Commission File No. 33-48922
Commission File No. 811-6720
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 16
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16
THE FLEX-PARTNERS
(Exact Name of Registrant as Specified in Charter)
P.O. BOX 7177, 6000 MEMORIAL DRIVE, DUBLIN, OHIO 43017
(Address of Principal Executive Offices-Zip Code)
Registrant's Telephone Number, including Area Code: (614)766-7000
DONALD F. MEEDER, SECRETARY - R. MEEDER & ASSOCIATES, INC.
P.O. BOX 7177, 6000 MEMORIAL DRIVE, DUBLIN, OHIO 43017
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective
(check appropriate box).
/ XXX / immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on pursuant to paragraph (b) of Rule 485.
/ / 60 days after filing pursuant to paragraph (a)(1).
/ / on (date) pursuant to paragraph (a)(1).
/ / 75 days after filing pursuant to paragraph (a)(2).
/ / on (date) pursuant to paragraph (a)(2) on Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Indefinite number of shares registered under Rule 24f-2 by filing of a
Pre-Effective Amendment No. 1, effective July 6, 1992. The 24(f)-2 Notice for
the fiscal year ended December 31, 1996 was filed with the Commission on
February 19, 1997.
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THE FLEX-PARTNERS INTERNATIONAL EQUITY FUND
CROSS REFERENCE SHEET TO FORM N-1A
PART A.
ITEM A. PROSPECTUS CAPTION
1 Cover Page
2 Highlights
Synopsis of Financial Information
3 Not Applicable
4 The Trust and its Management
Investment Objective and Policies
5 The Trust and its Management
5A Not Applicable
6(a) Other Information - Shares of Beneficial Interest
6(b) Not Applicable
6(c) Other Information - Shares of Beneficial Interest
6(d) Not Applicable
6(e) Highlights
6(f)(g) Income Dividends and Taxes
6(h) Not Applicable
7(a) The Trust and its Management
7(b) How Net Asset Value is Determined
How to Buy Shares
7(c) How To Buy Shares
Exchange Privilege
7(d) Highlights
How To Buy Shares
7(e) How To Buy Shares
7(f) Distribution Plan
7(g) Not Applicable
8(a) How To Make Withdrawals (Redemptions)
8(b) How To Make Withdrawals (Redemptions)
8(c) Shareholder Accounts
8(d) How To Make Withdrawals (Redemptions)
9 Not Applicable
<PAGE>
PROSPECTUS August 29, 1997
THE FLEX-PARTNERS
INTERNATIONAL EQUITY FUND
6000 Memorial Drive
Dublin, OH 43017
800-494-FLEX
614-766-7074
The Flex-Partners Funds are a family of mutual funds organized as a
business trust (the "Trust"). One of the separate portfolios of the Trust is the
International Equity Fund (the "International Equity Fund" or the "Fund"). The
Fund seeks long-term growth from investing primarily in equity securities of
foreign issuers.
ADDITIONAL INFORMATION
This Prospectus sets forth basic information about the Trust and the Fund
that a prospective investor should know before investing and it should be
retained for future reference. A STATEMENT OF ADDITIONAL INFORMATION, dated
August 29, 1997, has been filed with the Securities and Exchange Commission and
is incorporated herein by reference. The Statement of Additional Information is
available upon request and without charge by contacting the Fund at the address
given above or by calling 1-800-494-FLEX, or (614) 766-7074.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS Page
Highlights................................ 2
Synopsis of Financial Information......... 3
Investment Objective and Policies......... 4
Securities and Investment Practices....... 5
Risk Considerations....................... 10
The Trust and Its Management.............. 13
Distribution Plan......................... 16
Income Dividends and Taxes................ 17
How Net Asset Value is Determined......... 18
Performance Information and Reports....... 19
Other Information......................... 20
How to Buy Shares......................... 21
How to Make Withdrawals (Redemptions)..... 25
Exchange Privilege........................ 25
Retirement Plans.......................... 26
Other Shareholder Services................ 26
Shareholder Accounts...................... 27
INVESTMENT ADVISER: R. MEEDER & ASSOCIATES, INC.
INVESTMENT SUBADVISER: COMMERCIAL UNION INVESTMENT MANAGEMENT, LIMITED
PROSPECTUS DATED August 29, 1997
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HIGHLIGHTS
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INVESTMENT OBJECTIVE: The International Equity Fund seeks long-term growth
from investing primarily in equity securities of foreign issuers. See
"Investment Objective and Policies."
LIQUIDITY: As an open-end investment company, the Fund continuously offers
and redeems shares of beneficial interest at the next determined net asset value
per share plus any applicable sales charge. See "How to Buy Shares" and "How to
Make Withdrawals (Redemptions)."
DIVERSIFICATION: The Fund is a diversified mutual fund because 75% of its
assets are restricted by the following rules: (1) No more than 5% of the Fund's
assets may be invested in the securities of a single issuer (other than U.S.
Government Securities and securities of other investment companies, if otherwise
permissible) and (2) the Fund may not purchase more than 10% of any such
issuer's outstanding voting securities.
SALES CHARGE: Shares are offered at net asset value plus the applicable
sales charge (maximum of 4.00% of public offering price). See "Synopsis of
Financial Information" and "How to Buy Shares."
RETIREMENT PLANS AND OTHER SHAREHOLDER SERVICES: The Trust offers
retirement plans, which include a prototype Profit Sharing Plan, Money Purchase
Pension Plan, Salary Savings Plan--401(k), Individual Retirement Account (IRA),
Simple IRA, Simplified Employee Pension (SEP) Plan, and a number of other
special shareholder services. See "Retirement Plans."
MINIMUM INVESTMENT: A minimum investment of $2,500 is required to open an
account, except an IRA account for which the minimum is $500. Subsequent
investments must be at least $100. The Fund has the right to redeem the shares
in an account and pay the proceeds to the shareholder if the value of the
account drops below $1,000 ($500 for an IRA) because of shareholder redemptions.
The shareholder will be given 30 days written notice and an opportunity to
restore the account to $1,000 ($500 for an IRA). See "How to Buy Shares", "Other
Shareholder Services" and "Shareholder Accounts."
INVESTMENT ADVISER AND MANAGER: R. Meeder & Associates, Inc. is the Fund's
investment adviser and manager (the "Investment Adviser" or the "Manager"). The
Manager has been an investment adviser to individuals, retirement plans,
corporations and foundations since 1974 and to mutual funds since 1982. See "The
Trust and Its Management."
SUBADVISER: Commercial Union Investment Management, Limited is the Fund's
subadviser (the "Subadviser"). The Subadviser is a wholly-owned subsidiary of
Commercial Union plc., an international insurance and financial services
organization which has managed international assets since 1861, and can trace
its roots back to 1696. As of December 31, 1996, the Subadviser and its
affiliates have $111 billion in assets under management. The Subadviser is an
investment adviser to mutual funds, public and corporate employee benefit plans,
charities, insurance companies, banks, investment trusts and other institutions.
See "The Trust and Its Management."
<PAGE>
SHARES AVAILABLE THROUGH: The Fund's transfer agent, Mutual Funds Service
Co. ("MFSCO"). See "The Trust and Its Management."
DISTRIBUTION PLAN: The Fund has adopted a Rule 12b-1 distribution plan for
using as much as 25/100 of 1% of net assets annually to aid in the distribution
of shares. The Fund has also adopted a service plan for using as much as 25/100
of 1% of net assets annually to pay broker-dealers or others for the provision
of personal continuing services to shareholders and/or the maintenance of
shareholder accounts. See "Distribution Plan."
HOW TO BUY SHARES: Complete the New Account Application and forward with
payment as directed. Orders accompanied by payment (ordinary check, bank check,
bank wire, and money order) are accepted immediately and priced at the next
determined net asset value per share after receipt of the order. See "How to Buy
Shares" and "How Net Asset Value is Determined."
SHAREHOLDER INQUIRIES: Shareholder inquiries should be directed to the Fund
by writing or telephoning the Fund at the address or telephone numbers indicated
on the cover page of this Prospectus. To protect the confidentiality of
shareholder accounts, information relating to a specific account will be
disclosed pursuant to a telephone inquiry if the shareholder identifies the
account by account number or by the taxpayer identification number listed on the
account.
RISKS: For a discussion of the risks associated with an investment in the
Fund, see "Risk Considerations." The Fund should not be considered a complete
investment program.
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SYNOPSIS OF FINANCIAL INFORMATION
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price)................................ 4.00%(1)
Maximum Deferred Sales Load ........................... none
Maximum Sales Load Imposed on Reinvested
Dividends............................................ none
Redemption Fees ....................................... none
Exchange Fee........................................... none
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees........................................ 1.00%
Rule 12b-1 Fees........................................ 0.25%
Other Expenses*........................................ 0.37%
Service Fees .......................................... 0.25%(2)
TOTAL FUND OPERATING EXPENSES ------
1.87%
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CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
EXAMPLE: 1 YEAR 3 YEARS
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An investor would pay the following expense
on a $1,000 investment, assuming (1) an
operating expense ratio of 1.87% for the Fund,
and (2) a 5% annual return throughout the
period and (3) redemption at the end of each
time period: $58 $96
*"Other Expenses" is based on estimated amounts for the current fiscal year.
(1)The sales charge applied to purchases of shares declines as the amount
invested increases. See "How to Buy Shares."
(2)The Service Fee is allocated to NASD member firms for continuous personal
service by such members to investors in the Fund, such as responding to
shareholder inquiries, quoting net asset values, providing current marketing
material, and attending to other shareholder matters.
The expense table is meant to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Fund does not impose an exchange fee or redemption fee. For more
complete descriptions of the various costs and expenses of the Fund see "The
Trust and Its Management" and "Distribution Plan."
The table and hypothetical examples on the previous page are for
illustrative purposes only. The investment rate of return and expenses should
not be considered a representation of past or future performance or expenses as
actual rates of return and expenses may be more or less than the rate and
amounts shown.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund seeks long-term growth from investing primarily in equity
securities of foreign issuers. Normally, the Fund invests at least 70% of its
assets in equity securities of foreign issuers. Equity securities include common
and preferred stocks, convertible securities and warrants or rights to subscribe
to or purchase such securities, American Depositary Receipts ("ADR's"), European
Depositary Receipts ("EDR's") and Global Depositary Receipts ("GDR's")
(collectively, "depositary receipts"). However, the Fund is not required to
invest in equity securities of foreign issuers and may invest in any type of
investment grade securities, including debt securities of foreign issuers, and
obligations of the U.S. and foreign governments and their political
subdivisions.
The Fund intends to diversify its assets broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of such countries. Investments
may be made in developed as well as developing countries. The Fund currently
does not intend to invest more than 30% of its total assets in issuers in, or
governments of, developing countries. Investing in issuers located in developing
countries involves exposure to economies that are generally less diverse and
mature, and to political systems that can be expected to have less stability,
than those of developed countries.
<PAGE>
Currently, assets of the Fund invested in developed countries are primarily
invested in Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland, United
Kingdom, Australia, Hong Kong, Japan, Malaysia, New Zealand and Singapore.
Currently, assets of the Fund invested in developing countries are invested
primarily in Portugal, Poland, Czech Republic, Hungary, Turkey, India, Pakistan,
Israel, Sri Lanka, Russia, China, Indonesia, Korea, Greece, Jordan, Philippines,
Taiwan, Venezuela, Thailand, the Republic of South Africa, Peru, Brazil,
Colombia, Argentina, Chile, and Mexico.
The Fund may attempt to hedge against unfavorable changes in currency
exchange rates by engaging in forward currency transactions, purchasing and
writing put and call options on foreign currencies and trading currency futures
contracts and options thereon. The Fund may purchase temporary investments, lend
its portfolio securities and purchase stock index futures contracts and purchase
and write options thereon. See "Securities and Investment Practices."
As a fundamental policy, with respect to 75% of the total assets of the
Fund, the Fund will not purchase a security of any issuer (other than U.S.
Government Securities or securities of other investment companies, if otherwise
permissible) if such purchase would cause the Fund's holdings of that issuer to
amount to more than 5% of the Fund's total assets, and the Fund may not own more
than 10% of the outstanding voting shares of any such issuer.
The Fund will not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, 25% or more of the Fund's total assets would
be invested in securities of companies whose principal business activities are
in the same industry.
The Trust may, in the future, seek to achieve the Fund's investment
objective by investing all of the Fund's assets in a separate diversified,
open-end management investment company having substantially the same investment
objective as the Fund. The Fund's investment policies permit such an investment.
Shareholders will receive 30 days prior written notice with respect to any such
investment.
Except as otherwise expressly provided herein, the investment objective and
policies of the Fund are not fundamental and may be changed by the Trustees
without approval of the Fund's shareholders. No such change would be made in the
Fund without 30 days prior written notice to shareholders.
Additional information about the investment policies of the Fund appears in
the Statement of Additional Information. There can be no assurance that the
investment objective of the Fund will be achieved.
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SECURITIES AND INVESTMENT PRACTICES
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In seeking to meet its investment objective, the Fund may invest in any
type of security whose investment characteristics are consistent with the Fund's
investment program. These and some of the other investment strategies the Fund
may use are described below. Although these strategies are regularly used by
some investment companies and other institutional investors in various markets,
some of these strategies cannot at the present time be used to a significant
extent by the Fund in some of the markets in which the Fund will invest and may
not be available for extensive use in the future.
<PAGE>
When allocating investments among countries, the Subadviser will consider
various criteria, including the relative economic growth potential of the
various countries' economies; expected levels of inflation; government policies
influencing business conditions; and the outlook for currency relationships. By
investing in foreign securities, the Subadviser will attempt to take advantage
of differences between economic trends and performance of securities markets in
various countries.
COMMON AND PREFERRED STOCKS. Stocks represent shares of ownership in a
company. Generally, preferred stock has a specified dividend and ranks after
bonds and before common stock in its claim on income for dividend payments and
on assets if the company is liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities. While most preferred stocks pay a
dividend, the Fund may purchase preferred stock where the issuer has omitted, or
is in danger of omitting, payment of its dividend. Such investments would be
made primarily for their capital appreciation potential.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertibles have been developed which combine higher or lower
current income with options and other features. Warrants are options to buy a
stated number of shares of common stock at a specified price any time during the
life of the warrants (generally, two or more years).
FIXED INCOME SECURITIES. The Fund may invest up to 10% of its total assets
in any type of investment-grade security. Such securities would be purchased in
companies which meet the investment criteria for the Fund. The price of a bond
fluctuates with changes in interest rates, rising when interest rates fall and
falling when interest rates rise.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
the Subadviser, under the supervision of the Board of Trustees, to be illiquid,
which means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be subject to
legal restrictions. Difficulty in selling securities may result in a loss or may
be costly to the Fund.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the Fund may
invest up to 20% of its total assets in money market funds and the following
money market securities, denominated in U.S. dollars or in the currency of any
foreign country, issued by entities organized in the U.S. or any foreign
country: short-term (less than twelve months to maturity) and medium-term (not
greater than five years to maturity) obligations issued or guaranteed by the
U.S. government or the governments of foreign countries, their agencies or
instrumentalities; finance company and corporate commercial paper, and other
short-term corporate obligations, in each case rated Prime-1 by Moody's or A or
better by S&P or, if unrated, of comparable quality as determined by the
Subadviser; obligations (including certificates of deposit, time deposits and
bankers' acceptances) of banks; and repurchase agreements with banks and
broker-dealers with respect to such securities. Risks associated with investment
in open-end investment companies, such as money market funds, are described
under "Open-end Investment Companies."
<PAGE>
BORROWING. As a fundamental policy, the Fund may borrow up to one-third of
the value of its total assets from banks to increase its holdings of portfolio
securities. Under the Investment Company Act of 1940 (the "1940 Act"), the Fund
is required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing may exaggerate the effect of any increase or decrease in the value of
portfolio securities on the Fund's net asset value, and money borrowed will be
subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances), which may or may not exceed
the income or gains received from the securities purchased with borrowed funds.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend to broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets to generate income. Such loans must be secured by collateral
(consisting of any combination of cash, U.S. government securities or
irrevocable letters of credit) in an amount at least equal (on a daily
marked-to-market basis) to the current market value of the securities loaned.
The Fund may terminate the loans at any time and obtain the return of the
securities loaned within five business days. The Fund will continue to receive
any interest or dividends paid on the loaned securities and will continue to
retain any voting rights with respect to the securities. In the event that the
borrower defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Fund could experience delays and costs in gaining
access to the collateral and could suffer a loss to the extent that the value of
the collateral falls below the market value of the borrowed securities.
SHORT SALES. The Fund may sell securities short, provided it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short. For example, if the Subadviser anticipates a decline in the price of
a stock the Fund holds, it may sell the stock short "against the box" by
borrowing the stock from a broker and then selling the borrowed stock. The Fund
is then obligated to replace the borrowed stock, but is able to close the open
short position by making delivery of the stock it owns or has the right to
obtain. The Fund will be required to continue to hold the stock it owns, or the
security giving it the right to obtain such stock, while the short sale is
outstanding. The Fund will incur transaction costs, including interest expense,
in connection with opening, maintaining and closing short sales. See "Short
Sales" in the Statement of Additional Information.
OPTIONS ON SECURITIES OR INDICES. The Fund may write (i.e., sell) covered
put and call options and purchase put and call options on securities or
securities indices that are traded on U.S. and foreign exchanges or in the
over-the-counter markets. An option on a security is a contract that permits the
purchaser of the option, in return for the premium paid, the right to buy a
specified security (in the case of a call option) or to sell a specified
security (in the case of a put option) from or to the writer of the option at a
designated price during the term of the option. An option on a securities index
permits the purchaser of the option, in return for the premium paid, the right
<PAGE>
to receive from the seller cash equal to the difference between the closing
price of the index and the exercise price of the option. The Fund may write a
call or put option to generate income, and will do so only if the option is
"covered." This means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities subject to the call, or hold
a call at the same or lower exercise price, for the same exercise period, and on
the same securities as the written call. A put is covered if the Fund maintains
liquid assets with a value at least equal to the exercise price in a segregated
account, or holds a put on the same underlying securities at an equal or greater
exercise price. The value of the underlying securities on which options may be
written at any one time will not exceed 15% of the total assets of the Fund. The
Fund will not purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its total assets at the time of purchase.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. The Fund will normally conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies. The Fund will generally not enter into a
forward contract with a term of greater than one year. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. The Fund will generally enter into forward
contracts only under two circumstances. First, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security in
relation to another currency by entering into a forward contract to buy the
amount of foreign currency needed to settle the transaction. Second, when the
Subadviser believes that the currency of a particular foreign country may suffer
or enjoy a substantial movement against another currency, it may enter into a
forward contract to sell or buy the former foreign currency (or another currency
which acts as a proxy for that currency) approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. This
second investment practice is generally referred to as "cross-hedging." The Fund
will not enter into forward contracts if, as a result, the Fund will have more
than 20% of its total assets committed to the consummation of such contracts.
Although forward contracts will be used primarily to protect the Fund from
adverse currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted.
The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency-denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be acquired. As
in the case of other kinds of options, however, the writing of an option on a
foreign currency constitutes only a partial hedge, up to the amount of the
premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or
over-the-counter.
<PAGE>
CLOSED-END INVESTMENT COMPANIES. Some countries have authorized the
formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets. In accordance with the 1940 Act, the Fund
may invest up to 10% of its total assets in securities of closed-end investment
companies. This restriction on investments in securities of closed-end
investment companies may limit opportunities for the Fund to invest indirectly
in certain developing markets. Shares of certain closed-end investment companies
may at times be acquired only at market prices representing premiums to their
net asset values. If the Fund acquires shares of closed-end investment
companies, shareholders would bear both their proportionate share of expenses of
the Fund (including management and advisory fees) and, indirectly, the expenses
of such closed-end investment companies.
OPEN-END INVESTMENT COMPANIES. The Fund may invest in money market funds,
which are open-end investment companies, and foreign open-end investment
companies. Some countries have authorized the formation of open-end investment
companies to facilitate indirect foreign investment in their capital markets. In
accordance with the 1940 Act, the Fund may invest up to 5% of the value of its
total assets in the securities of any single open-end investment company and up
to 10% of the value of its total assets in the securities of all open-end
investment companies in which the Fund invests.
The Fund and any "affiliated persons" (as defined in the 1940 Act) may
purchase in the aggregate only up to 3% of the total outstanding securities of
any underlying open-end investment company. Accordingly, when affiliated persons
hold shares of any of the underlying open-end investment companies, the Fund's
ability to invest fully in shares of those open-end investment companies is
restricted, and the Subadviser must then, in some instances, select alternative
investments that would not have been its first preference.
The 1940 Act also provides that an underlying open-end investment company
whose shares are purchased by the Fund will be obligated to redeem shares held
by the Fund only in an amount up to 1% of the underlying open-end investment
company's outstanding securities during any period of less than 30 days. Shares
held by the Fund in excess of 1% of an underlying open-end investment company's
outstanding securities, therefore, will be considered not readily marketable
securities which together with other such securities may not exceed 15% of the
Fund's assets.
Investment decisions by the investment advisers of the underlying open-end
investment companies are made independently of the Fund and its Subadviser.
Therefore, the investment adviser of one underlying open-end investment company
may be purchasing shares of the same issuer whose shares are being sold by the
investment adviser of another such investment company. The result of this would
be an indirect expense to the Fund without accomplishing any investment purpose.
By investing in an open-end investment company indirectly through the Fund,
an investment adviser will bear not only his proportionate share of the expenses
of the Fund (including operating costs and investment advisory and
administrative fees), but also, indirectly, similar expenses of the underlying
open-end investment company. In addition, a shareholder of the Fund indirectly
bears any expenses paid by an underlying open-end investment company related to
the distribution of its shares.
<PAGE>
FUTURES CONTRACTS. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock index futures contracts, foreign currency
futures contracts and options on any of the foregoing. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.
When the Fund enters into a futures contract, it must make an initial
deposit, known as "initial margin," as a partial guarantee of its performance
under the contract. As the value of the security, index or currency fluctuates,
either party to the contract is required to make additional margin payments,
known as "variation margin," to cover any additional obligation it may have
under the contract. In addition, when the Fund enters into a futures contract,
it will segregate assets or "cover" its position in accordance with the 1940
Act. See "Asset Coverage for Futures and Options Positions" in the Statement of
Additional Information. The Fund may not commit more than 5% of its total assets
to initial margin deposits on futures contracts and related options. The value
of the underlying securities on which futures contracts will be written at any
one time will not exceed 25% of the total assets of the Fund.
REPURCHASE AGREEMENTS. For temporary defensive purposes and for cash
management purposes, the Fund may enter into repurchase agreements with U.S.
banks and broker-dealers. Under a repurchase agreement the Fund acquires a
security from a U.S. bank or a registered broker-dealer who simultaneously
agrees to repurchase the security at a specified time and price. The repurchase
price is in excess of the purchase price by an amount which reflects an
agreed-upon rate of return, which is not tied to the coupon rate on the
underlying security. Under the 1940 Act, repurchase agreements are considered to
be loans collateralized by the underlying security and therefore will be fully
collateralized. However, if the seller should default on its obligation to
repurchase the underlying security, the Fund may experience delay or difficulty
in exercising its rights to realize upon the security and might incur a loss if
the value of the security declines, as well as incur disposition costs in
liquidating the security.
<PAGE>
DEPOSITARY RECEIPTS. ADR's are depositary receipts typically issued by a
U.S. bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDR's and GDR's are typically issued by foreign
banks or trust companies, although they also may be issued by U.S. banks or
trust companies, and evidence ownership of underlying securities issued by
either a foreign or a U.S. corporation. Generally, depositary receipts in
registered form are designed for use in the U.S. securities market and
depositary receipts in bearer form are designed for use in securities markets
outside the U.S. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
Depositary receipts may be issued pursuant to sponsored or unsponsored programs.
In sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary receipts also involve the risks of other investments in foreign
securities, as discussed below. For purposes of the Fund's investment policies,
the Fund's investments in depositary receipts will be deemed to be investments
in the underlying securities.
PORTFOLIO TURNOVER
Although it is not possible to predict future portfolio turnover rates
accurately, and such rates may vary greatly from year to year, the Subadviser
anticipates that the Fund's annual portfolio turnover rate will not exceed 200%.
High transaction costs could result when compared with other funds. Trading may
also result in realization of net short-term capital gains upon which
shareholders may be taxed at ordinary tax rates when distributed from the Fund.
See "Income Dividends and Taxes."
The Fund intends to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in the Fund's investments.
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RISK CONSIDERATIONS
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As with any investment in securities, the value of, and income from, an
investment in the Fund can decrease as well as increase, depending on a variety
of factors which may affect the values and income generated by the Fund's
portfolio securities, including general economic conditions and market factors.
<PAGE>
In addition to the factors which affect the value of individual securities, you
may anticipate that the value of the shares of the Fund will fluctuate with
movements in the broader equity and bond markets. A decline in the stock market
of any country in which the Fund is invested may also be reflected in declines
in the price of the shares of the Fund. Changes in currency valuations will also
affect the price of the shares of the Fund. History reflects both decreases and
increases in stock markets and currency valuations, and these may occur
unpredictably in the future. The value of debt securities held by the Fund
generally will vary inversely with changes in prevailing interest rates.
Additionally, investment decisions made by the Subadviser will not always be
profitable or prove to have been correct. The Fund is not intended as a complete
investment program.
The Fund has the right to purchase securities in any foreign country,
developed or developing. You should consider carefully the substantial risks
involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. These risks are often heightened for investments in developing
markets. See "Foreign Investments" in the Statement of Additional Information.
There is the possibility of expropriation, nationalization or confiscatory
taxation, taxation of income earned in foreign nations (including, for example,
withholding taxes on interest and dividends) or other taxes imposed with respect
to investments in foreign nations, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), foreign
investment controls on daily stock market movements, default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investment in securities of issuers in foreign
nations. In addition, in many countries there is less publicly available
information about issuers than is available in reports about companies in the
U.S. Foreign companies are not generally subject to uniform accounting or
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. The Fund may encounter
difficulties or be unable to vote proxies, exercise shareholder rights, pursue
legal remedies, and obtain judgments in foreign courts. Also, some countries may
withhold portions of income and dividends at the source. These considerations
generally are more of a concern in developing countries, where the possibility
of political instability (including revolution) and dependence on foreign
economic assistance may be greater than in developed countries. Investments in
companies domiciled in developing countries therefore may be subject to
potentially higher risks than investment in developed countries.
Brokerage commissions, custodial services, and other costs relating to
investment in developing markets are generally more expensive than in the U.S.
Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlement have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
<PAGE>
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
Prior governmental approval of non-domestic investments may be required
under certain circumstances in some developing countries, and the extent of
foreign investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for such
repatriation.
Further, the economies of developing countries generally are heavily
dependent upon international trade and, accordingly, have been and may continue
to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.
In many developing markets, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the U.S. There is an increased risk, therefore, of
uninsured loss due to lost, stolen, or counterfeit stock certificates. In
addition, the foreign securities markets of many of the countries in which the
Fund may invest may also be smaller, less liquid, and subject to greater price
volatility than those in the U.S.
The Fund usually effects currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign exchange market. However,
some price spread on currency exchange transactions (to cover service charges)
will be incurred when the Fund converts assets from one currency to another.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of portfolio securities on the Fund's net asset value,
and money borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the income or gains received from the securities
purchased with borrowed funds.
<PAGE>
The use of futures contracts and related options is subject to special risk
considerations. A liquid secondary market for any futures or options contract
may not be available when a futures or options position is sought to be closed.
In addition, there may be an imperfect correlation between movements in the
securities or foreign currency on which the futures or options contract is based
and movements in the securities or currency in the Fund's portfolio. Successful
use of futures or options contracts is further dependent on the Subadviser's
ability to correctly predict movements in the securities or foreign currency
markets and no assurance can be given that its judgment will be correct. The use
of options on securities or securities indices is subject to similar risk
considerations. In addition, by writing covered call options, the Fund gives up
the opportunity, while the option is in effect, to profit from any price
increase in the underlying security above the option exercise price.
There are further risk factors, including possible losses through the
holding of securities in domestic and foreign custodian banks and depositories,
described elsewhere in this Prospectus and the Statement of Additional
Information.
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THE TRUST AND ITS MANAGEMENT
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The Trust was organized as a Massachusetts business trust on June 22, 1992.
All of its constituent funds are open-end management companies. The Fund is a
diversified open-end management company. The Trust's offices are at 6000
Memorial Drive, Dublin, OH 43017. The business and affairs of the Trust are
under the direction of its Board of Trustees.
The Fund has retained the services of R. Meeder & Associates, Inc. as
investment adviser. R. Meeder & Associates, Inc. (the "Manager"), has been an
investment adviser to individuals and retirement plans since 1974 and to mutual
funds since 1982. The Manager serves the Fund pursuant to an Investment Advisory
Contract under the terms of which it has agreed to provide an investment program
within the limitations of the Fund's investment policies and restrictions, and
to furnish all executive, administrative, and clerical services required for the
transaction of Fund business, other than accounting services and services which
are provided by the Fund's custodian, transfer agent, independent accountants
and legal counsel, and investment advisory services provided by the Subadviser.
The Manager was incorporated in Ohio in 1974 and maintains its principal
offices at 6000 Memorial Drive, Dublin, OH 43017. The Manager is a wholly-owned
subsidiary of Muirfield Investors, Inc. ("MII"). MII is controlled by Robert S.
Meeder, Sr. through ownership of voting common stock. MII conducts business only
through its six subsidiaries which are R. Meeder & Associates, Inc.; Mutual
Funds Service Co., the Fund's transfer agent; Adviser Dealer Services, Inc., the
Fund's distributor; 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.
<PAGE>
The Manager earns an annual fee from the Fund, at the rate of 1.00% of the
Fund's average net assets, payable in monthly installments. These fees are
higher than the fees charged to most other investment companies.
Accounting, stock transfer, and dividend disbursing services are provided
to the Fund by Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio
43017, a wholly-owned subsidiary of MII. The minimum annual fee, payable
monthly, for accounting services for the Fund is $30,000. Subject to the
applicable minimum fee, the Fund's annual fee is computed at the rate of .03% of
the first $100 million, .02% on the next $150 million and .01% in excess of $250
million of the Fund's average net assets. In addition, the Fund incurs (subject
to a $4,000 annual minimum fee) an annual fee of the greater of $15 per
shareholder account or .10% of the Fund's average net assets, payable monthly,
for stock transfer and dividend disbursing services. Mutual Funds Service Co.
also serves as Administrator to the Fund pursuant to an Administration Services
Agreement. Services provided to the Fund include coordinating and monitoring any
third party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
fee for these administrative services, payable monthly, of .05% of the Fund's
average net assets, subject to a minimum annual fee of $30,000. These fees are
reviewable annually by the Board of Trustees.
A broker-dealer may use a portion of the commissions paid by the Fund to
reduce the Fund's expenses. The Manager or the Subadviser may take into account
sales of shares of the Fund and other funds advised by the Manager or the
Subadviser in selecting broker-dealers to effect portfolio transactions on
behalf of the Fund.
Information concerning the Trustees and officers of the Trust appears in
the Statement of Additional Information.
SUBADVISER
Commercial Union Investment Management, Limited (the "Subadviser") is a
wholly-owned subsidiary of Commercial Union plc., an international insurance and
financial services organization which has managed international assets since
1861, and can trace its roots back to 1696. The Subadviser was established in
1986 by Commercial Union plc. as an independent investment management company in
its own right, and as of December 31, 1996, the Subadviser and its affiliates
have $111 billion in assets under management. The Subadviser is an investment
adviser to mutual funds, public and corporate employee benefit plans, charities,
insurance companies, banks, investment trusts and other institutions. The
Subadviser is regulated in the United Kingdom by the Investment Management
Regulatory Organisation in the conduct of its Investment Business under the
provisions of the Financial Services Act 1986.
<PAGE>
The Subadviser serves as the Fund's subadviser under an Investment
Subadvisory Agreement between the Manager and the Subadviser. The Subadviser and
its affiliates have their principal offices at St. Helen's, 1 Undershaft,
London, England EC3P 3DQ and have investment offices in Amsterdam, Paris,
Boston, Toronto, Tokyo, Singapore, Johannesburg and Melbourne. The Subadviser
owns a controlling interest in the shares of the Fund. The Subadviser is
compensated for its services by the Manager in an amount equal to 100% of the
investment advisory fees received by the Manager under its investment advisory
contract with the Fund with regard to the first $10 million of average net
assets of the Fund, 30% of such advisory fees received by the Manager with
regard to the next $10 million of average net assets of the Fund and 65% of such
advisory fees received by the Manager with regard to average net assets of the
Fund greater than $20 million. The Manager continues to have responsibility for
all investment advisory services in accordance with the investment advisory
contract and supervises the Subadviser's performance of such services.
PORTFOLIO MANAGERS
The lead portfolio manager of the Fund is David Keen. Mr. Keen is
responsible for managing the overall strategic asset allocation of the Fund. Mr.
Keen, who joined Commercial Union plc. in 1971 and the Subadviser at its
inception in 1986, is a Director of the Subadviser. Mr. Keen is also Chief
Investment Officer for all North American based accounts of the Subadviser, and
fund director of the Subadviser's Staff Pension Fund.
John Manning, Rodney Reid, Andrew Hitchings, Carrie Schloss and Mamoru Imai
exercise regional portfolio management responsibilities for the Fund. John
Manning, European Fund Manager of the Subadviser, joined Commercial Union plc.
in 1973 and the Subadviser at its inception in 1986, and is the portfolio
manager responsible for the Fund's European (excluding the United Kingdom)
portfolio. Mr. Reid, Associate Director of the Subadviser, joined Commercial
Union plc. in 1985 and the Subadviser at its inception in 1986, and is the
portfolio manager responsible for the Fund's United Kingdom portfolio. Mr.
Hitchings, Managing Director of Commercial Union Investment Management
Singapore, joined Commercial Union plc. in 1985 and the Subadviser at its
inception in 1986, and is the portfolio manager responsible for the Fund's Far
Eastern portfolio. Ms. Schloss, Associate Director of the Subadviser, joined the
Subadviser in 1997 and is the portfolio manager responsible for the Fund's
emerging markets portfolio. Mamoru Imai, Managing Director of CU Investment
Management (Japan), joined the Subadviser in 1989 and performs the role of
Japanese equity adviser to the Fund.
DISTRIBUTOR
Adviser Dealer Services, Inc. (the "Distributor"), 6000 Memorial Drive,
Dublin, Ohio 43017, an affiliate of the Manager, serves as the distributor of
the shares of the Fund. The Manager or the Subadviser may select the Distributor
to execute transactions for the Fund, provided that the commissions, fees or
other remuneration received by the Distributor are reasonable and fair compared
to those paid to other brokers in connection with comparable transactions.
TRANSFER AGENT
Mutual Funds Service Co. ("MFSCO"), 6000 Memorial Drive, Dublin, Ohio
43017, an affiliate of the Manager, provides stock transfer, dividend disbursing
and administrative services to the Fund.
<PAGE>
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DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Fund has adopted a distribution plan pursuant to Rule 12b-1 (the
"Distribution Plan") in accordance with the regulations under the 1940 Act.
Under the provisions of the Distribution Plan, the Fund makes payments to the
Distributor based on 0.25% annually of the average daily value of the net assets
of the Fund.
The Fund has also adopted a service plan (the "Service Plan"). Under the
provisions of the Service Plan, the Fund makes payments to the Distributor based
on 0.25% annually of the average daily value of the net assets of the Fund.
Some or all of the service fees are used to reimburse securities dealers or
others for personal services and/or the maintenance of shareholder accounts. Any
service fees received by the Distributor and not allocated to dealers or others
may be applied by the Distributor in reduction of expenses incurred by it
directly for personal services and the maintenance of shareholder accounts.
The distribution fees are used primarily to pay ongoing commissions to
securities dealers for selling such shares. Any distribution fees received by
the Distributor and not allocated to dealers may be applied by the Distributor
in connection with sales or marketing efforts, including special promotional
fees and cash and noncash incentives based upon sales by securities dealers.
The Manager or the Subadviser may use its resources to pay expenses
associated with the sale of the Funds' shares. This may include payments to
third parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the Fund's shares. However, the Fund does not
pay the Manager or the Subadviser any separate fees for this service.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which the Fund may incur under the Distribution
Plan and the Service Plan to a total of 1%, of which 0.75% may be used to pay
distribution expenses and 0.25% may be used to pay shareholder service fees. The
NASD rules also limits the aggregate amount which the Fund may pay for such
distribution costs to 6.25% of gross share sales since the inception of any
asset-based sales charge plus interest at the prime rate plus 1% on unpaid
amounts thereof (less any applicable contingent deferred sales charge). Such
limitation does not apply to shareholder service fees.
<PAGE>
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INCOME DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. The Fund's dividends will be
declared payable to shareholders on at least an annual basis.
In December, the Fund may distribute an additional ordinary income dividend
(consisting of net short-term capital gains and undistributed income) in order
to preserve its status as a registered investment company (mutual fund) under
the Internal Revenue Code. Net long-term capital gains, if any, also are
declared and distributed in December.
DISTRIBUTION OPTIONS. You may choose to receive dividends and capital gain
distributions in cash or to reinvest them in additional shares. Please indicate
your choice on your New Account Application or contact your dealer. If you elect
to receive dividends or capital gain distributions in cash and the U.S. Postal
Service returns your checks to us, the checks will be reinvested in your account
at the Fund's then-current net asset value. Until we receive instructions to the
contrary, subsequent distributions will be reinvested in your account. In
addition, we may reinvest, at the Fund's then-current net asset value, any
distribution checks that remain uncashed for six months.
TAXES. The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code by distributing all, or substantially
all, of its net investment income and net realized capital gains to shareholders
each year.
The Fund's dividends and capital gain distributions are subject to federal
income tax whether they are received in cash or reinvested in additional shares.
Distributions declared in October, November, December and paid in January of the
following year are taxable as if they were paid on December 31.
Dividends from net investment income (including net short-term capital
gains) are taxable as ordinary income. Distributions from net long-term capital
gains, if any, are taxable as long-term capital gains, regardless of how long
you have held your shares.
Form 1099-DIV, Dividends and Distributions will not be provided to
individuals if gross dividends and other distributions are less than $10 or to
corporations, retirement plans (including IRA's), tax-exempt organizations or to
registered securities dealers.
You may realize a capital gain or loss when you redeem (sell) or exchange
shares of the Fund. For most types of accounts, the proceeds from your
redemption transactions will be reported to you and the IRS annually. However,
because the tax treatment depends on your purchase price and personal tax
position, you should keep your regular account statements to use in determining
your taxes.
<PAGE>
"BUYING A DIVIDEND." The timing of your investment in the Fund could have
undesirable tax consequences.
If you opened a new account or bought more shares for your current account
just before the day a dividend or capital gain distribution was reflected in the
Fund's share price, you would receive a portion of your investment back as a
taxable distribution. This practice is sometimes referred to as "buying a
dividend."
BACKUP WITHHOLDING. The Fund is required by federal law to withhold 31% of
reportable dividends, capital gain distributions, or redemptions payable to
shareholders who have not complied with IRS regulations. To avoid this
withholding requirement, you must certify on your account application (or on IRS
Form W-9) that your social security or taxpayer identification number (TIN) is
correct and that you are not subject to back-up withholding for previous under
reporting to the IRS, or that you are exempt from backup withholding.
The Fund may refuse to sell shares to investors who have not complied with
these requirements, either before or at the time of purchase. Until we receive
your certified TIN, we may redeem your shares in the Fund at any time.
CURRENCY CONSIDERATIONS. If the Fund's dividends exceed its taxable income
in any year, which is sometimes the result of currency-related losses, all or a
portion of the Fund's dividends may be treated as a return of capital to
shareholders for tax purposes. To minimize the risk of a return of capital, the
Fund may adjust the dividends to take currency fluctuations into account, which
may cause the dividends to vary. Any return of capital will reduce the cost
basis of your shares, which will result in a higher reported capital gain or a
lower reported capital loss when you sell your shares. The statement you receive
in January will specify if any distributions included a return of capital.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the Fund
and its investments and these taxes generally will reduce the Fund's
distributions. However, an offsetting tax credit or deduction may be available
to you. If so, your tax statement will show more taxable income or capital gains
than were actually distributed by the Fund, but will also show the amount of the
available offsetting credit or deduction.
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HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
Net asset value per share is determined at each closing of the New York
Stock Exchange each day the Exchange is open for business and each other day
during which there is a sufficient degree of trading that the current net asset
value of a Fund's shares might be materially affected by changes in the value of
the securities held by the Fund. Net asset value is obtained by dividing the
value of the Fund's assets, less its liabilities, by the total number of its
shares of beneficial interest outstanding at the time.
<PAGE>
The Fund's assets are valued primarily on the basis of market quotations.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. If quotations are not readily available,
or if the values have been materially affected by events occurring after the
closing of a foreign market, assets are valued by a method that the Board of
Trustees believes accurately reflects fair value.
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PERFORMANCE INFORMATION AND REPORTS
- --------------------------------------------------------------------------------
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to the Morgan Stanley Capital
International - Europe, Australasia, Far East (EAFE) Index, the Morgan Stanley
Capital International Emerging Markets Free Index or other various unmanaged
indices or results of other mutual funds or investment or savings vehicles. The
Fund's investment results as used in such communications will be calculated on a
total rate of return basis in the manner set forth below. From time to time,
fund rankings may be quoted from various sources, such as Lipper Analytical
Services, Inc. and Morningstar Mutual Fund Report.
The Fund may provide period and average annualized "total return"
quotations. The Fund's "total return" refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributed during such period. Period total return
may be annualized. Average annual total return smoothes out variations in
performance and takes into account any applicable initial sales charge.
An annualized total return is a compounded total return which assumes that
the period total return is generated over a one-year period, and that all
dividends and capital gain distributions are reinvested. An annualized total
return will be slightly higher than a period total return if the period is
shorter than one year, because of the assumed reinvestment.
Unlike some bank deposits or other investments which pay a fixed yield for
a stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund, the
income from securities held by the Fund, and changes in the Fund's expenses. In
addition, during certain periods for which total return quotations may be
provided, the Manager or the Subadviser may have voluntarily agreed to waive
portions of its fees or reimburse Fund expenses on a month-to-month basis. Such
waivers and reimbursements will have the effect of increasing the Fund's net
income (and therefore its total return) during the period such waivers are in
effect.
<PAGE>
Shareholders will receive financial reports semi-annually that include the
Fund's financial statements, including listings of investment securities held by
the Fund at those dates. Annual reports are audited by independent accountants.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trust to offer and sell an
unlimited number of full and fractional shares of beneficial interest in each of
the Trust's existing funds and to create additional funds. All shares have a par
value of $.10 per share, are fully paid, non-assessable and fully transferable
when issued. All shares are issued as full or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
Each fund of the Trust issues its own series of shares of beneficial interest.
The shares of each fund represent an interest only in the fund's assets (and
profits or losses) and in the event of liquidation, each share of a particular
fund would have the same rights to dividends and assets as every other share of
the fund. The Board of Trustees may authorize the creation of additional series
under the Declaration of Trust, each of which would invest its assets in
separate, individually managed portfolios.
Each full or fractional share has a proportionate vote. On some issues,
such as the election of Trustees, all shares of the Trust vote together as one
series. On an issue affecting a particular fund, only its shares vote as a
separate series. An example of such an issue would be a fundamental investment
restriction pertaining to only one fund. In voting on a Distribution Plan,
approval of the Plan by the shareholders of a particular fund would make the
Plan effective as to that fund, whether or not it had been approved by the
shareholders of any other fund.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss as a
result of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the fund itself was unable to meet its
obligations.
When matters are submitted for shareholder vote, shareholders of each fund
will have one vote for each full share held and proportionate, fractional votes
for fractional shares held. A separate vote of a fund is required on any matter
affecting the fund on which shareholders are entitled to vote. Shareholders of
one fund are not entitled to vote on a matter that does not affect that fund but
<PAGE>
that does require a separate vote of any other fund. There normally will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares. Shareholders have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees of the Trust by a specified number of
shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees.
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HOW TO BUY SHARES
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT -- The minimum investment to open an account is $2,500,
except an Individual Retirement Account (IRA) which has a $500 minimum.
Subsequent investments in any account may be made in amounts of at least $100.
You may open an account and make an investment by purchasing shares through
securities dealers having sales agreements with the Distributor. A minimum
investment of $2,500 ($500 for an IRA) is required to establish an account in
each Fund. The minimum for subsequent investments in each Fund is $100.
Direct purchase orders may be made by submitting a check. In the case of a
new account, fill out the New Account Application accompanying this Prospectus.
A check payable to the "International Equity Fund" must accompany the New
Account Application. Payments may be made by check or Federal Reserve Draft
payable to the Fund should be mailed to the following address: THE
FLEX-PARTNERS, C/O MUTUAL FUNDS SERVICE CO., P. O. BOX 7177, DUBLIN, OHIO 43017.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred in the
transaction. All orders for the purchase of shares are subject to acceptance or
rejection by the Fund or by the Distributor. Direct purchase orders received by
MFSCO by 4:00 p.m., Eastern time, are confirmed at that day's public offering
price. Direct purchase orders received by MFSCO after 4:00 p.m., Eastern time,
are confirmed at the public offering price on the following business day.
<PAGE>
Wire orders for shares of the Fund received by dealers prior to 4:00 p.m.,
Eastern time, and received by MFSCO before 5:00 p.m., Eastern time, on the same
day are confirmed at that day's public offering price. Orders received by
dealers after 4:00 p.m., Eastern time, are confirmed at the public offering
price on the following business day. It is the dealer's obligation to place the
order with MFSCO before 5:00 p.m., Eastern time, and to forward payment to Star
Bank, N.A.
If the wire order is for a new account, or to open an account in a
different Fund, you must telephone the Fund prior to making your initial
investment. Call 1-800-494-FLEX, or (614) 766-7074. Be sure to specify the name
of the Fund. Advise the Fund of the amount you wish to invest and obtain an
account number and instructions. Have your bank wire federal funds to:
Star Bank, N.A. Cinti/Trust
ABA #: 042-00001-3
Attention: The Flex-Partners
International Equity Fund
Credit Account Number: 486484298
Account Name (your name)
Personal Account Number (your International Equity Fund account number)
Direct purchase orders received by MFSCO by 4:00 p.m., Eastern time, are
confirmed at that day's net asset value. Direct investments received by MFSCO
after 4:00 p.m. and orders received by dealers after 5:00 p.m. are confirmed at
the net asset value next determined on the following business day.
No stock certificates will be issued. Instead, an account with MFSCO is
established for each investor and all shares purchased or received, including
those acquired through the reinvestment of dividends and distributions, are
registered on the books of each Fund and credited to such account.
The Fund will not permit redemptions until it receives the New Account
Application in good order.
SUBSEQUENT INVESTMENTS -- Subsequent investments in an existing account in
the Fund may be made by mailing a check payable to "The International Equity
Fund." Please include your account number on the check and mail as follows:
<PAGE>
THE FLEX-PARTNERS
C/O MUTUAL FUNDS SERVICE CO.
P. O. BOX 7177
DUBLIN, OHIO 43017
Subsequent investments may also be made by bank wire as described above. It
is necessary to notify the Fund prior to each wire purchase. Wires sent without
notifying the Fund will result in a delay of the effective date of your
purchase.
PURCHASING SHARES. Shares are sold with a sales charge at the time of
purchase, which varies with the amount invested. Maximum sales charges and fees
are set forth under "Synopsis of Financial Information" above and quantity
discounts for the initial sales charge are set forth below.
Shares of the Fund are sold at net asset value plus the applicable sales
charge as shown in the table below (the "Offering Price") for purchases made at
one time by a single purchaser, by an individual, his or her spouse and their
children under age 21, or by a single trust account. Shares also bear a Rule
12b-1 fee of .25% per annum (paid to the Distributor, Adviser Dealer Services,
Inc.), of their average net asset value. In addition, shares bear an asset based
service fee of .25% per annum. The sales charge is allocated between your
investment dealer and Adviser Dealer Services, Inc. as shown below:
AS A PERCENTAGE AS A PERCENTAGE
OF OFFERING OF NET ASSET
PRICE OF THE VALUE OF THE DEALER'S
SHARES SHARES SALES
AMOUNT INVESTED PURCHASED PURCHASED CONCESSION
- -------------------------------------------------------------------------------
Up to $100,000 4.00% 4.17% 3.50%
$100,001 to $249,999 3.50% 3.63% 3.00%
$250,000 to $499,999 3.00% 3.09% 2.50%
$500,000 to $999,999 2.50% 2.56% 2.00%
$1,000,000 or more none none none
CUMULATIVE QUANTITY DISCOUNT. The above tables of reduced sales charges
also apply if the dollar amount of a purchase plus the net asset value of shares
then owned by the purchaser is more than $100,000. The sales charge on the
shares being purchased will then be at the rate applicable to the aggregate
value of such shares then owned plus the amount of the purchase.
To receive the cumulative quantity discount, the investor or securities
dealer must request the discount at the time of placing the purchase order and
give the Transfer Agent sufficient information to determine and confirm that the
purchase will qualify for the discount. The cumulative quantity discount may be
amended or terminated at any time as to all purchases occurring thereafter.
<PAGE>
LETTER OF INTENTION. An investor may also pay reduced sales charges by
signing and fulfilling the Letter of Intention on the New Account Application
which expresses the investor's intention to invest within the specified 13-month
period the amount in shares indicated. The Letter of Intention may be back dated
to include purchases made within 90 days prior the signing of the Letter of
Intention. The Letter of Intention will not be a binding obligation on either
the purchaser or the Fund.
Purchases made under the Letter of Intention are made at the sales charge
applicable to the aggregate amount to be invested under the Letter of Intention
as if all shares were purchased in a single transaction. During the period
covered by the Letter of Intention, the Transfer Agent will escrow shares
representing 5% of the intended purchase. If the intention is not completed, a
price adjustment is made, based upon the actual amount invested within the
period covered by the Letter of Intention, by redemption of escrowed shares. A
Letter of Intention can be amended: (a) during the 13-month period if the
purchaser files an amended Letter of Intention with the same expiration date as
the original and (b) automatically after the end of the period, if the total
purchases credited to the Letter of Intention qualify for an additional
reduction in sales charge.
SALES CHARGE WAIVERS: Directors, Trustees, officers and full-time employees
of the Trust, the Manager, the Subadviser or the Distributor, including members
of the immediate families of such individuals and employee benefit plans
established by such entities, may purchase shares of the Fund at net asset
value.
In addition, shares of the Fund may be sold at net asset value without an
initial sales charge to shareholders who (i) have invested on or before December
31, 1997 in mutual funds (except for The Flex-Partners' funds) whose portfolios
are advised by the Manager, and (ii) remain continously invested in those mutual
funds up to the date they purchase shares of the Fund.
The Fund may also sell shares at net asset value without an initial sales
charge to clients of the Manager, the Subadviser, registered investment advisers
and financial planners, who are purchasing on behalf of their clients, by making
arrangements to do so with the Trust and the transfer agent.
Shares of the Fund may be sold at net asset value to participants in
certain retirement and deferred compensation plans, including qualified or
non-qualified plans under the Internal Revenue Code and certain affinity group
and group savings plans, provided that the plan has at least 100 eligible
employees or members.
Shares of the Fund may be purchased at net asset value by broker-dealers
who have a sales agreement with the Distributor and by their registered
personnel and employees, including members of the immediate families of such
registered personnel and employees (i.e., spouse and minor children only).
No sales charge will be charged on accounts that are opened for
shareholders by dealers where the amount invested represents redemption proceeds
from funds distributed other than by Adviser Dealer Services, Inc., and where
the shareholder has paid a sales charge in connection with the purchase of such
other fund's shares; provided that (i) shares of the Fund are purchased within
60 days after redemption of such other fund's shares; and (ii) sufficient
documentation of such redemption as the Transfer Agent may require shall be
provided at the time Fund shares are purchased. In addition, shareholders who
have redeemed shares of a mutual fund which is a series of The Flex-Partners
(each a "Flex-Partners Fund") may reinvest the proceeds in any Flex-Partners
Fund at net asset value if such proceeds are reinvested within 60 days after the
date of redemption.
<PAGE>
- --------------------------------------------------------------------------------
HOW TO MAKE WITHDRAWALS (REDEMPTIONS)
- --------------------------------------------------------------------------------
Shares are redeemed and funds withdrawn at net asset value per share, and
there are no redemption fees. (See "How Net Asset Value Is Determined.")
BY MAIL -- A shareholder may redeem shares by mailing a written request in
good order to: The Flex-Partners, c/o Mutual Funds Service Co., P. O. Box 7177,
Dublin, OH 43017. Good order means that the request must be signed by the
shareholder(s) and the signature(s) must be guaranteed by an eligible guarantor
institution (a bank, broker-dealer, credit union, securities exchange, clearing
agency or savings association). Further documentation may be required as to the
authority of the person requesting redemption of shares held of record in the
name of corporations or trustees, and other fiduciaries.
Amounts withdrawn are mailed without charge to the address printed on your
account statement.
BY BANK WIRE -- A shareholder may redeem by telephone by placing a wire
redemption through a securities dealer. Wire redemption requests received by
dealers prior to 4:00 p.m., Eastern time, and received by MFSCO before 5:00
p.m., Eastern time on the same day, are confirmed at that day's net asset value
per share. Direct wire redemption requests must be received by 4:00 p.m. to be
confirmed at that day's net asset value.
WHEN REDEMPTIONS ARE EFFECTIVE -- Redemptions are made at the net asset
value per share next determined after receipt of a redemption request in good
order. (See "How Net Asset Value Is Determined.")
WHEN PAYMENTS ARE MADE -- Shares are redeemed at their net asset value per
share next determined after receipt by MFSCO of the redemption request in the
form described above. Payment is normally made within seven days after the
redemption request, provided that payment in redemption of shares purchased by
check will be effected only after the check has been collected, which may take
up to fifteen (15) days from the purchase date. To eliminate this delay it is
advisable to purchase shares of the Fund by certified check or wire.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
An exchange represents the sale of shares of one fund and the purchase of
shares of another, which may produce a gain or loss for tax purposes.
Your exchange will be processed at the net asset value next determined
after the Transfer Agent receives your exchange request. You will receive a
prospectus of the fund into which you are exchanging along with your
confirmation. The exchange feature may be modified or discontinued at any time,
upon notice to shareholders in accordance with applicable rules adopted by the
Securities and Exchange Commission.
<PAGE>
Your exchange may be processed only if the shares of the fund to be
acquired are eligible for sale in your state and if the amount of your
transaction meets the minimum requirements for that fund. The exchange privilege
is only available in states in which it may be legally offered.
You may exchange your shares for Class A shares of any Flex-Partners Fund
and for shares of The Flex-funds Money Market Fund, a single-class money market
fund managed by the Manager.
The Fund reserves the right at any time, without prior notice, to refuse
exchange purchases by any person or group if in the Manager or Subadviser's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected.
IF YOU HAVE ANY QUESTIONS ON EXCHANGE OR REDEMPTION PROCEDURES, CALL YOUR DEALER
OR THE TRANSFER AGENT.
- --------------------------------------------------------------------------------
RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Trust offers retirement plans which include a prototype Profit Sharing
Plan, a Money Purchase Pension Plan, a Salary Savings Plan--401(k),
Tax-Sheltered Custodial Account - 403(b)(7), an Individual Retirement Account
(IRA), a Simple IRA, and a Simplified Employee Pension (SEP) Plan. Plan Adoption
Agreements and other information required to establish a Flex-Partners
Retirement Plan are available from The Flex-Partners, c/o R. Meeder &
Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017; or call 1-800-494-3539.
Minimum purchase requirements for retirement plan accounts are subject to
the same requirements as regular accounts, except for an IRA, which has a
reduced minimum purchase requirement. (See "How to Buy Shares.")
- --------------------------------------------------------------------------------
OTHER SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC ACCOUNT BUILDER: Regular investments in the Fund of $100 or more
will be deducted from a shareholder's checking or savings account and invested
in shares of the Fund. A shareholder's bank must be a member of the Automated
Clearing House (ACH). Shareholders wishing to add to their investment account
must complete the Automatic Account Builder section of the New Account
Application. There is no additional charge for this service.
<PAGE>
SYSTEMATIC WITHDRAWAL PROGRAM: A Systematic Withdrawal Program is offered
for any investor who wishes to receive regular distributions of $100 or more
from his account. The investor must either own or purchase shares having a value
of at least $10,000 and advise the Fund in writing of the amount to be
distributed and the desired frequency, i.e., monthly, quarterly or annually.
This option may be exercised by completing the appropriate section of the New
Account Application. The investor should realize that if withdrawals exceed
income dividends, the invested principal may be depleted.
- --------------------------------------------------------------------------------
SHAREHOLDER ACCOUNTS
- --------------------------------------------------------------------------------
The Fund maintains an account for each shareholder in full and fractional
shares. The Fund reserves the right to reject any purchase order, and to waive
minimum purchase requirements.
CONFIRMATION STATEMENT -- All purchase and sale transactions, and dividend
reinvestments, are confirmed promptly after they become effective.
ACCOUNTS BELOW MINIMUM -- The Fund reserves the right to redeem shares in
any account for their then current net asset value and pay the proceeds to the
shareholder if at any time the account has shares valued at less than $1,000
($500 for an IRA) as a result of redemptions by the shareholder. The Fund also
reserves the right to redeem the shares in any account which may have been
opened under a waiver of minimum purchase requirements if sufficient additional
shares were not subsequently purchased to meet these requirements. Before a
redemption is processed, the shareholder will be allowed 30 days after written
notice from the Fund to make an additional investment sufficient to bring the
value of shares in the account to $1,000 ($500 for an IRA).
<PAGE>
INVESTMENT ADVISER
R. Meeder & Associates, Inc.
ADDRESS OF FUND & ADVISER
6000 Memorial Drive
Dublin, OH 43017
800-494-FLEX
614-766-7074 (in Central Ohio)
SUBADVISER
Commercial Union Investment Management, Limited
St. Helen's
1 Undershaft
London, England EC3P 3DQ
Tel: 011-44-171-662-6000
DISTRIBUTOR
Adviser Dealer Services, Inc.
6000 Memorial Drive
Dublin, OH 43017
800-494-FLEX
(614) 766-7074 (in Central Ohio)
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Mutual Funds Service Co.
6000 Memorial Drive
Dublin, OH 43017
800-494-FLEX
614-766-7074 (in Central Ohio)
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
THE FLEX-PARTNERS
INTERNATIONAL EQUITY FUND
PROSPECTUS August 29, 1997
<PAGE>
THE FLEX-PARTNERS INTERNATIONAL EQUITY FUND
CROSS REFERENCE SHEET TO FORM N-1A
PART B.
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
10 Cover Page
11 Table of Contents
12 Not applicable
13 Investment Policies and Limitations
14 Trustees and Officers
15(a)(b) Not applicable
15(c) Trustees and Officers
16(a)(b) Investment Adviser and Manager
Investment Subadviser
16(c) Not applicable
16(d) Contracts with Companies Affiliated With Manager
16(e) Not applicable
16(f) The Distributor
16(g) Not applicable
16(h) Description of the Trust
16(i) Contracts with Companies Affiliated With Manager
17 Portfolio Transactions
18(a) Cover Page
Description of the Trust
18(b) Not applicable
19(a) Additional Purchase and Redemption Information
Flex-Partners Retirement Plans
19(b) Valuation of Portfolio Securities
Additional Purchase and Redemption Information
19(c) Not applicable
20 Distributions and Taxes
21(a) The Distributor
21(b) The Distributor
21(c) Not applicable
22(a) Not applicable
22(b) Performance
23 Financial Statements
<PAGE>
INTERNATIONAL EQUITY FUND
A FUND OF THE FLEX-PARTNERS TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 29, 1997
This Statement is not a prospectus but should be read in conjunction with
the Prospectus of The Flex-Partners International Equity Fund (dated August 29,
1997). Please retain this document for future reference. A copy of the
Prospectus may be obtained from The Flex-Partners, 6000 Memorial Drive, Dublin,
Ohio 43017 or by calling 1-800-494-3539. Capitalized terms used and not
otherwise defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS PAGE
Investment Policies and Related Matters 2
Portfolio Transactions 16
Valuation of Portfolio Securities 18
Performance 19
Additional Purchase and Redemption Information 23
Distributions and Taxes 26
Investment Adviser and Manager 27
Investment Subadviser 29
The Distributor 30
Trustees and Officers 31
Flex-Partners Retirement Plans 33
Contracts With Companies Affiliated With Manager 34
Description of the Trust 34
Principal Holders of Outstanding Shares 36
Financial Statements 36
INVESTMENT ADVISER INVESTMENT SUBADVISER
R. Meeder & Associates, Inc. Commercial Union Investment
Management, Limited
DISTRIBUTOR TRANSFER AGENT
Adviser Dealer Services, Inc. Mutual Funds Service Co.
<PAGE>
INVESTMENT POLICIES AND RELATED MATTERS
GENERAL
INVESTMENT APPROACH. The Subadviser's philosophy is founded on a top down,
theme-driven approach to investment management. The Subadviser aims to add value
to the Fund at all stages of the investment process, from the Subadviser's
strategic top down approach to asset allocation and currency hedging to the
Subadviser's sector and individual stock selection. While the Subadviser's
portfolio managers operate within a disciplined and structured environment, they
have a high degree of freedom over stock selection, enabling them to exercise
their individual flair.
ASSET ALLOCATION. Asset allocation decisions are made by the lead portfolio
manager. The Subadviser's lead portfolio manager takes a top down view,
considering the results of economic analysis, currency forecasts, political
issues and market valuations to establish structural guidelines to which the
portfolio must adhere. He or she seeks to contribute to performance by making
strategic switches between asset classes and geographical regions. Once these
asset allocation guidelines are set, stock selection decisions are made by
specialist regional portfolio managers in accordance with country and sector
strategy.
COUNTRY AND SECTOR STRATEGY. Country and sector strategy is determined
within the guidelines set by the Subadviser's portfolio managers following
consulation with their teams on the implications of trends in interest rates,
exchange rates and other economic fundamentals.
The objective is to pinpoint countries and sectors which are likely to
outperform based on where each market is in terms of its business cycle. The
Subadviser recognizes that different economic and monetary backgrounds result in
good performance by different groups of stocks and the Subadviser judges the
broad areas of a market (growth stocks, value stocks, interest rate sensitives,
etc.) which are likely to outperform at any particular stage of the cycle. At
the same the Subadviser pays close attention to the themes on which a market is
likely to concentrate at a particular time (such as brand values, takeover
activity, or balance sheet strength). Once all these factors are considered, a
formal country and sector strategy is constructed to which all relevant
portfolios must conform. In order to control risk and the extent of the view
taken, limits are set on the deviations that may be made from the country and
sector matrices.
<PAGE>
EQUITY STOCK SELECTION. The Subadviser's portfolio managers have the
freedom to choose stocks within the framework of this matrix structure. In
reaching stock selection decisions, the Subadviser uses the commonly recognized
yardsticks of price/earnings ratios and dividend yields, comparing stocks to
market valuations, relevant sector variations and the history of the particular
stock. The Subadviser looks for excesses of overvaluation/undervaluation in the
market which are tested against the Subadviser's top down view, and make a
qualitative judgment about what is already discounted in the market and what is
likely to occur in the future.
The continued holding of a stock is constantly tested against the reason
for purchase. Once valuation measures no longer warrant the holding of a
security, it is sold. If purchase was based on a single event which occurs, or
which now appears unlikely to occur, the stock would be sold. A change in top
down view may also necessitate a sale where a holding represents only a thematic
or sector view. Price targets are only set for short-term trading.
CURRENCY. The Subadviser treats currency as a separate asset class and it
is analyzed as such. The Subadviser does not believe in speculating in
currencies and it is the Subadviser's normal stance to take on the natural
currency exposure that comes with the Subadviser's portfolio positions. However,
when the Subadviser does take on a currency position, the Subadviser does so
because the Subadviser believes a significant long-term trend is developing
which suggests hedging will both enhance returns and markedly contribute to
reduced risk and volatility in the Fund.
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset.
Accordingly any subsequent change in net asset values or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without
approval by a majority of the outstanding voting securities (as defined in the
Investment Company Act of 1940) of the Fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Trustees without shareholder approval. THE FOLLOWING ARE
THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY;
PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS WILL PREVENT THE
FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN OPEN-END MANAGEMENT
INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND, PROVIDED SUCH
INVESTMENT IS APPROVED BY THE TRUSTEES. THE FUND MAY NOT
(1) with respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than obligations issued or guaranteed by the government of
the United States or any of its agencies or instrumentalities or the securities
of other investment companies if otherwise permitted) if, as a result thereof,
(a) more than 5% of the Fund's total assets would be invested in the securities
of such issuer or (b) the Fund would hold more than 10% of the voting securities
of such issuer;
(2) issue senior securities except as permitted under the Investment
Company Act of 1940;
(3) borrow money except that the Fund may borrow money from banks in an
amount not exceeding 33-1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings);
(4) underwrite securities issued by others (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, 25% or more of the Fund's total assets would be invested in the
securities of companies whose principal business activities are in the same
industry;
<PAGE>
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities); or
(8) lend any security or make any other loan if as a result more than
33-1/3% of its total assets would be lent to other parties but this limitation
does not apply to purchases of debt securities or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Fund does not currently intend to sell securities short unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.
(ii) The Fund does not currently intend to purchase securities on margin
except that the Fund may obtain such short-term credits as are necessary for the
clearance of transactions and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
(iii) The Fund may borrow money only from a bank. The Fund will not
purchase any security while borrowings representing more than 5% of its total
assets are outstanding.
(iv) The Fund does not currently intend to purchase any security if as a
result more than 15% of its net assets would be invested in securities that are
deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are valued
including repurchase agreements with remaining maturities in excess of seven
days or securities without readily available market quotes.
(v) The Fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
(vi) The Fund does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 5% of the Fund's net assets. Included in
that amount, but not to exceed 2% of the Fund's net assets, may be warrants that
are not listed on the New York Stock Exchange or the American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities are not subject
to these restrictions.
<PAGE>
(vii) The Fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(viii) The Fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the Trust and those officers and
directors of the Manager or the Subadviser who individually own more than 1/2 of
1% of the securities of such issuer, together own more than 5% of such issuer's
securities.
For the Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" herein. For
the Fund's limitations on short sales, see the section entitled "Short Sales"
herein.
MONEY MARKET INSTRUMENTS. When investing in U.S. money market instruments,
the Fund will limit its purchases, denominated in U.S. dollars, to the following
securities.
* U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal
or interest by the United States or its agencies (such as the Export
Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities
(such as the Federal Home Loan Bank, Federal Intermediate Credit Banks
and Federal Land Bank), including Treasury bills, notes and bonds.
* 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 Fund 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 Fund will not invest at time of
purchase more than 25% of its assets in obligations of banks nor will
the Fund invest more than 10% of its assets in time deposits.
* High quality Commercial Paper - The Fund 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.
<PAGE>
* Private Placement Commercial Paper - Private placement commercial
paper consists of unregistered securities which are traded in public
markets to qualified institutional investors such as the Fund. The
Fund's risk is that the universe of potential buyers for the
securities should the Fund desire to liquidate a position is limited
to qualified dealers and institutions and therefore such securities
could have the effect of being illiquid.
* High Grade Corporate Obligations - obligations rated at least A by
Standard & Poor's or Moody's. See rating information below.
* Repurchase Agreements -- See Repurchase Agreements below.
The Subadviser exercises due care in the selection of money market
instruments. However, there is a risk that the issuers of the securities may not
be able to meet their obligations to pay interest or principal when due. There
is also a risk that some of the Fund's securities might have to be liquidated
prior to maturity at a price less than original amortized cost or value face
amount or maturity value to meet larger than expected redemptions. Any of these
risks if encountered could cause a reduction in net income or in the net asset
value of the Fund.
RATINGS
1. Moody's Investors Services Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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2. Standard and Poor s Corporation's Corporate Bond Rating:
AAA- Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations and in the
majority of instances differ from AAA issues only in small degree. Here too
prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the adverse
effect of changes in economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in their market
behavior but to some extent also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
3. A-1 and P-1 Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated A or better. The issuer has access
to at least two additional channels of borrowing. Basic earnings and cash flow
have an upward trend. Typically the issuer's industry is well established and
the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is A-1 A-2 or
A-3.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
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4. Description of Permitted Money Market Investments:
Commercial Paper - refers to promissory notes issued by corporations in
order to finance their short term credit needs.
U.S. Government Obligations - are bills, certificates of indebtedness,
notes and bonds issued by the U.S. Treasury and agencies, authorities and
instrumentalities of the U.S. Government established under the authority of an
act of Congress. Some obligations of U.S. Government agencies, authorities and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, as for example, the Government National Mortgage Association; others
by the right of the issuer to borrow from the Treasury, as in the case of
Federal Farm Credit Banks and Federal National Mortgage Association; and others
only by the credit of the agency authority or instrumentality; as for example,
Federal Home Loan Mortgage and Federal Home Loan Bank.
Repurchase Agreements - See Repurchase Agreements below.
Certificates of Deposit - are certificates issued against funds deposited
in a bank are for a definite period of time earn a specified or variable rate of
return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed accepted when
a bank guarantees their payment at maturity.
Corporate Obligations - include bonds and notes issued by corporations in
order to finance longer term credit needs.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Trustees, the Subadviser
determines the liquidity of the Fund's investments and through reports from the
Subadviser, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Fund's investments the Subadviser 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 Fund's rights and obligations
relating to the investment). Investments currently considered by the Fund 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
Subadviser may determine some restricted securities government-stripped
fixed-rate mortgage-backed securities loans and other direct debt instruments
and swap agreements to be illiquid. However, with respect to over-the-counter
options the Fund 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 Fund 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 Fund were in
a position where more than 15% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
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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
Fund 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 Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to seek registration of the security.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund 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 Fund 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 Fund in
connection with bankruptcy proceedings), it is the Fund's current policy to
limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Subadviser.
SECURITIES LENDING. The Fund may lend securities to parties such as
broker-dealers or institutional investors.
Securities lending allows the Fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties deemed by the Subadviser to be of good standing. Furthermore,
they will only be made if in the Subadviser's judgment the consideration to be
earned from such loans would justify the risk.
The Subadviser understands that it is the current view of the SEC Staff
that the Fund may engage in loan transactions only under the following
conditions: (1) the Fund must receive 100% collateral in the form of cash or
cash equivalents (e.g. U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Fund must be able to terminate the loan
at any time; (4) the Fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends, interest
or other distributions on the securities loaned and to any increase in market
value; (5) the Fund may pay only reasonable custodian fees in connection with
the loan; and (6) the Board of Trustees must be able to vote proxies on the
securities loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
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Cash received through loan transactions may be invested in any security in
which the Fund is authorized to invest. Investing this cash subjects that
investment as well as the security loaned to market forces (i.e. capital
appreciation or depreciation).
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies and of dividends and interest
from such securities can change significantly when foreign currencies strengthen
or weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more difficult
to obtain reliable information regarding an issuer's financial condition and
operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Subadviser will be able
to anticipate or counter these potential events.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
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The Fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.
American Depository Receipts and European Depository Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
corporation held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The Fund may hold foreign currency deposits
from time to time and may convert dollars and foreign currencies in the foreign
exchange markets. Currency conversion involves dealer spreads and other costs
although commissions usually are not charged. Currencies may be exchanged on a
spot (i.e., cash) basis, or by entering into forward contracts to purchase or
sell foreign currencies at a future date and price. Forward contracts generally
are traded in an interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The parties to a forward
contract may agree to offset or terminate the contract before its maturity or
may hold the contract to maturity and complete the contemplated currency
exchange.
The Fund may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Fund.
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into currency forward contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date. This
technique is sometimes referred to as a settlement hedge or transaction hedge.
The Subadviser expects to enter into settlement hedges in the normal course
of managing the Fund's foreign investments. The Fund could also enter into
forward contracts to purchase or sell a foreign currency in anticipation of
future purchases or sales of securities denominated in foreign currency even if
the specific investments have not yet been selected by the Subadviser.
The Fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations but would not offset changes in security values caused by
other factors. The Fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling - for example, by
<PAGE>
entering into a forward contract to sell Deutschemarks or European Currency
Units in return for U.S. dollars. This type of hedge sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
Under certain conditions, SEC guidelines require mutual funds to set aside
cash and appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC, guidelines the Fund will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. The Fund will not segregate assets to cover forward
contracts entered into for hedging purposes including settlement hedges position
hedges and proxy hedges.
Successful use of forward currency contracts will depend on the
Subadviser's skill in analyzing and predicting currency values. Forward
contracts may substantially change the Fund's investment exposure to changes in
currency exchange rates and could result in losses to the Fund if currencies do
not perform as the Subadviser anticipates. For example, if a currency's value
rose at a time when the Subadviser had hedged the Fund by selling that currency
in exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If the Subadviser hedges currency exposure through
proxy hedges, the Fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in tandem.
Similarly, if the Subadviser increases the Fund's exposure to a foreign currency
and that currency's value declines, the Fund will realize a loss. There is no
assurance that the Subadviser's use of forward currency contracts will be
advantageous to the Fund or that it will hedge at an appropriate time. The
policies described in this section are non-fundamental policies of the Fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund will not: (a)
sell futures contracts, purchase put options or write call options if, as a
result, more than 50% of the Fund's total assets would be hedged with futures
and options under normal conditions; (b) purchase futures contracts or write put
options if, as a result, the Fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would exceed 25%
of its total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the Fund would exceed 5%
of the Fund's 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 Fund's investments in futures contracts and options and the
Fund'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 Fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When the
Fund 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 Fund enters into the contract.
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Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on indices
of securities prices, such as the Standard & Poor's 500 Composite Stock Price
Index (S&P 500). Futures can be held until their delivery dates or can be closed
out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When the Fund 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 Fund's investment
limitations. In the event of the bankruptcy of an FCM that holds margin on
behalf of the Fund, the Fund 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 Fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indices
of securities prices and futures contracts. The Fund may terminate its position
in a put option it has purchased by allowing it to expire or by exercising the
option. If the option is allowed to expire, the Fund will lose the entire
premium it paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current price,
if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
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The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option s strike
price.
A call buyer typically attempts to participate in potential price increases
of the underlying instrument with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. When writing an option on a futures contract, the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for a put option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes and must continue
to set aside assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
Writing a call option obligates the Fund 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.
COMBINED POSITIONS. The Fund may purchase and write options in combination
with each other or in combination with futures or forward contracts, to adjust
the risk and return characteristics of the overall position. For example, the
Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
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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 Fund's current or
anticipated investments exactly. The Fund 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 Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments even if the underlying instruments match the Fund'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 Fund 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 Fund'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 Fund 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 Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Fund greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges where they are traded.
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OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The Fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. The Fund
may also purchase and write currency options in conjunction with each other or
with currency futures or forward contracts. Currency futures and options values
can be expected to correlate with exchange rates, but may not reflect other
factors that affect the value of the Fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in the Yen,
but will not protect the Fund against a price decline resulting from
deterioration in the issuer's creditworthiness. Because the value of the Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the Fund's investments exactly over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund 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 Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
SHORT SALES. The Fund may enter into short sales "against the box" with
respect to stocks it owns or has the right to obtain. For example, if the
Subadviser anticipates a decline in the price of stock it owns or has the right
to obtain, it may sell the stock short. If the stock price subsequently
declines, the proceeds of the short sale could be expected to offset all or a
portion of the effect of the stock's decline. The Fund currently intends to
hedge no more than 15% of its total assets with short sales on equity securities
under normal circumstances.
When the Fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or securities
convertible or exchangeable into such securities) and will be required to
continue to hold them while the short sale is outstanding. The Fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining, and closing short sales.
<PAGE>
PORTFOLIO TURNOVER. The Fund has no fixed policy with respect to portfolio
turnover; however, as a result of the Fund's investment policies, the Subadviser
expects the annual portfolio turnover rate will be 200% or less. The portfolio
turnover rate is calculated by dividing the lesser of sales or purchases of
portfolio securities by the average monthly value of the Fund's securities,
excluding securities having a maturity at the date of purchase of one year or
less. High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs which will be borne directly by the
Fund.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Fund by the Subadviser pursuant to authority contained in the
investment advisory agreement and investment subadvisory agreement. The
Subadviser is also responsible for the placement of transaction orders for
accounts for which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, the Subadviser considers various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions; and arrangements for payment of Fund
expenses.
The Fund's brokerage transactions involving securities of companies
headquartered in countries other than the United States will be conducted
primarily on the markets and principal exchanges of such countries. Foreign
markets are generally not as developed as those located in the United States,
which may result in higher transaction costs, delayed settlement and less
liquidity for trades effected in foreign markets. Transactions on foreign
exchanges are usually subject to fixed commissions that generally are higher
than negotiated commissions on U.S. transactions. There is generally less
government supervision and regulation of exchanges and brokers in foreign
countries than in the United States.
The Fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the Fund or other accounts over which the
Subadviser or its 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 Subadviser (to the
extent possible consistent with execution considerations) in accordance with a
ranking of broker-dealers determined periodically by the Subadviser's investment
staff based upon the quality of research and execution services provided.
<PAGE>
The receipt of research from broker-dealers that execute transactions on
behalf of the Fund may be useful to the Subadviser in rendering investment
management services to the Fund or the Subadviser's other clients, and
conversely, such research provided by broker-dealers who have executed
transaction orders on behalf of other Subadviser clients may be useful to the
Subadviser in carrying out its obligations to the Fund. The receipt of such
research is not expected to reduce the Subadviser's normal independent research
activities; however, it enables the Subadviser to avoid the additional expenses
that could be incurred if the Subadviser tried to develop comparable information
through its 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 Fund
to pay such higher commissions, the Subadviser 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 Subadviser's overall responsibilities to the
Fund and its other clients. In reaching this determination, the Subadviser 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 Subadviser is authorized to use research services provided by and to
place portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the Fund or shares of other Flex-Partners'
funds or Flex-funds' funds to the extent permitted by law.
The Subadviser may allocate brokerage transactions to broker-dealers who
have entered into arrangements with the Subadviser under which the broker-dealer
allocates a portion of the commissions paid by the Fund toward payment of the
Fund's expenses, such as transfer agent fees of Mutual Funds Service Co. or
custodian fees. The transaction quality must, however, be comparable to those of
other qualified broker-dealers.
The Trustees periodically review the Subadviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the commissions paid by the Fund over
representative periods of time to determine if they are reasonable in relation
to the benefits to the Fund.
From time to time, the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
The Fund 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 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 Fund to seek such recapture.
<PAGE>
Although the Trustees and officers of the Trust are substantially the same
as those of other portfolios managed by the Manager, investment decisions for
the Fund are made independently from those of other portfolios managed by the
Manager or accounts managed by affiliates of the Manager. It sometimes happens
that the same security is held in the portfolio of more than one of these funds
or accounts. Simultaneous transactions are inevitable when several portfolios
are managed by the same investment adviser, particularly when the same security
is suitable for the investment objective of more than one portfolio.
When two or more portfolios are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the portfolios involved to be
equitable to each portfolio. In some cases this system could have a detrimental
effect on the price or value of the security as far as the Fund is concerned. In
other cases, however, the ability of the Fund to participate in volume
transactions will produce better executions and prices for the Fund. It is the
current opinion of the Trustees that the desirability of retaining the Manager
as investment adviser to the Fund outweighs any disadvantages that may be said
to exist from exposure to simultaneous transactions.
The Fund may effect transactions in its portfolio securities on securities
exchanges on a non-exclusive basis through Adviser Dealer Services, Inc., the
distributor of the Fund's shares and an affiliate of the Manager (the
"Distributor"), in its capacity as a broker-dealer.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Equity securities for which the primary
market is the U.S. are valued at last sale price or, if no sale has occurred, at
the closing bid price. Equity securities for which the primary market is outside
the U.S. are valued using a snapshot price or the official closing price or the
last sale price in the principal market where they are traded. If the last sale
price (on the local exchange) is unavailable, the last evaluated quote or last
bid price is normally used. Short-term securities are valued either at amortized
cost or at original cost plus accrued interest, both of which approximate
current value. Fixed income securities are valued primarily by a pricing service
that uses direct exchange quotes and a vendor security valuation matrix which
incorporates both dealer-supplied valuations and electronic data processing
techniques.
This twofold approach is believed to more accurately reflect fair value
because it takes into account appropriate factors such as institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data, without exclusive
reliance upon quoted, exchange, or over-the-counter prices.
Securities and other assets for which there is no readily available market
are valued in good faith by the Board of Trustees. The procedures set forth
above need not be used to determine the value of the securities owned by the
Fund if, in the opinion of the Board of Trustees, some other method (e.g.,
closing over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
<PAGE>
Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments, and
repurchase agreements, is substantially completed each day at the close of the
New York Stock Exchange (NYSE).
The values of any such securities held by the Fund are determined as of
such time for the purpose of computing the Fund's net asset value. Foreign
security prices are furnished by independent brokers or quotation services which
express the value of securities in their local currency. The Manager gathers all
exchange rates daily at approximately 3:00 pm Eastern time using the last quoted
price on the local currency and then translates the value of foreign securities
from their local currency into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are included in
the calculation of net asset value. If an extraordinary event that is expected
to materially affect the value of a portfolio security occurs after the close of
an exchange on which that security is traded, then the security will be valued
as determined in good faith by the Board of Trustees.
PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the Fund's net asset value over
the period. Average annual returns will be calculated by determining the growth
or decline in value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that the
Fund's performance is not constant over time but changes from year to year and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments or series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis. Total
returns yields and other performance information may be quoted numerically, or
in a table graph, or similar illustration.
<PAGE>
Total return is computed by finding the average annual compounded rates of
return over the length of the base periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
P(1+T)(to the nth power) = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted net asset value includes any distributions paid by the
Fund and reflects all elements of its return. Unless otherwise indicated, the
Fund's adjusted net asset values are not adjusted for sales charges, if any.
MOVING AVERAGES. The Fund may illustrate performance using moving averages.
A long-term moving average is the average of each week's adjusted closing net
asset value for a specified period. A short-term moving average is the average
of each day's adjusted closing net asset value for a specified period. Moving
Average Activity Indicators combine adjusted closing net asset values from the
last business day of each week with moving averages for a specified period to
produce indicators showing when a net asset value has crossed, stayed above, or
stayed below its moving average.
HISTORICAL FUND RESULTS. The Fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as mutual
fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an
independent service Located in Summit, New Jersey that monitors the performance
of mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and total return is prepared without regard
to tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.
From time to time, the Fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of
Flex-Partners or Flex-funds funds to one another in appropriate categories over
specific periods of time may also be quoted in advertising.
<PAGE>
In advertising materials, the Trust may reference or discuss its products
and services, which may include: other Flex-Partners or Flex-funds funds;
retirement investing; the effects of periodic investment plans and dollar cost
averaging; saving for college; and charitable giving. In addition, the Fund may
quote financial or business publications and periodicals, including model
portfolios or allocations, as they relate to Fund management, investment
philosophy, and investment techniques. The Fund may also reprint, and use as
advertising and sales literature, articles from Reflexions, a quarterly magazine
provided free of charge to Flex-Partners and Flex-funds shareholders.
VOLATILITY. The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. All measures of volatility and correlation are calculated using averages of
historical data.
MOMENTUM INDICATORS indicate the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period.
The Fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
The Fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a 31%
rate. An equivalent tax-deferred investment would have an after-tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
Unmanaged indexes that the Fund may use include the following:
MORGAN STANLEY CAPITAL INTERNATIONAL -- SELECT EMERGING MARKETS INDEX -- is
an unpublished index which includes common stocks of companies located in the
countries 12 emerging markets.
MORGAN STANLEY CAPITAL INTERNATIONAL -- EAFE (FREE) INDEX -- is an
arithmetic, market value-weighted average of the performance of over 1,000
securities listed on the stock exchanges of countries in Europe, Australia and
the Far East.
MSCI EMF INDEX -- an arithmetic, market value-weighted average of the
performance of securities listed on the stock exchanges of twenty-two developing
countries.
<PAGE>
MSCI EAFE + SELECT EMF INDEX -- an arithmetic, market value-weighted
average of the performance of securities listed on the stock markets of Europe,
Australia, the Far East and fourteen developing countries.
FT - ACTUARIES WORLD INDEX -- includes approximately 2,400 securities from
24 countries including the U.S.
FT - ACTUARIES EURO-PACIFIC INDEX -- a subset of the FT Actuaries World
Index, which excludes companies in the U.S., Canada, Mexico and South Africa.
SALOMON-RUSSELL PRIMARY MARKET INDEX -- consists of the approximately 700
largest stocks within 23 countries.
SALOMON-RUSSELL EXTENDED MARKET INDEX -- consists of approximately 1,000
medium and small capitalization stocks from 23 countries.
SALOMON-RUSSELL BROAD MARKET INDEX -- consists of all of the stocks within
the Primary Market Index and the Extended Market Index.
RUSSELL UNIVERSE OF NON-U.S. EQUITY PORTFOLIOS -- a universe of separate
accounts and pooled funds available to U.S. investors, which invest in
international equities.
RUSSELL UNIVERSE OF WORLD EQUITY PORTFOLIOS -- a universe of
equity-oriented global portfolios.
LIPPER INTERNATIONAL UNIVERSE -- a universe of mutual funds that invest in
international equities.
LIPPER DIVERSIFIED INTERNATIONAL UNIVERSE -- a universe of mutual funds
that invest in international equities from more than one country.
LIPPER INTERNATIONAL AVERAGE -- the average return of the portfolios
included in the Lipper International Universe.
LIPPER DIVERSIFIED INTERNATIONAL AVERAGE -- the average return of the
portfolios included in the Lipper Diversified International Universe.
STANDARD AND POOR'S 500 COMPOSITE STOCK PRICE INDEX -- is a well
diversified list of 500 companies representing the U.S. stock market.
WILSHIRE 5000 EQUITY INDEX -- consists of more than 6,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available.
WILSHIRE 4500 EQUITY INDEX -- consists of all stocks in the Wilshire 5000
except for the 500 stocks in the Standard and Poor's 500 Index.
<PAGE>
SALOMON BROTHERS HIGH-GRADE CORPORATE BOND INDEX -- consists of publicly
issued, non-convertible corporate bonds rated Aa or Aaa. It is a value-weighted,
total return index, including approximately 800 issues with maturities of 12
years or greater.
BARING EMERGING MARKETS INDEX -- a diversified index of approximately 250
relatively liquid stocks from 13 emerging market countries.
SALOMON BROTHERS BROAD INVESTMENT-GRADE BOND -- is a market-weighted index
that contains approximately 4,700 individually priced investment-grade corporate
bonds rated BBB or better, U.S. Treasury and agency issues and mortgage
pass-through securities.
SHEARSON LEHMAN LONG-TERM TREASURY BOND -- is composed of all bonds covered
by the Shearson Lehman Hutton Treasury Bond Index with maturities of 10 years or
greater.
NASDAQ INDUSTRIAL INDEX -- is composed of more than 3,000 industrial
issues. It is a value-weighted index calculated on price change only and does
not include income.
COMPOSITE INDEX -- 65% Standard & Poor's 500 Index and 35% Lehman Long-Term
Corporate AA or Better Bond Index.
COMPOSITE INDEX -- 65% Lehman Long-Term Corporate AA or Better Bond Index
and a 35% weighting in a blended equity composite (75% Standard & Poor's/BARRA
Value Index and 25% Standard & Poor's Utilities Index).
LEHMAN LONG-TERM CORPORATE AA OR BETTER BOND INDEX -- consists of all
publicly issued, fixed rate, nonconvertible investment grade,
dollar-denominated, SEC-registered corporate debt rated AA or AAA.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is
calculated each day the NYSE is open for trading. The NYSE has designated the
following holiday closings: New Year's Day, Washington's Birthday (observed),
Good Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Thanksgiving Day, and Christmas Day (observed). The NYSE may modify its holiday
schedule at any time.
The Fund's net asset value is determined as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if
trading on the NYSE is restricted or as permitted by the SEC. To the extent that
portfolio securities are traded in other markets on days when the NYSE is
closed, the Fund's NAV may be affected on days when investors do not have access
to the Fund to purchase or redeem shares.
If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
Fund's NAV. Shareholders receiving securities or other property on redemption
may realize a gain or loss for tax purposes, and will incur any costs of sale,
as well as the associated inconveniences.
<PAGE>
Shareholders of the Fund will be able to exchange their shares for Class A
shares of any mutual fund that is a series of The Flex-Partners (each a
"Flex-Partners Fund"), and shares of The Flex-funds Money Market Fund. No fee or
sales load will be imposed upon the exchange. Shareholders of The Flex-funds
Money Market Fund who acquired such shares upon exchange of shares of the Fund
may use the exchange privilege only to acquire shares of the Fund or Class A
shares of a Flex-Partners Fund.
Additional details about the exchange privilege and prospectuses for each
of the Flex-Partners Funds and The Flex-funds Money Market Fund are available
from the Fund's Transfer Agent. The exchange privilege may be modified
terminated or suspended on 60 days' notice, and any fund, including the Fund, or
the Distributor, has the right to reject any exchange application relating to
such fund's shares. The 60-day notification requirement may be waived if (i) the
only effect of a modification would be to reduce or eliminate an administrative
fee, redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the Fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares because
it is unable to invest amounts effectively in accordance with its investment
objective and policies.
In the Prospectus, the Fund has notified shareholders that it reserves the
right at any time, without prior notice to refuse exchange purchases by any
person or group if, in the Subadviser's judgment, the Fund would be unable to
invest effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases shares of the Fund concurrently
with Class A shares of other series of the Trust, the purchases may be combined
to take advantage of the reduced sales charges applicable to larger purchases.
See the table of breakpoints under "How to Buy Shares - Cumulative Quantity
Discount" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or
group that holds 25% or more of the outstanding voting securities
of a corporation will be deemed to control the corporation, and a
partnership will be deemed to be controlled by each of its
general partners);
<PAGE>
(e) a trust created by the individual, the beneficiaries of which are
the individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
account created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
The Combined Purchase and Cumulative Purchase Privilege does not apply to
individual participants in retirement and group plans described below under
"Flex-Partners Retirement Plans."
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and Class A shares of other Flex-Partners Funds to determine the reduced
sales charge. The value of existing holdings for purposes of determining the
reduced sales charge is calculated using the maximum offering price (net asset
value plus maximum sales charge) as of the previous business day. See "How Net
Asset Value is Determined" in the Prospectus. The Transfer Agent must be
notified at the time of purchase that the investor is entitled to a reduced
sales charge. The reduced sales charges will be granted subject to confirmation
of the investor's holdings. Rights of accumulation are not available to
individual participants in the retirement and group plans described below under
"Flex-Partners Retirement Plans."
LETTERS OF INTENT. Reduced sales charges are also available to investors
(or an eligible group of related investors) who enter into a written Letter of
Intent providing for the purchase, within a thirteen-month period, of shares of
the Fund and Class A shares of other Flex-Partners Funds. All shares of the Fund
and Class A shares of other Flex-Partners Funds which were previously purchased
and are still owned are also included in determining the applicable reduction.
The Transfer Agent must be notified at the time of purchase that the investor is
entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings. Letters of Intent are not
available to individual participants in retirement and group plans described
below under "Flex-Partners Retirement Plans."
A Letter of Intent permits a purchase to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Shares totaling 5% of the dollar amount of the Letter of Intent will
be held by the Transfer Agent in escrow in the name of the purchaser. The
effective date of a Letter of Intent may be back-dated up to 90 days, in order
that any investments made during this 90-day period, valued at the purchaser's
cost, can be applied to the fulfillment of the Letter of Intent goal.
<PAGE>
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Transfer Agent or, if not paid, the Transfer Agent will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase shares of the Fund pursuant to a Letter of Intent should carefully read
such Letter of Intent.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount
of $100 or more automatically invested in shares of the Fund monthly by
authorizing his or her bank account to be debited to invest specified dollar
amounts in shares of the Fund. The investor's bank must be a member of the
Automatic Clearing House System.
Further information about these programs and an application form can be
obtained from the Fund's Transfer Agent.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available
for shareholders having shares of the Fund with a minimum value of $10,000,
based upon the offering price. The plan provides for monthly, quarterly or
annual checks in any amount, but not less than $100 (which amount is not
necessarily recommended).
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. See "Shareholder
Investment Account - Automatic Reinvestment of Dividends and/or Distributions"
above. The Transfer Agent acts as agent for the shareholder in redeeming
sufficient full and fractional shares to provide the amount of the periodic
withdrawal payment. The plan may be terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the applicable sales charges to the purchase of shares.
Each shareholder should consult his or her own tax adviser with regard to the
tax consequences of the plan, particularly if used in connection with a
retirement plan.
<PAGE>
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, the Subadviser may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested until you
provide Mutual Funds Service Co. with alternate instructions.
DIVIDENDS. A portion of the Fund's dividends derived from certain U.S.
government obligations may be exempt from state and local taxation. Gains
(losses) attributable to foreign currency fluctuations are generally taxable as
ordinary income and therefore will increase (decrease) dividend distributions.
The Fund will send each shareholder a notice in January describing the tax
status of dividends and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the Fund on
the sale of securities by the Fund and distributed to shareholders of the Fund
are federally taxable as long-term capital gains regardless of the length of
time shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the Fund and such shares are held six
months or less and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a long-term
loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be liable
for federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes at the Fund level, the Fund intends to distribute
substantially all of its net investment income and net realized capital gains
within each calendar year as well as on a fiscal year basis.
The Fund is treated as a separate entity from the other funds of The
Flex-Partners Trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Fund and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
Fund distributions. Investors should consult their tax advisers to determine
whether the Fund is suitable to their particular tax situation.
<PAGE>
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. (the "Manager") is the investment adviser and
manager for, and has an Investment Advisory Contract with, the Fund.
Pursuant to the Investment Advisory Contract with the Fund, the Manager,
subject to the supervision of the Fund's Board of Trustees and in conformity
with the stated objective and policies of the Fund, manages both the investment
operations of the Fund and the composition of the Fund's portfolio, including
the purchase, retention, disposition and loan of securities. In connection
therewith, the Manager is obligated to keep certain books and records of the
Fund. The Manager also administers the Fund's corporate affairs, and in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by State Street Bank and Trust Company, the Fund's custodian and Mutual Funds
Service Co., the Fund's transfer and disbursing agent. The management services
of the Manager are not exclusive under the terms of the Investment Advisory
Agreement and the Manager is free to, and does, render management services to
others.
The Investment Advisory Contract for the Fund 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 Trust. The Investment Advisory Contract is to remain in force so long as
renewal thereof is specifically approved at least annually by a majority of the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund 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
Fund, by the Trustees of the Trust, or by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities which are not
readily attributable to a particular fund are allocated among all of the Trust's
funds. Thus, each fund pays its proportionate share of: the fees of the Trust's
independent auditors, legal counsel, custodian, transfer agent and accountants;
insurance premiums; the fees and expenses of Trustees who do not receive
compensation from R. Meeder & Associates or Commercial Union Investment
Management, Limited; association dues; the cost of printing and mailing
confirmations, prospectuses, proxies, proxy statements, notices and reports to
existing shareholders; state registration fees; distribution expenses within the
percentage limitations of the distribution and service plan, including the cost
of printing and mailing of prospectuses and other materials incident to
soliciting new accounts; and other miscellaneous expenses.
<PAGE>
Expenses of the Fund also include all fees under its Accounting and
Administrative Service Agreement; expenses of meetings of shareholders and
Trustees; the advisory fees payable to the Manager under the Investment Advisory
Contract and other miscellaneous expenses.
The Manager earns an annual fee at the rate of 1% of the average net assets
of the Fund, payable in monthly installments.
R. Meeder & Associates, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors, and the principal offices
are as set forth as follows: Robert S. Meeder, Sr., Chairman and Sole Director;
Robert S. Meeder, Jr., President; Philip A. Voelker, Senior Vice President and
Chief Operating Officer; Donald F. Meeder, Vice President and Secretary; Sherrie
L. Acock, Vice President; Robert D. Baker, Vice President; Wesley F. Hoag, Vice
President and General Counsel; and Thomas G. Roediger, Vice President. Messrs.
Robert S. Meeder, Sr., Robert S. Meeder, Jr. and Philip A. Voelker are Trustees
and officers of the Trust. Messrs. Donald F. Meeder and Wesley F. Hoag are
officers of the Trust.
INVESTMENT SUBADVISER
Commercial Union Investment Management, Limited, St. Helen's, 1 Undershaft,
London, England EC3P 3DQ, serves as the Fund's Subadviser. Commercial Union plc
controls the Subadviser through the ownership of voting common stock. The
Investment Subadvisory Agreement provides that the Subadviser shall furnish
investment advisory services in connection with the management of the Fund. In
connection therewith, the Subadviser is obligated to keep certain books and
records of the Fund. The Manager continues to have responsibility for all
investment advisory services pursuant to the Investment Advisory Agreement and
supervises the Subadviser's performance of such services. Under the Investment
Subadvisory Agreement, the Manager, not the Fund, pays the Subadviser a fee,
computed daily and payable monthly, in an amount equal to 100% of the investment
advisory fees received by the Manager under its investment advisory contract
with the Fund with regard to the first $10 million of average net assets of the
Fund, 30% of such advisory fees received by the Manager with regard to the next
$10 million of average net assets of the Fund and 65% of such advisory fees
received by the Manager with regard to average net assets of the Fund greater
than $20 million.
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 Fund, 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 by the Manager, the Subadviser, the Trustees
or by the vote of a majority of the outstanding voting securities of the Fund
upon not less than 60 days' written notice. The Investment Subadvisory Agreement
<PAGE>
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 Trustees, 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 Fund.
At the date shares of the Fund were first publicly offered for sale,
August 29, 1997, the Subadviser owned beneficially and of record 100% of the
issued and outstanding shares of the Fund. As a result, the Subadviser controls
the Fund. Because of this control, the Subadviser could prevent a change in the
investment advisers or subadvisers (including the Subadviser itself) of the Fund
that is favored by other shareholders. The Subadviser could also cause a change
in the investment advisers or subadvisers of the Fund that is opposed by other
shareholders.
THE DISTRIBUTOR
Adviser Dealer Services, Inc. (the "Distributor"), 6000 Memorial Drive,
Dublin, Ohio 43017, an affiliate of the Manager, acts as the distributor of the
shares of the Fund.
Pursuant to a plan of distribution (the "Plan") adopted by the Fund under
Rule 12b-1 under the 1940 Act and an underwriting agreement (the "Underwriting
Agreement"), the Distributor incurs the expenses of distributing the Fund's
shares. See "Distribution Plan" in the Prospectus.
The Board of Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(the Rule 12b-1 Trustees), at a meeting called for the purpose of voting on the
Plan, adopted a plan of distribution for the shares of the Fund.
The Plan continues in effect from year to year, provided that each such
continuance is approved at least annually by a vote of the Board of Trustees,
including a majority vote of the Rule 12b-1 Trustees, cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time, without penalty, by the vote of a majority of the
Trustees who are not interested persons or by the vote of the holders of a
majority of the outstanding shares of the Fund. The Plan may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the Fund, and all material amendments
are required to be approved by the Board of Trustees in the manner described
above. The Fund will not be contractually obligated to pay expenses incurred
under the Plan if it is terminated or not continued.
Pursuant to the Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of the shares
of the Fund by the Distributor. The report includes an itemization of the
distribution expenses and the purposes of such expenditures. In addition, as
long as the Plan remains in effect, the selection and nomination of Trustees who
are not interested persons of the Fund shall be committed to the Trustees who
are not interested persons of the Fund.
<PAGE>
Pursuant to the Underwriting Agreement, the Fund has agreed to indemnify
the Distributor to the extent permitted by applicable law against certain
liabilities under the Securities Act and the Investment Company Act of 1940. The
Underwriting Agreement was approved by the Board of Trustees, including a
majority of the Rule 12b-1 Trustees.
TRUSTEES AND OFFICERS
The Trust is managed by its trustees and officers. Their names, positions
and principal occupations during the past five years are listed below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Except as otherwise shown, all persons
named as Trustees also serve in similar capacities for all other mutual funds
advised by the Manager, including The Flex-funds and the corresponding
portfolios of The Flex-Partners and The Flex-funds (collectively, the "Fund
Complex"). Unless otherwise noted, the business address of each Trustee and
officer is 6000 Memorial Drive, Dublin, Ohio 43017, which is also the address of
the Manager. Those Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) by virtue of their affiliation with the Fund
Complex, the Manager, the Subadviser or other subadvisers are indicated by an
asterisk (*).
POSITION PRINCIPAL
NAME, ADDRESS AND AGE HELD OCCUPATION
ROBERT S. MEEDER, SR.*+, 68 Trustee/ Chairman, R. Meeder &
President Associates, Inc., an
investment adviser.
MILTON S. BARTHOLOMEW, 68 Trustee Retired; formerly a practicing
1424 Clubview Boulevard, S attorney in Columbus Ohio;
Worthington, OH 43235 member of each fund and each
Portfolio's Audit Committee.
ROGER D. BLACKWELL, 57 Trustee Professor of Marketing and
Blackwell Associates, Inc. Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
CHARLES A. DONABEDIAN, 54 Trustee President, Winston Financial,
Winston Financial, Inc. Inc., which provides a variety
200 TechneCenter Drive of marketing and consulting
Suite 200 services to investment
Milford, OH 45150 management companies; CEO,
Winston Advisors, Inc., an
investment advisor.
JOHN M. EMERY, 76 Trustee Retired; formerly Vice
2390 McCoy Road President & Treasurer of
Columbus, OH 43220 Columbus & Southern Ohio
Electric Co.; member of each
fund and each Portfolio's
Audit Committee.
RICHARD A. FARR, 79 Trustee President of R&R Supply Co.
3250 W. Henderson Rd and Farrair Concepts, Inc.,
Columbus, OH 43220 two companies involved in
engineering, consulting &
sales of heating & air
conditioning equipment.
<PAGE>
WILLIAM L. GURNER*, 51 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment
5350 Poplar Avenue, Suite 490 adviser (since January 1995);
Memphis, TN 38119 Manager of Trust
Investments of Federal
Express Corporation
(1987-1994).
RUSSEL G. MEANS, 71 Trustee Retired; formerly Chairman of
5711 Barry Trace Employee Benefit Management
Dublin, OH 43017 Corporation, consultants and
administrators of
self-funded health and
retirement plans.
ROBERT S. MEEDER, JR.*+, 36 Trustee and President of R. Meeder &
Vice President Associates, Inc.
LOWELL G. MILLER*, 49 Trustee President, Miller/Howard
Miller/Howard Investments, Inc. Investments, Inc., an
141 Upper Byrdcliffe Road investment adviser whose
P. O. Box 549 clients include the Growth
Woodstock, NY 12498 Stock Portfolio and the
Utilities Stock Portfolio.
WALTER L. OGLE, 58 Trustee Executive Vice President of
Interstate North Parkway Aon Consulting, an
Suite 1630 employee benefits consulting
Atlanta, GA 30339 group.
PHILIP A. VOELKER*+, 43 Trustee and Senior Vice President and
Vice President Chief Operating Officer of
R. Meeder & Associates, Inc.
JAMES B CRAVER*, 54 Assistant Practicing Attorney; Special
42 Miller Hill Road Secretary Counsel to Flex-Partners,
Box 811 Flex-funds and their
Dover, MA 02030 Portfolios; Senior
Vice President of Signature
Financial Group, Inc.
(January 1991 to August 1995).
DONALD F. MEEDER*+, 58 Secretary/ Vice President of R. Meeder
Treasurer & Associates, Inc., and
President of Mutual Funds
Service Company.
WESLEY F. HOAG*+, 40 Vice President Vice President and General
Counsel of R. Meeder &
Associates, Inc. (since July
1993); Attorney, Porter,
Wright, Morris & Arthur, a law
firm (October 1984 to June
1993).
<PAGE>
*"Interested Person" of the Trust (as defined in the Investment Company Act of
1940), The Flex-funds, and each Portfolio.
+P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F.
Meeder's uncle.
The following table shows the compensation paid by the Fund Complex as a
whole to the Trustees of the Trust and the Fund Complex during the fiscal year
ended December 31, 1996.
COMPENSATION TABLE
Pension or
Retirement Total
Benefits Compensation
Accrued as Estimated from
Part of Annual Registrant and
Trustee Portfolio or Benefits Upon Fund Complex
Fund Expense Retirement Paid to Trustee
------------ ---------- ---------------
Robert S. Meeder, Sr. None None None
Milton S. Bartholomew None None $7,550
John M. Emery None None $7,550
Richard A. Farr None None $6,750
William F. Gurner None None $5,250
Russel G. Means None None $6,750
Lowell G. Miller None None None
Robert S. Meeder, Jr. None None None
Walter L. Ogle None None $6,000
Philip A. Voelker None None None
Roger A. Blackwell None None $5,250
Charles A. Donabedian None None None
Neither the Trust nor any other member of the Fund Complex pays any pension
or retirement benefits to any Trustee or officer or maintains any plan for such
purpose.
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios and the Fund. In addition, each
such Trustee earns an annual fee, payable quarterly, based on the average net
assets in each Portfolio and the Fund based on the following schedule: Money
Market Portfolio, 0.0005% of the amount of average net assets between $500
million and $1 billion; 0.00025% of the amount of average net assets exceeding
$1 billion. For the other four Portfolios and the Fund, each Trustee is paid a
fee of 0.00375% of the amount of each Portfolio's and the Fund's average net
assets exceeding $15 million.
Messers Bartholomew and Emery comprise the Audit Committee for each of The
Flex-Partners and The Flex-funds Trusts, and each Portfolio. Each is paid $500
for each meeting of the Audit Committee attended regardless of the number of
Audit Committees on which he serves. All other officers and Trustees serve
without compensation from the Trust.
The Trustees and officers of the Trust own, in the aggregate, less than 1%
of the Fund's total outstanding shares.
<PAGE>
FLEX-PARTNERS RETIREMENT PLANS
The Trust offers retirement plans which are described in the Prospectus.
Minimum purchase requirements for retirement plan accounts are subject to the
same requirements as regular accounts, except for an IRA, which has a $500
minimum purchase requirement. Information concerning contribution limitations
for IRA accounts are described below.
DEDUCTIBLE CONTRIBUTIONS
Individual Retirement Accounts (IRA):
Regular - Contributions to an IRA (except for rollovers) cannot exceed the
amount of compensation includible in gross income for the tax year or $2,000,
whichever is less. If neither you nor your spouse is an active participant in an
employer plan, you may make a contribution up to this limit and take a deduction
for the entire amount contributed. If you or your spouse is an active
participant and your adjusted gross income (AGI) is below a certain level, you
may also make a contribution and take a deduction for the entire amount
contributed. However, if you or your spouse is an active participant and your
AGI is above the specified level, the dollar limit of the deductible
contribution you make to your IRA may be reduced or eliminated.
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. Contributions for a year may be made during
such year or by the tax return filing date for such year (not including
extensions), if irrevocably designated for such year, in writing, when such
contribution is made.
If you and your spouse receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA.
Spousal - You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
For a tax year before 1997, the spousal contribution rules limit the
aggregate amount of the contributions to both of your IRAs for a year to the
lesser of $2,250 or the amount of the compensated spouse's compensation for such
year. The contributions do not have to be split equally between the IRAs
belonging to you and your spouse. However, the total contribution to either of
your IRAs may not exceed $2,000.
For tax years after 1996, if you are the compensated spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established
for your spouse as the depositor or grantor of his or her own IRA and your
spouse becomes subject to all of the privileges, rules, and restrictions
generally applicable to IRAs.
<PAGE>
Active Participant - If you are not self-employed, your Form W-2 should
indicate your participation status. If you have questions about your
participation status, check with your employer or your tax advisor.
You are covered by a retirement plan for a year if your employer or union
has a retirement plan under which money is added to your account, or you are
eligible to earn retirement credits, even if you are not yet vested in your
retirement plan. Also, if you make required contributions or voluntary
contributions to an employer-sponsored retirement plan, you are an active
participant.
Adjusted Gross Income (AGI) - If you are an active participant, the amount
of your AGI for the year (if you and your spouse file a joint tax return, your
combined AGI) will be used to determine if you can make a deductible IRA
contribution. If you are at or below a certain AGI level, called the Threshold
Level, you can make a deductible contribution under the same rules as a person
who is not an active participant.
If you are single, or treated as being single, your AGI Threshold Level is
$25,000. If you are married and file a joint tax return, your AGI Threshold
Level is $40,000. If you are married, file a separate tax return, and live with
your spouse for any part of the year, your AGI Threshold is $0.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
Rollover Contributions - individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make roll-over
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. provides accounting, stock transfer, dividend
disbursing, and shareholder services to the Fund. The minimum annual fee for
accounting services for the Fund is $30,000. Subject to the applicable minimum
fee, the Fund's annual fee, payable monthly, is computed at the rate of 0.03% of
the first $100 million, 0.02% of the next $150 million, and 0.01% in excess of
$250 million of the Fund's average net assets. Subject to a $4,000 annual
minimum fee, the Fund will incur an annual fee of the greater of $15 per
shareholder account or 0.10% of the Fund's average net assets, payable monthly,
for stock transfer and dividend disbursing services. Mutual Funds Service Co.
also serves as Administrator to the Fund pursuant to an Administration Services
Agreement. Services provided to the Fund include coordinating and monitoring any
third party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
administrative fee, payable monthly, of .05% of the Fund's average net assets,
subject to a minimum annual fee of $30,000. These fees are reviewable annually
by the Trustees of the Trust.
<PAGE>
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. The assets of the Trust received for the issue or sale
of the shares of the Fund and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially allocated to
the Fund and constitute the underlying assets of the Fund. The underlying assets
of the Fund are segregated on the books of account, and are to be charged with
the liabilities with respect to the Fund and with a share of the general
expenses of the Trust. Expenses with respect to the Trust are to be allocated in
proportion to the asset value of the respective funds except where allocations
of direct expense can otherwise be fairly made. The officers of the Trust,
subject to the general supervision of the Board of Trustees, have the power to
determine which expenses are allocable to a given fund, or which are general or
allocable to all of the funds. In the event of the dissolution or liquidation of
the Trust, shareholders of each fund are entitled to receive as a class the
underlying assets of such fund available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees
include a provision limiting the obligations created thereby to the Trust and
its assets.
The Declaration of Trust provides for indemnification out of each fund's
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that each Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations. The Manager believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects Trustees against any liability to
which they would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
<PAGE>
VOTING RIGHTS. The Fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each share you own. The
shares have no preemptive or conversion rights; the voting and dividend rights
the right of redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set forth under
the heading "Shareholder and Trustee Liability" above. Shareholders representing
10% or more of the Trust or the Fund may, as set forth in the Declaration of
Trust, call meetings of the Trust or the Fund for any purpose related to the
Trust or Fund, as the case may be, including, in the case of a meeting of the
entire Trust, the purpose of voting on removal of one or more Trustees. The
Trust or any Fund may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the Trust or the
Fund, as determined by the current value of each shareholder's investment in the
Fund or Trust. If not so terminated, the Trust and the Fund will continue
indefinitely.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of the assets of the Fund. The
custodian is responsible for the safekeeping of the Fund's assets and the
appointment of subcustodian banks and clearing agencies. The custodian takes no
part in determining the investment policies of the Fund or in deciding which
securities are purchased or sold by the Fund. The Fund may, however, invest in
obligations of the custodian and may purchase or sell securities from or to the
custodian.
AUDITOR. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio
43215, serves as the Trust's independent accountant. KPMG audits financial
statements for the Fund Complex and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
Not applicable.
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Financial Statements included in Part A
Not Applicable
Financial Statements included in Part B
Not Applicable
(b) EXHIBITS - INTERNATIONAL EQUITY FUND:
1. Declaration of Trust (effective June 22, 1992) -- filed
as an exhibit to Registrant's initial Registration
Statement on Form N-1A filed with the Commission on
June 25, 1992, which exhibit is incorporated herein by
reference.
2. By-laws of the Trust -- filed as an exhibit to
Registrant's initial Registration Statement on Form
N-1A filed with the Commission on June 25, 1992, which
exhibit is incorporated herein by reference.
3. Not Applicable.
4. Not Applicable.
5. (i) Investment Advisory Agreement between The Flex-
Partners and R. Meeder & Associates, Inc. -- filed as
an exhibit to Registrant's Fifteenth Post-Effective
Amendment to the Registration Statement on Form N1-A
filed with the Commission on June 18, 1997, which
exhibit is incorporated herein by reference.
(ii) Investment Subadvisory Agreement between R. Meeder
& Associates, Inc. and Commercial Union Investment
Management, Limited -- filed as an exhibit to
Registrant's Fifteenth Post-Effective Amendment to the
Registration Statement on Form N1-A filed with the
Commission on June 18, 1997, which exhibit is
incorporated herein by reference.
<PAGE>
6. Underwriting Agreement between the Trust and Adviser
Dealer Services, Inc. and specimen dealer agreement
between Adviser Dealer Services, Inc. and dealers --
filed as an exhibit to Registrant's Fifteenth
Post-Effective Amendment to the Registration Statement
on Form N1-A filed with the Commission on June 18,
1997, which exhibit is incorporated herein by
reference.
7. Not Applicable.
8. Custodian Agreement between the Registrant and State
Street Bank and Trust Company is filed herewith
9. Administration and Accounting Services Agreements
between the Fund and Mutual Funds Service Co. -- filed
as an exhibit to Registrant's Fifteenth Post-Effective
Amendment to the Registration Statement on Form N1-A
filed with the Commission on June 18, 1997, which
exhibit is incorporated herein by reference.
10. Opinion and Consent of Counsel -- filed as an exhibit
to Registrant's initial Registration Statement on Form
N-1A filed with the Commission on June 25, 1992, which
exhibit is incorporated herein by reference.
11. Not Applicable.
12. Not Applicable.
13. Investment Representation Letter of Initial Shareholder
-- filed as an exhibit to Registrant's Eighth
Post-Effective Amendment to the Registration Statement
on Form N-1A filed with the Commission on April 29,
1995, which exhibit is incorporated herein by
reference.
14. Model Plans and related documents to be used in the
establishment of retirement plans in conjunction with
shares of the Registrant will be filed by amendment.
15. 12b-1 and Service Plan for the International Equity
Fund dated February 8, 1997 -- filed as an exhibit to
Registrant's Fifteenth Post-Effective Amendment to the
Registration Statement on Form N1-A filed with the
Commission on June 18, 1997, which exhibit is
incorporated herein by reference.
16. Not Applicable.
17. Not Applicable.
18. Not Applicable.
19. Powers of Attorney of Trustees of Registrant -- filed
herewith for Charles A. Donabedian; Powers of Attorney
of other Trustees were previously filed as an exhibit
to Registrant's Fourteenth Post-Effective Amendment to
the Registration Statement on Form N-1A filed with the
Commission on or about April 30, 1997, which exhibit is
incorporated herein by reference.
<PAGE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES AT AUGUST 28, 1997.
Title of Number of
CLASS FUND RECORD HOLDERS
----- ---- --------------
Shares of International Equity Fund 0
Beneficial
Interest
Item 27. INDEMNIFICATION
Reference is made to Section 5.3 of the Declaration of Trust
filed as an exhibit to the Registrant's initial Registration
Statement on Form N-1A filed with the Commission on June 25,
1992. As provided therein, the Fund is required to indemnify
its officers and trustees against claims and liability
arising in connection with the affairs of the Fund, except
liability arising from breach of trust, bad faith, willful
misfeasance, gross negligence or reckless disregard of
duties. The Fund is obligated to undertake the defense of
any action brought against any officer, trustee or
shareholder, and to pay the expenses thereof if he acted in
good faith and in a manner he reasonably believed to in or
not opposed to the best interest of the Fund, and with
respect to any criminal action had no reasonable cause to
believe his conduct was unlawful. Other conditions are
applicable to the right of indemnification as set forth in
the Declaration of Trust. In applying these provisions, the
Fund will comply with the provisions of Investment Company
Act.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
<PAGE>
Item 29. Principal Underwriters.
(a) Not applicable.
(b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
Robert S. Meeder, Sr.* Director Trustee,
President
Robert S. Meeder, Jr.* Director Trustee,
Vice President
Philip A. Voelker* Director Trustee,
Vice President
Roy E. Rogers* President, None
Treasurer
Joseph A. Zarr* Vice President None
Donald F. Meeder* Secretary Secretary,
Treasurer
James B. Craver Asst. Secretary, Assistant
P. O. Box 811 Asst. Treasurer Secretary
Dover, MA 02030-0811
*6000 Memorial Drive, Dublin, OH 43017
(c) Not applicable.
5
<PAGE>
Item 30. Location of Accounts and Records.
Registrant's Declaration of Trust, By-laws, and Minutes of
Trustees' and Shareholders' Meetings, and contracts and like
documents are in the physical possession of Mutual Funds Service
Co., or R. Meeder & Associates, Inc., at 6000 Memorial Drive,
Dublin, Ohio 43017. Certain custodial records are in the custody
of State Street Bank and Trust Company, the Fund's custodian, at
225 Franklin Street, Boston, Massachusetts 02110. All other
records are kept in the custody of R. Meeder & Associates, Inc.
and Mutual Funds Service Co., 6000 Memorial Drive, Dublin, OH
43017.
Item 31. Management Services.
None.
Item 32. Undertakings
(a) Not Applicable.
(b) Not Applicable.
(c) If the information called for by Item 5A of this
Registration Statement is contained in the latest annual
report to shareholders, Registrant undertakes to furnish
each person to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to shareholders, upon
request and without charge.
(d) The Registrant undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of
one or more directors, if requested to do so by the holders
of at least 10% of the Registrant's outstanding shares, and
will assist communications among shareholders as set forth
within Section 16(c) of the 1940 Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this Amendment to
its Registration Statement meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dublin, and the State of Ohio on the 28th day of
August, 1997.
THE FLEX-PARTNERS
BY:/s/ Donald F. Meeder
----------------------------
Donald F. Meeder
Secretary/Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
8/28/97 /s/ Donald F. Meeder
---------------- -------------------------------------
Date Signed Donald F. Meeder, Secretary/Treasurer
Pursuant to Powers of Attorney
for Robert S. Meeder, Sr., Milton S. Bartholomew,
Roger D. Blackwell, Charles A. Donabedian, John M. Emery, Richard A. Farr,
William Gurner, Russell G. Means, Robert S. Meeder, Jr.,
Lowell G. Miller, Walter L. Ogle and Philip A. Voelker
Trustees of The Flex-Partners
8/28/97 /s/ Donald F. Meeder
---------------- -------------------------------------
Date Signed Donald F. Meeder
Executed by Donald F. Meeder
Pursuant to Powers of Attorney
CUSTODIAN AGREEMENT
This Agreement between THE FLEX-PARTNERS, a business trust organized and
existing under the laws of The Commonwealth of Massachusetts with its principal
place of business at 6000 Memorial Drive, Dublin, Ohio 43017 (the "Fund"), and
STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company with its
principal place of business at 225 Franklin Street, Boston, Massachusetts 02110
(the "Custodian"),
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends currently that this Agreement be applicable only
to its FLEX-PARTNERS INTERNATIONAL EQUITY FUND series (such series together with
all other series subsequently established by the Fund and made subject to this
Agreement in accordance with Section 18, being referred to herein as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in Section 6
hereof), the Custodian shall on behalf of the applicable Portfolio(s) from time
to time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Trustees of the Fund (the
"Board of Trustees") on behalf of the applicable Portfolio(s), and provided that
the Custodian shall have no more or less responsibility or liability to the Fund
on account of any actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodian for the Fund's foreign securities on behalf of the applicable
Portfolio(s) the foreign banking institutions and foreign securities
depositories designated in Schedules A and B hereto but only in accordance with
the applicable provisions of Sections 3 and 4.
<PAGE>
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to Section
2.8 in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury (each, a
U.S. Securities System") and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
(the "Direct Paper System") pursuant to Section 2.9.
SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct Paper
book entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor:
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities System,
in accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
<PAGE>
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.7 or into the name or nominee
name of any sub-custodian appointed pursuant to Section 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
<PAGE>
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of
the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent for the Fund
(the "Transfer Agent"), for delivery to such Transfer Agent or to
the holders of Shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio (the "Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a copy of a resolution of the Board of
Trustees or of the Executive Committee thereof signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary thereof (a "Certified Resolution"),
specifying the securities of the Portfolio to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper trust purpose, and naming
the person or persons to whom delivery of such securities shall
be made.
<PAGE>
SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio
or of any nominee of the Custodian which nominee shall be assigned exclusively
to the Portfolio, unless the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered investment companies having
the same investment adviser as the Portfolio, or in the name or nominee name of
any agent appointed pursuant to Section 2.7 or in the name or nominee name of
any sub-custodian appointed pursuant to Section 1. All securities accepted by
the Custodian on behalf of the Portfolio under the terms of this Agreement shall
be in "street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant to the
terms of this Agreement, and shall hold in such account or accounts, subject to
the provisions hereof, all cash received by it from or for the account of the
Portfolio, other than cash maintained by the Portfolio in a bank account
established and used in accordance with Rule l7f-3 under the Investment Company
Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by it
to its credit as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of 1940 and
that each such bank or trust company and the funds to be deposited with each
such bank or trust company shall on behalf of each applicable Portfolio be
approved by vote of a majority of the Board of Trustees. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
<PAGE>
SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3,
the Custodian shall collect on a timely basis all income and other payments with
respect to registered domestic securities held hereunder to which each Portfolio
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments with
respect to bearer domestic securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall credit
such income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and present
for payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2(10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions
from the Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall pay out
monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options
on futures contracts to the Custodian (or any bank, banking firm
or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name
of the Portfolio or in the name of a nominee of the Custodian
<PAGE>
referred to in Section 2.3 hereof or in proper fonn for transfer;
(b) in the case of a purchase effected through a U.S. Securities
System, in accordance with the conditions set forth in Section
2.8 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.9; (d) in the case of repurchase agreements entered
into between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a member
of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined herein:
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued as set forth in
Section 5 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant to
the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a copy of a Certified Resolution specifying the amount
of such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper trust
purpose, and naming the person or persons to whom such payment is
to be made.
<PAGE>
SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940, as
amended, to act as a custodian, as its agent to carry out such of the provisions
of this Section 2 as the Custodian may from time to time direct; PROVIDED,
however, that the appointment of any agent shall not relieve the Custodian of
its responsibilities or liabilities hereunder.
SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The
Custodian may deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as "U.S.
Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and subject to
the following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented
in an account of the Custodian in the U.S. Securities System
account (the "U.S. Securities System Account") which account
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that such securities have been transferred to
the U.S. Securities System Account, and (ii) the making of an
entry on the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the U.S.
Securities System Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for
the account of the Portfolio. Copies of all advices from the U.S.
<PAGE>
Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its
request. Upon request, the Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of each transfer to or from
the account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets reflecting each day's
transactions in the U.S. Securities System for the account of the
Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Section 15 hereof;
6) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
it may have against the U.S. Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such
loss or damage.
SECTION 2.9 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The
Custodian may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in the
Direct Paper System Account, which account shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
<PAGE>
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Direct Paper System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably reguest from time to time.
SECTION 2.10 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio establish and
maintain a segregated account or accounts for and on behalf of each such
Portfolio, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Custodian
pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio
with the procedures required by Investment Company Act Release No. 10666, or any
subseguent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper trust purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions from the Fund
on behalf of the applicable Portfolio, a copy of a Certified Resolution setting
forth the purpose or purposes of such segregated account and declaring such
purpose(s) to be a proper trust purpose.
<PAGE>
SECTION 2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in connection
with transfers of securities.
SECTION 2.12 PROXIES. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting materials
and all notices relating to such securities.
SECTION 2.13 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to
the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund
for each Portfolio all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect to tender
or exchange offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
SECTION 2.14 AVAILABILITY OF FEDERAL FUNDS. Upon mutual agreement between
the Fund on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified times
agreed upon from time to time by the Fund and the Custodian in the amount of
checks received in payment for Shares of such Portfolio which are deposited into
the Portfolio's account.
SECTION 3. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER OF THE PORTFOLIOS
SECTION 3.1 DEFINITIONS. The following capitalized terms, as used in this
Agreement, shall have the indicated meanings:
"COUNTRY RISK" means all factors reasonably related to the systematic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"ELIGIBLE FOREIGN CUSTODIAN" has the meaning set forth in section (a)(1) of Rule
17f-5 promulgated under Section 17(f) of the Investment Company Act of 1940, as
amended ("Rule 17f-5"), except that the term does not include Mandatory
Securities Depositories.
<PAGE>
"FOREIGN ASSETS" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"FOREIGN CUSTODY MANAGER" has the meaning set forth in section (a)(2) of Rule
17f-5.
"MANDATORY SECURITIES DEPOSITORY" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund, on the Portfolio's behalf, determines to place Foreign Assets in a country
outside the United States (i) because required by law or regulation; (ii)
because securities cannot be withdrawn from such foreign securities depository
or clearing agency; or (iii) because maintaining or effecting trades in
securities outside the foreign securities depository or clearing agency is not
consistent with prevailing or developing custodial or market practices.
SECTION 3.2 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The
Fund, by resolution adopted by the Board of Trustees, hereby delegates to the
Custodian with respect to the Portfolios, Subject to Section (b) of Rule 17f-5,
the responsibilities as Foreign Custody Manager set forth in Section 3 with
respect to Foreign Assets of the Portfolios held outside the United States, and
the Custodian hereby accepts such delegation as the Portfolios' Foreign Custody
Manager.
SECTION 3.3 COUNTRIES COVERED. The Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A of this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule
A the Eliglible Foreign Custodians selected by the Foreign Custody Manager to
maintain the assets of the Portfolios. Mandatory Securities Depositories are
listed on Schedule B to this Contract, which Schedule B may be amended from time
to time by the Foreign Custody Manager. The Foreign Custody Manager will provide
amended versions of Schedules A and B in accordance with Section 3.7 hereof.
Upon receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund on behalf of the Portfolios of the
account opening requirements for the country (if any), the Foreign Custody
Manager shall be deemed to have been appointed by the Board of Trustees on
behalf of the Portfolios as Foreign Custody Manager with respect to that country
and to have accepted the delegation. Following the receipt of Proper
Instructions directing the Foreign Custody Manager to close the account of a
Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody
Manager in a designated country, the delegation by the Board of Trustees on
behalf of the Portfolios to the Custodian as Foreign Custody Manager for that
country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Portfolios with
respect to that country.
<PAGE>
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
SECTION 3.4 SCOPE OF DELEGATED RESPONSIBILITIES.
3.4.1 SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions
of this Section 3, the Portfolios' Foreign Custody Manager may place and
maintain the Foreign Assets in the care of the Eligible Foreign Custodians
selected by the Foreign Custody Manager in each country listed on Schedule A, as
amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to
place or maintain the Foreign Assets with an Eligible Foreign Custodian, the
Foreign Custody Manager shall determine that the Foreign Assets will be subject
to reasonable care, based on the standards applicable to custodians in the
country in which the Foreign Assets will be held by that Eligible Foreign
Custodian, after considering all factors relevant to the safekeeping of such
assets, including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and internal
controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), its methods of
keeping custodial records, and its security and data protection
practices;
(ii) whether the Eligible Foreign Custodian has the financial strength to
provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and standing and,
in the case of a foreign securities depository or clearing agency
which is not a Mandatory Securities Depository, the foreign securities
depository's or clearing agency's operating history and the number of
participants in the foreign securities depository or clearing agency;
and
(iv) whether the Fund will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by virtue of
the existence of any offices of the Eligible Foreign Custodian in the
United States or the Eligible Foreign Custodian's consent to service
of process in the United States.
3.4.2 CONTRACTS WITH FOREIGN CUSTODIANS. The Foreign Custody Manager shall
determine that the contract (or the rules or established practices or procedures
in the case of an Eligible Foreign Custodian that is a foreign securities
depository or clearing agency) governing the foreign custody arrangements with
<PAGE>
each Eligible Foreign Custodian selected by the Foreign Custody Manager will
provide reasonable care for the Foreign Assets held by that Eligible Foreign
Custodian based on the standards applicable to custodians in the particular
country. Each such contract shall include provisions that provide:
(i) for indemnification or insurance arrangements (or any combination of
the foregoing) such that each Portfolio will be adequately protected
against the risk of loss of the Foreign Assets held in accordance with
such contract;
(ii) that the Foreign Assets will not be subject to any right, security
interest, or lien or claim of any kind in favor of the Eligible
Foreign Custodian or its creditors except a claim of payment for their
safe custody or administration or, in the case of cash deposits, liens
or rights in favor of creditors of the Eligible Foreign Custodian
arising under bankruptcy, insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than for safe
custody or administration;
(iv) that adequate records will be maintained identifying the Foreign
Assets as belonging to the applicable Portfolio or as being held by a
third party for the benefit of such Portfolio;
(v) that the independent public accountants for each Portfolio will be
given access to those records or confirmation of the contents of those
records; and
(vi) that the Fund will receive periodic reports with respect to the
safekeeping of the Foreign Assets, including, but not limited to,
notification of any transfer of the Foreign Assets to or from a
Portfolio's account or a third party account containing the Foreign
Assets held for the benefit of the Portfolio,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above, in their
entirety.
3.4.3 MONITORING. In each case in which the Foreign Custody Manager
maintains Foreign Assets with an Eligible Foreign Custodian selected by the
Foreign Custody Manager, the Foreign Custody Manager shall establish a system to
monitor (i) the appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian, and (ii) the contract governing the custody
arrangements established by the Foreign Custody Manager with the Eligible
Foreign Custodian. In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian that it has selected are
no longer appropriate, the Foreign Custody Manager shall notify the Board of
Trustees in accordance with Section 3.7 hereunder.
<PAGE>
SECTION 3.5 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For
purposes of this Section 3, the Board of Trustees shall be deemed to have
considered and determined to accept such Country Risk as is incurred by placing
and maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of the Portfolios. The Fund, on behalf of the
Portfolios, and the Custodian each expressly acknowledge that the Foreign
Custody Manager shall not be delegated any responsibilities under this Section 3
with respect to Mandatory Securities Depositories.
SECTION 3.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE PORTFOLIOS.
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the Investment Company Act of 1940, as amended, would
exercise.
SECTION 3.7 REPORTING REQUIREMENTS. The Foreign Custody Manager shall
report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian
and the placement of such Foreign Assets with another Eligible Foreign Custodian
by providing to the Board of Trustees amended Schedules A or B at the end of the
calendar quarter in which an amendment to either Schedule has occurred. The
Foreign Custody Manager will make written reports notifying the Board of
Trustees of any other material change in the foreign custody arrangements of the
Portfolios set forth in this Section 3 within a reasonable period of time after
the occurrence of such material change.
SECTION 3.8 REPRESENTATIONS WITH RESPECT TO RULE 17f-5. The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined in section
(a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board of
Trustees has determined that it is reasonable for the Board of Trustees to rely
on the Custodian to perform the responsibilities delegated pursuant to this
Agreement to the Custodian as Foreign Custody Manager of the Portfolios.
<PAGE>
SECTION 3.9 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN
CUSTODY MANAGER. The Board of Trustees' delegation to the Custodian as Foreign
Custody Manager of the Portfolios shall be effective as of the date of execution
of this Agreement and shall remain in effect until terminated at any time,
without penalty, by written notice from the terminating party to the
non-terminating party. Termination will become effective thirty (30) days after
receipt by the non-terminating party of such notice. The provisions of Section
3.3 hereof shall govern the delegation to and termination of the Custodian as
Foreign Custody Manager of the Portfolios with respect to the designated
countries.
SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS
HELD OUTSIDE OF THE UNITED STATES
SECTION 4.1 DEFINITIONS. The following capitalized terms, as used
throughout this Section 4, shall have the following meanings:
"FOREIGN SECURITIES SYSTEM" means either a clearing agency or a securities
depository which is listed or a Mandatory Securities Depository.
"FOREIGN SUB-CUSTODIAN" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
"PERMISSIBLE FOREIGN CUSTODIAN" means any person with whom property of the
Portfolios may be placed and maintained outside of the United States under (i)
section 17(f) or 26(a) of the Investment Company Act of 1940, as amended,
without regard to Rule 17f-5 or (ii) an order of the U.S. Securities and
Exchange Commission.
SECTION 4.2 HOLDING SECURITIES. The Custodian shall identify on its books
as belonging to the Portfolios the foreign securities held by each Foreign
Sub-Custodian or Foreign Securities System. The Custodian may hold foreign
securities for all of its customers, including the Portfolios, with any Foreign
Sub-Custodian in an account that is identified as belonging to the Custodian for
the benefit of its customers, PROVIDED HOWEVER, that (i) the records of the
Custodian with respect to foreign securities of the Portfolios which are
maintained in such account shall identify those securities as belonging to the
Portfolios and (ii) the Custodian shall require that securities so held by the
Foreign Sub-Custodian be held separately from any assets of such Foreign
Sub-Custodian or of other customers of such Foreign Sub-Custodian.
SECTION 4.3 FOREIGN SECURITIES SYSTEMS. Foreign securities shall be
maintained in a Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country pursuant
to the terms of this Agreement.
<PAGE>
SECTION 4.4 HOLDING OF FOREIGN ASSETS WITH PERMISSIBLE FOREIGN CUSTODIANS.
Subject to the requirements of Section 17(f) and 26(a) of the Investment Company
Act of 1940, as amended (and any other applicable law or order), the Custodian
may place and maintain Foreign Assets (as such term is defined in Section 3
hereof) in the care of any Permissible Foreign Custodian. Section 3 hereof shall
not apply to placement of Foreign Assets by the Custodian with a Permissible
Custodian.
SECTION 4.5 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.5.1 DELIVERY OF FOREIGN SECURITIES. The Custodian or a Foreign
Sub-Custodian shall release and deliver foreign securities of the Portfolios
held by such Foreign Sub-Custodian, or in a Foreign Securities System account,
only upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
(i) upon sale of such foreign securities for the Portfolios in accordance
with reasonable market practice in the country where such foreign
securities are held or traded, including, without limitation: (A)
delivery against expectation of receiving later payment; or (B) in the
case of a sale effected through a Foreign Securities System in
accordance with the rules governing the operations of the Foreign
Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other similar
offers for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of the
Custodian (or the name of the respective Foreign Sub-Custodian or of
any nominee of the Custodian (or such Foreign Sub-Custodian)) or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units;
(vi) to brokers, clearing banks or other clearing agents for examination or
trade execution in accordance with market custom; PROVIDED that in any
such case the Sub-Custodian shall have no responsibility or liability
for any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from the
Sub-Custodian's own negligence or willful misconduct;
<PAGE>
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities;
(ix) or delivery as security in connection with any borrowings by the
Portfolios requiring a pledge of assets by the Portfolios;
(x) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper trust purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a copy of a Certified Resolution
specifying the foreign securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such purpose
to be a proper trust purpose, and naming the person or persons to whom
delivery of such securities shall be made.
4.5.2 PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the
respective Foreign Securities System to pay out, moneys of Portfolio in the
following cases only:
(i) upon the purchase of foreign securities for the Portfolio, unless
otherwise directed by Proper Instructions, by (A) delivering money to
the seller thereof or to a dealer therefore (or an agent for such
seller or dealer) against expectation of receiving later delivery of
such foreign securities; or (B) in the case of a purchase effected
through a Foreign Securities System, in accordance with the rules
governing the operation of such Foreign Securities System;
(ii) in connection with the conversion exchange or surrender of foreign
securities of the Portfolio;
<PAGE>
(iii) for the payment of any expense or liability of the Portfolio,
including but not limited to the following payments: interest, taxes,
investment advisory fees, transfer agency fees, fees under this
Agreement, legal fees, accounting fees, and other operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Portfolio, including transactions executed with or
through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(vi) in connection with the borrowing of foreign securities; and
(vii) for any other proper trust purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions, a copy of a Certified Resolution
specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a
proper trust purpose, and naming the person or persons to whom such
payment is to be made.
4.5.3 MARKET CONDITIONS. Notwithstanding any provision of this Agreement to
the contrary, settlement and payment for Foreign Assets received for the account
of the Portfolios and delivery of Foreign Assets maintained for the account of
the Portfolios may be effected in accordance with the customary established
securities trading or processing practices and procedures in the country or
market in which the transaction occurs, including, without limitation,
delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or
an agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.
SECTION 4.6 REGISTRATION OF FOREIGN SECURITIES. The foreign securities
maintained in the custody of a Foreign Custodian (other than bearer securities)
shall be registered in the name of the applicable Portfolio or in the name of
the Custodian or in the name of any Foreign Sub-Custodian or in the name of any
nominee of the foregoing, and the Fund on behalf of such Portfolio agrees to
hold any such nominee harmless from any liability as a holder of record of such
foreign securities. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Portfolio under the terms of this
Agreement unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.
<PAGE>
SECTION 4.7 BANK ACCOUNTS. A bank account or bank accounts opened and
maintained outside the United States on behalf of a Portfolio in a Foreign
Sub-Custodian shall be subject only to draft or order by the Custodian or such
Foreign Sub-Custodian, acting pursuant to the terms of this Agreement to hold
cash received by or from or for the account of the Portfolio.
SECTION 4.8 COLLECTION OF INCOME. The Custodian shall use reasonable
endeavors to collect all income and other payments in due course with respect to
the Foreign Assets held hereunder to which the Portfolios shall be entitled and
shall credit such income, as collected, to the applicable Portfolio. In the
event that extraordinary measures are required to collect such income, the Fund
and the Custodian shall consult as to such measures and as to the compensation
and expenses of the Custodian attendant thereto.
SECTION 4.9 PROXIES. The Custodian will generally with respect to the
foreign securities held under this Section 4 use its reasonable endeavors to
facilitate the exercise of voting and other shareholder proxy rights, subject
always to the laws, regulations and practical constraints that may obtain in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.
SECTION 4.10 COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian
shall transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received by the Custodian via the
Foreign Sub-Custodians from issuers of the foreign securities being held for the
account of the Portfolios. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund written information so received by
the Custodian from issuers of the foreign securities whose tender or exchange is
sought or from the party (or its agents) making the tender or exchange offer.
The Custodian shall not be liable for any untimely exercise of any tender,
exchange or other right or power in connection with foreign securities or other
property of the Portfolios at any time held by it unless (i) the Custodian or
the respective Foreign Sub-Custodian is in actual possession of such foreign
securities or property and (ii) the Custodian receives Proper Instructions with
regard to the exercise of any such right or power, and both (i) and (ii) occur
at least three (3) New York business days prior to the date on which such right
or power is to be exercised.
SECTION 4.11 LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES
SYSTEMS. Each agreement pursuant to which the Custodian employs as a Foreign
Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian
to exercise reasonable care in the performance of its duties and, to the extent
possible, to indemnify, and hold harmless, the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the institution's performance of such obligations. At the election of the
Fund, the Portfolios shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Portfolios have not been made whole for any such loss,
damage, cost, expense, liability or claim.
<PAGE>
SECTION 4.12 TAX LAW. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund, the
Portfolios or the Custodian as custodian of the Portfolios by the tax law of the
United States or of any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations imposed on
the Fund with respect to the Portfolios or the Custodian as custodian of the
Portfolios by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.
SECTION 4.13 CONFLICT. If the Custodian is delegated the responsibilities
of Foreign Custody Manager pursuant to the terms of Section 3 hereof, in the
event of any conflict between the provisions of Section 3 and 4 hereof, the
provisions of Section 3 shall prevail.
SECTION 5. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES.
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent and deposit into the account of the appropriate Portfolio such
payments as are received for Shares thereof issued or sold from time to time by
the Fund. The Custodian will provide timely not)fication to the Fund on behalf
of each such Portfolio and the Transfer Agent of any receipt by it of payments
for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Fund's Declaration of Trust and any applicable votes of the
Board of Trustees pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial bank designated
by the redeeming shareholders. In connection with the redemption or repurchase
of Shares, the Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
<PAGE>
SECTION 6. PROPER INSTRUCTIONS
Proper Instructions as used throughout this Agreement means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees accompanied
by a detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Trustees and
the Custodian are satisfied that such procedures afford adequate safeguards for
the Portfolios' assets. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any three - party
agreement which requires a segregated asset account in accordance with Section
2.10.
SECTION 7. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Agreement, PROVIDED that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees.
SECTION 8. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees as conclusive evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination or of any action by the
Board of Trustees pursuant to the Fund's Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
<PAGE>
SECTION 9. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per Share of the
outstanding Shares or, if directed in writing to do so by the Fund on behalf of
the Portfolio, shall itself keep such books of account and/or compute such net
asset value per Share. If so directed, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and the Transfer
Agent daily of the total amounts of such net income and, if instructed in
writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per Share and the daily income of each
Portfolio shall be made at the time or times described from time to time in the
Fund's currently effective prospectus related to such Portfolio.
SECTION 10. RECORDS
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Agreement in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31 a- 1 and 3
la-2 thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
SECTION 11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
<PAGE>
SECTION 12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a U.S. Securities
System or a Foreign Securities System (collectively referred to herein as the
"SECURITIES SYSTEMS"), relating to the services provided by the Custodian under
this Agreement; such reports, shall be of aufficient scope and in aufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
SECTION 13. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
SECTION 14. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. The Custodian shall be without liability to the
Fund and the Portfolios for any loss, liability, claim or expense resulting from
or caused by anything which is (A) part of Country Risk (as defined in Section 3
hereof), including without limitation nationalization, expropriation, currency
restrictions, or acts of war, revolution, riots or terrorism, or (B) part of the
"prevailing country risk" of the Portfolios, as such term is used in SEC Release
Nos. IC-22658; IS-1080 (May 12, 1997) or as such term or other similar terms are
now or in the future interpreted by the U.S. Securities and Exchange Commission
or by the staff of the Division of Investment Management of such Securities and
Exchange Commission.
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Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, work
stoppages, natural disasters or other similar events or acts; (ii) errors by the
Fund or the Investment Advisor in their instructions to the Custodian provided
such instructions have been in accordance with this Agreement; (iii) the
insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth
with respect to sub-custodians generally in this Agreement.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liablefor the payment of
money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
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If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
SECTION 15. EFFECTIVE PERIOD. TERMINATION AND AMENDMENT
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.8 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.9 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio; provided further, however, that the
Fund shall not amend or terminate this Agreement in contravention of any
applicable federal or state regulations, or any provision of the Fund's
Declaration of Trust, and further provided, that the Fund on behalf of one or
more of the Portfolios may at any time by action of its Board of Trustees (i)
substitute another bank or trust company for the Custodian by giving notice as
described above to the Custodian, or (ii) immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for the Custodian
by the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Agreement, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
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SECTION 16. SUCCESSOR CUSTODIAN
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees, the Custodian shall, upon
termination, deliver to such successor custodian at the office of the Custodian,
duly endorsed and in the form for transfer, all securities of each applicable
Portfolio then held by it hereunder and shall transfer to an account of the
successor custodian all of the securities of each such Portfolio held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Trustees, deliver at the office of the Custodian and transfer such securities,
funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Agreement on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of each
such Portfolio held in any Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Agreement relating to the duties and obligations of the
Custodian shall remain in full force and effect.
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SECTION 17. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Agreement, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Agreement as
may in their joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Fund's Declaration of Trust. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
SECTION 18. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in
addition to THE FLEX-PARTNERS INTERNATIONAL EQUITY FUND with respect to which it
desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
SECTION 19. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
SECTION 20. PRIOR AGREEMENTS
This Agreement supersedes and terminates, as of the date hereof, all prior
agreements between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
SECTION 21. NOTICES
Any notice, instruction or other instrument required to be given hereunder
may be delivered in person to the offices of the parties as set forth herein
during normal business hours or delivered prepaid registered mail or by telex,
cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.
To the Fund: THE FLEX-PARTNERS
6000 Memorial Drive
Dublin, Ohio 43017
Attention: Wesley F. Hoag, Esq.
Telephone: (614) 766-7000
Telecopy: (614) 766-0920
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To the Custodian: STATE STREET BANK AND TRUST COMPANY
One Heritage Drive, Second Floor North
North Quincy, Massachusetts 02171
Attention: Charles R. Whittemore, Jr.
Telephone: 617-985-7809
Telecopy: 617-537-5152
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex, or
telecopy on the business day after the receipt thereof. Evidence that the notice
was properly addressed, stamped and put into post shall be conclusive evidence
of posting.
SECTION 22. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 23. SHAREHOLDER COMMUNICATIONS ELECTION
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES[ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO[ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of August 28, 1997.
THE FLEX-PARTNERS
By: /s/ Donald F. Meeder
---------------------------------
Its: Secretary/Treasurer
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
---------------------------------
Its: Executive Vice President
THE FLEX-PARTNERS
The undersigned hereby constitutes and appoints Donald F. Meeder, Wesley F.
Hoag and James B. Craver, and each of them, with full powers of substitution as
his true and lawful attorneys and agents to execute in his name and on his
behalf in any and all capacities the Registration Statements on Form N-1A, and
any and all amendments thereto, filed by The Flex-Partners (the "Trust") with
the Securities and Exchange Commission under the Investment Company Act of 1940
and the Securities Act of 1933 and any and all instruments which such attorneys
and agents, or any of them, deem necessary or advisable to enable the Trust to
comply with such Acts, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction and the undersigned hereby ratifies and confirms as his own
act and deed any and all that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 26th day
of August, 1997.
/s/ Charles A. Donabedian
---------------------------------
Charles A. Donabedian
