of Net Investment Income to
Average Net Assets 0.77% 0.83% 2.33% 3.78% 2.35%
Ratio of Expenses to Average Net Assets
before waiver of fees 1.26% 1.34% 1.24% 1.25% 1.23%
Ratio of Net Investment Income to Average
Net Assets before waiver of fees 0.76% 0.83% 2.33% 3.78% 2.35%
Portfolio Turnover Rate 79.98% 129.79% 81.66% 337.57% 102.76%
</TABLE>
<TABLE>
UTILITIES STOCK PORTFOLIO
<CAPTION>
Period
Year Ended December 31, June 21, 1995* to
1998 1997 1996 December 31, 1995
<S> <C> <C> <C> <C>
Net Assets, End of Period ($000) $13,220 $10,670 $7,964 $4,291
Ratio of Expenses to Average Net Assets 1.44% 1.60% 1.61% 2.32%(1)
Ratio of Net Investment Income to
Average Net Assets 1.73% 1.79% 2.24% 2.09%(1)
Ratio of Expenses to Average Net Assets
before directed brokerage payments 1.46% 1.65% 1.66% 2.40%(1)
Ratio of Net Investment Income to Average Net
Assets before directed brokerage payments 1.71% 1.74% 2.19% 2.01%(1)
Portfolio Turnover Rate 51.36% 41.22% 50.79% 5.06%
<FN>
(1) Annualized
* Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
BOND PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $10,996 $15,274 $17,792 $16,066 $13,008
Ratio of Expenses to Average Net Assets 0.57% 0.57% 0.61% 0.57% 0.56%
Ratio of Net Investment Income to
Average Net Assets 4.97% 5.27% 4.99% 5.82% 4.15%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.73% 0.71% 0.68% 0.71% 0.70%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 4.81% 5.13% 4.92% 5.68% 4.01%
Portfolio Turnover Rate 225.11% 375.64% 778.59% 232.34% 707.57%
</TABLE>
<TABLE>
MONEY MARKET PORTFOLIO
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $798,269 $587,019 $352,930 $256,126 $224,523
Ratio of Expenses to Average Net Assets 0.18% 0.18% 0.19% 0.21% 0.19%
Ratio of Net Investment Income to
Average Net Assets 5.39% 5.47% 5.34% 5.87% 4.28%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.30% 0.31% 0.33% 0.37% 0.39%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.27% 5.34% 5.20% 5.70% 4.08%
</TABLE>
See accompanying notes to financial statements
<PAGE>
MUTUAL STOCK PORTFOLIO, GROWTH STOCK PORTFOLIO,
UTILITIES STOCK PORTFOLIO, BOND PORTFOLIO,
MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION
Each Fund of The Flex-funds Trust (the "Trust") invests all of its investable
assets in a corresponding open-end management investment company (each a
"Portfolio" and collectively the "Portfolios") having the same investment
objective as the Fund. Each Portfolio is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a no-load, open-end management
investment company which was organized as a trust under the laws of the State of
New York. Each Declaration of Trust permits the Trustees, who are the same for
each Portfolio, to issue beneficial interests in each Portfolio. Each Fund, each
Portfolio into which the Fund invests and the percentage of each Portfolio owned
by the respective Fund is as follows:
The investment objective of each Portfolio is as follows:
The Mutual Fund Portfolio seeks growth of capital through investment in the
shares of other mutual funds.
The Growth Stock Portfolio seeks capital growth by investing in a diversified
portfolio of domestic common stocks with greater than average growth
characteristics selected primarily from the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500").
The Utilities Stock Portfolio seeks a high level of current income and growth of
income by investing primarily in equity securities of domestic and foreign
public utility companies; however, it will not invest in electric utilities
whose generation of power is derived from nuclear reactors. The Portfolio also
seeks capital appreciation, but only when consistent with its primary investment
objective.
The Bond Portfolio seeks to maximize current income through investment in
securities, which are issued or guaranteed as to payment of principal and
interest, by the U.S. government or any of its agencies or instrumentalities.
The Money Market Portfolio seeks current income and stable net asset values
through investment in a portfolio of money market instruments.
The financial statements of the Funds are included elsewhere in this report.
2. SIGNIFICANT ACCOUNTING POLICES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Securities which are traded on stock exchanges are valued at the last sales
price as of the close of business of the New York Stock Exchange on the day of
valuation or, lacking any sales, at the closing bid prices. Securities traded
over-the-counter are valued at the most recent bid price or yield equivalent as
obtained from one or more dealers that make markets in such securities. Mutual
funds are valued at the daily redemption value as reported by the underlying
fund. The Bond Portfolio values the securities held at 3:00 pm eastern time. The
Portfolios obtain prices from independent pricing services which use valuation
techniques approved by the Board of Trustees.
<PAGE>
Money market securities held in the Money Market Portfolio are valued at
amortized cost, which approximates market value. Money market securities held in
the four remaining Portfolios maturing more than sixty days after the valuation
date are valued at the last sales price as of the close of business on the day
of valuation, or, lacking any sales, at the most recent bid price or yield
equivalent as obtained from dealers that make markets in such securities. When
such securities are valued within sixty days or less to maturity, the difference
between the valuation existing on the sixty-first day before maturity and
maturity value is amortized on a straight-line basis to maturity. Securities
maturing within sixty days from their date of acquisition are valued at
amortized cost.
Repurchase Agreements
Each Portfolio may engage in repurchase agreement transactions whereby the
Portfolio takes possession of an underlying debt instrument subject to an
obligation of the seller to repurchase the instrument from the Portfolio and an
obligation of the Portfolio to resell the instrument at an agreed upon price and
term. At all times, the Portfolio maintains the value of collateral, including
accrued interest, at least 100% of the amount of the repurchase agreement, plus
accrued interest. If the seller defaults or the fair value of the collateral
declines, realization of the collateral by the Portfolios may be delayed or
limited.
Deferred Trustee Compensation
Under a Deferred Compensation Plan (the "Plan") non-interested Trustees may
elect to defer receipt of a portion of their annual compensation. Under the
Plan, deferred amounts are invested in the shares of the Flex-funds and
Flex-Partners Funds. Deferred amounts remain in the Portfolios until distributed
in accordance with the Plan.
Futures & Options
Each Portfolio, except the Money Market Portfolio, may engage in transactions in
financial futures contracts and options contracts in order to manage the risk of
unanticipated changes in market values of securities held in the portfolio, or
which it intends to purchase. Such transactions may be considered trading
activity under generally accepted accounting principles. The expectation is that
any gain or loss on such transactions will be substantially offset by any gain
or loss on the securities in the underlying portfolio or on those which are
being considered for purchase.
To the extent that the Portfolio enters into futures contracts on an index or
group of securities the Portfolio exposes itself to an indeterminate liability
and will be required to pay or receive a sum of money measured by the change in
the market value of the index. Upon entering into a futures contract the
Portfolio is required to deposit an initial margin, which is either cash or
securities in an amount equal to a certain percentage of the contract value.
Subsequently, the variation margin, which is equal to changes in the daily
settlement price or last sale price on the exchanges where they trade, is
received or paid. The Portfolios record realized gains or losses for the daily
variation margin when they are recorded as a gains or losses from futures
contracts.
Call and put option contracts involve the payment of a premium for the right to
purchase or sell an individual security or index aggregate at a specified price
until the expiration of the contract. Such transactions expose the Portfolio to
the loss of the premium paid if the Portfolio does not sell or exercise the
contract prior to the expiration date. In the case of a call option, sufficient
cash or money market instruments will be segregated to complete the purchase.
Options are valued on the basis of the daily settlement price or last sale on
the exchanges where they trade and the changes in value are recorded as an
unrealized appreciation or depreciation until closed, exercised or expired.
The Portfolios may write covered call or put options for which premiums received
are recorded in as liabilities and are subsequently adjusted to current market
value of the options written. When written options are closed or exercised,
premiums received are offset against the proceeds paid, and the Portfolio
records realized gains or losses for the difference. When written options
expire, the liability is eliminated, and the Portfolio records realized gains
for the entire amount of premiums received.
<PAGE>
During the year ended December 31, 1998 the Portfolios had the following
activity in futures contracts and written option contracts:
Long futures contracts Number of contracts Notional amount
- ---------------------- ------------------- ---------------
Mutual Fund Portfolio:
Outstanding, beginning of year 110 $25,064,900
Contracts opened 1,282 132,898,050
Contracts closed (1,372) (151,688,950)
Outstanding, end of period 20 6,274,000
Growth Stock Portfolio:
Outstanding, beginning of year 7 $1,711,037
Contracts opened 321 82,010,900
Contracts closed (321) (81,666,062)
Outstanding, end of period 7 2,055,875
Bond Portfolio:
Outstanding, beginning of year 0 $0
Contracts opened 90 10,320,938
Contracts closed (90) (10,320,938)
Outstanding, end of period 0 0
Letter of Credit
Each Portfolio has pledged as collateral a U.S. Government Security, cash or
other high-grade debt security solely for the benefit of ICI Mutual Insurance
Co. for the Portfolios' fidelity bond coverage.
Income Taxes
The Prtfolios will be treated as a partnership for Federal income tax purposes.
As such, each investor in the Portfolios will be subject to taxation on its
share of the Portfolios' ordinary income and capital gains. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
applicable to it. Therefore, no Federal income tax provision is required.
Organizational Costs
The costs related to the organization of each Portfolio have been deferred and
are being amortized by the Portfolio on a straight-line basis over a five-year
period. Such costs for Mutual Fund Portfolio, Growth Stock Portfolio, Utility
Stock Portfolio, Bond Portfolio and Money Market Portfolio have been fully
amortized.
Securities Transactions
The Portfolios record security transactions on the trade date. Gains and losses
realized from the sale of securities are determined on the specific
identification basis. Dividend income is recognized on the ex-dividend date, and
interest income (including amortization of premium and accretion of discount) is
recognized as earned.
<PAGE>
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), provides each Portfolio with investment management, research,
statistical and advisory services. Under separate Investment Subadvisory
Agreements with RMA, Sector Capital Management, Inc. and Miller/Howard
Investments, Inc. serve as subadvisor of the Growth Stock Portfolio and the
Utilities Stock Portfolio, respectively. Sub-subadvisers, selected by Sector
Capital Management, Inc., subject to the review and approval of the Trustees of
the Growth Stock Portfolio, are responsible for the selection of individual
portfolio securities for the assets of the Portfolio assigned to them by Sector
Capital Management, Inc.
For such services the Portfolios pay monthly a fee at the following annual
rates: Mutual Fund Portfolio, Growth Stock Portfolio, and Utilities Stock
Portfolio, 1.00% of average daily net assets up to $50 million, 0.75% of average
daily net assets exceeding $50 million up to $100 million and 0.60% of average
daily net assets exceeding $100 million; Bond Portfolio, 0.40% of average daily
net assets up to $100 million and 0.20% of average daily net assets exceeding
$100 million; Money Market Portfolio, 0.40% of average daily net assets up to
$100 million and 0.25% of average daily net assets exceeding $100 million.
During the year ended December 31, 1998, RMA voluntarily waived a portion of its
investment advisory fees in the Money Market and Bond Portfolios.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
accounting services agent for each Portfolio. In compensation for such services,
each Portfolio pays MFSCo an annual fee equal to the greater of: a) 0.15% of the
first $10 million of average daily net assets, 0.10% of the next $20 million of
average daily net assets, 0.02% of the next $50 million of average daily net
assets, and 0.01% in excess of $80 million of average daily net assets, or b)
$7,500 for each Portfolio, except $30,000 for the Money Market Portfolio.
Certain officers and trustees of the Portfolios are also officers or directors
of MII, RMA and MFSCo.
4. SECURITIES TRANSACTIONS
For the year ended December 31, 1998, the cost of purchases and proceeds from
sales or maturities of long-term investments for the Portfolios were as follows:
Portfolio Purchases Sales
- --------- --------- -----
Mutual Fund Portfolio $199,485,528 $145,269,691
Growth Stock Portfolio 37,169,893 29,958,979
Utilities Stock Portfolio 7,985,042 6,219,080
Bond Portfolio 23,126,049 28,533,409
As of December 31, 1998, the aggregate cost basis of investments and unrealized
appreciation (depreciation) for Federal income tax was as follows:
Net unrealized
Cost basis of Unrealized Unrealized appreciation
Portfolio investments appreciation depreciation (depreciation)
- --------- ----------- ------------ ------------ --------------
Mutual Fund Portfolio $116,197,093 $23,275,127 ($79,324) $23,195,803
Growth Stock Portfolio 40,817,038 11,886,639 (1,248,623) 10,638,016
Utilities Stock Portfolio 9,818,931 3,663,864 (270,480) 3,393,384
Bond Portfolio 10,996,767 0 (60,221) (60,221)
Money Market Portfolio 794,600,910 --- --- ---
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio:
We have audited the accompanying statements of assets and liabilities of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio (Portfolios), including the portfolios of
investments, as of December 31, 1998, and the related statements of operations,
statements of changes in net assets and the financial highlights for each of the
periods indicated herein. These financial statements and the financial
highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1998, by confirmation with the custodian and brokers and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Mutual Fund Portfolio, Growth Stock Portfolio, Utilities Stock Portfolio, Bond
Portfolio and Money Market Portfolio at December 31, 1998, the results of their
operations, the changes in their net assets and the financial highlights for
each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
February 19, 1999
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The following report and financial statement are incorporated by reference
in Part B: Portfolio of Investments - December 31, 1998; Statements of
Assets and Liabilities - December 31, 1998; Statements of Operations - for
the year ended December 31, 1998; Statements of Changes in Net Assets for
the periods ended December 31, 1998 and 1997; Financial Highlights for the
periods indicated therein; Notes to Financial Statements; Independent
Auditors' Report dated February 19, 1999.
(B) EXHIBITS
*1. Declaration of Trust of the Registrant.
*2. By-Laws of the Registrant.
5. *(a) Form of Investment Advisory Agreement between the Registrant and
R. Meeder & Associates, Inc.
**(b) Form of Investment Subadvisory Agreement among the Registrant,
R. Meeder & Associates, Inc. and Sector Capital Management, L.L.C.
**(c) Form of Investment Sub-subadvisory Agreement among the
Registrant, Sector Capital Management, L.L.C. and each of the
Sub-subadvisors.
*6. Form of Exclusive Placement Agent Agreement between the Registrant and
Signature Broker-Dealer Services, Inc.
***8. Form of Custody Agreement between the Registrant and Star Bank, N.A.,
Cincinnati.
- -------------------
*Filed April 30, 1992 and incorporated herein by reference.
**Filed April 29, 1997 and incorporated herein by reference.
***Filed June 8, 1992 and incorporated herein by reference.
C-1
<PAGE>
***9.(a)Form of Administration Agreement between the Registrant and Mutual
Funds Service Co.
(b) Form of Accounting Services Agreement between the Registrant and
Mutual Funds Service Co.
11. Consent of KPMG LLP, Independent Certified Public Accountants, is
filed herewith.
***13. Investment representation letters of initial investors.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Beneficial Interests 2 (as of December 31, 1998)
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration of
Trust, filed as Exhibit 1 to Registrant's initial Registration Statement on
April 30, 1992.
The Trustees and officers of the Registrant are insured under an errors and
omissions liability insurance policy and under the fidelity bond required by
Rule 17g-1 under the Investment Company Act of 1940 (the "1940 Act").
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
NAME ADDRESS
R. Meeder & Associates, Inc. 6000 Memorial Drive
(investment adviser) Dublin, OH 43017
C-2
<PAGE>
Mutual Funds Service Co. 6000 Memorial Drive
(transfer and accounting Dublin, OH 43017
services agent)
Firstar, N.A., Cincinnati 425 Walnut Street
(custodian) Cincinnati, OH 45202
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dublin and State of Ohio on the 30th day of April, 1999.
GROWTH STOCK PORTFOLIO
By /S/ WESLEY F. HOAG
----------------------------
Wesley F. Hoag
Vice President
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
Growth Stock Portfolio:
We consent to the use of our report included herein dated February 19, 1999 on
the financial statements of the Mutual Fund Portfolio, Growth Stock Portfolio,
Utilities Stock Portfolio, Bond Portfolio and Money Market Portfolio as of
December 31, 1998 and for the periods indicated therein and to the reference to
our firm under the heading "Independent Auditors" in Part B of the Registration
Statement.
KPMG LLP
Columbus, Ohio
April 29, 1999
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