As filed with the Securities and Exchange Commission on April 28, 2000.
File No. 811-6647
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 11
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
<PAGE>
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.
<PAGE>
PART A
Responses to Items 1, 2, 3, 5, and 9 have been omitted pursuant to
paragraph 2 of Instruction B of the General Instructions to Form N-1A.
ITEM 4. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND
RELATED RISKS.
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 Meeder
Asset Management, Inc. (the "Manager" or "Adviser"), formerly known as R. Meeder
& Associates, Inc., 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.
<PAGE>
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.
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
2
<PAGE>
to that industry sector in the same proportion as those stocks are represented
in the S&P 500 on a market capitalization-weighted basis.
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
3
<PAGE>
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.
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
4
<PAGE>
equivalents equal to the underlying commodity value of the long futures
contracts held by the Portfolio. Although all futures contracts involve leverage
by virtue of the margin system applicable to trading on futures exchanges, the
Portfolio will not, on a net basis, have leverage exposure on any long futures
contracts that it establishes because of the cash set aside requirement. All
futures transactions can produce a gain or a loss when they are closed,
regardless of the purpose for which they have been established. Unlike short
futures contracts positions established to protect against the risk of a decline
in value of existing securities holdings, the long futures positions established
by the Portfolio to protect against reinvestment risk are intended to protect
the Portfolio against the risks of reinvesting portfolio assets that arise
during periods when the assets are not fully invested in securities.
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.
MAIN RISK FACTORS.
The value of an investment in the Portfolio will fluctuate in response to
stock market movements. To the extent that the Portfolio invests in higher risk
securities, it encounters additional risks that could adversely affect its
5
<PAGE>
performance. The use of several sector advisers or the replacement of a sector
adviser may increase the Portfolio's turnover, gains or losses, and brokerage
commissions. As with any mutual fund, loss of money is a risk of investing in
this Portfolio.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.
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
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.
Meeder Asset Management, 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 Meeder Financial. Meeder Financial is controlled by
Robert S. Meeder, Sr. through ownership of voting common stock. Meeder Financial
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.
6
<PAGE>
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
Meeder Advisor Funds and Senior Vice President and Chief Investment Officer of
the Manager. Mr. Voelker has been associated with the Manager since 1975.
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%.
For the year ended December 31, 1999, total payments to Mutual Funds
Service Co. amounted to $40,870 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
7
<PAGE>
January, 1995. As of December 31, 1999, the Subadviser held discretionary
investment authority over approximately $877 million of assets. The Subadviser
is controlled by William L. Gurner and John K. Donaldson. Mr. Gurner is
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 Meeder Advisor Funds, 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
8
<PAGE>
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.
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.
9
<PAGE>
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
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, 1999, Miller/Howard managed approximately $272 million in assets.
Lowell G. Miller, President and Chief Investment Officer 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
Meeder Advisor Funds' Utility Growth Fund. Miller/Howard's principal executive
offices are located at 141 Upper Byrdcliffe Road, Post Office Box 549,
Woodstock, New York 12498.
HALLMARK CAPITAL MANAGEMENT, INC. serves as sector adviser to the capital
goods sector of the Growth Stock Portfolio. Hallmark is a registered investment
adviser that has been providing investment services to individuals; banks;
pension, profit sharing, and other retirement plans; trusts; endowments;
foundations; and other charitable organizations since 1986. As of December 31,
1999, Hallmark managed approximately $190 million in assets. Peter S. Hagerman
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, 1999, Barrow
managed approximately $29.1 billion in assets. Jane Gilday, CFA, is the
portfolio manager primarily responsible for the day-to-day management of those
10
<PAGE>
assets of the Growth Stock Portfolio allocated to Barrow. Ms. Gilday has served
as a portfolio manager and Principal for Barrow since January 1998. From 1993 to
January 1998, Ms. Gilday served as a securities analyst at Hancock Institutional
Equity Services and Advest Inc. Barrow's principal executive offices are located
at 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204-2429.
THE MITCHELL GROUP, INC. serves as sector adviser to the energy sector of
the Growth Stock Portfolio. The Mitchell Group is a registered investment
adviser that has been providing investment services to individuals, banks,
investment companies, pension and profit sharing plans, charitable
organizations, corporations and other institutions since 1989. As of December
31, 1999, The Mitchell Group held discretionary authority over approximately
$311 million in assets. Rodney Mitchell, who has served as President, Chief
Executive Officer, and Chief Financial Officer of The Mitchell Group since 1989,
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. The
Mitchell Group's principal executive offices are located at 1100 Louisiana,
#4810, Houston, Texas 77002.
ASHLAND MANAGEMENT INCORPORATED serves as sector adviser to the materials
and services sector of the Growth Stock Portfolio. Ashland is a registered
investment adviser that has been providing investment services to individuals,
pension and profit sharing plans, charitable organizations, corporations and
other institutions since 1975. As of December 31, 1999, Ashland managed
approximately $2.1 billion in assets. Terence J. McLaughlin, Managing Director
of Ashland, and Deborah C. Ohl, a Vice President and Portfolio Manager, are the
portfolio managers primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Ashland. Mr. McLaughlin has
been a Portfolio Manager for Ashland since 1986. 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 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, 1999, Delta Capital
managed approximately $900 million in 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, New York 10151.
11
<PAGE>
DRESDNER RCM GLOBAL INVESTORS, L.L.C. (formerly RCM Capital Management,
L.L.C.) serves as sector adviser to the technology sector of the Growth Stock
Portfolio. Dresdner RCM is a registered investment adviser that provides
investment services to institutional and individual clients and registered
investment companies. Dresdner RCM was established in April 1996 as the
successor to the business and operations of RCM Capital Management, a California
Limited Partnership that, with its predecessors, has been in operation since
1970. As of December 31, 1999, Dresdner RCM had approximately $82.7 billion
under management and advice, including approximately $47.0 billion under
management and advice in San Francisco and an additional $35.7 billion by
affiliates in London, Hong Kong, and San Diego. Walter C. Price and Huachen
Chen, each Principals 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, 1999 totaling approximately $368 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. Raphael L. Edelman, Vice President of Alliance, is the portfolio manager
primarily responsible for the day-to-day management of those assets of the
Growth Stock Portfolio allocated to Alliance. Mr. Edelman, who has seventeen
years of investment experience, joined Alliance's research department in 1986 as
an analyst after working two years as a manager in Alliance's mutual fund
division. Alliance's principal executive offices are located at 1345 Avenue of
the Americas, New York, NY 10105.
TRANSFER AGENT AND CUSTODIAN
The Portfolio has entered into an Administration and Accounting Services
Agreement with Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio
40317, a wholly-owned subsidiary of Meeder Financial, pursuant to which Mutual
Funds Service Co. provides accounting, stock transfer, dividend disbursing, and
shareholder services to the Portfolio. 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.
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.
12
<PAGE>
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
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 7. SHAREHOLDER INFORMATION.
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.
13
<PAGE>
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.
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.
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.
14
<PAGE>
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
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.
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.
15
<PAGE>
ITEM 8. DISTRIBUTION ARRANGEMENTS.
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.
16
<PAGE>
B-12
PART B
ITEM 10. COVER PAGE AND TABLE OF CONTENTS.
GROWTH STOCK PORTFOLIO
6000 Memorial Drive
Dublin, Ohio 43017
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 2000
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of the Growth Stock Portfolio dated April 30,
2000. A copy of the Prospectus may be obtained at the above address, or by
calling: 1-800-325-FLEX, or (614) 760-2159. Capitalized terms used and not
otherwise defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS
Page
Portfolio History . . . . . . . . . . . . . . . . . . B-2
Description of the Portfolio and Its Investments
and Risks . . . . . . . . . . . . . . . . . . . B-2
Management of the Portfolio . . . . . . . . . . . . . B-12
Control Persons and Principal Holders of Securities . B-16
Investment Advisory and Other Services . . . . . . . B-16
Brokerage Allocation and Other Practices . . . . . . B-24
Capital Stock and Other Securities . . . . . . . . . B-26
Purchase, Redemption and Pricing of Securities . . . B-28
Taxation of the Portfolio . . . . . . . . . . . . . . B-29
Underwriters . . . . . . . . . . . . . . . . . . . . B-29
Calculation of Performance Data . . . . . . . . . . . B-29
Financial Statements . . . . . . . . . . . . . . . . B-29
<PAGE>
ITEM 11. PORTFOLIO HISTORY.
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.
ITEM 12. DESCRIPTION OF THE PORTFOLIO AND ITS INVESTMENTS AND
RISKS.
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 51% for the year ended
December 31, 1999 (80% in 1998).
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:
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
2
<PAGE>
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.
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
3
<PAGE>
periods, such as one week or less, but could be longer. The Portfolio
may enter into repurchase agreements with its custodian (Firstar,
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 Adviser, Subadviser
and/or Sector Advisers determine the liquidity of the Portfolio's investments
and, through reports from the Adviser, Subadviser and/or Sector Advisers, the
Board monitors investments in illiquid instruments. In determining the liquidity
of the Portfolio's investments, the Adviser, 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 Adviser, Subadviser and/or Sector Advisers may determine some
restricted securities to be illiquid. However, with respect to over-the-counter
options the Portfolio writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the Portfolio may have to close out the
option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets, or other circumstances, the
Portfolio were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Portfolio may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
4
<PAGE>
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 Adviser.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) write call options if, as a result, more than 25% of the Portfolio's total
assets would be hedged with options under normal conditions; or (b) purchase
futures contracts if, as a result, the Portfolio's total obligations upon
settlement or exercise of purchased futures contracts would exceed 25% of its
total assets. These limitations do not apply to options attached to or acquired
or traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options. 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
5
<PAGE>
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.
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.
6
<PAGE>
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts.
The Portfolio may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Portfolio's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolio to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Portfolio to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.
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.
7
<PAGE>
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.
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
8
<PAGE>
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.
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
9
<PAGE>
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.
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
10
<PAGE>
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
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.
11
<PAGE>
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 13. 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.*+, 71 Trustee/President Chairman of Meeder Asset
Management, Inc., an
investment adviser;
Chairman and Director of
Mutual Funds Service Co.,
the Funds' transfer agent.
MILTON S. BARTHOLOMEW, 71 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
each Fund's Audit
Committee.
ROGER D. BLACKWELL, 59 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior,
3380 Tremont Road The Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
ROBERT S. MEEDER, JR.*, 39 Trustee and President of Meeder Asset
Vice President Management, Inc.
WALTER L. OGLE, 61 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
12
<PAGE>
CHARLES A. DONABEDIAN, 57 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
management companies; CEO,
Winston Advisors, Inc., an
investment adviser.
JAMES W. DIDION, 69 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm
(1991-1997).
JACK W. NICKLAUS II, 39 Trustee Designer, Nicklaus Design,
11780 U.S. Highway #1 a golf course design firm
North Palm Beach, FL 33408 and division of Golden
Bear International, Inc.
PHILIP A. VOELKER*+, 46 Trustee and Vice Senior Vice President and
President Chief Investment Officer
of Meeder Asset
Management, Inc.
DONALD F. MEEDER*+, 61 Secretary Vice President of Meeder
Asset Management, Inc.;
Secretary of Mutual Funds
Service Co., the Funds'
transfer agent.
WESLEY F. HOAG*+, 43 Vice President Vice President and General
Counsel of Meeder Asset
Management, Inc. and
Mutual Funds Service Co.
(since July 1993);
Attorney, Porter, Wright,
Morris & Arthur, a law
firm (October 1984 to June
1993).
13
<PAGE>
THOMAS E. LINE*+, 32 Treasurer President, Mutual Funds
Service Co., the
Portfolio's transfer
agent, and Chief Operating
Officer, Meeder Asset
Management, Inc., the
Portfolio's investment
adviser (since June 1998);
Vice President and
Treasurer, BISYS Fund
Services (December 1996 to
June 1998); Senior Manager
- Financial Services,
KPMG, LLP (Sept. 1989 to
December 1996).
BRUCE E. MCKIBBEN*+, 30 Assistant Treasurer Manager/Fund Accounting
and Financial Reporting,
Mutual Funds Service Co.,
the Funds' transfer agent
(since April 1997);
Assistant Treasurer and
Manager/Fund Accounting,
The Ohio Company, a
broker-dealer (April 1991
to April 1997).
* Interested Person of the Trust (as defined in the Investment Company Act of
1940), The Flex-funds, Meeder Advisor Funds and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is 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 Meeder
Advisor Funds, 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, Meeder
Advisor Funds and the corresponding portfolios of The Flex-funds and Meeder
Advisor Funds (collectively, the "Fund Complex") as a whole to the Trustees of
the Portfolio during the fiscal year ended December 31, 1999.
14
<PAGE>
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Aggregate Benefits Estimated from Registrant
Compensation Accrued as Part Annual and Fund
from the of Portfolio or Benefits Upon Complex Paid
TRUSTEE PORTFOLIO1 FUND EXPENSE RETIREMENT TO TRUSTEE1,2
- ------- ---------- ------------ ---------- -------------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $2,762 None None $16,734
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $2,617 None None $16,234
Philip A. Voelker None None None None
Roger A. Blackwell $2,450 None None $15,234
Charles A. Donabedian $2,864 None None $17,734
James W. Didion None None None None
Jack W. Nicklaus II $2,665 None None $15,984
1 Compensation figures include cash and amounts deferred at the election of
certain non-interested Trustees accrued deferred compensation from the
Portfolios as follows: Milton S. Bartholomew - $2,762, Roger A. Blackwell -
$2,450, Charles A. Donabedian - $2,864, Jack W. Nicklaus II - $2,665, and Walter
L. Ogle - $1,435.
2 The Fund Complex consists of 19 investment companies.
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 six
Portfolios, including the Portfolio, each Trustee is paid a fee of 0.00375% of
the amount of each Portfolio's average net assets exceeding $15 million. Members
of the Audit and Strategic Planning Committees for each of The Flex-funds and
the Meeder Advisor Funds 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 $27,375
for the year ended December 31, 1999 ($15,022 in 1998).
The Declaration of Trust provides that the Portfolio will indemnify its
Trustees and officers as described below under Item 18.
The Portfolio and the Adviser have each adopted a Code of Ethics that
permits personnel subject to the Code to invest in securities, including, under
certain circumstances and subject to certain restrictions, securities that may
15
<PAGE>
be purchased or held by the Portfolio. However, each such Code restricts
personal investing practices by directors and officers of the Adviser and its
affiliates, and employees of the Adviser with access to information about the
purchase or sale of Portfolio securities. The Code of Ethics for the Portfolio
also restricts personal investing practices of trustees of the Portfolio who
have knowledge about recent Portfolio trades. Among other provisions, the Code
of Ethics requires that such directors and officers and employees with access to
information about the purchase or sale of Portfolio securities obtain
preclearance before executing personal trades. Each Code of Ethics prohibits
acquisition of securities without preclearance in, among other events, an
initial public offering or a limited offering, as well as profits derived from
the purchase and sale of the same security within 60 calendar days. These
provisions are designed to put the interests of Portfolio shareholders before
the interest of people who manage the Portfolio.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of March 31, 2000, the Flex-funds The Highlands Growth Fund and the
Meeder Advisor Funds Core Equity Fund (collectively, the "Funds") have an
investment in the Portfolio equaling approximately 78% and 22%, respectively, of
the Portfolio's interests. No Trustee or officer of the Portfolio or any other
person, except the Funds, owns in the aggregate more than a 1% interest in the
Portfolio as of the date of this Registration Statement.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
ADVISER
Meeder Asset Management, Inc. (the "Adviser"), formerly known as R. Meeder
& Associates, Inc., 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
Adviser, 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 Adviser is obligated to keep certain books and records
of the Portfolio. The management services of the Adviser are not exclusive under
the terms of the Investment Advisory Contract and the Adviser is free to, and
does, render management services for others.
The Adviser 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
16
<PAGE>
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 Adviser 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 Adviser.
The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Adviser, 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 Adviser, Subadviser and Sector Advisers under the investment
advisory contracts and other miscellaneous expenses.
The Adviser 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 Adviser 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 Adviser 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
Adviser 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 Adviser 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 Adviser will receive 0.25% and
the Subadviser 0.35%.
17
<PAGE>
For the year ending December 31, 1999, the Growth Stock Portfolio paid fees
to the Adviser totaling $570,139 ($435,886 in 1998; $317,772 in 1997).
Meeder Asset Management, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Adviser is a wholly-owned subsidiary of Meeder Financial, which is
controlled by Robert S. Meeder, Sr. through the ownership of voting common
stock. The Adviser'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, Wesley F.
Hoag, and Thomas E. Line 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. 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 Adviser 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 Adviser continues to have responsibility for
all investment advisory services pursuant to the Investment Advisory Agreement
and supervises the Subadviser's performance of such services. Under the
Investment Subadvisory Agreement, the Adviser pays the Subadviser an investment
advisory fee in an amount described above under "Investment Adviser and
Adviser."
The Subadviser may invest the Portfolio's assets in financial futures
contracts and related OPTIONS.
18
<PAGE>
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 Adviser, 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.
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 Adviser. A part of the fee paid to
19
<PAGE>
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.
Listed below are the Sector Advisers selected by the Subadviser to invest
certain of the Portfolio's assets:
20
<PAGE>
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, 1999, Miller/Howard managed approximately $272 million in assets.
Lowell G. Miller, President and Chief Investment Officer of Miller/Howard,
controls Miller\Howard through stock ownership. Mr. Miller is the portfolio
manager primarily responsible for the day-to-day management of those assets of
the Growth Stock Portfolio allocated to Miller/Howard. Mr. Miller has been
associated with Miller/Howard since 1984. Miller/Howard is also the subadviser
to the Utilities Stock Portfolio, a corresponding portfolio to The Flex-funds'
Total Return Utilities Fund and the Meeder Advisor Funds' Utility Growth Fund.
Miller/Howard's principal executive offices are located at 141 Upper Byrdcliffe
Road, Post Office Box 549, Woodstock, New York 12498.
HALLMARK CAPITAL MANAGEMENT, INC. serves as sector adviser to the capital
goods sector of the Growth Stock Portfolio. Hallmark is a registered investment
adviser that has been providing investment services to individuals; banks;
pension, profit sharing, and other retirement plans; trusts; endowments;
foundations; and other charitable organizations since 1986. As of December 31,
1999, Hallmark managed approximately $190 million in assets. Peter S. Hagerman,
Chairman of the Board, President, and Chief Executive Officer; Katherine A.
Swieralski, Senior Vice President, Treasurer, Chief Financial and Administrative
Officer; and Jeffrey P. Braff each owns more than 10% of the outstanding voting
securities of Hallmark, as would Thomas S. Moore, Senior Vice President and
Chief Investment Officer, if his options were exercised. Mr. Hagerman is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Hallmark. Mr. Hagerman has
been associated with Hallmark since 1986. Hallmark's principal executive offices
are located at One Greenbrook Corporate Center, 100 Passaic Avenue, Fairfield,
New Jersey 07004.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as sector adviser to the
consumer durable and non-durable sectors of the Growth Stock Portfolio. Barrow
is a registered investment adviser that has been providing investment services
to banks; investment companies; pension and profit sharing plans; charitable
organizations and corporations since 1979. As of December 31, 1999, Barrow
managed approximately $29.1 billion in assets. Jane Gilday, CFA, is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Barrow. Ms. Gilday has served
as a portfolio manager and Principal for Barrow since January 1998. From 1993 to
January 1998, Ms. Gilday served as a securities analyst at Hancock Institutional
Equity Services and Advest Inc. Barrow's principal executive offices are located
at 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204-2429.
21
<PAGE>
THE MITCHELL GROUP, INC. serves as sector adviser to the energy sector of
the Growth Stock Portfolio. The Mitchell Group is a registered investment
adviser that has been providing investment services to individuals, banks,
investment companies, pension and profit sharing plans, charitable
organizations, corporations and other institutions since 1989. As of December
31, 1999, The Mitchell Group held discretionary authority over approximately
$311 million in assets. Rodney Mitchell, who has served as President, Chief
Executive Officer, and Chief Financial Officer of The Mitchell Group since 1989,
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. The
Mitchell Group's principal executive offices are located at 1100 Louisiana,
#4810, Houston, Texas 77002.
ASHLAND MANAGEMENT INCORPORATED serves as sector adviser to the materials
and services sector of the Growth Stock Portfolio. Ashland is a registered
investment adviser that has been providing investment services to individuals,
pension and profit sharing plans, charitable organizations, corporations and
other institutions since 1975. As of December 31, 1999, Ashland managed
approximately $2.1 billion in assets. Terence J. McLaughlin, Managing Director
of Ashland, and Deborah C. Ohl, a Vice President and Portfolio Manager, are the
portfolio managers primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Ashland. Mr. McLaughlin has
been a Portfolio Manager for Ashland since 1986. 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 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, 1999, Delta Capital
managed approximately $900 million in 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, New York 10151.
DRESDNER RCM GLOBAL INVESTORS, L.L.C. (formerly RCM Capital Management,
L.L.C.) serves as sector adviser to the technology sector of the Growth Stock
Portfolio. Dresdner RCM is a registered investment adviser that provides
investment services to institutional and individual clients and registered
investment companies. Dresdner RCM was established in April 1996 as the
successor to the business and operations of RCM Capital Management, a California
Limited Partnership that, with its predecessors, has been in operation since
1970. As of December 31, 1999, Dresdner RCM had approximately $82.7 billion
22
<PAGE>
under management and advice, including approximately $47.0 billion under
management and advice in San Francisco and an additional $35.7 billion by
affiliates in London, Hong Kong, and San Diego. Walter C. Price and Huachen
Chen, each Principals 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, 1999 totaling approximately $368 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. Raphael L. Edelman, Vice President of Alliance, is the portfolio manager
primarily responsible for the day-to-day management of those assets of the
Growth Stock Portfolio allocated to Alliance. Mr. Edelman, who has seventeen
years of investment experience, joined Alliance's research department in 1986 as
an analyst after working two years as a manager in Alliance's mutual fund
division. Alliance's principal executive offices are located at 1345 Avenue of
the Americas, New York, NY 10105.
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.
23
<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 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Portfolio by the Adviser, Subadviser or Sector Advisers pursuant
to authority contained in the investment advisory agreement, investment
Subadvisory agreement and investment sub-subadvisory agreements. The Adviser,
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 Adviser, 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 Adviser, 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 Adviser, Subadviser and Sector Advisers (to the extent
possible consistent with execution considerations) in accordance with a ranking
of broker-dealers determined periodically by the Adviser, 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 Adviser, 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 Adviser, Subadviser and Sector
Advisers' clients may be useful to the Adviser, Subadviser and Sector Advisers
24
<PAGE>
in carrying out their obligations to the Portfolio. The receipt of such research
is not expected to reduce the Adviser, Subadviser and Sector Advisers' normal
independent research activities; however, it enables the Adviser, Subadviser and
Sector Advisers to avoid the additional expenses that could be incurred if the
Adviser, 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 Adviser, 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
Adviser, Subadviser and/or Sector Advisers' overall responsibilities to the
Portfolio and their other clients. In reaching this determination, the Adviser,
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 Adviser, 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 Meeder Advisor Funds to the extent permitted
by law.
The Adviser, Subadviser and Sector Advisers may allocate brokerage
transactions to broker-dealers who have entered into arrangements with the
Adviser, 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
Adviser, Subadviser or Sector Advisers, or their affiliates, when the Adviser,
Subadviser or Sector Advisers, as appropriate, determine that the Portfolio will
receive the best net price and execution. This standard would allow the Adviser,
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 Adviser, 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.
25
<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 Adviser, investment decisions
for the Portfolio are made independently from those of other portfolios managed
by the Adviser or accounts managed by affiliates of the Adviser. 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 Adviser as investment adviser to the Portfolio
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions. During the period from January 1, 1999 to December
31, 1999, the Growth Stock Portfolio paid total commissions of $67,629 ($78,411
in 1998; $100,888 in 1997) on the purchase and sale of common stocks. Brokerage
commissions paid on the purchases and sales by the Portfolio of futures and
option contracts for the year ending December 31, 1999 were $7,520.
ITEM 17. 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
investors. Investments in the Portfolio have no preference, preemptive,
26
<PAGE>
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
liability to which he would otherwise be subject by reason of willful
27
<PAGE>
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 18. 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
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
28
<PAGE>
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 19. TAXATION OF THE PORTFOLIO.
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 20. 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 21. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 22. FINANCIAL STATEMENTS.
The financial statements and independent auditors' report required to be
included in this Statement of Additional Information are incorporated herein by
reference to the Portfolio's Annual Report to Shareholders for the fiscal year
ended December 31, 1999. The Portfolio will provide the Annual Report without
charge at written request or request by telephone.
29
<PAGE>
PART C
ITEM 23. EXHIBITS
*(a) Declaration of Trust of the Registrant.
*(b) By-Laws of the Registrant.
(c) Not applicable.
*(d) (1) Form of Investment Advisory Agreement between the Registrant and
Meeder Asset Management, Inc.
**(2) Form of Investment Subadvisory Agreement among the Registrant,
Meeder Asset Management, Inc. and Sector Capital Management, L.L.C.
**(3) Form of Investment Sub-subadvisory Agreement among the
Registrant, Sector Capital Management, L.L.C. and each of the
Sub-subadvisors.
*(e) Form of Exclusive Placement Agent Agreement between the Registrant and
Signature Broker-Dealer Services, Inc.
(f) Deferred Compensation Plan for independent Trustees is filed herewith.
***(g) Form of Custody Agreement between the Registrant and Firstar, N.A.,
Cincinnati.
***(h) (1) Form of Administration Agreement between the Registrant and
Mutual Funds Service Co.
(2) Form of Accounting Services Agreement between the Registrant and
Mutual Funds Service Co.
(i) Consent of KPMG LLP, Independent Certified Public Accountants, is
filed herewith.
(j) Not applicable.
(k) Not applicable.
***(l) Investment representation letters of initial investors.
(m) Not applicable.
- -------------------
*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.
<PAGE>
(n) Not applicable.
(o) Not applicable.
(p) Codes of Ethics for the Portfolio, Meeder Financial and Meeder Asset
Management, Inc. are filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 25. 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not applicable.
ITEM 27. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 28. 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
Meeder Asset Management, Inc. 6000 Memorial Drive
(investment adviser) Dublin, OH 43017
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 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
<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 28th day of April, 2000.
GROWTH STOCK PORTFOLIO
By /s/ Wesley F. Hoag
---------------------------
Wesley F. Hoag
Vice President
EXHIBIT 23(F)
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
SECTION 1. PURPOSE OF PLAN. The purpose of this Deferred Compensation Plan
(the "Plan") is to permit each Eligible Trustee (as that term is defined below)
of the Funds (as that term is defined below) to defer receipt of all or a
portion of the trustee fees payable by any of the Funds until the time set forth
herein.
SECTION 2. DEFINITIONS OF TERMS AND CONSTRUCTION
2.1 DEFINITIONS. The following terms as used in this Plan shall have the
following meanings:
(a) "Administrator" shall mean the Treasurer of the Funds.
(b) "Beneficiary" shall mean such person or persons designated
pursuant to Section 5.3 hereof to receive benefits after the
death of an Eligible Trustee.
(c) "Boards of Trustees" shall mean the respective Boards of Trustees
of the Funds.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(e) "Compensation" shall mean the amount of trustees' fees (including
fees earned by an Eligible Trustee for serving as a member of any
committee of any of the Boards of Trustees) paid by each of the
Funds to an Eligible Trustee for a Deferral Year prior to
reduction for Deferrals made under this Plan.
(f) "Deferral" shall mean the amount or amounts of an Eligible
Trustee's Compensation deferred under the provisions of Section 4
of this Plan.
(g) "Deferral Account" shall mean the account maintained to reflect
an Eligible Trustee's Deferrals made pursuant to Section 4 hereof
and any other credits or debits thereto.
(h) "Deferral Election" shall mean the Eligible Trustee's annual
election to defer his Compensation under Plan Section 4.1(a).
(i) "Deferral Year" shall mean each calendar year (or the period
beginning on the effective date of the Plan and ending on
1
<PAGE>
December 31 of the calendar year in which the Plan becomes
effective) during which an Eligible Trustee makes, or is entitled
to make, Deferrals under Section 4 hereof.
(j) "Eligible Trustee" shall mean a member of the Board of Trustees
who is not an "interested person" of the Funds, as such term is
defined under Section 2(a)(19) of the Investment Company Act of
1940, as amended.
(k) "Funds" shall mean the following open-end registered investment
companies: the Money Market Portfolio, Bond Portfolio, Growth
Stock Portfolio, Utility Stock Portfolio and Mutual Fund
Portfolio; The Flex-funds' Money Market Fund, U.S. Government
Bond Fund, Highlands Growth Fund, Muirfield Fund, and Total
Return Utilities Fund; The Flex-Partners' International Equity
Fund; and such other open-end registered investment companies (i)
for which R. Meeder & Associates, Inc. (the "Adviser") may in the
future serve as investment adviser or (ii) which invest all of
their investable assets in an investment company so served by the
Adviser, and whose Board of Trustees shall adopt this Plan.
(l) "Hardship and Unforeseeable Emergency" shall mean a severe
financial hardship to an Eligible Trustee resulting from a sudden
and unexpected illness or accident of the Eligible Trustee or a
dependent (within the meaning of Section 152(a) of the Code), of
the Eligible Trustee, loss of the Eligible Trustee's property due
to casualty, or other similar extraordinary and unforeseeable
circumstances, arising from events beyond the Eligible Trustee's
control. Whether circumstances constitute a Hardship and
Unforeseeable Emergency depends on the facts of each case, as
determined by the Administrator, but in any case does not include
a hardship that may be relieved:
(i) through reimbursement or compensation by insurance of
otherwise;
(ii) by liquidation of the Eligible Trustee's assets to the
extent that liquidation itself would not cause such a
severe financial hardship; or
(iii) by ceasing to defer receipt of any compensation not
yet earned.
(m) "Separation from Service" shall mean the date on which an
Eligible Trustee ceases to be a member of any of the Boards of
Trustees.
(n) "Valuation Date" shall mean the last business day of each
calendar year and any other day upon which the Funds make a
valuation of the Deferral Account.
2
<PAGE>
2.2 PLURALS AND GENDER. Where appearing in this Plan the singular shall
include the plural and the masculine shall include the feminine, and vice versa,
unless the context clearly indicates a different meaning.
2.3 HEADINGS. The headings and subheadings in this Plan are inserted for
the convenience of reference only and are to be ignored in any construction of
the provisions hereof.
SECTION 3. PERIOD DURING WHICH DEFERRALS ARE PERMITTED
3.1 COMMENCEMENT OF VOLUNTARY DEFERRALS. An Eligible Trustee may elect, on
a form provided by, and submitted to, the Administrator, to commence voluntary
Deferrals under Section 4.1(a) hereof for the period beginning on the date such
form is submitted to the Administrator.
3.2 TERMINATION OF DEFERRALS. An Eligible Trustee shall not be eligible for
Deferrals after the earlier of the following dates:
(a) his Separation from Service; or
(b) The effective date of the termination of this Plan.
SECTION 4. DEFERRALS
4.1 VOLUNTARY DEFERRAL ELECTIONS.
(a) Prior to the effective date of this Plan or the day the Eligible
Trustee first becomes eligible under this Plan and, for
subsequent Deferral Years, prior to the first day of the Deferral
Year, an Eligible Trustee may elect to defer the receipt of all
or a portion of his Compensation. Such election shall be made on
the form described in Section 3.1 hereof and shall set forth the
amount of such deferral (in whole percentage amounts). Such
election shall continue in effect for all subsequent Deferral
Years unless it is canceled or modified as provided below.
(b) Deferrals described in Section 4.1(a) above shall be withheld,
based upon the percentage amount elected, from each payment of
Compensation which the Eligible Trustee would otherwise have been
entitled but for his election in Section 4.1(a).
(c) The Eligible Trustee may cancel or modify the amount of his
deferral elected under Section 4.1(a) on a prospective basis by
submitting to the Administrator a revised Deferral election form.
Such change will be effective as of the first day of the Deferral
Year following the date such revision is submitted to the
Administrator.
3
<PAGE>
(d) The Eligible Trustee's Deferral Account shall be a bookkeeping
entry only, and each Fund paying Compensation shall fund the
Deferral Account.
4.2 VALUATION OF DEFERRAL ACCOUNT
(a) Each Fund paying Compensation shall establish a bookkeeping
Deferral Account to which will be credited an amount equal to the
Eligible Trustee's Deferrals under this Plan. Deferrals shall be
allocated to the Deferral Account on the first business day
following the date such Deferrals are withheld from the Eligible
Trustee's Compensation. The Deferral Account shall be debited to
reflect any distributions from such Deferral Account. Such debits
shall be allocated to the Deferral Account as of the date such
distributions are made.
(b) As of each Valuation Date, income, gain and loss equivalents
(resulting from the Deferral Account being invested in the manner
set forth under Section 4.3 below) attributable to the period
following the next preceding Valuation Date shall be credited to
and/or deducted from the Eligible Trustee's Deferral Account.
4.3 RETURN ON DEFERRAL ACCOUNT BALANCE
(a) (i) For purposes of measuring the investment return on an
Eligible Trustee's Deferrals, a dollar amount equivalent to the
Eligible Trustee's Deferrals shall be invested and reinvested in
one or more of the Funds, effected at such Fund or Funds' current
net asset value on the date the Eligible Trustee's Deferrals are
credited to the Deferral Account. The Funds used as a basis for
determining the investment return shall be designated by the
Eligible Trustee on a form provided by the Administrator. The
Eligible Trustee's Deferrals shall be credited with a return
(positive or negative) equal to the rate of return on shares of
the Funds selected, assuming reinvestment of dividends and
distributions from the Funds.
(ii) The Eligible Trustee shall make a designation of one or more
of the Funds on a form provided by the Administrator which shall
remain effective until another valid direction has been made by
the Eligible Trustee as herein provided. The Eligible Trustee may
amend his designation of investment return as of the end of any
calendar quarter by giving written direction to the Administrator
at least 15 days prior to the end of such quarter. A timely
change to an Eligible Trustee's designation of investment return
shall become effective on the first day of the calendar quarter
following receipt by the Administrator.
4
<PAGE>
(iii) The investment alternatives made available to the Eligible
Trustee shall be the same as from time to time are communicated
to the Eligible Trustee by the Administrator.
(b) Except as provided below, the Eligible Trustee's Deferral Account
shall receive a return in accordance with his investment
designations, provided such designations conform to the
provisions of this Section. If
(i) the Eligible Trustee does not furnish the Administrator with
a written designation,
(ii) the written designation from the Eligible Trustee is
unclear, or
(iii) less than all of the Eligible Trustee's Deferral Account is
covered by such written designation,
then the entire amount of the Eligible Trustee's Deferral Account
shall be invested in The Money Market Fund until such time as the
Eligible Trustee shall provide the Administrator with
instructions.
The Fund shall provide a statement to the Eligible Trustee quarterly
showing such information as is appropriate, including the aggregate amount in
the Deferral Account, as of a reasonably current date.
SECTION 5. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
5.1 ELIGIBLE TRUSTEE'S ELECTION. An Eligible Trustee shall elect at the
time of his Deferral Election to have the total amount in the Deferral Account,
if any, and the amount of Deferrals for the Deferral Year, plus applicable
investment return, deferred for any number of whole years, greater than two,
specified by the Eligible Trustee in such Deferral Election; provided, however,
that the distribution may in no event be deferred beyond the Eligible Trustee's
Separation from Service. He shall also elect the form of distribution:
(a) Lump sum; or
(b) Generally equal annual installments over a period of up to ten
(10) years.
5
<PAGE>
Such distributions shall commence within ninety (90) days subsequent to the
Valuation Date of the last year of the deferral period elected by the Eligible
Trustee above.
The time period for deferrals and/or the form of distribution may be
amended annually based on mutual agreement between the Eligible Trustee and the
Funds. Any such amendment shall become effective one year following the date the
amendment is submitted to the Administrator and the amendment shall apply to the
entire amount in the Deferral Account on the effective date. Any such agreement
shall be attached to the amendment.
5.2 ACCELERATION OF DISTRIBUTION. Notwithstanding the foregoing, in the
event of the liquidation, dissolution or winding up of a Fund or the
distribution of all or substantially all of a Fund's assets and property to its
shareholders, or in the event of a merger or reorganization of a Fund (unless
prior to such merger or reorganization, the Board of Trustees determines that
the Plan shall survive the merger or reorganization), all unpaid amounts in the
Deferral Accounts maintained by a Fund as of the effective date thereof shall be
paid in a lump sum to the Eligible Trustees on the effective date of such
liquidation, dissolution, winding up, distribution, merger, or reorganization.
For purposes of this Section 5.2, the Valuation Date will be the effective date
of the liquidation, dissolution, winding up, distribution, merger, or
reorganization.
5.3 DEATH PRIOR TO COMPLETE DISTRIBUTION OF DEFERRAL ACCOUNT. Upon the
death of the Eligible Trustee prior to the commencement of the distribution of
the amounts credited to his Deferral Account, the balance of such Account shall
be distributed to his Beneficiary in a lump sum as soon as practicable after the
Eligible Trustee's death. In the event of the death of the Eligible Trustee
after the commencement of such distribution, but prior to the complete
distribution of his Deferral Account, the balance of the amounts credited to his
Deferral Account shall be distributed to his Beneficiary over the remaining
period during which such amounts were distributable to the Eligible Trustee
under Section 5.1 hereof. Notwithstanding the above, the Board of Trustees, in
its sole discretion, may accelerate the distribution of the Deferral Account.
5.4 HARDSHIP AND UNFORESEEABLE EMERGENCY. An Eligible Trustee may request
at any time a withdrawal of part or all of the amount then credited to his
Deferral Account on account of Hardship and Unforeseeable Emergency by
submitting a written request to the Administrator accompanied by evidence that
his financial condition constitutes a Hardship and Unforeseeable Emergency. The
Administrator shall review the Eligible Trustee's request and determine the
extent, if any, to which such request is justified. Any such withdrawal shall be
limited to an amount reasonably necessary to meet the Hardship and Unforeseeable
Emergency, but not more than the amount of benefit to which the Eligible Trustee
would be entitled if his service as trustee were terminated. The Eligible
Trustee shall make any such request on a form provided by, and submitted to, the
Administrator.
6
<PAGE>
5.5 CHANGE IN CONTROL
(a) Notwithstanding anything herein to the contrary, in the event of
a "Change in Control" of a Fund's investment adviser, the Board
of Trustees may accelerate or extend the payment of all amounts
credited to the Deferral Accounts of the Eligible Trustees.
(b) The term "Change in Control" shall mean a change in "control" as
defined in section 2(a)(9) of the Investment Company Act of 1940.
5.6 DESIGNATION OF BENEFICIARY. For the purposes of Section 5.3 hereof, the
Eligible Trustee's Beneficiary shall be the person or persons so designated by
the Eligible Trustee in a written instrument submitted to the Administrator. The
Beneficiary may be changed at any time by the Eligible Trustee's submission of
such a written instrument to the Administrator. In the event the Eligible
Trustee fails to properly designate a Beneficiary or if his Beneficiary
predeceases him, then his beneficiary shall be his surviving spouse or, if none,
his estate.
SECTION 6. AMENDMENTS AND TERMINATION
6.1 AMENDMENTS. The Funds reserve the right to amend, in whole or in part,
and in any manner, any or all of the provisions of this Plan by action of their
Boards of Trustees, except that if any amendment adversely affects the accrued
rights of an Eligible Trustee, such amendment shall not be effective without the
consent of the Trustee.
6.2 TERMINATION. The Funds may terminate this Plan at any time. The
Eligible Trustees' Deferral Accounts shall become payable as of the Valuation
Date next following the effective date of the termination of this Plan.
SECTION 7. MISCELLANEOUS
7.1 RIGHTS OF CREDITORS
(a) This Plan is unfunded. Neither an Eligible Trustee nor any other
persons shall have any interest in any specific asset or assets
of the Funds by reason of any Deferral Account hereunder, nor any
rights to receive distribution of his Deferral Account except and
to the extent expressly provided hereunder. In order to cover
their obligations hereunder, the Funds will purchase investments.
These investments shall continue for all purposes to be a part of
the general assets and property of the Funds, subject to the
claims of its general creditors and no persons other than the
Funds shall by virtue of the provisions of this Plan have any
interest in such assets other than an interest as a general
creditor of the Funds.
7
<PAGE>
(b) The rights of an Eligible Trustee and the Beneficiaries to the
amounts held in the Deferral Account are unsecured and such
amounts shall be subject to the claims of the creditors of the
Funds. With respect to the payment of amounts held under the
Deferral Account, the Eligible Trustee and his Beneficiaries have
the status of unsecured creditors of the Funds. This Plan is
executed on behalf of the Funds by an officer of the Funds as
such and not individually. Any obligation of the Funds hereunder
shall be an unsecured obligation of the Funds and not of any
other person.
7.2 AGENTS. The Funds may employ agents and provide for such clerical,
legal, actuarial, accounting, advisory or other services as it deems necessary
to perform its duties under this Plan. The Funds shall bear the cost of such
services and all other expenses it incurs in connection with the administration
of this Plan.
7.3 LIABILITY AND INDEMNIFICATION. Except for their own negligence, willful
misconduct or willful breach of the terms of this Plan, the Funds shall be
indemnified and held harmless by the Eligible Trustees against liability or
losses occurring by reason of any act or omission of the Funds or any other
person, relating to this Plan.
7.4 INCAPACITY. If the Funds shall receive evidence satisfactory to them
that an Eligible Trustee or any Beneficiary entitled to receive any benefit
under the Plan is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to receive such benefit and to give a valid
release therefor, and that another person or an institution is then maintaining
or has custody of the Eligible Trustee or Beneficiary and that no guardian,
committee or other representative of the estate of the Eligible Trustee or
Beneficiary shall have been duly appointed, the Funds may make payment of such
benefit otherwise payable to the Eligible Trustee or Beneficiary to such other
person or institution, including a custodian under a Uniform Gifts to Minors
Act, or corresponding legislation (who shall be an adult, a guardian of the
minor or a trust company), and the release of such other person or institution
shall be a valid and complete discharge for the payment of such benefit.
7.5 GOVERNING LAW. This Plan is made and entered into in the State of Ohio
and all matters concerning its validity, construction and administration shall
be governed by the laws of the State of Ohio.
7.6 NON-GUARANTEE OF TRUSTEESHIP. Nothing contained in this Plan shall be
construed as a contract or guarantee of the right of an Eligible Trustee to be,
or remain as, a trustee of any of the Funds or to receive any, or any particular
rate of, Compensation.
7.7 COUNSEL. The Funds may consult with legal counsel with respect to the
meaning or construction of this Plan, its obligations or duties hereunder or
with respect to any action or proceeding or any question of law, and it shall be
fully protected with respect to any action taken or omitted by it in good faith
pursuant to the advice of legal counsel.
8
<PAGE>
7.8 INTERESTS NOT TRANSFERABLE. An Eligible Trustee's and Beneficiaries'
interests in the Deferral Account may not be anticipated, sold, encumbered,
pledged, mortgaged, charged, transferred, alienated, assigned nor become subject
to execution, garnishment or attachment and any attempt to do so by any person
shall be deemed null and void. The Funds shall not recognize the rights of any
party under this Plan except those of the Eligible Trustee or his Beneficiary.
7.9 ENTIRE AGREEMENT. This Plan contains the entire understanding between
the Funds and the Eligible Trustees with respect to the payment of non-qualified
deferred compensation by the Funds to the Eligible Trustees.
7.10 INTERPRETATION OF PLAN. Interpretations of, and determinations related
to, this Plan made by the Funds in good faith, including any determinations of
the amounts of the Deferral Account, shall be conclusive and binding upon all
parties; and the Funds shall not incur any liability to an Eligible Trustee for
any such interpretation or determination so made or for any other action taken
by it in connection with this Plan in good faith.
7.11 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon, and shall
inure to the benefit of, the Funds and their successors and assigns and to the
Eligible Trustees and their heirs, executors, administrators and personal
representatives.
7.12 SEVERABILITY. In the event any one or more provisions of this Plan are
held to be invalid or unenforceable, such illegality or unenforceability shall
not affect the validity or enforceability of the other provisions hereof and
such other provisions shall remain in full force and effect unaffected by such
invalidity or unenforceability.
IN WITNESS WHEREOF, the Funds have caused this Plan to be executed by one
of their duly authorized officers, this ________ day of _____________________,
1997.
[FUNDS]
By:
- -------------------------------- ----------------------------------
Witness
Name:
----------------------------------
Title:
----------------------------------
9
<PAGE>
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------
DEFERRAL ELECTION FORM
- -------------------------------------------------------------------------------
Under the Deferred Compensation Plan for Independent Trustees (the "Plan"), I
hereby make the following elections:
I. DEFERRAL OF COMPENSATION
You may elect to defer up to 100 percent of your Compensation (as defined under
the Plan), in whole percentage amounts.
Starting August 6, 1998 and for each year thereafter (unless subsequently
amended by completion of a new election form), you may elect any percentage
portion of your Compensation to be credited to your Deferral Account under the
Plan. The Deferral Account shall be further credited with a return on the
Deferral Account balance as provided under the Plan.
- -------------------------------------------------------------------------------
I hereby elect that the following percentage of my Compensation
be deferred under the Plan.
----%
- -------------------------------------------------------------------------------
II. ELECTION OF DEFERRAL PERIOD
You are required under the Plan to elect the time period for which Deferrals
(plus applicable investment return) are to be deferred. Such election shall
specify either (a) a number of years for the deferral, to be not less than two
(2) years, or (b) that the deferral continue until your Separation from Service.
I hereby make the following elections regarding my Deferrals under the Plan:
- -------------------------------------------------------------------------------
|_| The Compensation I elect to defer under the Plan is to be deferred for ___
years beyond the end of the Deferral year.
|_| The Compensation I elect to defer under the Plan is to be deferred until my
Separation from Service.
- -------------------------------------------------------------------------------
10
<PAGE>
III. FORM OF DISTRIBUTION
You are required to elect the form of distribution, which may be either (a) a
lump sum or (b) generally equal annual installments over a period of up to ten
years.
- -------------------------------------------------------------------------------
My distributions from the Plan are to be in the form of:
|_| a lump sum; or
|_| generally equal annual installments over ___ years (not
to exceed 10 years)
- -------------------------------------------------------------------------------
The time period for deferrals under II above and/or the form of distribution
under III above may be amended annually based on mutual agreement between the
Eligible Trustee and the Funds. Any such amendment shall become effective one
year following the date the amendment is submitted to the Administrator and the
amendment shall apply to the entire amount in the Deferral Account on the
effective date. Any such agreement shall be attached to this Form.
I understand that the amounts held in the Deferral Account shall remain the
general assets of the Funds and that, with respect to the payment of such
amounts, I am merely a general creditor of the Funds. I may not sell, encumber,
pledge, assign or otherwise alienate the amounts held under the Deferral
Account.
I hereby agree that the terms of the Plan are incorporated herein and are made a
part hereof.
- ------------------------------- ---------------------------------
Witness ELIGIBLE TRUSTEE
- ------------------------------- ---------------------------------
Witness Date
Accepted by Administrator:
- ------------------------------- ---------------------------------
Administrator Date
11
<PAGE>
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------
RETURN DESIGNATION FORM
- -------------------------------------------------------------------------------
Under the Deferred Compensation Plan for Independent Trustees (the "Plan") I
hereby elect that the return on my Deferral Account under the Plan be computed
as if the Deferral Account was invested in the following Funds:
- --------------------------------------------------------------------------------
Percentage of Current Percentage of Future
Name of Fund Deferral Account to be Deferral Account Earnings
Attributed to Fund to be Attributed to Fund
- --------------------------------------------------------------------------------
- -------------------------- -------% -------%
- -------------------------- -------% -------%
- -------------------------- -------% -------%
- -------------------------- -------% -------%
- -------------------------- -------% -------%
- --------------------------------------------------------------------------------
Please include an attachment to this form if you need space to select additional
portfolios.
I realize that the designation included on this Form shall be effective until I
have filed another valid Return Designation Form with the Administrator. If (a)
I make no written designation, (b) the written designation is unclear or (c)
less than 100% of my Deferral Account is covered by this election, then my
Deferral Account shall be credited with the returns of the Money Market Fund
until I provide the Administrator with appropriate instructions. This form must
be delivered to the Administrator on or before 15 days prior to the end of the
calendar quarter to be effective the following quarter.
- --------------------------------- ---------------------------------
Witness ELIGIBLE TRUSTEE
- --------------------------------- ---------------------------------
Witness Date
12
<PAGE>
Accepted by Administrator:
- --------------------------------- ---------------------------------
Administrator Date
13
<PAGE>
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------
BENEFICIARY DESIGNATION FORM
- -------------------------------------------------------------------------------
Under the Deferred Compensation Plan for Independent Trustees (the "Plan"), I
hereby make the following beneficiary designations:
I. PRIMARY BENEFICIARY
I hereby select the following as my primary Beneficiary(ies) to receive at my
death in the form of a lump sum (or as otherwise provided in Section 5.3 of the
Plan) the amounts held in my Deferral Account under the Plan. In the event I am
survived by more than one primary Beneficiary, such primary Beneficiaries shall
share equally in the distribution of my Deferral Account unless I indicate
otherwise on an attachment to this form:
- --------------------------------------------------------------------------------
Name (Relationship)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip SSN
- --------------------------------------------------------------------------------
Name (Relationship)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip SSN
Please include an attachment to this form if you wish to select additional
primary Beneficiaries.
14
<PAGE>
II. SECONDARY BENEFICIARY
In the event I am not survived by any primary Beneficiary, I hereby appoint the
following as secondary Beneficiary(ies) to receive death benefits in the form of
a lump sum (or as otherwise provided in Section 5.3 of the Plan) under the Plan.
In the event I am survived by more than one secondary Beneficiary, such
secondary Beneficiaries shall share equally in the distribution of my Deferral
Account unless I indicate otherwise on an attachment to this form:
- --------------------------------------------------------------------------------
Name (Relationship)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip SSN
- --------------------------------------------------------------------------------
Name (Relationship)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip SSN
Please include an attachment to this form if you wish to select additional
secondary Beneficiaries.
I understand that if I am not survived by any primary or secondary Beneficiary,
my Beneficiary shall be as set forth under the Plan.
- ------------------------------- ----------------------------------
Witness ELIGIBLE TRUSTEE
- ------------------------------- ----------------------------------
Witness Date
Accepted by Administrator:
- ------------------------------- ----------------------------------
Administrator Date
15
<PAGE>
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------
HARDSHIP WITHDRAWAL FORM
- -------------------------------------------------------------------------------
Under the Deferred Compensation Plan for Independent Trustees (the "Plan"), I
may request at any time a Hardship and Unforeseeable Emergency withdrawal (an
"Emergency withdrawal") of part or all of the amount then credited to my
Deferral Account. The amount of the Emergency withdrawal shall be limited to the
amount necessary to meet the Emergency.
- -------------------------------------------------------------------------------
I request a hardship withdrawal of $____________________ for the
following reason:
|_| My own or a dependent's sudden and unexpected illness.
|_| The loss of my property due to casualty.
|_| Other (explain):
- -------------------------------------------------------------------------------
In addition, I certify that the Emergency may not be relieved through (a)
reimbursement or compensation by insurance or otherwise; (b) liquidation of my
assets to the extent that liquidation itself would not cause an Emergency, or
(c) ceasing to defer receipt of any compensation that I have not yet earned. In
addition, I realize that the Administrator may require additional information
from me before deciding whether to grant this request for an Emergency
withdrawal.
- ----------------------------- ---------------------------------
Witness ELIGIBLE TRUSTEE
- ----------------------------- ---------------------------------
Witness Date
- -------------------------------------------------------------------------------
Administrator: Approved: _____ Denied: ____
- ----------------------------- ---------------------------------
Administrator Date
- -------------------------------------------------------------------------------
16
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
Growth Stock Portfolio:
We consent to the use of our report included herein dated February 11, 2000 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, 1999 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 __, 2000
AMENDED AND RESTATED CODE OF ETHICS
THE GROWTH STOCK PORTFOLIO
THE MUTUAL FUND PORTFOLIO
THE BOND PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE UTILITIES STOCK PORTFOLIO
THE GROWTH MUTUAL FUND PORTFOLIO
THE AGGRESSIVE GROWTH MUTUAL FUND PORTFOLIO
THE FLEX-FUNDS
THE FLEX PARTNERS
The Growth Stock Portfolio, The Mutual Fund Portfolio, The Bond Portfolio,
The Money Market Portfolio, The Utilities Stock Portfolio, The Growth Mutual
Fund Portfolio, The Aggressive Growth Mutual Fund Portfolio, The Flex-funds, The
Flex-Partners (each a "Portfolio" and collectively the "Portfolios") have each
determined to adopt this Code of Ethics (the "Code") as of February 3, 1995, as
amended and restated on February 11, 2000, to specify and prohibit certain types
of personal securities transactions deemed to create a conflict of interest and
to establish reporting requirements and preventive procedures pursuant to the
provisions of Rule 17j-1(b)(1) under the Investment Company Act of 1940 (the
"1940 Act").
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, officer or
Advisory Person (as defined below) of the Portfolio or any investment
adviser thereof, or (ii) any director or officer of any principal
underwriter or placement agent of the Portfolio who, in the ordinary
course of his or her business, makes, participates in or obtains
information regarding the purchase or sale of securities for the
Portfolio for which the principal underwriter or placement agent so
acts or whose functions or duties as part of the ordinary course of
his or her business relate to the making of any recommendation to the
Portfolio regarding the purchase or sale of securities or (iii)
notwithstanding the provisions of clause (i) above, where the
investment adviser is primarily engaged in a business or businesses
other than advising registered investment companies or other advisory
clients, any trustee, director, officer or Advisory Person of the
investment adviser who, with respect to the Portfolio, makes any
recommendation or participates in the determination of which
recommendation shall be made, or whose principal function or duties
relate to the determination of which recommendation shall be made to
the Portfolio or who in connection with his or her duties, obtains any
information concerning securities recommendations being made by such
investment adviser to the Portfolio.
<PAGE>
B. An "Advisory Person" means any employee of the Portfolio or any
investment adviser thereof (or of any company in a control
relationship to the Portfolio or such investment adviser), who, in
connection with his or her regular functions or duties, makes,
participates in or obtains information regarding the purchase or sale
of securities by the Portfolio or whose functions relate to any
recommendations with respect to such purchases or sales and any
natural person in a control relationship with the Portfolio or adviser
who obtains information regarding the purchase or sale of securities.
C. A "Portfolio Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting
the Portfolio.
D. "Access Persons," "Advisory Persons" and "Portfolio Managers" shall
not include any individual who is required to and does file quarterly
reports with the Portfolio's investment adviser, any subadviser, the
administrator or the principal underwriter or placement agent
substantially in conformity with Rule 17j-1 of the 1940 Act or Rule
204-2 of the Investment Advisers Act of 1940.
E. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
F. "Control" shall have the same meaning as set forth in Section 2(a)9 of
the 1940 Act.
G. "Disinterested Trustee" means a Trustee who is not an "interested
person" within the meaning of Section 2(a)(19) of the 1940 Act. An
"interested person" includes any person who is a trustee, director,
officer, employee or owner of 5% or more of the outstanding stock of
any investment adviser. Affiliates of brokers or dealers are also
"interested persons", except as provided in Rule 2(a)(19)(1) under the
1940 Act.
H. The "Review Officer" is the person designated by the Portfolio's Board
of Trustees to monitor the overall compliance with this Code. In the
absence of any such designation the Review Officer shall be the
Treasurer or any Assistant Treasurer of the Portfolio.
I. The "Preclearance Officer" is the person designated by the Portfolio's
Board of Trustees to provide preclearance of any personal security
transaction as required by this Code of Ethics.
J. "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security.
2
<PAGE>
K. "Security" shall have the meaning as set forth in Section 2(a)(36) of
the 1940 Act (in effect, all securities), except that it shall not
include direct obligations of the U.S. Government (or any other
"government security" as that term is defined in the 1940 Act),
bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements; shares of registered open-end investment companies; and
stock index futures.
L. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the Portfolio before his personal
interests;
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his position with or on behalf
of the Portfolio.
III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
A. BLACKOUT PERIODS
1. No Access Person shall purchase or sell, directly or indirectly,
any security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership on a day
during which he knows or should have known the Portfolio has a
pending "buy" and "sell" order in that same security until that
order is executed or withdrawn.
2. No Advisory Person or Portfolio Manager shall purchase or sell,
directly or indirectly, any security in which he has, or by
reason of such transaction acquires, any direct or indirect
beneficial ownership within at least seven calendar days before
and after the Portfolio trades (or has traded) in that security.
3
<PAGE>
B. INITIAL PUBLIC OFFERINGS
With regard to acquiring any security in an "initial public offering"
(as defined in Rule 17j-1(a)(6) under the 1940 Act) for the personal
account of an Advisory Person, he or she shall
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether the investment opportunity should be reserved
for the Portfolio, and whether such opportunity is being offered
to such Advisory Person by virtue of his position with the
Portfolio) for any acquisition of securities in an initial public
offering; and
2. after authorization to acquire securities in an initial public
offering has been obtained, disclose such personal investment,
with respect to any subsequent consideration by the Portfolio (or
any other investment company for which he acts in a capacity as
an Advisory Person) for investment in that issuer.
C. LIMITED OFFERINGS
With regard to a "limited offering" (as defined in Rule 17j-1(a)(8)
under the 1940 Act), each Advisory Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved
for the Portfolio, and whether such opportunity is being offered
to such Advisory Person by virtue of his position with the
Portfolio) for any acquisition of securities in a limited
offering; and
2. after authorization to acquire securities in a limited offering
has been obtained, disclose such personal investment with respect
to any subsequent consideration by the Portfolio (or any other
investment company for which he acts in a capacity as an Advisory
Person) for investment in that issuer.
If the Portfolio decides to purchase securities of an issuer the
shares of which have been previously obtained for personal
investment by an Advisory Person, that decision shall be subject
to an independent review by Advisory Persons with no personal
interest in the issuer.
4
<PAGE>
D. SHORT-TERM TRADING PROFITS
With regard to the purchase and sale, or sale and purchase, within 60
calendar days, of the same (or equivalent) securities of which an Advisory
Person has beneficial ownership, each Advisory Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether such opportunity is being offered to such
Advisory Person by virtue of his position with the Portfolio) for
the closing transaction (whether a purchase or sale) which would
result in the short-term profit; and
2. after authorization to purchase or sell such securities has been
obtained, disclose such personal investment with respect to any
subsequent consideration by the Portfolio (or any other
investment company for which he acts in a capacity as an Advisory
Person) for investment in that issuer.
E. GIFTS
No Advisory Person shall receive any gift or other things of more than
DE MINIMIS value from any person or entity that does business with or
on behalf of the Portfolio.
F. SERVICE AS A DIRECTOR
1. No Advisory Person shall serve on a board of directors of a
publicly traded company without prior authorization from the
Board of Trustees of the Portfolio, based upon a determination
that such board service would be consistent with the interests of
the Portfolio and its investors..
2. If board service of an Advisory Person is authorized by the Board
of Trustees of the Portfolio, such Advisory Person shall be
isolated from the investment making decisions of the Portfolio
with respect to the company of which he is a director.
G. EXEMPTED TRANSACTIONS
The prohibition of Section III shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. purchases or sales that are non-volitional on the part of the
Access Person or the Portfolio, including mergers,
recapitalizations or similar transactions;
5
<PAGE>
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired; and
5. purchases and sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to
the Portfolio because they would be very unlikely to affect a
highly institutional market, (b) clearly not economically related
to the securities to be purchased or sold or held by the
Portfolio or client or (c) not representing any danger of the
abuses prescribed by Rule 17j-1, but only if in each case the
prospective purchaser has identified to the Review Officer all
factors of which he or she is aware which are potentially
relevant to a conflict of interest analysis, including the
existence of any substantial economic relationship between his or
her transaction and securities held or to be held by the
Portfolio.
IV. COMPLIANCE PROCEDURES
A. PRE-CLEARANCE
An Access Person (other than a Disinterested Trustee) may not,
directly or indirectly, acquire or dispose of beneficial ownership of
a security except as provided below unless:
1. such purchase or sale has been approved by the Preclearance
Officer or, in the case of persons employed by the Portfolio's
investment adviser, by a supervisory person designated by the
investment adviser.
2. the approved transaction is completed on the same day approval is
received; and
3. the Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
B. REPORTING
1. Coverage:
a. Each Access Person, (other than Disinterested Trustees) shall
file with the Review Officer confidential quarterly reports
containing the information required in Sections IV.B.1.b. and
IV.B.2 of this Code with
6
<PAGE>
respect to ALL transactions during the preceding quarter in any
securities in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership, PROVIDED that (i) no Access Person shall be required
to report transactions effected for any account over which such
Access Person has no direct or indirect influence or control
(except that such an Access Person must file a written
certification stating that he or she has no direct or indirect
influence or control over the account in question), (ii) an
Access Person who is an Access Person of the investment adviser
of the Portfolio shall file such Access Person's reports with the
investment adviser. To the extent such reports would duplicate
information recorded pursuant to Rules 204-2(a)(12) or
204-2(a)(13) of the Investment Advisers Act of 1940, no such
reports need be filed by such Access Person pursuant to this
Code, and (iii) an Access Person who is an Access Person of the
principal underwriter or placement agent of the Portfolio shall
file such Access Person's reports with the principal underwriter.
All such Access Persons shall file reports, even when no
transactions have been effected, representing that no
transactions subject to reporting requirements were effected.
b. If during such preceding quarter an Access Person establishes
any account in which any securities were held during such quarter
for the direct or indirect benefit of the Access Person, the
Access Person must also include the following information in such
quarterly report: (i) the name of the broker, dealer or bank with
whom the Access Person established the account and (ii) the date
the account was established.
2. Filings: Every report shall be made no later than 10 days after
the end of the calendar quarter in which the transaction to which
the report relates was effected, and, in addition to any
information specified in Section IV.B.1.b. above, shall contain
the following information:
a. the date of the transaction, the title and the number of
shares and the principal amount of each security involved;
b. the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. the price at which the transaction was effected;
d. the name of the broker, dealer or bank with or through whom
the transaction was effected; and
e. the date that the report is submitted.
7
<PAGE>
3. Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she
has any direct or indirect beneficial ownership in the security
to which the report relates.
C. REVIEW
In reviewing transactions, the Review Officer shall take into account
the exemptions allowed under Section III.G. Before making a
determination that a violation has been committed by an Access Person,
the Review Officer shall give such person an opportunity to supply
additional information regarding the transaction in question.
D. DISCLOSURES OF PERSONAL HOLDINGS
1. Initial Holdings Report: Each Access Person shall report to the
Review Officer within 10 days after becoming an Access Person (i)
the title, number of shares and principal amount of each Security
in which such Access Person had any direct or indirect beneficial
ownership when he or she became an Access Person, (ii) the name
of any broker, dealer or bank with whom such Access Person
maintained an account in which securities were held for the
direct or indirect benefit of such Access Person as of the date
he or she became an Access Person, and (iii) the date the report
is submitted by such Access Person .
2. Annual Holdings Report: On or before January 30, 2001, and
annually thereafter, each Access Person (other than Disinterested
Trustees) shall report (i) the title, number of shares and
principal amount of each Security in which such Access Person had
any direct or indirect beneficial ownership, (ii) the name of any
broker, dealer, or bank with whom such Access Person maintains an
account in which any securities are held for the direct or
indirect benefit of such Access Person, and (iii) the date that
the report is submitted. All of the information in such report
must be current as of a date no more than 30 days before the
report is submitted.
E. CERTIFICATION OF COMPLIANCE
Each Access Person is required to certify annually that he or she has
read and understood the Portfolio's Code and recognizes that he or she
is subject to such Code. Further, each Access Person is required to
certify annually that he or she has complied with all the requirements
of the Code and that he or she has disclosed or reported all personal
securities transactions pursuant to the requirements of the Code.
V. REQUIREMENTS FOR DISINTERESTED TRUSTEES
8
<PAGE>
A. Every Disinterested Trustee shall file with the Review Officer a
quarterly report indicating that he or she had no reportable
transactions or a report containing the information required in
Section IV.B. of this Code with respect to transactions (other than
exempted transactions listed under Section III.G.) in any securities
in which such person has, or by reason of such transactions acquires,
any direct or indirect beneficial ownership, if such Trustee, at the
time of that transaction, knew or should have known, in the ordinary
course of pursuing his or her official duties as Trustee, that during
the 15-day period immediately preceding or after the transaction by
the Trustee:
1. such security was being purchased or sold by the Portfolio; or
2. such security was being considered for purchase or sale by the
Portfolio.
All Disinterested Trustees shall file reports, even when no
transactions have been effected, representing that no transactions
subject to reporting requirements were effected.
B. Notwithstanding the preceding section, any Disinterested Trustee may,
at his or her option, report the information described in section
IV.B.2 with respect to any one or more transactions and may include a
statement that the report shall not be construed as an admission that
the person knew or should have known of portfolio transactions by the
Portfolio in such securities.
VI. REVIEW BY THE BOARD OF TRUSTEES
At least annually, the Review Officer shall report to the Board of Trustees
regarding:
A. All existing procedures concerning Access Persons' personal trading
activities and any procedural changes made during the past year;
B. Any recommended changes to the Portfolios' Code or procedures; and
At least annually, the Review Officer shall furnish the Board of
Trustees a written report that (i) describes any issues arising under
this Code or such procedures, including, but not limited to,
information about any material violations of this Code or such
procedures and any sanctions imposed in response to such violations
and (ii) certifies that the Portfolios have adopted procedures
reasonably necessary to prevent Access Persons from violating this
Code.
VII. SANCTIONS
9
<PAGE>
A. SANCTIONS FOR VIOLATIONS BY ACCESS PERSONS (EXCEPT DISINTERESTED
TRUSTEES).
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Trustees and the
Board may impose such sanctions as it deems appropriate, including,
inter alia, disgorgement of profits, censure, suspension or
termination of the employment of the violator. All material violations
of the Code and any sanctions imposed as a result thereto shall be
reported in writing at least annually to the Board of Trustees.
B. SANCTIONS FOR VIOLATIONS BY DISINTERESTED TRUSTEES
If the Review Officer determines that any Disinterested Trustee has
violated this Code, he or she shall so advise the President of the
Portfolio and also a committee consisting of the Disinterested
Trustees (other than the person whose transaction is at issue) and
shall provide the committee with a report, including the record of
pertinent actual or contemplated portfolio transactions of the
Portfolio and any additional information supplied by the person whose
transaction is at issue. The committee, at its option, shall either
impose such sanctions as it deems appropriate or refer the matter to
the full Board of Trustees of the Portfolio, which shall impose such
sanctions as it deems appropriate.
VIII. MISCELLANEOUS
A. ACCESS PERSONS
The Review Officer of the Portfolio will identify all Access Persons
who are under a duty to make reports to the Portfolio and will inform
such persons of such duty. Any failure by the Review Officer to notify
any person of his or her duties under this Code shall not relieve such
person of his or her obligations hereunder.
B. RECORDS
The Portfolio shall maintain records in the manner and to the extent
set forth below, which records may be maintained on microfilm under
the conditions described in Rule 31a-2(f) under the 1940 Act, and
shall be available for examination by representatives of the
Securities and Exchange Commission ("SEC"):
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
10
<PAGE>
2. a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end
of the fiscal year in which it is made, the first two years in an
easily accessible place;
4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code
shall be maintained in an easily accessible place; and
5. a record of any decision, and the reasons supporting the
decision, to approve the acquisition by Advisory Persons of
securities under Sections III.B. and C., for at least five years
after the end of the fiscal year in which it is made, the first
two years in an easily accessible place.
11
<PAGE>
C. CONFIDENTIALITY
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by law.
D. INTERPRETATION OF PROVISIONS
The Board of Trustees of the Portfolio may from time to time adopt
such interpretations of this Code as it deems appropriate.
12
AMENDED AND RESTATED
CODE OF ETHICS
MUIRFIELD INVESTORS, INC.
Muirfield Investors, Inc., a Delaware corporation ("MII"), hereby adopts
this Code of Ethics (the "Code") as of November 1, 1995, as amended and restated
on February 11, 2000, to specify and prohibit certain types of personal
securities transactions deemed to create a conflict of interest and to establish
reporting requirements and preventive procedures pursuant to the provisions of
Rule 17j-1(b)(1) under the Investment Company Act of 1940 (the "1940 Act") and
Rule 204-2 of the Investment Advisers Act of 1940. The Board of Trustees of The
Flex-funds, The Flex-Partners and the Portfolios in which the series of The
Flex-funds and The Flex-Partners are invested (the "Portfolios") approved this
Amended and Restated Code of Ethics on February 11, 2000.
I. DEFINITIONS
A. An "Access Person" means any director or officer of MII or any of its
subsidiaries and any Advisory Person.
B. An "Advisory Person" means any employee of MII who, in connection with
his regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of securities by an account
or an Investment Company or whose functions relate to any
recommendations with respect to such purchases or sales and any
natural person in a control relationship with MII who obtains
information regarding the purchase or sale of securities.
C. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-1(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
D. "Control" shall have the same meaning as set forth in Section 2(a)(9)
of the 1940 Act.
E. The "Review Officer" is the person designated by MII's Board of
Directors to monitor the overall compliance with this Code. In the
absence of any such designation the Review Officer shall be the
Treasurer or any Assistant Treasurer of MII.
F. The "Preclearance Officer" is the person designated by MII's Board of
Directors to provide preclearance of any personal security transaction
as required by this Code of Ethics.
G. "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security.
H. "Security" shall have the meaning as set forth in Section 2(a)(36) of
the 1940 Act (in effect, all securities), except that it shall not
include direct obligations of the U.S. Government (or any other
"government security" as that term is defined in the 1940 Act);
bankers' acceptances, bank certificates of deposit, commercial paper
and high
1
<PAGE>
quality short-term debt instruments, including repurchase agreements;
shares of registered open-end investment companies; and stock index
futures.
I. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
J. "Investment Company" (collectively, the "Investment Companies") means
a company registered as such under the 1940 Act and for which R.
Meeder & Associates, Inc. is the investment adviser.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the accounts and the Investment
Companies before his personal interests;
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his position with or on behalf
of the accounts or the Investment Companies.
III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
A. BLACKOUT PERIODS
1. No Access Person shall purchase or sell, directly or indirectly,
any security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership on a day
during which he knows or should have known an account or an
Investment Company has a pending "buy" or "sell" order in that
same security until that order is executed or withdrawn.
2. No Advisory Person shall purchase or sell, directly or
indirectly, any security in which he has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
within at least seven calendar days before and after an
Investment Company trades (or has traded) in that security.
2
<PAGE>
B. INITIAL PUBLIC OFFERINGS
With regard to acquiring any security in an "initial public
offering" (as defined in Rule 17j-1(a)(6) under the 1940 Act) for the
personal account of an Advisory Person, he or she shall
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether the investment opportunity should be reserved
for an account or an Investment Company, and whether such
opportunity is being offered to such Advisory Person by virtue of
his relationship to an account or his position with an Investment
Company) for any acquisition of securities in an initial public
offering; and
2. after authorization to acquire securities in an initial public
offering has been obtained, disclose such personal investment,
with respect to any subsequent consideration by an account or an
Investment Company for investment in that issuer.
C. LIMITED OFFERINGS
With regard to a "limited offering" (as defined in Rule 17j-1(a)(8)
under the 1940 Act), each Advisory Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved
for an account or an Investment Company, and whether such
opportunity is being offered to such Advisory Person by virtue of
his relationship to an account or his position with an Investment
Company) for any acquisition of securities in a limited offering;
and
2. after authorization to acquire securities in a limited offering
has been obtained, disclose such personal investment with respect
to any subsequent consideration by an account or an Investment
Company for investment in that issuer.
If an account or an Investment Company decides to purchase
securities of an issuer the shares of which have been previously
obtained for personal investment by an Advisory Person, that
decision shall be subject to an independent review by Advisory
Persons with no personal interest in the issuer.
D. SHORT-TERM TRADING PROFITS
With regard to the purchase and sale, or sale and purchase,
within 60 calendar days, of the same (or equivalent) securities of
which an Advisory Person has beneficial ownership, each Advisory
Person shall:
1. obtain express prior written approval from the Review Officer
(who, in making such determination, shall consider, among other
factors, whether such opportunity is being offered to such
Advisory Person by virtue of his relationship to an
3
<PAGE>
account or his position with an Investment Company) for the
closing transaction (whether a purchase or sale) which would
result in the short-term profit; and
2. after authorization to purchase or sell such securities has been
obtained, disclose such personal investment with respect to any
subsequent consideration by an account or an Investment Company
for investment in that issuer.
E. GIFTS
No Advisory Person shall receive any gift or other things of more than
DE MINIMIS value from any person or entity that does business with or
on behalf of an account or an Investment Company.
F. SERVICE AS A DIRECTOR
1. No Advisory Person shall serve on a board of directors of a
publicly traded company without prior authorization from the
Board of Directors of MII and the boards of trustees of the
Investment Companies, based upon a determination that such board
service would be consistent with the interests of the accounts,
the Investment Companies and their investors.
2. If board service of an Advisory Person is authorized by the Board
of Directors of MII and the boards of trustees of the Investment
Companies, such Advisory Person shall be isolated from the
investment making decisions of the accounts and the Investment
Companies with respect to the company of which he is a director.
G. EXEMPTED TRANSACTIONS
The prohibition of Section III shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. purchases or sales that are non-volitional on the part of the
Access Person, an account or an Investment Company, including
mergers, recapitalizations or similar transactions;
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities, to
the extent such rights were acquired from such issuer, and sales
of such rights so acquired; and
5. purchases and sales that receive prior approval in writing by the
Preclearance Officer as (a) only remotely potentially harmful to
an account or an Investment Company because they would be very
unlikely to affect a highly institutional market, (b) clearly not
economically related to the securities to be purchased or sold or
held by an account or an Investment Company or (c) not
representing any
4
<PAGE>
danger of the abuses prescribed by Rule 17j-1 of the Act or Rule
204-2 of the Investment Adviser's Act of 1940, but only if in
each case the prospective purchaser has identified to the Review
Officer all factors of which he or she is aware which are
potentially relevant to a conflict of interest analysis,
including the existence of any substantial economic relationship
between his or her transaction and securities held or to be held
by an account or an Investment Company.
IV. COMPLIANCE PROCEDURES
A. PRE-CLEARANCE
An Access Person may not, directly or indirectly, acquire or dispose
of beneficial ownership of a security except as provided below unless:
1. such purchase or sale has been approved by the Preclearance
Officer;
2. the approved transaction is completed on the same day approval is
received; and
3. the Preclearance Officer has not rescinded such approval prior to
execution of the transaction.
B. REPORTING
1. Coverage:
a. Each Access Person shall file with the Review Officer
confidential quarterly reports containing the information
required in Sections IV.B.1.b. and IV.B.2 of this Code with
respect to ALL transactions during the preceding quarter in any
securities in which such person has, or by reason of such
transaction acquires, any direct or indirect beneficial
ownership, PROVIDED that no Access Person shall be required to
report transactions effected for any account over which such
Access Person has no direct or indirect influence or control
(except that such an Access Person must file a written
certification stating that he or she has no direct or indirect
influence or control over the account in question).
b. If during such preceding quarter an Access Person establishes
any account in which any securities were held during such quarter
for the direct or indirect benefit of the Access Person, the
Access Person must also include the following information in such
quarterly report: (i) the name of the broker, dealer or bank with
whom the Access Person established the account and (ii) the date
the account was established.
2. Filings: Every report shall be made no later than 10 days after
the end of the calendar quarter in which the transaction to which
the report relates was effected, and, in addition to any
information specified in Section IV.B.1.b. above, shall contain
the following information:
5
<PAGE>
a. the date of the transaction, the title and the number of
shares and the principal amount of each security involved;
b. the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. the price at which the transaction was effected;
d. the name of the broker, dealer or bank with or through whom
the transaction was effected; and
e. the date that the report is submitted.
3. Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she
has any direct or indirect beneficial ownership in the security
to which the report relates.
C. REVIEW
In reviewing transactions, the Review Officer shall take into account
the exemptions allowed under Section III.G. Before making a
determination that a violation has been committed by an Access Person,
the Review Officer shall give such person an opportunity to supply
additional information regarding the transaction in question.
D. DISCLOSURES OF PERSONAL HOLDINGS
1. Initial Holdings Report: Each Access Person shall report to the
Review Officer within 10 days after becoming an Access Person (i)
the title, number of shares and principal amount of each Security
in which such Access Person had any direct or indirect beneficial
ownership when such Access Person became an Access Person, (ii)
the name of any broker, dealer or bank with whom such Access
Person maintained an account in which securities were held for
the direct or indirect benefit of such Access Person as of the
date he or she became an Access Person, and (iii) the date the
report is submitted by such Access Person .
2. Annual Holdings Report: On or before January 30, 2001, and
annually thereafter, each Access Person shall report (i) the
title, number of shares and principal amount of each Security in
which such Access Person had any direct or indirect beneficial
ownership, (ii) the name of any broker, dealer, or bank with whom
such Access Person maintains an account in which any securities
are held for the direct or indirect benefit of such Access
Person, and (iii) the date that the report is submitted. All of
the information in such report must be current as of a date no
more than 30 days before the report is submitted.
E. CERTIFICATION OF COMPLIANCE
Each Access Person is required to certify annually that he or she has
read and understood this Code and recognizes that he or she is subject
to this Code. Further,
6
<PAGE>
each Access Person is required to certify annually that he or she has
complied with all the requirements of this Code and that he or she has
disclosed or reported all personal securities transactions pursuant to
the requirements of this Code.
V. REVIEW BY THE BOARDS
At least annually, the Review Officer shall report to the Board of
Directors of MII and the Boards of Trustees of the Investment Companies
regarding:
A. All existing procedures concerning Access Persons' personal trading
activities and any procedural changes made during the past year;
B. Any recommended changes to this Code or procedures.
At least annually, the Review Officer shall furnish each of such Boards a
written report that (i) describes any issues arising under this Code or
such procedures, including, but not limited to, information about any
material violations of this Code or such procedures and any sanctions
imposed in response to such violations and (ii) certifies that MII has
adopted procedures reasonably necessary to prevent Access Persons from
violating this Code.
VI. SANCTIONS
If the Review Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Directors of MII and the
Board may impose such sanctions as it deems appropriate, including, inter
alia, disgorgement of profits, censure, suspension or termination of the
employment of the violator. All material violations of this Code and any
sanctions imposed with respect thereto shall be reported in writing at
least annually to the Board of Directors of MII and, if applicable, the
board of trustees of the Investment Company with respect to whose
securities the violation occurred.
VII. MISCELLANEOUS
A. ACCESS PERSONS
The Review Officer will identify all Access Persons who are under a
duty to make reports to MII and will inform such persons of such duty.
Any failure by the Review Officer to notify any person of his or her
duties under this Code shall not relieve such person of his or her
obligations hereunder.
B. RECORDS
MII shall maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f) under the 1940 Act, and shall be
available for examination by representatives of the Securities and
Exchange Commission ("SEC"):
7
<PAGE>
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
2. a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end
of the fiscal year in which it is made, the first two years in an
easily accessible place;
4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code
shall be maintained in an easily accessible place; and
5. a record of any decision, and the reasons supporting the
decision, to approve the acquisition by Advisory Persons of
securities under Sections III.B. and C., for at least five years
after the end of the fiscal year in which it is made, the first
two years in an easily accessible place.
C. CONFIDENTIALITY
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by law.
D. INTERPRETATION OF PROVISIONS
The Board of Directors of MII may from time to time adopt such
interpretations of this Code as it deems appropriate.
8
