SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 18
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18
The Flex-Partners (formerly The Flex-funds II)
(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
Commission File No. 33-48922
Commission File No. 811-6720
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).
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/ / immediately upon filing pursuant to paragraph (b) of Rule 485
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/XXX / on April 30, 1998 pursuant to paragraph (b) of Rule 485.
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/ / 60 days after filing pursuant to paragraph (a)(1).
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/ / on (date) pursuant to paragraph (a)(1).
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/ / 75 days after filing pursuant to paragraph (a)(2).
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/ / on (date) pursuant to paragraph (a)(2) on Rule 485.
If appropriate, check the following box:
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/ / 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, 1997 was filed with the Commission on March
13, 1998.
The Mutual Fund, Utilities Stock, Growth Stock and Money Market Portfolios have
also executed this Registration Statement.
<PAGE>
THE FLEX-PARTNERS' CORE EQUITY, UTILITY GROWTH,
TACTICAL ASSET ALLOCATION, AND INTERNATIONAL EQUITY FUNDS
CROSS REFERENCE SHEET TO FORM N-1A
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Part A.
Item No. Prospectus Caption
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1 Cover Page
2 Highlights
Synopsis of Financial Information
3 Financial Highlights
4 The Trust and its Management
Investment Objectives and Policies
Additional Investment Policies
5 The Trust and its Management
5A Performance Comparisons
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) Cover Page
Highlights
Investment Objective and Policies
How to Buy Shares
How Net Asset Value is Determined
Other Information - Investment Structure
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) How To Buy Shares
7(e) How To Buy Shares
7(f) Distribution Plans
7(g) Highlights
Synopsis of Financial Information
How to Buy Shares
8(a) How To Make Withdrawals (Redemptions)
8(b) How To Make Withdrawals (Redemptions)
8(c) Highlights
Shareholder Accounts
8(d) How To Make Withdrawals (Redemptions)
9 Not Applicable
<PAGE>
THE FLEX-PARTNERS
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"). FOUR OF THE SEPARATE PORTFOLIOS OF THE TRUST ARE
CORE EQUITY FUND, UTILITY GROWTH FUND, TACTICAL ASSET ALLOCATION FUND, AND
INTERNATIONAL EQUITY FUND (EACH A "FUND" AND COLLECTIVELY THE "FUNDS"). EACH OF
THE FUNDS HAS SEPARATE INVESTMENT OBJECTIVES AND POLICIES. THE TRUST SEEKS TO
ACHIEVE THE INVESTMENT OBJECTIVE OF EACH OF THE CORE EQUITY FUND, UTILITY GROWTH
FUND, AND TACTICAL ASSET ALLOCATION FUND, BY INVESTING ALL OF THE INVESTABLE
ASSETS OF EACH OF THESE FUNDS IN A CORRESPONDING OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THAT FUND (EACH A "PORTFOLIO"
AND COLLECTIVELY THE "PORTFOLIOS"). ACCORDINGLY, INVESTORS SHOULD CAREFULLY
CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION REGARDING THIS
UNIQUE CONCEPT, SEE "INVESTMENT OBJECTIVES AND POLICIES" AND "OTHER INFORMATION
- -- SHARES OF BENEFICIAL INTEREST AND INVESTMENT STRUCTURE."
ADDITIONAL INFORMATION
This Prospectus sets forth basic information about the Trust and each of
the Funds that a prospective investor should know before investing and it should
be retained for future reference. A STATEMENT OF ADDITIONAL INFORMATION, dated
April 30, 1998, 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 Trust at the address
given above or by calling 1-800-494-FLEX, or (614) 766-7074.
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THE FUNDS AND THEIR INVESTMENT OBJECTIVES
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CORE EQUITY FUND
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CORE EQUITY FUND seeks growth of capital by investing primarily in a
diversified portfolio of domestic common stocks with greater than average growth
characteristics selected primarily from the S&P 500.
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UTILITY GROWTH FUND
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UTILITY GROWTH FUND'S objective is is to seek a high level of current
income and growth of income by investing primarily in equity securities of
domestic and foreign public utility companies; however, the Fund will not invest
in electric utilities whose generation of power is derived from nuclear
reactors. The Fund also seeks capital appreciation, but only when consistent
with its primary investment objective.
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TACTICAL ASSET ALLOCATION FUND
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TACTICAL ASSET ALLOCATION FUND'S investment objective is growth of capital
through investment in the shares of other mutual funds.
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INTERNATIONAL EQUITY FUND
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INTERNATIONAL EQUITY FUND seeks long-term growth from investing primarily
in equity securities of foreign issuers.
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.
INVESTMENT ADVISER: R. MEEDER & ASSOCIATES, INC.
PROSPECTUS DATED APRIL 30, 1998
<PAGE>
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HIGHLIGHTS
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INVESTMENT OBJECTIVES: The Flex-Partners (the "Trust") is a family of
mutual funds. Four of the separate portfolios of the Trust are Core Equity Fund,
Utility Growth Fund, Tactical Asset Allocation Fund, and International Equity
Fund, each with separate investment objectives and policies. See "Investment
Objectives and Policies."
LIQUIDITY: As an open-end investment company, each 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: Each of the Funds is a diversified mutual fund because 75%
of the corresponding Portfolio's assets (and in the case of the International
Equity Fund, 75% of the Fund's assets) are restricted by the following rules:
(1) No more than 5% of the Portfolio's or Fund's assets (as applicable) 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 Portfolio or Fund (as applicable) may not purchase more
than 10% of any issuer's outstanding voting securities.
SALES CHARGES: Investors in the Core Equity, Utility Growth, and Tactical
Asset Allocation Funds may select Class A or Class C shares, each with a public
offering price that reflects different sales charges and expense levels. Class A
shares are offered at net asset value plus the applicable sales charge (maximum
of 4.00% of public offering price). Class C shares are sold at net asset value
without an initial sales charge, but if redeemed within 18 months of purchase, a
contingent deferred sales charge equal to 1.50% of the lesser of the current
market value or the cost of the shares being redeemed will apply, and if
redeemed more than 18 months after purchase and before 24 months after purchase,
a contingent deferred sales charge equal to .75% of the lesser of the current
market value or the cost of the shares being redeemed will apply. Shares of the
International Equity Fund are offered at net asset value plus the applicable
sales charge (maximum of 4.00% of public offering price). See "How to Buy
Shares" and "Distribution Plans."
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),
Roth IRA, Education IRA, Simple IRA, Simplified Employee Pension Plan (SEP), 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. Each 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."
<PAGE>
INVESTMENT ADVISER AND MANAGER: R. Meeder & Associates, Inc. is Investment
Adviser and Manager (the "Investment Adviser" or the "Manager") of each
Portfolio and the International Equity Fund. 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."
SUBADVISERS: Sector Capital Management, L.L.C. ("Sector Capital") is the
subadviser for the Growth Stock Portfolio, the Portfolio in which all of the
investable assets of the Core Equity Fund are invested. Sector Capital has been
an investment adviser to individuals, pension and profit sharing plans, trusts,
charitable organizations, corporations and other institutions since February,
1995. Sub-subadvisers (the "Sector Advisers") selected by Sector Capital,
subject to the review and approval of the Trustees of the Growth Stock
Portfolio, are responsible for the selection of individual portfolio securities
for the assets of the Growth Stock Portfolio assigned to them by the Subadviser.
See "The Trust and Its Management."
Miller/Howard Investments, Inc. ("Miller/Howard") is the subadviser for the
Utilities Stock Portfolio, the Portfolio in which all of the investable assets
of the Utility Growth Fund are invested. Miller/Howard has been an investment
adviser to broker-dealers, investment advisers, employee benefit plans,
endowment funds, foundations and other institutions and individuals since 1984.
See "The Trust and Its Management."
Commercial Union Investment Management, Limited ("Commercial Union") is the
International Equity Fund's subadviser. Commercial Union is a wholly-owned
subsidiary of Commercial Union plc., an international insurance and financial
services organization that has managed global and international assets since
1861, and can trace its roots back to 1696. Commercial Union 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."
SHARES AVAILABLE THROUGH: The Funds' transfer agent, Mutual Funds Service
Co. ("MFSCO"). See "The Trust and Its Management."
DISTRIBUTION PLANS: Each of the Core Equity, Utility Growth, and Tactical
Asset Allocation Funds has adopted a Rule 12b-1 distribution plan for using as
much as 25/100 of 1% and 75/100 of 1% of net assets annually to aid in the
distribution of Class A shares and Class C shares, respectively. The
International Equity 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. Each of the Core Equity, Utility Growth, Tactical Asset Allocation, and
International Equity Funds has 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 Plans."
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."
<PAGE>
SHAREHOLDER INQUIRIES: Shareholder inquiries should be directed to the
Trust by writing or telephoning the Trust 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
Funds, see "Risk Considerations." None of the Funds should be considered a
complete investment program.
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SYNOPSIS OF FINANCIAL INFORMATION
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<TABLE>
<CAPTION>
INT'L
CORE UTILITY TACTICAL ASSET EQUITY
EQUITY FUND GROWTH FUND ALLOCATION FUND FUND
----------- ----------- --------------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS C CLASS A CLASS C(1) CLASS A CLASS C(1)
Maximum Initial Sales Charge Imposed
on Purchases (as a percentage
of offering price)................ 4.00%(2) none 4.00%(2) none 4.00%(2) none 4.00%(2)
Maximum Sales Charge Imposed on
Reinvested Dividends.............. none none none none none none none
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption
proceeds, as applicable)(3)....... none 1.50% none 1.50% none 1.50% none
Redemption Fees........................ none none none none none none none
Exchange Fees.......................... none none none none none none none
ANNUAL FUND OPERATING EXPENSES**
(As a percentage of average net assets)
Management Fees........................ 1.00% 1.00% 1.00% 1.00% 0.79% 0.79% 1.00%
Rule 12b-1 Fees(4)..................... 0.25% 0.75% 0.25% 0.75% 0.25% 0.75% 0.25%
Other Expenses (After Expense
Reimbursements*).................. 0.50% 0.25% 0.50% 0.25% 0.71% 0.31% 0.50%
Service Fees(5)................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
----- ----- ----- ----- ----- ----- -----
TOTAL FUND OPERATING
EXPENSES** 2.00% 2.25% 2.00% 2.25% 2.00% 2.10% 2.00%
(After Expense Reimbursements*)
</TABLE>
EXAMPLE:
An investor would pay the following expense
on a $1,000 investment, assuming (1) an operating CORE EQUITY FUND
expense ratio of 2.00% for Class A Shares of the CUMULATIVE EXPENSES
Fund, and 2.25% for Class C Shares of the Fund, PAID FOR THE PERIOD OF:
(2) a 5% annual return throughout the period and 1 YEAR 3 YEARS
(3) redemption at the end of each time period: ------ -------
Class A Shares . . . . . . . . . . . . . . $59 $100
Class C Shares . . . . . . . . . . . . . . $38 $ 70
An investor would pay the following expenses on
the same $1,000 investment assuming no redemption
at the end of the period:
Class A Shares . . . . . . . . . . . . . . $59 $100
Class C Shares . . . . . . . . . . . . . . $23 $ 70
EXAMPLE:
An investor would pay the following expense
on a $1,000 investment, assuming (1) an
operating expense ratio of 2.00% for Class A UTILITY GROWTH FUND
Shares of the Fund, and 2.25% for Class C CUMULATIVE EXPENSES
Shares of the Fund, (2) a 5% annual return PAID FOR THE PERIOD OF:
throughout the period and (3) redemption at 1 YEAR 3 YEARS 5 YEARS 10 YEARS
the end of each time period: ------ ------- ------- --------
Class A Shares . . . . . . . . . . $59 $100 $143 $263
Class C Shares . . . . . . . . . . $8 $70 $120 $258
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Class A Shares . . . . . . . . . . $59 $100 $143 $263
Class C Shares . . . . . . . . . . $23 $70 $120 $258
<PAGE>
EXAMPLE:
An investor would pay the following expense
on a $1,000 investment, assuming (1) an
operating expense ratio of 2.00% for Class A TACTICAL ASSET ALLOCATION FUND
Shares of the Fund, and 2.10% for Class C CUMULATIVE EXPENSES
Shares of the Fund, (2) a 5% annual return PAID FOR THE PERIOD OF:
throughout the period and (3) redemption at 1 YEAR 3 YEARS 5 YEARS 10 YEARS
the end of each time period: ------ ------- ------- --------
Class A Shares . . . . . . . . . . $59 $100 $143 $263
Class C Shares . . . . . . . . . . $36 $66 $113 $243
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Class A Shares . . . . . . . . . . $59 $100 $143 $263
Class C Shares . . . . . . . . . . $21 $66 $113 $243
EXAMPLE:
An investor would pay the following expense on a $1,000 investment in the
International Equity Fund, assuming (1) an operating expense ratio of 2.00% for
the Fund, (2) a 5% annual return throughout the period, and (3) redemption at
the end of each time period:
INTERNATIONAL EQUITY FUND
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
1 YEAR 3 YEARS
------ -------
$59 $100
*The Manager presently intends to reimburse each of the Core Equity, Utility
Growth, Tactical Asset Allocation, and International Equity Funds through an
expense reimbursement fee to the extent necessary to keep total expenses at
2.00% of average daily net assets for Class A Shares and International Equity
Fund shares and 2.25%, 2.25%, and 2.10%, respectively, of average daily net
assets for Class C shares. The Manager may change this policy at any time
without notice to shareholders. This would, in some circumstances, have a
material adverse effect on the net income of a Fund and the return earned by
shareholders. For planning purposes, prospective investors and shareholders
should assume that expense reimbursements will not be made.
** Except as provided in the next sentence, expenses used in these illustrations
are based on expenses actually incurred for shares of the International Equity
Fund and Class A and Class C shares of the Core Equity, Utility Growth, and
Tactical Asset Allocation Funds, which include their proportionate share of
expenses of the Growth Stock Portfolio, Utilities Stock Portfolio, and Mutual
Fund Portfolio, respectively, for the period ending December 31, 1997. For the
period ending December 31, 1997, the International Equity Fund charged no 12b-1
fees or service fees; however, the Fund intends to charge these fees in 1998.
<PAGE>
Expenses shown as "After Expense Reimbursements" for shares of each Class of
shares in the Core Equity, Utility Growth, and Tactical Asset Allocation Funds
are based on actual fees paid by those Classes. Had expenses not been
reimbursed, Other Expenses and Total Fund Operating Expenses, as a percentage of
average net assets, respectively, would have been as follows: Core Equity Fund
- -- Class A Shares 8.00% and 9.50%, Class C Shares 14.58% and 16.58%; Utility
Growth Fund -- Class A Shares 2.57% and 4.07%, Class C Shares 2.56% and 4.56%;
and Tactical Asset Allocation Fund -- Class A Shares 4.87% and 6.16%, Class C
Shares 0.71% and 2.50%. Other Expenses and Total Fund Operating Expenses, as a
percentage of average net assets of the International Equity Fund would have
been 1.69% and 2.68%, respectively.
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(1) CLASS C SHARES ISSUED AFTER APRIL 30, 1998 WILL NOT CONVERT TO CLASS A
SHARES, WHICH CARRY A LOWER DISTRIBUTION FEE, AT ANY TIME. SEE "HOW TO BUY
SHARES - CLASS C SHARES - CONVERSION/NON-CONVERSION."
(2) THE SALES CHARGE APPLIED TO PURCHASES OF CLASS A SHARES AND OF SHARES OF THE
INTERNATIONAL EQUITY FUND DECLINES AS THE AMOUNT INVESTED INCREASES. SEE "HOW TO
BUY SHARES."
(3) A DEFERRED SALES CHARGE ON CLASS C SHARES APPLIES ONLY IF REDEMPTION OCCURS
WITHIN TWENTY-FOUR MONTHS FROM PURCHASE. SEE "HOW TO BUY SHARES" AND "HOW TO
MAKE WITHDRAWALS (REDEMPTIONS)."
(4) THE NASD LIMITS ASSET BASED SALES CHARGES TO 6.25% OF NEW SALES, PLUS
INTEREST. LONG-TERM SHAREHOLDERS OF CLASS C SHARES MAY PAY MORE THAN THE
ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED BY THE
NASD. (SEE "HOW TO BUY SHARES - PURCHASING SHARES - PURCHASE OPTIONS").
(5) THE SERVICE FEE IS ALLOCATED TO NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC. ("NASD") MEMBER FIRMS FOR CONTINUOUS PERSONAL SERVICE BY SUCH MEMBERS TO
INVESTORS IN SHARES OF THE FUNDS, SUCH AS RESPONDING TO SHAREHOLDER INQUIRIES,
QUOTING NET ASSET VALUES, PROVIDING CURRENT MARKETING MATERIAL AND ATTENDING TO
OTHER
<PAGE>
SHAREHOLDER MATTERS.
The expense table is meant to assist an investor in understanding the
various costs and expenses that an investor in each Fund will bear directly or
indirectly. The Funds do not impose an exchange fee or redemption fee. For more
complete descriptions of the various costs and expenses of the Funds see "The
Trust and Its Management" and "Distribution Plans."
With respect to the Core Equity, Utility Growth, and Tactical Asset
Allocation Funds, the Board of Trustees of the Trust believes that the aggregate
per share expenses of each Fund and corresponding Portfolio will be less than or
approximately equal to the expenses which the Fund would incur if it retained
the services of an investment adviser and the assets of the Fund were invested
directly in the type of securities being held by the Portfolio. For additional
information concerning expenses incurred by the Trust and the Portfolios, see
"The Trust and Its Management" herein and "Investment Adviser and Manager" in
the Statement of Additional Information.
THE TABLE AND HYPOTHETICAL EXAMPLES ABOVE 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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FINANCIAL HIGHLIGHTS
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The financial highlights for each of the Trust's current funds are listed
below. This information has been audited in conjunction with the audits of the
financial statements of The Flex-Partners and their corresponding Portfolios by
KPMG Peat Marwick LLP, independent certified public accountants for each of the
periods ended December 31, 1995 through December 31, 1997.
1997*
CORE EQUITY FUND CLASS A CLASS C
NET ASSET VALUE, BEGINNING OF PERIOD $12.50 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.01 (0.01)
Net Gains or Losses on Securities
(both realized and unrealized) 0.24 0.24
Total from Investment Operations 0.25 0.23
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.01) --
Distributions (from capital gains) (0.05) (0.05)
Distributions (in excess of capital gains) (0.02) (0.02)
Total Distributions (0.08) (0.07)
NET ASSET VALUE, END OF PERIOD $12.67 $12.66
TOTAL RETURN 2.00%(1) 1.88%(1)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) $245 $80
Ratio of Expenses to Average Net Assets 2.00%(2) 2.25%(2)
Ratio of Net Income (Loss) to Average Net Assets 0.10%(2) (0.13)%(2)
Ratio of Expenses to Average Net Assets,
before reimbursement of fees 9.50%(2) 16.58%(2)
Ratio of Net Income (Loss) to Average Net Assets,
before reimbursement of fees (7.40%)(2) (14.46%)(2)
Portfolio Turnover Rate 130% 130%
* August 1, 1997 (date of commencement of operations) to December 31, 1997
(1) Not Annualized
(2) Annualized
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information.
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995*
UTILITY GROWTH FUND CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.09 $14.91 $14.26 $14.27 $12.50 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.22 0.19 0.29 0.26 0.12 0.10
Net Gains or Losses on Securities
(both realized and unrealized) 4.03 3.99 1.48 1.49 1.76 1.77
Total From Investment Operations 4.25 4.18 1.77 1.75 1.88 1.87
LESS DISTRIBUTIONS
Dividends (from investment income) (0.22) (0.19) (0.29) (0.26) (0.12) (0.10)
Distributions (from capital gains) (1.75) (1.73) (0.65) (0.85) -- --
Total Distributions (1.97) (1.92) (0.94) (1.11) (0.12) (0.10)
NET ASSET VALUE, END OF PERIOD 17.37 $17.17 $15.09 $14.91 $14.26 $14.27
TOTAL RETURN 28.41% 28.25% 12.61% 12.45% 15.11%(1) 15.07%(1)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) $1,285 $1,283 $1,377 $1,515 $641 $782
Ratio of Expenses to Average Net Assets 2.00% 2.25% 1.75% 2.00% 1.75%(2) 2.00%(2)
Ratio of Net Investment Income (Loss)
to Average Net Assets 1.36% 1.21% 2.03% 1.85% 2.17%(2) 1.72%(2)
Ratio of Expenses to Average Net Assets,
before reimbursement of fees 4.07% 4.56% 4.37% 4.65% 22.70%(2) 13.37%(2)
Ratio of Net Investment Income (Loss) to
Average Net Assets, before
reimbursement of fees (0.71%) (1.10)% (0.59%) (0.80%) (18.78%)(2) (9.55%)(2)
Portfolio Turnover Rate 41% 41% 51% 51% 5% 5%
<FN>
* July 11, 1995 (date of commencement of operations) to December 31, 1995
(1) Not Annualized
(2) Annualized
</FN>
</TABLE>
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information.
<TABLE>
<CAPTION>
1997 1996 1995
TACTICAL ASSET ALLOCATION FUND CLASS A CLASS C CLASS A* CLASS C CLASS C**
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.56 $13.52 $12.50 $13.26 $12.50
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.40 0.14 0.14 0.10 (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) 1.78 2.26 0.55 0.57 1.84
Total From Investment Operations 2.18 2.40 0.69 0.67 1.82
LESS DISTRIBUTIONS
Dividends (from investment income) (0.40) (0.14) (0.14) (0.10) --
Distributions (from capital gains) (2.93) (3.17) (0.49) (0.31) (1.06)
Distributions (in excess of capital gains) (0.34) (0.36) -- -- --
Total Distributions (3.67) (3.67) (0.63) (0.41) (1.06)
NET ASSET VALUE, END OF PERIOD $11.07 $12.25 $12.56 $13.52 $13.26
TOTAL RETURN 17.29% 17.71% 5.51%(1) 5.07% 14.57%(1)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) $36 $14,501 $137 $13,943 $11,524
Ratio of Expenses to Average Net Assets 2.00% 2.10% 1.73%(2) 2.00% 1.97%(2)
Ratio of Net Investment Income (Loss)
to Average Net Assets 0.99% 0.86% 2.60%(2) 0.75% (0.29%)(2)
Ratio of Expenses to Average Net Assets,
before reimbursement of fees 6.16% 2.50% 5.23%(2) 2.40% 2.80%(2)
Ratio of Net Investment Income (Loss) to
Average Net Assets, before
reimbursement of fees (3.17%) 0.46% (0.90%)(2) 0.35% (1.12%)(2)
Portfolio Turnover Rate 395% 395% 297% 297% 186%
<FN>
* August 1, 1996 (date of commencement of operations) to December 31, 1996
** June 1, 1995 (date of commencement of operations) to December 31, 1995
(1) Not Annualized
(2) Annualized
</FN>
</TABLE>
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information.
<PAGE>
INTERNATIONAL EQUITY FUND 1997*
NET ASSET VALUE, BEGINNING OF PERIOD $12.50
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (LOSS) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) (0.30)
Total from Investment Operations (0.32)
LESS DISTRIBUTIONS
Dividends (from net investment income) --
Distributions (from capital gains) --
Distributions (in excess of capital gains) --
Total Distributions --
NET ASSET VALUE, END OF PERIOD $12.18
TOTAL RETURN (2.56)%(1)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) $12,190
Ratio of Expenses to Average Net Assets 2.00%(2)
Ratio of Net Income (Loss) to Average Net Assets (0.43%)(2)
Ratio of Expenses to Average Net Assets,
before reimbursement of fees 2.68%(2)
Ratio of Net Income (Loss) to Average Net Assets,
before reimbursement of fees (1.11%)(2)
Portfolio Turnover Rate 13%
Average Brokerage Commission Per Share $0.0316
* September 2, 1997 (date of commencement of operations) to December
31, 1997
(1) Not Annualized
(2) Annualized
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information.
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
[Line Graph] The following information was
presented as a line graph.
UTILITY GROWTH FUND CLASS A SHARES VS. THE DOW JONES UTILITY AVERAGE
AND MORNINGSTAR'S AVERAGE UTILITIES FUND
The Growth of $10,000 (07/11/95* to 12/31/97)
TOTAL RETURN
Utility Utility The Dow Jones Morningstar's
Growth Fund Growth Fund Utility Average
with sales charge without sales charge Average* Utilities Fund*
$10,000 $10,000 $10,000 $10,000
1995 $11,050 $11,511 $11,483 $11,425
1996 $12,445 $12,963 $12,528 $12,585
1997 $15,981 $16,646 $15,425 $15,745
UTILITY GROWTH FUND
A SHARES
AVERAGE ANNUAL
TOTAL RETURN
1 Year
with sales charge
23.26%
1 Year
without sales charge
28.41%
Since Inception
(7/11/95)
with sales charge
20.85%
Since Inception
(7/11/95)
without sales charge
22.86%
The graph depicting the growth of $10,000 and the total return for the Fund are
representative of past performance and are not intended to indicate future
performance.
*The returns of the various indexes are from the beginning or end of the month
nearest the Fund's inception to the end of the calendar year. The Dow Jones
Utility Average does not reflect a sales charge or the deduction of expenses
associated with a mutual fund, such as investment management and accounting
fees.
[Line Graph] The following information was
presented as a line graph.
UTILITY GROWTH FUND CLASS C SHARES VS. THE DOW JONES UTILITY AVERAGE
AND MORNINGSTAR'S AVERAGE UTILITIES FUND
The Growth of $10,000 (07/11/95* to 12/31/97)
TOTAL RETURN
Utility Utility The Dow Jones Morningstar's
Growth Fund Growth Fund Utility Average
with sales charge without sales charge Average* Utilities Fund*
$10,000 $10,000 $10,000 $10,000
1995 $11,357 $11,507 $11,483 $11,425
1996 $12,790 $12,940 $12,528 $12,585
1997 $16,596 $16,596 $15,425 $15,745
UTILITY GROWTH FUND
C SHARES
AVERAGE ANNUAL
TOTAL RETURN
1 Year
with sales charge
26.75%
1 Year
without sales charge
28.25%
Since Inception
(7/11/95)
with sales charge
22.71%
Since Inception
(7/11/95)
without sales charge
22.71%
The graph depicting the growth of $10,000 and the total return for the Fund are
representative of past performance and are not intended to indicate future
performance.
*The returns of the various indexes are from the beginning or end of the month
nearest the Fund's inception to the end of the calendar year. The Dow Jones
Utility Average does not reflect a sales charge or the deduction of expenses
associated with a mutual fund, such as investment management and accounting
fees.
<PAGE>
1997 IN REVIEW
In 1997, Utility Growth Fund Class A shares provided shareholders with a
total return of 28.41% without a sales charge and a total return of 23.26% after
sales charge, and Class C shares provided shareholders with a total return of
28.25% without a sales charge and a total return of 26.75% after sales charge.
For the same period, the Dow Jones Utility Average provided a total return of
23.00% and the average Utilities Fund monitored by Morningstar, Inc. provided a
total return of 25.37%.
The background environment for utilities, exemplified by the Federal
Reserve Board's decision to raise interest rates in March, was unfriendly during
the first quarter of 1997, though the Utility Growth Fund managed to hold its
own with little damage. The environment improved during the second and third
quarters, and the Portfolio was aided by several mergers, including LGE/ KU
Energy and Bell Atlantic/NyNex. Telecommunications stocks, which accounted for
approximately 30 to 40 percent of the Portfolio during 1997, benefited greatly
from the trend toward deregulation in the industry. Natural gas holdings, which
accounted for approximately 20 to 23 percent of the Portfolio, also performed
well. Finally, long-term bond rates continued to decline during 1997, resulting
in an interest rate environment supportive of utilities, which finished the year
strongly as institutional managers rushed to the sector to lock in gains for the
year.
[Line Graph] The following information was
presented as a line graph.
TACTICAL ASSET ALLOCATION FUND CLASS A SHARES VS. THE S&P 500
COMPOSITE STOCK PRICE INDEX
AND MORNINGSTAR'S AVERAGE ASSET ALLOCATION FUND
The Growth of $10,000 (8/1/96 to 12/31/97)
TOTAL RETURN
Tactical Asset Tactical Asset The S&P 500 Morningstar's
Allocation Fund Allocation Fund Composite Stock Average Asset
with sales charge without sales charge Price Index* Allocation Fund
$10,000 $10,000 $10,000 $10,000
1996 $10,129 $10,551 $11,684 $10,991
1997 $11,880 $12,375 $15,307 $12,816
TACTICAL ASSET
ALLOCATION FUND
A SHARES
AVERAGE ANNUAL
TOTAL RETURN
1 Year
with sales charge
12.63%
1 Year
without sales charge
17.29%
Since Inception
(8/1/96)
with sales charge
12.95%
Since Inception
(8/1/96)
without sales charge
16.25%
The graph depicting the growth of $10,000 and the total return for the Fund are
representative of past performance and are not intended to indicate future
performance.
*The S&P 500 Composite Stock Price Index is an unmanaged index and does not
reflect a sales charge or the deduction of expenses associated with a mutual
fund, such as investment management and accounting fees.
<PAGE>
[Line Graph] The following information was
presented as a line graph.
TACTICAL ASSET ALLOCATION FUND CLASS C SHARES VS. THE S&P 500
COMPOSITE STOCK PRICE INDEX
AND MORNINGSTAR'S AVERAGE ASSET ALLOCATION FUND
The Growth of $10,000 (6/1/95 to 12/31/97)
TOTAL RETURN
Tactical Asset Tactical Asset The S&P 500 Morningstar's
Allocation Fund Allocation Fund Composite Stock Average Asset
with sales charge without sales charge Price Index* Allocation Fund
$10,000 $10,000 $10,000 $10,000
1995 $11,307 $11,457 $11,709 $11,109
1996 $11,963 $12,038 $14,396 $12,476
1997 $14,170 $14,170 $18,859 $14,547
TACTICAL ASSET
ALLOCATION FUND
C SHARES
AVERAGE ANNUAL
TOTAL RETURN
1 Year
with sales charge
16.35%
1 Year
without sales charge
17.71%
Since Inception
(6/1/95)
with sales charge
14.44%
Since Inception
(6/1/95)
without sales charge
14.44%
The graph depicting the growth of $10,000 and the total return for the Fund are
representative of past performance and are not intended to indicate future
performance.
*The S&P 500 Composite Stock Price Index is an unmanaged index and does not
reflect a sales charge or the deduction of expenses associated with a mutual
fund, such as investment management and accounting fees.
1997 IN REVIEW
In 1997, Tactical Asset Allocation Fund A shares provided shareholders with
a total return of 17.29% without a sales charge and a total return of 12.63%
after sales charge, and Class C Shares provided shareholders with a total return
of 17.71% without a sales charge and a total return of 16.35% after sales
charge. For the same period, the S&P 500 Composite Stock Index provided a total
return of 33.35% and the average Asset Allocation mutual fund monitored by
Morningstar, Inc. provided a total return of 16.72%.
Due to increased volatility caused in part by the Federal Reserve Board's
decision in March to raise interest rates, the Tactical Asset Allocation Fund
adopted several partially defensive positions during the first quarter of 1997
before gaining full exposure to the stock market during the second quarter.
Throughout much of the first half of 1997, the Fund achieved its stock market
exposure through investment in large-capitalization, growth-oriented mutual
funds and via exposure to the S&P 500 Index, which outperformed many
small-capitalization, high-technology stocks during this period. The Fund
underwent a fairly substantial change during the latter part of the second
quarter and into the third quarter, as it shifted its focus from an emphasis on
mutual funds that invest in large-capitalization stocks to a 50-50 split between
large-cap and mid- to small-cap mutual funds. As market conditions worsened
during October, the Manager's discipline dictated that it reduce the Fund's
equity exposure to 55 percent. Following the October correction, the Fund
maintained its partially defensive position through mid-November, after which it
gradually increased its equity exposure to approximately 90%. Then, by
mid-December, the Manager believed that the market had deteriorated
significantly enough to warrant a return to a partially defensive position,
where the Fund remained at year's end.
<PAGE>
Line Graph] The following information was
presented as a line graph.
CORE EQUITY FUND FUND CLASS A SHARES VS. THE S&P 500
COMPOSITE STOCK PRICE INDEX AND
MORNINGSTAR'S AVERAGE GROWTH FUND
The Growth of $10,000 (8/1/97 to 12/31/97)
TOTAL RETURN
Core Core The S&P 500 Morningstar's
Equity Fund Equity Fund Composite Stock Average
with sales charge without sales charge Price Index* Growth Fund
$10,000 $10,000 $10,000 $10,000
1997 $ 9,792 $10,200 $10,169 $ 9,853
CORE EQUITY FUND
A SHARES
PERIOD
TOTAL RETURN
Since Inception
(8/1/97)
with sales charge
-2.07%
Since Inception
(8/1/97)
without sales charge
2.00%
The graph depicting the growth of $10,000 and the total return for the Fund are
representative of past performance and are not intended to indicate future
performance.
* The returns of the various indexes are from the beginning or end of the month
nearest the Fund's inception to the end of the calendar year. The S&P 500
Composite Stock Price Index is an unmanaged index and does not reflect a sales
charge or the deduction of expenses associated with a mutual fund, such as
investment management and accounting fees.
[Line Graph] The following information was
presented as a line graph.
CORE EQUITY FUND FUND CLASS C SHARES VS. THE S&P 500
COMPOSITE STOCK PRICE INDEX AND
MORNINGSTAR'S AVERAGE GROWTH FUND
The Growth of $10,000 (8/1/97 to 12/31/97)
TOTAL RETURN
Core Core The S&P 500 Morningstar's
Equity Fund Equity Fund Composite Stock Average
with sales charge without sales charge Price Index* Growth Fund
$10,000 $10,000 $10,000 $10,000
1997 $10,038 $10,188 $10,169 $ 9,853
CORE EQUITY FUND
C SHARES
PERIOD
TOTAL RETURN
Since Inception
(8/1/97)
with sales charge
0.38%
Since Inception
(8/1/97)
without sales charge
1.88%
The graph depicting the growth of $10,000 and the total return for the Fund are
representative of past performance and are not intended to indicate future
performance.
* The returns of the various indexes are from the beginning or end of the month
nearest the Fund's inception to the end of the calendar year. The S&P 500
Composite Stock Price Index is an unmanaged index and does not reflect a sales
charge or the deduction of expenses associated with a mutual fund, such as
investment management and accounting fees.
<PAGE>
1997 IN REVIEW
From its inception on August 1, 1997, Core Equity Fund Class A shares
provided shareholders with a total return of 2.00% without a sales charge and a
total return of -2.07% after sales charge, and Class C shares provided
shareholders with a total return of 1.88% without a sales charge and a total
return of 0.38% after sales charge. For the same period, the S&P 500 Composite
Stock Price Index provided a total return of 1.69% and the average Growth Fund
monitored by Morningstar, Inc. provided a total return of -1.47%.
The performance of the Core Equity Fund during its first five months in
existence was adversely affected by the financial woes that plagued Southeast
Asian markets and prompted nervousness on Wall Street sufficient to spark the
largest daily point decline in stock market history. Asian problems not only
caused some direct markdowns from surprised investors, but also prompted a
flight to quality that benefited the bond market and interest sensitive stocks
like utilities. The twenty or so largest capitalization stocks, which had
accounted for so much of the market's gain during the first half of the year,
also benefited from the demand created by investors seeking a haven from the
volatility of the broader market. Due in large part to this volatility, the
Portfolio of the Core Equity Fund managed only a modest advance during its first
154 days of investment activity.
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE OF MR. GURNER AND
SECTOR CAPITAL MANAGEMENT, L.L.C.
- --------------------------------------------------------------------------------
William L. Gurner, the President, Administrator and Portfolio Manager of
Sector Capital, served as Manager (Trust Investments) for an employee benefit
plan of a large corporation from September, 1987 through December, 1994. The
following table sets forth Mr. Gurner's performance from March 1, 1991 through
December 31, 1994 (from September, 1987 until March 1, 1991, the employee
benefit plan did not have investment objectives, policies, strategies and risks
similar to those of the Growth Stock Portfolio and the Core Equity Fund)
relating to the historical performance of the employee benefit plan managed by
Mr. Gurner and Sector Capital's composite performance relating to the historical
performance of private accounts managed by Sector Capital from January 1, 1995
through December 31, 1996, that have investment objectives, policies, strategies
and risks substantially similar to those of the Growth Stock Portfolio and the
Core Equity Fund. Mr. Gurner and Sector Capital engaged substantially the same
Sector Advisers currently engaged by the Growth Stock Portfolio to manage on a
discretionary basis the assets of the employee benefit plan and such private
accounts. The data is provided to illustrate the past performance of Mr. Gurner
and Sector Capital in managing substantially similar accounts as measured
against specified market indices and does not represent the performance of the
Growth Stock Portfolio or the Core Equity Fund. Investors should not consider
this performance data as an indication of future performance of the Growth Stock
Portfolio or the Core Equity Fund. Mr. Gurner and Sector Capital's composite
performance data shown below were calculated in accordance with recommended
standards of the Association for Investment Management and Research ("AIMR"*),
retroactively applied to all time periods. All returns presented were calculated
on a total return basis and include all dividends and interest, accrued income
and realized and unrealized gains and losses. All returns reflect the deduction
of investment advisory fees, brokerage commissions and execution costs paid by
the employee benefit plan and the private accounts without provision for federal
or state income taxes. Custodial fees, if any, were not included in the
calculation. Sector Capital's composite includes all actual, fee paying,
discretionary, private accounts managed by Sector Capital that have investment
objectives, policies, strategies and risks substantially similar to those of the
Growth Stock Portfolio and the Core Equity Fund. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns. The yearly returns of Sector
Capital's composite combine the individual accounts' returns by asset-weighting
each individual account's asset value as of the beginning of each quarter. The
yearly returns are computed by geometrically linking the returns of each quarter
within the calendar year.
<PAGE>
The employee benefit plan managed by Mr. Gurner and the private accounts
that are included in Sector Capital's composite are not subject to the same
types of expenses to which the Growth Stock Portfolio or the Core Equity Fund
are subject nor to the diversification requirements, specific tax restrictions
and investment limitations imposed on the Growth Stock Portfolio and the Core
Equity Fund by the Investment Company Act or Subchapter M of the Internal
Revenue Code. Consequently, the performance results for employee benefit plan
managed by Mr. Gurner and Sector Capital's composite could have been adversely
affected if the employee benefit plan and the private accounts included in the
composite had been regulated as investment companies under the federal
securities laws.
The investment results of Mr. Gurner and Sector Capital's composite
presented below are unaudited and not intended to predict or suggest the returns
that might be experienced by the Growth Stock Portfolio or an individual
investor investing in the Core Equity Fund. Investors should also be aware that
the use of a methodology different from that used below to calculate performance
could result in different performance data.
PERFORMANCE
YEAR MR. GURNER SECTOR CAPITAL'S S&P 500(1)
- ---- ---------- ---------------- ----------
1991(2) 18.79% N.A. 16.66%
1992 8.26% N.A. 7.69%
1993 14.78% N.A. 10.00%
1994 0.97% N.A. 1.30%
1995 N.A. 45.79% 37.53%
1996 N.A. 26.27% 23.08%
(1) The S&P 500 Composite Stock Index is an unmanaged index containing common
stocks of 500 industrial, transportation, utility and financial companies,
regarded as generally representative of the U.S. stock market. The Index
reflects the reinvestment of income dividends and capital gain distributions, if
any, but does not reflect fees, brokerage commissions, or other expenses of
investing.
(2) Commencement of investment operations with regard to Mr. Gurner is March 1,
1991.
- -----------------------
*AIMR is a non-profit membership and education organization with more than
60,000 members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Fund and each Portfolio has its own separate investment objectives and
policies, as set forth below. Except as otherwise expressly provided herein,
these investment objectives and policies, which are identical for a Fund and its
corresponding Portfolio, where applicable, are not fundamental and may be
changed by their respective Trustees without approval of the Fund's
shareholders, or approval of the Portfolio's investors. No such change would be
made in a Fund, or a Portfolio, without 30 days prior written notice to
shareholders. With the exception of the International Equity Fund, each Fund
seeks to achieve its investment objective by investing all of its investable
assets in its corresponding Portfolio. As a result, the Core Equity Fund invests
in the Growth Stock Portfolio, the Utility Growth Fund invests in the Utilities
Stock Portfolio, and the Tactical Asset Allocation Fund invests in the Mutual
Fund Portfolio. For more information concerning the investment structure of a
Fund which invests its assets in a corresponding Portfolio, see "Other
Information - Investment Structure."
Since the investment characteristics of each of the Core Equity, Utility
Growth, and Tactical Asset Allocation Funds will correspond directly to those of
its corresponding Portfolio, the following is a discussion of the various
investments of and techniques employed by each Portfolio. Additional information
about the investment policies of each Portfolio appears in the Statement of
Additional Information. There can be no assurance that the investment objectives
of a Portfolio will be achieved.
GROWTH STOCK PORTFOLIO
(CORE EQUITY FUND)
The Growth Stock Portfolio seeks capital growth by investing primarily in a
diversified portfolio of domestic common stocks with greater than average growth
characteristics selected primarily from the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500"). Current income will not be a primary
objective. Under normal circumstances, (i) at least 80% of the Portfolio's total
assets will be invested in domestic common stocks and (ii) at least 65% of the
Portfolio's total assets will be invested in growth stocks.
<PAGE>
Common stocks are selected for the Portfolio from all domestic publicly
traded common stocks; however, at least 70% of the assets of the Portfolio
invested in common stocks will be invested in common stocks which are included
in the S&P 500.
The Portfolio consists of investment portfolios representing each of the
industry sectors (identified by the Subadviser) comprising the S&P 500. The
assets of the Portfolio will be allocated to each of these industry sectors in
approximately the same proportion as these industry sectors are represented in
the S&P 500 on a market capitalization-weighted basis. The Subadviser
continuously reviews the representation of the industry sectors in the S&P 500
and continuously categorizes domestic publicly traded common stocks into a
specific industry sector.
The total market value of the common stocks in each industry sector of the
S&P 500 is compared by the Subadviser to the total market value of all common
stocks in the S&P 500 to determine each industry sector's weighting in the S&P
500. If the weighting of any industry sector in the Portfolio varies from the
weighting on a market-capitalization basis of that industry sector in the S&P
500 at the end of any month, the amount of assets in the Portfolio allocated to
that industry sector will be reallocated by the Subadviser. The Subadviser may
make a reallocation more frequently than monthly if it chooses to do so in its
sole discretion. Reallocations may result in additional transaction costs to the
extent that sales of securities as part of such reallocations result in higher
portfolio turnover.
Except as otherwise provided below, the assets of the Portfolio
representing each of these industry sectors are managed on a discretionary basis
by one or more separate investment advisers (the "Sector Advisers") selected by
the Subadviser, subject to the review and approval of the Board of Trustees of
the Portfolio.
Assets of the Portfolio representing each of the industry sectors are
managed by one or more Sector Advisers, except that in the event a proposed
Sub-subadvisory Agreement is terminated leaving no Sector Adviser to manage the
assets of the Portfolio representing an industry sector, the Subadviser will,
upon termination and until a new Sector Adviser were selected, manage and
"index" the assets of the Portfolio representing the applicable industry sector
by selling any stocks representing the industry sector that are not included in
the S&P 500 and investing the assets comprising the industry sector in S&P 500
stocks identified by the Subadviser as belonging to that industry sector in the
same proportion as those stocks are represented in the S&P 500 on a market
capitalization-weighted basis.
Each Sector Adviser is limited to the list of companies identified by the
Subadviser that represents the Sector Adviser's specific industry sector. Each
Sector Adviser then selects those common stocks which, in its opinion, best
represent the industry sector the Sector Adviser has been assigned. In selecting
securities for the Portfolio, the Sector Advisers evaluate factors believed to
be favorable to long term growth of capital, including specific financial
characteristics of the issuer such as historical earnings growth, sales growth,
profitability and return on equity. The Sector Advisers also analyze the
issuer's position within its industry sector as well as the quality and
experience of the issuer's management.
<PAGE>
Up to 20% of the Portfolio's assets may be invested in temporary
investments such as money market instruments, obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities, and repurchase
agreements. See "Additional Investment Policies - Money Market Instruments and
Bonds." The Portfolio may purchase stock index futures contracts and related
options. See "Additional Investment Policies - Hedging Strategies and Option
Strategies." Up to 5% of the total assets of the Portfolio may be invested in
American Depositary Receipts.
As a fundamental policy, the Portfolio may not own more than 10% of the
outstanding voting shares of any issuer and with respect to 75% of the total
assets of the Portfolio, the Portfolio will not purchase a security of any
issuer (other than cash items and U.S. Government Securities, as defined in the
Investment Company Act of 1940) if such purchase would cause the Portfolio's
holdings of that issuer to amount to more than 5% of the Portfolio's total
assets.
See the Fund's Statement of Additional Information for other details.
UTILITIES STOCK PORTFOLIO
(UTILITY GROWTH FUND)
The Utilities Stock Portfolio's investment objective is to seek a high
level of current income and growth of income by investing primarily in equity
securities of domestic and foreign public utility companies; however, the
Portfolio will not invest in electric utilities whose generation of power is
derived from nuclear reactors. The Portfolio also seeks capital appreciation,
but only when consistent with its primary investment objective. There can be no
assurance that such objective will be achieved.
The Portfolio seeks to achieve its objective by investing, under normal
conditions, at least 65% of its total assets in a diversified portfolio of
common stocks, preferred stocks, warrants and rights, and securities convertible
into common or preferred stock of public utility companies. Public utility
companies include domestic or foreign companies that provide electricity,
natural gas, water, telecommunications or sanitary services to the public. The
Portfolio will not invest more than 5% of its total assets in equity securities
of issuers whose debt securities are rated below investment grade, that is,
rated below one of the four highest rating categories by Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's") or deemed to
be of equivalent quality in the judgment of the Subadviser. Debt securities
rated below investment grade are rated below Baa or BBB.
The remaining 35% of the Portfolio's total assets may be invested in debt
securities issued by public utility companies, and/or equity and debt securities
of issuers outside of the public utility industry which in the opinion of the
Subadviser stand to benefit from developments in the public utilities industry.
The Portfolio will not invest more than 40% of its total assets in the telephone
industry. The Portfolio may invest up to 25% of its total assets in securities
of foreign issuers. The Portfolio will not invest more than 10% of its total
assets in securities that are deemed to be illiquid. See "Investment Policies
and Limitations" in the Statement of Additional Information.
<PAGE>
Investments are selected on the basis of fundamental analysis to identify
those securities that, in the judgment of the Subadviser, provide a high level
of current income and growth of income and secondarily, capital appreciation,
but only when consistent with its primary investment objective.
Fundamental analysis involves assessing a company and its business
environment, management, balance sheet, income statement, anticipated earnings
and dividends and other related measures of value. The Subadviser monitors and
evaluates the economic and political climate of the area in which each company
is located. The relative weightings among common stocks, debt securities and
preferred stocks will vary from time to time based upon the Subadviser's
judgment of the extent to which investments in each category will contribute to
meeting the Portfolio's investment objective.
The Subadviser emphasizes quality in selecting investments for the
Portfolio, and in addition to looking for high credit ratings, the Subadviser
ordinarily looks for several of the following characteristics: above average
earnings growth; above average growth of book value; an above average balance
sheet; high earnings to debt service coverage; low ratio of dividends to
earnings; high return on equity; low debt to equity ratio; an above-average
rating with respect to government regulation; growing rate base; lack of major
construction programs and strong management.
The Portfolio may invest up to 35% of its total assets in debt securities
of issuers in the public utility industries. Debt securities in which the
Portfolio invests are limited to those rated A or better by S&P or Moody's or
deemed to be of equivalent quality in the judgment of the Subadviser.
A change in prevailing interest rates is likely to affect the Portfolio's
net asset value because prices of debt securities and equity securities of
utility companies tend to increase when interest rates decline and decrease when
interest rates rise.
During periods when the Subadviser deems it necessary for temporary
defensive purposes, the Portfolio may invest without limit in high quality money
market instruments. These instruments consist of commercial paper, certificates
of deposit, banker's acceptances and other bank obligations, obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, high
grade corporate obligations and repurchase agreements.
Except as otherwise expressly provided herein, all investment objectives
and policies stated throughout this prospectus are not fundamental and may be
changed without approval of the Fund's shareholders. No such change would be
made in the Fund without 30 days prior written notice to shareholders. The
Portfolio may 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 Portfolio's total assets
would be invested in the securities of companies whose principal business
activities are in the same industry, except that the Portfolio, under normal
circumstances, will invest 25% or more of its total assets in securities of
public utility companies. The Portfolio may not, with respect to 75% of its
total assets, purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, or any of its
agencies or instrumentalities) if, as a result thereof, (a) more than 5% of the
Portfolio's total assets would be invested in the securities of such issuer, or
(b) the Fund would hold more than 10% of the voting securities of such issuer.
The foregoing investment policies regarding concentration and diversification
are fundamental and may not be changed without shareholder approval. See
"Investment Policies and Limitations" in the Statement of Additional
Information.
<PAGE>
SOCIAL INVESTMENT POLICY - UTILITIES STOCK PORTFOLIO
The Utility Growth Fund has adopted a social investment policy (the
"Policy"), which provides an opportunity for investors to participate in the
equity market without being exposed to many areas of the economy that investors
may find socially objectionable. Pursuant to the Policy, the Utilities Stock
Portfolio will not invest in companies that, based upon information received
from third party research groups, are shown to be involved in animal testing,
the production of nuclear power, or the alcohol, tobacco, gambling, and firearms
industries. In addition, the Portfolio will not invest in companies primarily
involved in weapons production or the defense industry. Please see "Investment
Policies and Limitations" in the Fund's Statement of Additional Information.
MUTUAL FUND PORTFOLIO
(TACTICAL ASSET ALLOCATION FUND)
The Mutual Fund Portfolio's investment objective is growth of capital. The
Portfolio will seek to attain its investment objective through investment in the
shares of open-end investment companies--commonly called mutual funds. The
underlying mutual funds will consist of diversified mutual funds which invest
primarily in common stock or securities convertible into or exchangeable for
common stock (such as convertible preferred stock, convertible debentures or
warrants) and which seek long-term growth or appreciation, with current income
typically of secondary importance.
Underlying funds may include funds which concentrate investments in a
particular industry sector, or which leverage their investments. The Portfolio
will not invest in other funds of The Flex-Partners family of funds or The
Flex-funds family of funds, the corresponding portfolios of which are also
managed by the Manager.
The Portfolio will generally purchase "no-load" mutual funds, which are
sold and purchased without a sales charge. However, the Portfolio may purchase
"load" mutual funds only if the load, or sales commission, is by previous
agreement waived for purchases or sales made by the Portfolio.
Under normal circumstances, at least 65% of the value of the Portfolio's
total assets will be invested in mutual funds. The Portfolio may at times desire
to gain exposure to the stock market through the purchase of "Index" funds
(funds which purchase stocks represented in popular stock market averages) with
a portion of its assets. "Index" funds may be purchased with a portion of the
Portfolio's assets at times when the Manager's selection process identifies the
characteristics of a particular index to be more favorable than those of other
mutual funds available for purchase. If, in the Manager's opinion, the Portfolio
should have exposure to certain stock indices and the Portfolio can efficiently
and effectively implement such a strategy by directly purchasing the common
stocks of a desired index for the Portfolio itself, it may invest up to 100% of
its assets to do so.
<PAGE>
The Portfolio may invest temporarily in money market instruments for
defensive purposes, if the Manager deems it advisable to do so. See the Fund's
Statement of Additional Information for other details.
During periods when the Manager deems it necessary for temporary defensive
purposes, or pending investment of proceeds from new sales of Fund shares or to
meet its ordinary daily cash needs, the Portfolio may invest without limit in
high quality money market instruments. These instruments may include commercial
paper, certificates of deposit, banker's acceptances and other bank obligations,
short-term obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, and short-term obligations of foreign issuers, denominated
in U.S. dollars and traded in the United States.
Except as otherwise expressly provided herein, all investment objectives
and policies stated throughout this prospectus are not fundamental and may be
changed without approval of the Fund's shareholders. No such change would be
made in the Fund without 30 days prior written notice to shareholders.
INTERNATIONAL EQUITY FUND
The International Equity 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.
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
<PAGE>
contracts and options thereon. The Fund may purchase temporary investments, lend
its portfolio securities, purchase stock index futures contracts, and purchase
and write options thereon. See "Additional Investment Policies - International
Equity Fund."
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.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT POLICIES
GROWTH STOCK, UTILITIES STOCK AND MUTUAL FUND PORTFOLIOS
- --------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS AND BONDS
When investing in money market instruments or bonds, the Growth Stock,
Utilities Stock, and Mutual Fund Portfolios will limit their purchases,
denominated in U.S. dollars, to the following securities:
o U.S. Government Securities and Securities of its Agencies and
Instrumentalities
o Bank Obligations and Instruments Secured Thereby
o High Quality Commercial Paper--The Portfolio may invest in commercial
paper rated no lower than "A-2" by S&P or "Prime-2" by Moody's, or, if
not rated, issued by a company having an outstanding debt issue rated
at least A by S&P's or Moody's.
<PAGE>
o Private Placement Commercial Paper--unregistered securities which are
traded in public markets to qualified institutional investors, such as
the Portfolios.
o High Grade Corporate Obligations--obligations rated at least A by
S&P's or Moody's.
o Repurchase Agreements Pertaining to the Above--The Portfolios may
invest without limit in any of the above securities subject to
repurchase agreements with any Federal Reserve reporting dealer or
member bank of the Federal Reserve System. Repurchase agreements
usually are for short periods, such as one week or less, but could be
longer. No Portfolio will invest more than 10% of its assets, at time
of purchase, in repurchase agreements which mature in excess of seven
days or in other illiquid or not readily marketable securities.
The Tactical Asset Allocation Fund, which invests all of its investable
assets in the Mutual Fund Portfolio, is an asset allocation fund. The Manager's
tactical asset allocation discipline, called "defensive investing," has
addressed the asset allocation decision by making shifts in the mix of stocks,
bonds and cash in the Portfolio.
HEDGING STRATEGIES
Each Portfolio may engage in hedging transactions in carrying out their
investment policies. A hedging program may be implemented for the following
reasons: (1) To protect the value of specific securities owned or intended to be
purchased while the Manager or Subadviser (in the case of the Growth Stock
Portfolio and Utilities Stock Portfolio) is implementing a change in a specific
investment position; (2) To protect portfolio values during periods of
extraordinary risk without incurring transaction costs associated with buying or
selling actual securities; and (3) To utilize the "designated hedge" provisions
of Sub-Chapter M of the Internal Revenue Code as a permitted means of avoiding
taxes that would otherwise have to be paid on gains from the sale of portfolio
securities.
A hedging program involves entering into an "option" or "futures"
transaction in lieu of the actual purchase or sale of securities. At present,
many groups of common stocks (stock market indices) may be made the subject of
futures contracts, while government securities such as Treasury Bonds and Notes
are among debt securities currently covered by futures contracts.
A Portfolio will not engage in transactions in financial futures contracts
or related options for speculation, but only as a hedge against changes in the
market value of securities held in its portfolio, or which it intends to
purchase, and where the transactions are economically appropriate to the
reduction of risks inherent in the ongoing management of the Portfolio.
For certain regulatory purposes, the Commodity Futures Trading Commission
("CFTC") limits the types of futures positions that can be taken in conjunction
with the management of a securities portfolio for mutual funds, such as The
Flex-Partners. All futures transactions for a Portfolio will consequently be
subject to the restrictions on the use of futures contracts established in CFTC
rules, such as observation of the CFTC's definition of "hedging." In addition,
whenever a Portfolio establishes a long futures position, it will set aside cash
or cash equivalents equal to the underlying commodity value of the long futures
<PAGE>
contracts held by the Portfolio. Although all futures contracts involve leverage
by virtue of the margin system applicable to trading on futures exchanges, a
Portfolio will not, on a net basis, have leverage exposure on any long futures
contracts that it establishes because of the cash set aside requirement. All
futures transactions can produce a gain or a loss when they are closed,
regardless of the purpose for which they have been established. Unlike short
futures contracts positions established to protect against the risk of a decline
in value of existing securities holdings, the long futures positions established
by a Portfolio to protect against reinvestment risk are intended to protect the
Portfolio against the risks of reinvesting portfolio assets that arise during
periods when the assets are not fully invested in securities.
These financial futures contracts or related options used by a Portfolio to
implement its hedging strategies are considered derivatives. The value of
derivatives can be affected significantly by even small market movements,
sometimes in unpredictable ways (See "Risk Factors.")
A Portfolio may not purchase or sell financial futures or purchase related
options if immediately thereafter the sum of the amount of margin deposits on
the Portfolio's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Portfolio's total assets.
The Portfolios expect that any gain or loss on hedging transactions will be
substantially offset by any gain or loss on the securities underlying the
contracts or being considered for purchase. There can be no guarantee that the
Portfolios will be able to realize this objective and, as noted below under
"Risk Considerations," there are some risks in utilizing a hedging strategy.
PORTFOLIO TURNOVER
Because the Manager (in the case of the Mutual Fund Portfolio) and the
Subadviser (in the case of the Utilities Stock Portfolio) may employ flexible
defensive investment strategies when market trends are not considered favorable,
the Manager and the Subadviser may occasionally change the entire portfolios in
the Utilities Stock Portfolio and Mutual Fund Portfolio. 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 a Fund. This defensive investment
strategy can produce high portfolio turnover ratios when calculated in
accordance with SEC rules.
The Growth Stock Portfolio's annual portfolio turnover rate was 130% in
1997. The Utilities Stock Portfolio's annual portfolio turnover rate was 41% in
1997. The Mutual Fund Portfolio's annual portfolio turnover rate was 395% in
1997. See "Income Dividends and Taxes."
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT POLICIES
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
In seeking to meet its investment objective, the International Equity 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
<PAGE>
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 an
investment in open-end investment companies, such as money market funds, are
described under "Open-End Investment Companies."
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
market-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.
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
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
<PAGE>
"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.
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
<PAGE>
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. The Fund may also invest all of its assets in an open-end investment
company having substantially the same investment objective as the Fund (See
"Investment Objectives and Policies"). 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 advisors of the underlying open-end
investment companies are made independently of the Fund and its Subadviser.
Therefore, the investment advisor 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 investor 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.
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
<PAGE>
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.
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
<PAGE>
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 60%.
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.
The portfolio turnover rate for the Fund was 13% for the period from
September 2, 1997 (date of commencement of operations) through December 31,
1997.
See "Growth Stock Portfolio Transaction Policies" and "Income Dividends and
Taxes."
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RISK CONSIDERATIONS
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GROWTH STOCK PORTFOLIO
(CORE EQUITY FUND)
The Growth Stock Portfolio will be invested in securities which fluctuate
in market value, so net asset value per share will fluctuate as well. When the
Growth Stock Portfolio is invested in smaller capitalization issues, it could be
subject to wider price fluctuations than the stock market as measured by popular
market indices.
There is no guarantee that a shareholder will receive the full amount of
his investment upon the redemption of shares. The Growth Stock Portfolio does,
however, seek to minimize the risk of loss through diversification and, at
times, the use of hedging techniques. Hedging involves risks which are not
present in some other mutual funds with similar objectives (See "Hedging
Strategies.")
The use of multiple Sector Advisers or the replacement of a Sector Adviser
may increase the Growth Stock Portfolio's portfolio turnover rate, realizations
of gains or losses, and brokerage commissions. High portfolio turnover may
involve correspondingly greater brokerage commissions and transaction costs,
which will be borne by the Portfolio and may result in increased short-term
capital gains which, when distributed to shareholders, are treated as ordinary
income. See "Income Dividends and Taxes."
UTILITIES STOCK PORTFOLIO
(UTILITY GROWTH FUND)
By itself, the Utilities Stock Portfolio does not constitute a balanced
investment plan; the Utilities Stock Portfolio seeks a high level of current
income and growth of income, with capital appreciation as a secondary objective.
The Utilities Stock Portfolio invests primarily in common stock, preferred stock
and securities convertible into common or preferred stock. Changes in interest
rates may also affect the value of the Utilities Stock Portfolio's investments,
<PAGE>
and rising interest rates can be expected to reduce the Utilities Stock
Portfolio's net asset value. The Utility Growth Fund's share price and total
return fluctuate and your investment may be worth more or less than your
original cost when you redeem your shares.
Because the Utilities Stock Portfolio concentrates its investments in
public utility companies, its performance will depend in large part on
conditions in the public utility industries. Utility stocks have traditionally
been popular among more conservative stock market investors because they have
generally paid above average dividends. However, utility stocks can still be
affected by the risks of the stock market, as well as factors specific to public
utility companies.
Governmental regulation of public utility companies can limit their ability
to expand their business or to pass cost increases on to customers. Companies
providing power or energy-related services may also be affected by fuel
shortages or cost increases, environmental protection or energy conservation
regulations, as well as fluctuating demand for their services. Some public
utility companies are facing increased competition, which may reduce their
profits. All of these factors are subject to rapid change, which may affect
utility companies independently from the stock market as a whole.
In seeking its investment objectives, the Utilities Stock Portfolio may
invest in securities of foreign issuers. Foreign securities may involve a higher
degree of risk and may be less liquid or more volatile than domestic
investments. Foreign securities usually are denominated in foreign currencies,
which means their value will be affected by changes in the strength of foreign
currencies relative to the U.S. dollar as well as the other factors that affect
security prices. Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there often is less
publicly available information about their operations. Generally, there is less
governmental regulation of foreign securities markets, and security trading
practices abroad may offer less protection to investors such as the Utilities
Stock Portfolio.
The value of such investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of portfolios or
assets, or imposition of (or change in) exchange control or tax regulations in
those foreign countries. Additional risks of foreign securities include
settlement delays and costs, difficulties in obtaining and enforcing judgments,
and taxation of dividends at the source of payment.
The Subadviser intends to manage the Utilities Stock Portfolio actively in
pursuit of its investment objective. The Utilities Stock Portfolio does not
expect to trade in securities for short-term profits but, when circumstances
warrant, securities may be sold without regard to the length of time held.
MUTUAL FUND PORTFOLIO
(TACTICAL ASSET ALLOCATION FUND)
The Mutual Fund Portfolio will be invested in securities which fluctuate in
market value, so net asset value per share will fluctuate as well. The Mutual
Fund Portfolio may have more than five percent of its assets invested in one
fund. If the underlying fund performs poorly, this could negatively impact the
value of the Mutual Fund Portfolio. Thus, there is no guarantee that a
<PAGE>
shareholder will receive the full amount of his investment upon the redemption
of shares. The Mutual Fund Portfolio does, however, seek to minimize the risk of
loss through diversification and, at times, the use of hedging techniques and
defensive investment strategies. Hedging involves risks which are not present in
some other mutual funds with similar objectives (See "Hedging Strategies.")
Although the Mutual Fund Portfolio will invest in a number of underlying
mutual funds, this practice will not eliminate investment risk. To the extent
that the Mutual Fund Portfolio invests in underlying funds which leverage
investments or concentrate investments in one industry, an investment in the
Mutual Fund Portfolio will indirectly entail the additional risks associated
with these practices. Leveraged mutual funds may have higher volatility than the
over-all market or other mutual funds. This may result in greater gains or
losses than the over-all market or other non-leveraged mutual funds. Mutual
funds which concentrate investments in a single industry lack normal
diversification and are exposed to losses stemming from negative industry-wide
developments.
An investor in Tactical Asset Allocation Fund should recognize that he may
invest directly in mutual funds and that by investing in mutual funds indirectly
through the Mutual Fund Portfolio, he will bear not only his proportionate share
of the expenses of the Mutual Fund Portfolio (including operating costs and
investment advisory and administrative fees) but also indirectly similar
expenses of the underlying mutual funds.
ADDITIONAL RISK FACTORS - GROWTH STOCK, UTILITIES STOCK AND MUTUAL FUND
PORTFOLIOS
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the security underlying the option contract
and the risk that there may not be a liquid secondary market for the option when
a Portfolio seeks to repurchase a call option. In addition, the total premium
paid for an option contract could be lost if a Portfolio does not sell the
contract or exercise the contract prior to its expiration date. Entering into a
covered call writing transaction can also limit the appreciation potential of a
Portfolio.
Futures contracts likewise involve some risk. It is possible that the
contract(s) selected by the Manager or the Subadviser will not follow exactly
the price movement of the securities covered by the contract. If this occurs,
the objective of the hedging strategy may not be successful. There may not be a
liquid market for futures positions when a Portfolio seeks to remove a hedge
transaction. The liquidity of both options and futures contracts may also be
affected if options and futures exchanges impose trading halts, particularly
when markets are volatile.
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, security or index.
Accordingly, these financial futures contracts or related options used by a
Portfolio to implement its hedging strategies (see "Hedging Strategies") are
considered derivatives. The value of derivatives can be affected significantly
by even small market movements, sometimes in unpredictable ways. They do not
necessarily increase risk, and may in fact reduce risk.
Each of the Portfolios may invest in private placement commercial paper and
repurchase agreements with banks and securities brokers.
<PAGE>
All repurchase agreements entered into by a Portfolio will be fully
collateralized. The Portfolio's risk is that the seller may fail to repurchase
the security on the delivery date. If the seller defaults, the underlying
security constitutes collateral for the seller's obligation to pay. It is a
policy of the Portfolio to make settlement on repurchase agreements only upon
proper delivery of the underlying collateral. In the event of a bankruptcy or
other default of a seller of a repurchase agreement to the Portfolio, the
Portfolio could encounter delays and expenses in enforcing its rights and could
experience losses, including a decline in the value of the underlying securities
and loss of income.
Private placement commercial paper ("Rule 144A securities") consists of
unregistered securities which are traded in public markets to qualified
institutional investors, such as the Portfolios. A Portfolio's risk is that the
universe of potential buyers for the securities, should the Portfolio desire to
liquidate a position, is limited to qualified dealers and institutions, and
therefore such securities could have the effect of being illiquid.
INTERNATIONAL EQUITY FUND
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.
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
<PAGE>
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 has
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
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.
<PAGE>
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.
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. 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. Successful 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
- --------------------------------------------------------------------------------
The Trust was organized as a Massachusetts business trust on June 22, 1992.
All of its constituent funds are diversified open-end management companies. 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 Trust has not retained an investment adviser for the Core Equity,
Utility Growth, and Tactical Asset Allocation Funds because the Trust seeks to
achieve the investment objectives of those Funds by investing each Fund's assets
in its corresponding Portfolio. Each Portfolio has retained the services of R.
Meeder & Associates, Inc. as investment adviser. The International Equity Fund
has also 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 Portfolios and the International Equity Fund
pursuant to Investment Advisory Contracts under the terms of which it has agreed
to provide an investment program within the limitations of each Portfolio's and
the Fund's investment policies and restrictions, and to furnish all executive,
administrative, and clerical services required for the transaction of Portfolio
and Fund business, other than accounting services and services which are
provided by each Portfolio's or the International Equity Fund's custodian,
transfer agent, independent accountants and legal counsel, and investment
advisory services provided by the Subadvisers to the Growth Stock Portfolio,
Utilities Stock Portfolio, and International Equity Fund.
<PAGE>
The Manager has served as the investment adviser to the Growth Stock
Portfolio and its predecessor since 1985. The Manager engaged Sector Capital
Management, L.L.C. and the Sector Advisers to manage the Growth Stock
Portfolio's equity investments beginning January 1, 1997. The Manager invests
the Growth Stock Portfolio's liquidity reserves and may invest the Growth Stock
Portfolio's financial futures contracts and related options. See "Additional
Investment Policies - Hedging Strategies and Option Strategies."
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 Funds' transfer agent; Adviser Dealer Services, Inc., the
Funds' 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.
The Manager earns an annual fee, payable in monthly installments, from each
Portfolio at the rate of 1.00% of the first $50 million, .75% of the next $50
million and .60% in excess of $100 million, of average net assets. The Manager
earns an annual fee from the International Equity 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.
With regard to the Growth Stock Portfolio, all compensation paid to the
Manager will be shared by the Manager and the Subadviser out of the Manager's
fee from the Portfolio in accordance with a formula such that the Manager will
receive 70% and the Subadviser 30% of the fee payable with respect to the net
assets of the Portfolio on December 31, 1996 (the effectiveness of the
subadvisory arrangement); then the Manager will receive 30% and the Subadviser
70% of the fee attributable to any additional net assets of the Portfolio up to
an amount of net assets equal to the net assets on such date; then the Manager
and the Subadviser will share equally the fee attributable to any additional net
assets of the Portfolio up to $50 million of net assets. With respect to net
assets of more than $50 million and less than $100 million, the applicable fee
of 0.75% will be shared such that the Manager will receive 0.35% and the
Subadviser 0.40%. For net assets of $100 million and more, the applicable 0.60%
fee would be shared such that the Manager would receive 0.25% and Subadviser
0.35%.
Accounting, stock transfer, dividend disbursing, and shareholder services
are provided to the Portfolios and the Funds 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 in each Portfolio
is $7,500. The annual minimum fee for the International Equity Fund is $30,000.
Subject to the applicable minimum fee, the fee in each Portfolio and the
International Equity Fund is computed at the rate of 0.15% of the first $10
million, 0.10% of the next $20 million, 0.02% of the next $50 million and 0.01%
in excess of $80 million of each Portfolio's average net assets. In addition,
each Fund incurs (subject to a $4,000 annual minimum fee) an annual fee of the
greater of $15 per shareholder account or 0.10% of the Funds' average net
assets, payable monthly, for stock transfer, dividend disbursing and shareholder
support services. Mutual Funds Service Co. also serves as Administrator to the
Funds. Services provided to the Funds include coordinating and monitoring any
third party services to the Funds; providing the necessary personnel to perform
administrative functions for the Funds; assisting in the preparation, filing and
<PAGE>
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. Each Fund incurs an
annual fee, payable monthly, of .05% of the Fund's average net assets. These
fees are reviewed annually by the Trustees of the Trust and the Portfolios. For
the year ended December 31, 1997, total payments to Mutual Funds Service Co.
amounted to $162,885 for all of the Portfolios and the International Equity
Fund.
A broker-dealer, including the Manager's affiliate, Adviser Dealer
Services, Inc., may use a portion of the commissions paid by a Portfolio or the
International Equity Fund to reduce the Portfolio's or the Fund's expenses. The
Manager, Subadvisers and Sector Advisers may take into account sales of shares
of a Fund and other funds advised by them in selecting broker-dealers to effect
portfolio transactions on behalf of a Portfolio or the International Equity
Fund.
Information concerning the Trustees and officers of the Trust and the
Portfolios appears in the Statement of Additional Information.
SUBADVISER - GROWTH STOCK PORTFOLIO
Sector Capital Management, L.L.C. ("Sector Capital"), 5350 Poplar Avenue,
Suite 490, Memphis, Tennessee 38119, serves as the Growth Stock Portfolio's
subadviser under an Investment Subadvisory Agreement among the Portfolio, the
Manager and Sector Capital. Sector Capital furnishes investment advisory
services in connection with the management of the Portfolio.
The Manager and Sector Capital have the ultimate responsibility for the
investment performance of the Portfolio due to the Manager's responsibility to
oversee Sector Capital and Sector Capital's responsibility to oversee the Sector
Advisers and recommend their hiring, termination and replacement.
Sector Capital is a Georgia limited liability company that has been a
registered investment adviser to individuals, pension and profit sharing plans,
trusts, charitable organizations, corporations and other institutions since
January, 1995. As of December 31, 1997, Sector Capital held discretionary
investment authority over approximately $350 million of assets. Sector Capital
is controlled by William L. Gurner and John K. Donaldson. Mr. Gurner is
primarily responsible for the day-to-day management of the Portfolio through
interaction with each of the Sector Advisers. Mr. Gurner is also primarily
responsible for managing the futures contracts and related options of the
Portfolio on behalf of Sector Capital. Mr. Gurner has been associated with
Sector Capital since its inception in January, 1995. Mr. Gurner, President,
Administrator, Manager and a Member of Sector Capital, is a Trustee of the
Trust, the Portfolios, The Flex-funds, mutual funds whose corresponding
portfolios are also advised by the Manager, and such portfolios.
Sector Capital and the Portfolio have entered into a Sub-subadvisory
Agreement with each Sector Adviser selected for the Portfolio. It is Sector
Capital's responsibility to select, subject to the review and approval of the
Portfolio's Board of Trustees, the Sector Advisers who have distinguished
themselves by able performance in respective areas of expertise in sector
management and to review their continued performance. In addition, it is Sector
Capital's responsibility to categorize publicly traded domestic common stocks
into a specific industry sector. Sector Capital may also invest the Portfolio's
financial futures contracts and related options.
<PAGE>
Subject to the supervision and direction of the Portfolio's Board of
Trustees, Sector Capital provides to the Portfolio investment management
evaluation services principally by performing initial due diligence on
prospective Sector Advisers for the Portfolio and thereafter monitoring Sector
Adviser performance through quantitative and qualitative analysis as well as
periodic in-person, telephonic and written consultations with Sector Advisers.
In evaluating prospective Sector Advisers, Sector Capital considers, among other
factors, each Sector Adviser's level of expertise; relative performance and
consistency of performance; level of adherence to investment discipline or
philosophy; personnel, facilities and financial strength; and quality of service
and client communications. Sector Capital has responsibility for communicating
performance expectations and evaluations to Sector Advisers and ultimately
recommending to the Board of Trustees of the Portfolio whether Sector Advisers'
contracts should be renewed, modified, or terminated. Sector Capital provides
reports to the Portfolio's Board of Trustees regarding the results of its
evaluation and monitoring functions.
Sector Capital pays each Sector Adviser a fee for its investment advisory
services that is computed daily and paid monthly based on the value of the
average net assets of the Portfolio assigned by Sector Capital to the Sector
Adviser at an annual rate equal to 0.25%.
Investors should be aware that Sector Capital may be subject to a conflict
of interest when making decisions regarding the retention and compensation of
particular Sector Advisers. However, Sector Capital's decisions regarding the
selection of Sector Advisers and specific amount of the compensation to be paid
to Sector Advisers, are subject to review and approval by a majority of the
Board of Trustees of the Portfolio.
Although Sector Capital and the Sector Advisers' activities are subject to
general oversight by the Board of Trustees and the officers of the Portfolio,
neither the Board nor the officers evaluate the investment merits of any Sector
Adviser's individual security selections. The Board of Trustees will review
regularly the Portfolio's performance compared to the applicable indices and
also will review the Portfolio's compliance with its investment objectives and
policies.
While the investment professionals of the subadviser have experience in
asset management and the selection of investment advisers, prior to Sector
Capital becoming the subadviser to the Portfolio, on December 31, 1996, it did
not have previous experience in providing investment advisory services to an
investment company.
The Portfolio has received an exemptive order from the Securities and
Exchange Commission (the "SEC") which permits the Portfolio and Sector Capital
to enter into and materially amend Investment Sub-subadvisory Agreements with
Sector Advisers without such agreements being approved by the Portfolio's
investors or the Fund's shareholders except for Investment Sub-subadvisory
Agreements with an affiliated person of the Portfolio, the Manager or Sector
Capital other than by reason of such affiliated person serving as an existing
Sector Adviser to the Portfolio. The exemptive order also permits the Portfolio
and the Fund to disclose, on an aggregate basis, the fees paid to Sector
Advisers who are not such affiliated persons. In addition, the exemptive order
includes the condition that within 90 days of the hiring of any new Sector
<PAGE>
Advisers, the Manager and Sector Capital will furnish shareholders of the Fund
with an information statement about the new Sector Adviser and Investment
Sub-subadvisory Agreement. Any changes to the Investment Advisory Contract
between the Portfolio and the Manager or the Investment Subadvisory Agreement
among the Portfolio, Manager and Subadviser will still require shareholder
approval. The initial shareholder of the Core Equity Fund approved the operation
of the Fund in accordance with the exemption.
SECTOR ADVISERS - GROWTH STOCK PORTFOLIO: The Sector Advisers have agreed
to an investment advisory fee based on the average net assets of the Growth
Stock Portfolio assigned to them by Sector Capital at an annual rate equal to
.25%, which is generally lower than the fees they charge to institutional
accounts for which they serve as investment adviser, and for which they perform
all administrative responsibilities.
Subject to the supervision and direction of Sector Capital and, ultimately,
the Board of Trustees of the Portfolio, each Sector Adviser's responsibilities
are limited to managing its portion of the securities held by the Portfolio in
accordance with the Portfolio's stated investment objective and policies, making
investment decisions for the Portfolio and placing orders to purchase and sell
securities on behalf of the Portfolio. The following sets forth certain
information about each of the Sector Advisers:
MILLER/HOWARD INVESTMENTS, INC. serves as Sector Adviser to the utilities
and transportation sectors of the Portfolio. Miller/Howard is a registered
investment adviser which has been providing investment services to
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1997, Miller/Howard held discretionary investment authority over
approximately $103 million of assets. Lowell G. Miller and Helen Hamada who are,
respectively, Miller/Howard's President, Secretary and a director and its Vice
President, Treasurer and a director, each owns more than 10% of the outstanding
voting securities of Miller/Howard. Mr. Miller controls Miller/Howard through
stock ownership. Miller/Howard is also the subadviser to the Utilities Stock
Portfolio, a corresponding portfolio to The Flex-funds' Total Return Utilities
Fund and The Flex-Partners' Utility Growth Fund. Mr. Miller is the portfolio
manager primarily responsible for the day-to-day management of those assets of
the Portfolio allocated to Miller/Howard. Mr. Miller has been associated with
Miller/Howard since 1984. Mr. Miller is a Trustee of the Trust, the Portfolios,
and The Flex-funds, mutual funds whose corresponding portfolios are also advised
by the Manager, and such portfolios. Miller/Howard's principal executive offices
are located at 141 Upper Byrdcliffe Road, Post Office Box 549, Woodstock, New
York 12498.
HALLMARK CAPITAL MANAGEMENT, INC. serves as Sector Adviser to the capital
goods sector of the Portfolio. Hallmark is a registered investment adviser which
has been providing investment services to individuals; banks; pension, profit
sharing, and other retirement plans; trusts; endowments; foundations; and other
charitable organizations since 1986. As of December 31, 1997, Hallmark held
discretionary investment authority over approximately $145 million of assets.
Peter S. Hagerman, Katherine A. Skwieralski, and Jeffrey P Braff each own more
than 10% of the outstanding voting securities of Hallmark. Mr. Hagerman,
Chairman of the Board, President, and Chief Executive Officer, Thomas S. Moore,
Senior Vice President and Chief Investment Officer, and Kathryn A. Skwieralski,
Senior Vice President, Treasurer, Chief Financial and Administrative Officer,
<PAGE>
are the directors of Hallmark. Mr. Hagerman is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Portfolio
allocated to Hallmark. Mr. Hagerman has been associated with Hallmark since
1986. Hallmark's principal executive offices are located at One Greenbrook
Corporate Center, 100 Passaic Avenue, Fairfield, New Jersey 07004.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as Sector Adviser to the
consumer durable and non-durable sectors of the Portfolio. Barrow is a
registered investment adviser which has been providing investment services to
banks; investment companies; pension and profit sharing plans; charitable
organizations and corporations since 1979. As of December 31, 1997, Barrow held
discretionary investment authority over approximately $28.8 billion of assets.
Barrow is a wholly-owned subsidiary of United Asset Management. Bryant M.
Hanley, Jr., President and Chief Executive Officer, is the sole director of
Barrow. Michael C. Mewhinney is the portfolio manager primarily responsible for
the day-to-day management of those assets of the Portfolio allocated to Barrow.
Mr. Mewhinney has been associated with Barrow since 1979. Barrow's principal
executive offices are located at 3232 McKinney Avenue, 15th Floor, Dallas, Texas
75204-2429.
THE MITCHELL GROUP, INC. serves as Sector Adviser to the energy sector of
the Portfolio. The Mitchell Group is a registered investment adviser which has
been providing investment services to individuals; banks; investment companies;
pension and profit sharing plans; charitable organizations, corporations and
other institutions since 1989. As of December 31, 1997, The Mitchell Group held
discretionary investment authority over approximately $315 million of assets.
Rodney Mitchell, President, Chief Executive Officer, Chief Financial Officer and
sole director, owns more than 10% of the outstanding voting securities of The
Mitchell Group. Mr. Mitchell is the portfolio manager primarily responsible for
the day-to-day management of those assets of the Portfolio allocated to The
Mitchell Group. Mr. Mitchell has been associated with The Mitchell Group since
1989. The Mitchell Group's principal executive offices are located at 1100
Louisiana, #4810, Houston, Texas 77002.
ASHLAND MANAGEMENT INCORPORATED serves as Sector Adviser to the materials
and services sector of the Portfolio. Ashland is a registered investment adviser
which has been providing investment services to individuals, pension and profit
sharing plans, charitable organizations, corporations and other institutions
since 1975. As of December 31, 1997, Ashland managed accounts having a value of
approximately $1.3 billion. Charles C. Hickox, Chairman of the Board, Chief
Executive Officer and a director, and Parry v.S. Jones, President, Chief
Operating Officer and a director, each owns more than 10% of the outstanding
voting securities of Ashland. Terrence J. McLaughlin, Managing Director of
Ashland and Deborah C. Ohl, a Portfolio Management Associate, are the portfolio
managers primarily responsible for the day-to-day management of those assets of
the Portfolio allocated to Ashland. Mr. McLaughlin has been associated with
Ashland since 1984. Ms. Ohl has been employed by Ashland since August, 1992 and
has served as a Portfolio Management Associate for Ashland since 1993. From May,
1991 until July, 1992, Ms. Ohl was a research and sales assistant with Kidder,
Peabody & Co., Incorporated. Ashland's principal executive offices are located
at 26 Broadway, New York, New York 10004.
SCUDDER KEMPER INVESTMENTS, INC. serves as Sector Adviser to the finance
sector of the Portfolio. Scudder Kemper is a registered investment adviser which
has been providing investment services to individuals, banks, investment
companies, pension and profit sharing plans, charitable organizations,
<PAGE>
corporations and other institutions for more than seventy years. As of January
31, 1998, Scudder Kemper held discretionary investment authority over
approximately $210 billion of assets. Scudder Kemper is approximately 70% owned
by Zurich Insurance Company, with the balance owned by Scudder Kemper's officers
and employees. Thaddeus W. Paluszek is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Portfolio
allocated to Scudder Kemper. Mr. Paluszek is Vice President of Scudder Kemper
and has been associated with Scudder Kemper since 1993. Scudder Kemper's
principal executive offices are located at 345 Park Avenue, New York, NY 10017.
DRESDNER RCM GLOBAL INVESTORS, L.L.C. (formerly RCM Capital Management,
L.L.C.) serves as Sector Adviser to the technology sector of the Portfolio.
Dresdner RCM is a registered investment adviser that provides investment
services to institutional and individual clients and registered investment
companies, with approximately $30.0 billion of assets under management as of
December 31, 1997. Dresdner RCM was established in April 1996, as the successor
to the business and operations of RCM Capital Management, a California Limited
Partnership, which, with its predecessors, has been in operation since 1970.
Dresdner RCM is a wholly-owned subsidiary of Dresdner Bank AG, an international
banking organization with principal executive offices in Frankfurt, Germany. The
Board of Managers of Dresdner RCM is comprised of William L. Price, Chairman of
the Board, Chief Investment Officer and Principal of Dresdner RCM, Michael J.
Apatoff, President and Principal of Dresdner RCM, Gerhard Eberstadt, Senior
Chairman of Dresdner, George N. Fugelsang, Senior General Manager of Dresdner,
Joachim Madler, Director of Dresdner, Luke D. Knecht, Senior Vice President of
Dresdner RCM, Jeffrey S. Rudsten, Principal of Dresdner RCM, William S. Stack,
Principal of Dresdner RCM, and Kenneth B. Weeman, Jr., Principal and Head of
Equity Trading of Dresdner RCM. Walter C. Price and Huachen Chen, each
Principals of Dresdner RCM, are the portfolio managers primarily responsible for
the day-to-day management of those assets of the Portfolio allocated to Dresdner
RCM. Messrs. Price and Chen have managed equity portfolios on behalf of Dresdner
RCM since 1985. Dresdner RCM's principal executive offices are located at Four
Embarcadero Center, San Francisco, CA 94111.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
certain banking entities, such as Dresdner, from sponsoring, organizing,
controlling or distributing the shares of a registered investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities. However, banks and their affiliates generally can
act as an adviser (or sub-subadviser) to an investment company and can purchase
shares of an investment company as agent for and upon the order of customers.
Dresdner RCM believes that it may perform the services contemplated by the
investment management agreement without violating these banking law regulations.
However, future changes in legal requirements relating to the permissible
activities of banks and their affiliates at will as future interpretations of
current requirements, could prevent Dresdner RCM from continuing to perform
investment management services for the Portfolio.
ALLIANCE CAPITAL MANAGEMENT L.P. serves as Sector Adviser to the health
sector of the Portfolio. Alliance, a registered investment adviser, is an
international investment manager supervising client accounts with assets as of
December 31, 1997 totaling approximately $218.7 billion. Alliance provides
<PAGE>
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. The general partner of Alliance, Alliance Capital Management Corporation,
is an indirect subsidiary of, and is controlled by, AXA-UAP, a French insurance
holding company. Raphael L. Edelman, Vice President of Alliance, is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Portfolio allocated to Alliance. Mr. Edelman, who has fourteen
years of investment experience, joined Alliance's research department in 1986 as
an analyst after working two years as a manager in Alliance's mutual fund
division. Alliance's principal executive offices are located at 1345 Avenue of
the Americas, New York, NY 10105.
SUBADVISER - UTILITIES STOCK PORTFOLIO
Miller/Howard Investments, Inc. ("Miller/Howard"), 141 Upper Byrdcliffe
Road, Woodstock, New York 12498, serves as the Utilities Stock Portfolio's
subadviser under an Investment Subadvisory Agreement between the Manager and
Miller/Howard. Miller/Howard furnishes investment advisory services in
connection with the management of the Utilities Stock Portfolio. The Subadviser
is compensated for its services by the Manager based on the value of the average
daily net assets of the Portfolio, payable monthly, computed at the rate of .00%
of the first $10 million, .40% of the next $50 million, .30% of the next $40
million and .25% in excess of $100 million of the Portfolio's average net
assets. 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.
Miller/Howard, a Delaware corporation, is a registered investment adviser
which has been providing investment services to broker-dealers, investment
advisers, employee benefit plans, endowment portfolios, foundations and other
institutions and individuals since 1984. As of December 31, 1997, Miller/Howard
held discretionary investment authority over approximately $103 million of
assets.
SUBADVISER - INTERNATIONAL EQUITY FUND
Commercial Union Investment Management, Limited ("Commercial Union") is a
wholly-owned subsidiary of Commercial Union plc., an international insurance and
financial services organization which has managed global and international
assets since 1861, and can trace its roots back to 1696. Commercial Union was
established in 1986 by the Commercial Union plc. as an independent investment
management company in its own right, and as of December 31, 1997, Commercial
Union and its affiliates have $115 billion in assets under management.
Commercial Union is an investment adviser to mutual funds, public and corporate
employee benefit plans, charities, insurance companies, banks, investment trusts
and other institutions. Commercial Union 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 of 1986.
Commercial Union serves as the Fund's subadviser under an Investment
Subadvisory Agreement between the Manager and Commercial Union. Commercial Union
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, Cape Town and Melbourne. Commercial Union
<PAGE>
owns a controlling interest in the shares of the Fund. Commercial Union 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 Commercial Union's performance of such services.
PORTFOLIO MANAGERS
The individuals primarily responsible for the management of each of the
Growth Stock, Utilities Stock, and Mutual Fund Portfolios, and International
Equity Fund are listed below:
William L. Gurner is primarily responsible for the day-to-day management of
the Growth Stock Portfolio through interaction with each of the Sector Advisers
and has managed the Growth Stock Portfolio since December 31, 1996. Mr. Gurner
is also primarily responsible for managing the futures contracts and related
options of the Growth Stock Portfolio on behalf of Sector Capital. Mr. Gurner
has been associated with Sector Capital since its inception in January 1995. Mr.
Gurner, President, Administrator, Manager and a Member of Sector Capital, is a
Trustee of the Portfolios, the Trust, and the Flex-funds, mutual funds whose
corresponding portfolios are also advised by the Manager, and such portfolios.
Lowell G. Miller is the portfolio manager primarily responsible for the day
to day management of the Utilities Stock Portfolio. Mr. Miller is a Vice
President and Trustee of the Portfolios, the Trust, The Flex-funds, mutual funds
whose corresponding portfolios are also advised by the Manager, and is a
director and the President of Miller/Howard. Mr. Miller has been associated with
Miller/Howard and its predecessor since 1984, has managed the Utilities Stock
Portfolio since its inception in 1995, and controls the Subadviser through
ownership of voting common stock.
Robert S. Meeder, Jr. and Philip A. Voelker are the portfolio managers
primarily responsible for the day to day management of the Mutual Fund
Portfolio. Mr. Meeder, a Vice President of the Portfolios, the Trust, and The
Flex-funds, mutual funds whose corresponding portfolios are also advised by the
Manager, is the President/Portfolio Manager of the Manager. Mr. Meeder has been
associated with the Manager since 1983 and has managed the Mutual Fund Portfolio
since 1988.
Philip A. Voelker is also primarily responsible for the day-to-day
management of the Money Market Portfolio and primarily responsible for managing
the liquidity reserve of the Growth Stock Portfolio and managing the futures
contracts and related options of the Growth Stock Portfolio on behalf of the
Manager. Mr. Voelker is a Vice President and Trustee of the Portfolios, Vice
President of The Flex-funds and Senior Vice President of the Manager. Mr.
Voelker has been associated with the Manager since 1975, has managed the Money
Market Portfolio since 1985 and began co-managing the Mutual Fund Portfolio on
April 30, 1998.
The lead portfolio manager of the International Equity Fund is David Keen.
Mr. Keen is responsible for managing the overall strategic asset allocation of
the Fund. Mr. Keen joined Commercial Union plc. in 1971 and Commercial Union at
its inception in 1986, and he is a Director of Commercial Union. Mr. Keen is
also Chief Investment Officer for all North American based accounts of
Commercial Union and fund director of Commercial Union's Staff Pension Fund.
<PAGE>
Jane Coffee, Rodney Reid, Andrew Hitchings, Carrie Schloss and Mamoru Imai
exercise regional portfolio management responsibilities for the International
Equity Fund. Jane Coffee, European Fund Manager of the Subadviser, joined
Commercial Union plc. in 1997 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 serves as the distributor of the shares of the Fund. The
Distributor is an affiliated person of the Manager and a subsidiary of Muirfield
Investors, Inc. The Manager, Subadvisers or the Sector Advisers may select the
Distributor to execute transactions for the Portfolios or the International
Equity 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 affiliated person of the Manager and a wholly-owned subsidiary of
Muirfield Investors, Inc., provides stock transfer, dividend disbursing, and
administrative services to each Fund.
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GROWTH STOCK PORTFOLIO TRANSACTION POLICIES
- --------------------------------------------------------------------------------
Decisions to buy and sell securities are made by the Sector Advisers for
the assets assigned to them, and by the Manager and Sector Capital for assets
not assigned to a Sector Adviser. Currently, each portfolio representing an
industry sector has one Sector Adviser. The Manager invests the Growth Stock
Portfolio's liquidity reserves and the Manager or Sector Capital may invest the
Portfolio's assets in financial futures contracts and related options. Each
Sector Adviser makes decisions to buy or sell securities independently from
other Sector Advisers. In addition, when a Sector Adviser's services are
terminated and another retained, the new Sector Adviser may significantly
restructure the Portfolio's assets assigned to it. These practices may increase
the Portfolio's portfolio turnover rates, realization of gains or losses, and
brokerage commissions. The portfolio turnover rates for the Portfolio may vary
greatly from year to year as well as within a year and may be affected by sales
of investments necessary to meet cash requirements for redemptions of shares. A
<PAGE>
high rate of turnover involves correspondingly greater expenses, increased
brokerage commissions and other transaction costs, which must be borne by the
Portfolio and their shareholders. See "Portfolio Turnover" elsewhere in this
Prospectus and in the Statement of Additional Information. In addition, high
portfolio turnover may result in increased short-term capital gains, which, when
distributed to shareholders, are treated as ordinary income. See "Income
Dividends and Taxes."
The Portfolio may effect portfolio transactions with or through the
Manager, Sector Capital or Sector Advisers, or their affiliates, when the
Manager, Sector Capital or Sector Advisers, as appropriate, determine that the
Portfolio will receive the best net price and execution. This standard would
allow the Manager, Sector Capital or Sector Advisers, or their affiliates, to
receive no more than the remuneration that would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction.
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
Each of the Core Equity, Utility Growth, and Tactical Asset Allocation
Funds has adopted two plans of distribution pursuant to Rule 12b-1 (the
"Distribution Plans") in accordance with the regulations under the Investment
Company Act of 1940, as amended (the "1940 Act"). Under the provisions of the
Distribution Plans, each of these Funds makes payments to the Distributor based
on an annual percentage of the average daily value of the net assets of each
class of shares as follows:
CLASS DISTRIBUTION FEE
----- ----------------
A 0.25%
C 0.75%
Each of the Core Equity, Utility Growth, and Tactical Asset Allocation
Funds has adopted two service plans (the "Service Plans"). Under the provisions
of the Service Plans, each of these Funds makes payments to the Distributor
based on an annual percentage of the average daily value of the net assets of
each class of shares as follows:
CLASS SERVICE FEE
----- -----------
A 0.25%
C 0.25%
The International Equity 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 International
Equity Fund makes payments to the Distributor based on 0.25% annually of the
average daily value of the net assets of the Fund. The International Equity Fund
has also adopted a service plan (the "Service Plan"). Under the provisions of
the Service Plan, the International Equity 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 for
personal services and/or the maintenance of shareholder accounts. A portion of
any initial commission paid to dealers for the sale of shares of each Fund
represents payment for personal services and/or the maintenance of shareholder
<PAGE>
accounts by such dealers. Dealers who have sold Class A shares are eligible for
further reimbursement commencing as of the time of such sale. Dealers who have
sold Class C shares are eligible for further reimbursement after the first
twelve months during which such shares have been held of record by such dealer
as nominee for its clients (or by such clients directly). Any service fees
received by the Distributor and not allocated to dealers 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 offset initial and ongoing
commissions paid 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.
A rule of the National Association of Securities Dealers, Inc. ("NASD")
limits the annual expenditures which each Fund may incur under the Distribution
Plans and the Service Plans 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 rule also limits the aggregate amount which each Fund may pay for such
distribution costs to 6.25% of gross share sales of a class since the inception
of any asset-based sales charge plus interest at the prime rate plus 1% on
unpaid amounts thereof (less any contingent deferred sales charge). Such
limitation does not apply to shareholder service fees.
The Plans were approved by the Board of Trustees, who made a determination
that there is a reasonable likelihood that the Plans will benefit each Fund.
The Manager or the Subadvisers may use their resources to pay expenses
associated with the sale of each Fund's 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 each Fund's shares. However, the Funds do not
pay the Manager or Subadvisers any separate fees for this service.
- --------------------------------------------------------------------------------
INCOME DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. Dividends of the Core Equity Fund
and Tactical Asset Allocation Fund, if any, are declared payable to shareholders
on a quarterly basis. The Utility Growth Fund's dividends, if any, are
distributed at the end of each month and declared payable to shareholders on the
last business day of each month to shareholders of record as of the previous
business day. The International Equity Fund's dividends will be declared payable
to shareholders on at least an annual basis.
In December, each 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. Dividends paid by the Core Equity, Utility
Growth, and Tactical Asset Allocation Funds with respect to Class A shares and
Class C shares, to the extent any dividends are paid, will be calculated in the
same manner at the same time, on the same day and will be in the same amount
except that each class will bear its own distribution charges, resulting in
lower dividends for Class C shares. Distributions of net capital gains, if any,
will be paid in the same amount for Class A shares and Class C shares.
<PAGE>
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. Each 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. Both the Utility Growth Fund and the Tactical Asset Allocation Fund
qualified as "regulated investment companies" for each of the last three fiscal
years, and the Core Equity Fund and International Equity Fund qualified as
"regulated investment companies" last year.
Each 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. Both the Core
Equity Fund and the Tactical Asset Allocation Fund expect to make such a
distribution in future years.
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.
A portion of each Fund's dividends may qualify for the dividends-received
deduction available to corporations. Each Fund will send you a tax statement by
January 31 showing the tax status of distributions you received in the previous
year and will file a copy with the IRS.
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 each 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.
"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."
<PAGE>
BACKUP WITHHOLDING. Each 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 backup withholding for previous under
reporting to the IRS, or that you are exempt from backup withholding.
Each 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 each Fund at any time.
CURRENCY CONSIDERATIONS. If the International Equity 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 International Equity 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
International Equity Fund and its investments and these taxes generally will
reduce the International Equity 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
International Equity Fund, but will also show the amount of the available
offsetting credit or deduction.
- --------------------------------------------------------------------------------
HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
Except in the International Equity Fund, 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, where applicable, (1) the
securities held by a Fund's Portfolio or (2) the securities held by the Fund.
Net asset value is obtained by dividing the value of a Fund's assets (i.e., the
value of its investment in the corresponding Portfolio and other assets), less
its liabilities, by the total number of its shares of beneficial interest
outstanding at the time.
Net asset value is determined separately for Class A shares and Class C
shares. Although the legal rights of Class A shares and Class C shares are
substantially identical, the different expenses borne by each class will result
in different net asset values and dividends. The net asset value of Class C
shares will generally be lower than the net asset value of Class A shares as a
result of the larger distribution fee accrual with respect to Class C shares.
<PAGE>
The International Equity Fund's assets are valued primarily on the basis of
market quotations based on Portfolio values received at 3:00 p.m. Eastern time.
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.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION AND REPORTS
- --------------------------------------------------------------------------------
A 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 a Fund's investment results
and/or comparisons of its investment results to the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Utility Average Index, the Morgan
Stanley Capital International - Europe Australia, 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. Each 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.
A Fund may provide period and average annualized "total return" quotations.
A 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.
Period and average annualized total return are calculated separately for Class A
shares and Class C shares, where applicable. Average annual total return
smoothes out variations in performance and takes into account any applicable
initial or contingent deferred sales charges.
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 each Fund will vary depending upon
interest rates, the current market value of the securities held by the Fund's
corresponding Portfolio, and changes in the Fund's expenses. In addition, during
certain periods for which total return quotations may be provided, the Manager
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.
Shareholders will receive financial reports semi-annually that include each
Fund's financial statements, including listings of investment securities held by
each Fund's corresponding Portfolio at those dates. Annual reports are audited
by independent accountants.
<PAGE>
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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 Trust's 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
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 Fund by a specified number of
shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees.
<PAGE>
Each Portfolio, in which all the investable assets of a corresponding Fund
will be invested, is organized as a trust under the laws of the State of New
York. Each Portfolio's Declaration of Trust provides that a Fund and other
entities investing in the Portfolio (e.g., other investment companies, insurance
company separate accounts, and common and commingled trust funds) will each be
liable for all obligations of that Portfolio. However, the risk of a Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and that Portfolio
itself was unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither a Fund nor its shareholders will be adversely
affected by reason of a Fund's investing in the corresponding Portfolio. In
addition, whenever the Trust is requested to vote on matters pertaining to the
fundamental policies of a Portfolio, the Trust will hold a meeting of the
corresponding Fund's shareholders and will cast its vote as instructed by the
Fund's shareholders.
Each class of shares represents identical interests in the applicable
Fund's investment portfolio. As such, they have the same rights, privileges and
preferences, except with respect to the: (a) designation of each class, (b)
effect of the respective sales charges, if any, for each class, (c) distribution
fees borne by each class, (d) expenses allocable exclusively to each class, (e)
voting rights on matters exclusively affecting a single class, (f) exchange
privilege of each class and (g) any conversion feature applicable to a class.
INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund, with the exception of the International
Equity Fund, seeks to achieve its investment objectives by investing all of its
investable assets in a corresponding Portfolio, a separate registered investment
company with the same investment objectives as the Fund. Therefore, an
investor's interest in the Portfolio's securities is indirect. In addition to
selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in the Portfolio are not required to sell their shares at the same
public offering price as the Fund. Investors in the Fund should be aware that
these differences may result in differences in returns experienced by investors
in the different funds that invest in the Portfolio. Such differences in returns
are also present in other mutual fund structures. Information concerning other
holders of interests in the Portfolio is available by contacting the Trust by
calling: 1-800-494-FLEX, or (614) 766-7074.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility also exists for traditionally structured funds which have large or
institutional investors.) Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes in the same proportion as do the Fund's shareholders.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Trust to withdraw the Fund's interest in the
Portfolio. Any such withdrawal could result in a distribution in kind of
<PAGE>
portfolio securities (as opposed to a cash distribution from the Portfolio). If
such securities are distributed, the Fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Fund.
The Trust may withdraw the investment of any Fund from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so. Upon any such withdrawal, the
Board of Trustees would consider what action might be taken, including the
investment of all the assets of the Fund in another pooled investment entity
having the same investment objectives as that Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies with respect to that Fund's corresponding Portfolio. The inability to
find an adequate investment pool or investment adviser could have a significant
impact on shareholders' investment in the Fund.
As stated in "Investment Objectives and Policies," except as otherwise
expressly provided herein, a Portfolio and a Fund's investment objective and
policies are not fundamental and may be changed by their respective Trustees
without shareholder approval. (No such change would be made, however, without 30
days written notice to shareholders.)
For descriptions of the investment objective and policies of the
Portfolios, see "Investment Objective and Policies." For descriptions of the
management and expenses of the Portfolios, see "The Trust and Its Management"
herein, and "Investment Adviser and Manager", "Investment Subadviser" and
"Trustees and Officers" in the Statement of Additional Information.
YEAR 2000
Like other mutual funds and businesses, The Flex-Partners could be
adversely affected if the computer systems used by the Adviser, Mutual Funds
Service Co. and other service providers to The Flex-Partners are unable to
process and calculate date-related information and data from and after January
1, 2000. Therefore, the Adviser and Mutual Funds Service Co. are currently
taking steps they believe are reasonably designed to assess any potential Year
2000 problems affecting the computer systems upon which they or The
Flex-Partners rely. In addition, The Flex-Partners has obtained reasonable
assurances that comparable steps are being taken by its other service providers.
All service providers have informed The Flex-Partners that they plan to be Year
2000 compliant by the end of 1998, and The Flex-Partners will continue to
monitor their progress.
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HOW TO BUY SHARES
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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.
BE SURE TO SPECIFY THE NAME OF THE FUND AND CLASS OF SHARES IN WHICH YOU WISH TO
INVEST. A check payable to each Fund you specify must accompany the New Account
Application. Payments may be made by check or Federal Reserve Draft payable to
the particular Fund(s) specified on the application (Core Equity Fund, Utility
Growth Fund, Tactical Asset Allocation Fund, and International Equity Fund) and
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 each 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.
Wire orders for shares of the Funds 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., the Custodian for the Funds.
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 and class of shares in which you wish to invest. Advise the Fund of
the amount you wish to invest and obtain an account number and instructions.
Money sent by a single wire can only be invested in one Fund. Have your bank
wire federal funds to:
STAR BANK, N.A. CINTI/TRUST
ABA #: 042-00001-3
ATTENTION: THE FLEX-PARTNERS
(and Name of Fund - see below)
CREDIT ACCOUNT NUMBER (account
number for Fund as follows):
CORE EQUITY FUND--
Account Number 486447980
UTILITY GROWTH FUND--
Account Number 483608964
TACTICAL ASSET ALLOCATION FUND--
Account Number 483608972
INTERNATIONAL EQUITY FUND--
Account Number 486484298
<PAGE>
ACCOUNT NAME (your name)
YOUR FLEX-PARTNERS 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.
Each Fund will not permit redemptions until it receives the New Account
Application in good order.
SUBSEQUENT INVESTMENTS -- Subsequent investments in an existing account in
a Fund may be made by mailing a check payable to the Fund you specify. PLEASE
INCLUDE YOUR ACCOUNT NUMBER AND THE CLASS OF SHARES IN WHICH YOU WISH TO INVEST
ON THE CHECK AND MAIL AS FOLLOWS:
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 -- PURCHASE OPTIONS -- You may purchase "Class A" Shares
or "Class C" Shares of each of the Core Equity, Utility Growth, and Tactical
Asset Allocation Funds. Class A and Class C Shares bear sales charges in
different forms and amounts. Class A Shares are sold with a sales charge at the
time of purchase, which varies with the amount invested. Class C Shares have no
initial sales charge but are subject to a contingent deferred sales charge if
redeemed within twenty four months from purchase. Under a Rule 12b-1
distribution plan that provides for distribution fees and a service plan that
provides for asset based service fees, Class C Shares have a higher distribution
fee, which may cause a long-term shareholder to pay more than the economic
equivalent of the maximum Class A Share initial sales charge. YOU SHOULD CHOOSE
THE METHOD OF PURCHASING SHARES (CLASS A OR CLASS C) THAT IS MOST BENEFICIAL
GIVEN THE AMOUNT OF YOUR PURCHASE, THE LENGTH OF TIME YOU EXPECT TO HOLD THE
SHARES AND OTHER RELEVANT CIRCUMSTANCES. Maximum sales charges and fees are set
forth in the "Synopsis of Financial Information" above, and quantity discounts
for the Class A initial sales charge are set forth below.
CLASS A SHARES of each 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. Class A Shares also
<PAGE>
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, Class A shares
bear an asset based service fee of .25% per annum. The sales charge on Class A
Shares 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
Shares of the International Equity Fund 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 in the table
immediately above.
Shares of the International Equity Fund are sold at net asset value plus
the applicable sales charge as shown in the table above (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 in the
table above.
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 Class
A Shares (Core Equity, Utility Growth, or Tactical Asset Allocation Funds) or
shares (International Equity Fund) 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.
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 Class A Shares (Core Equity, Utility Growth, or Tactical
Asset Allocation Funds) or shares (International Equity Fund) 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.
<PAGE>
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.
CLASS C SHARES are sold at net asset value without an initial sales charge,
but if redeemed within eighteen months of purchase (the "CDSC Period"), a
contingent deferred sales charge ("CDSC") equal to 1.50% of the lesser of the
current market value or the cost of the shares being redeemed will apply, and if
redeemed after eighteen months of purchase and before twenty four months after
purchase, a CDSC equal to .75% of the lesser of the current market value or the
cost of the shares being redeemed will apply. No CDSC will be imposed on Class C
Shares acquired by reinvestment of distributions. In determining whether a CDSC
is applicable, it will be assumed that a redemption is made first of shares
derived from reinvestment of distributions and second of shares purchased during
the CDSC Period. Class C Shares bear an asset based service fee of 0.25% and a
Rule 12b-1 fee that is higher than the Rule 12b-1 fee for Class A Shares. Class
C Shares provide the benefit of putting all of an investor's dollars to work
from the time the investment is made, but will have a higher annual expense
ratio and pay lower dividends than Class A Shares due to the higher Rule 12b-1
fee.
All CDSC's imposed on redemptions are paid to the Distributor. The
Distributor intends to pay a commission of 1% of the purchase amount to
participating dealers at the time the investor purchases Class C shares.
CLASS C SHARES - CONVERSION/NON-CONVERSION: Class C shares of the Tactical
Asset Allocation and Utility Growth Funds issued on or before April 30, 1998
have a conversion feature described under "Additional Purchase and Redemption
Information - Convertible Class C Shares" in the Statement of Additional
Information. This conversion feature has been eliminated for Class C shares of
the Tactical Asset Allocation and Utility Growth Funds issued after April 30,
1998. Therefore, Class C shares issued after April 30, 1998 will not convert to
Class A shares, which carry a lower distribution fee, at any time.
SALES CHARGE WAIVERS: Directors, Trustees, officers and full-time employees
of the Portfolios, the Trust, the Manager, the Subadvisers 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 Funds at
net asset value.
In addition, shares of the International Equity Fund may be sold at net
asset value without an initial sales charge to shareholders who (i) have
invested on or before December 31, 1998 in mutual funds (except for The
Flex-Partners' funds) whose portfolios are advised by the Manager, and (ii)
remain continuously invested in those mutual funds up to the date they purchase
shares of the International Equity Fund.
<PAGE>
The Funds may also sell Class A Shares (Core Equity, Utility Growth,
Tactical Asset Allocation Funds) or shares (International Equity Fund) at net
asset value without an initial sales charge to clients of the Manager, the
Subadvisers, registered investment advisers, broker-dealers and financial
planners, who are purchasing on behalf of their clients or on behalf of clients
in wrap accounts, by making arrangements to do so with the Trust and the
transfer agent.
Shares of the Funds 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 Funds 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).
The Funds may waive, where applicable, the CDSC on redemption following the
death of a shareholder, or if a shareholder becomes unable to engage in any
substantial gainful activity by reason of a medically determinable physical or
mental impairment which can be expected to result in death or be of
long-continued and indefinite duration, and when a total or partial redemption
is made in connection with a distribution from IRAs or other qualified
retirement plans after attaining age 59-1/2. See "Other Shareholder Services -
Systematic Withdrawal Program" and the Statement of Additional Information.
Class A Shares of the Funds may be purchased at net asset value and the
Funds may waive the CDSC on the redemption of Class C Shares owned by banks,
bank trust departments, savings and loan associations, and federal and state
credit unions either in their fiduciary capacities or for their own accounts.
These institutions may charge fees to clients for whose accounts they purchase
shares at net asset value or for which the CDSC has been waived.
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 a 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.
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HOW TO MAKE WITHDRAWALS (REDEMPTIONS)
- --------------------------------------------------------------------------------
Shares are redeemed and funds withdrawn at net asset value per share less,
in the case of Class C shares, any applicable contingent deferred sales charge,
and there are no redemption fees. (See "How Net Asset Value Is Determined.")
<PAGE>
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, less, in the case of Class C shares, any applicable
contingent deferred sales charge. 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 Funds by certified check or
wire.
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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 along with your confirmation if you exchange into a fund not offered
in this Prospectus. 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.
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.
EXCHANGES OF CLASS A SHARES: You may exchange your Class A shares (Core
Equity, Utility Growth, or Tactical Asset Allocation Funds) or shares
<PAGE>
(International Equity Fund) for Class A shares of any Flex-Partners Fund, for
shares of the International Equity Fund, and for shares of The Flex-funds Money
Market Fund, a single-class money market fund managed by the Manager.
EXCHANGES OF CLASS C SHARES: Class C shares of each Fund, where applicable,
are exchangeable at net asset value only for Class C shares of any other
Flex-Partners Fund. Class C shares of the Funds cannot be exchanged for Class A
shares of any Flex-Partners Fund.
Each 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 (in
the case of the Core Equity, Utility Growth, and International Equity Funds)
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives 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.
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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 Roth IRA, an Education 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.")
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OTHER SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC ACCOUNT BUILDER: Regular investments in a Fund of $100 or more
will be deducted from a shareholder's checking or savings account and invested
in shares of the Fund or Funds selected. 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.
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 Trust 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.
<PAGE>
Systematic withdrawals from investor accounts owning Class C Shares will be
subject to the contingent deferred sales charge with the following exceptions.
No CDSC will be imposed on withdrawals: (1) that are made in connection with a
distribution from an IRA or other qualified retirement plan after attaining age
59-1/2; or (2) on an amount which will not exceed 10% annually of the "initial
account value" -- i.e., the value of the Fund account at the time the
shareholder elects to participate in the systematic withdrawal program and
thereafter, the value of the account as of the first day of any calendar year.
The investor may make additional investments and may change or stop the program
at any time. There is no charge for this program.
- --------------------------------------------------------------------------------
SHAREHOLDER ACCOUNTS
- --------------------------------------------------------------------------------
The Trust maintains an account for each shareholder in full and fractional
shares. Each 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 Trust 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 Trust 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 Trust 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/GROWTH STOCK PORTFOLIO
Sector Capital Management, L.L.C.
5350 Poplar Avenue, Suite 490
Memphis, Tennessee 38119
SUBADVISER/UTILITIES STOCK PORTFOLIO
Miller/Howard Investments
141 Upper Byrdcliffe Road
P. O. Box 549
Woodstock, NY 12498
SUBADVISER/INTERNATIONAL EQUITY FUND
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
Star Bank, N.A.
Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
CUSTODIAN/INTERNATIONAL EQUITY FUND
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
TABLE OF CONTENTS
Page
Highlights................................
Synopsis of Financial Information.........
Performance Comparison....................
Financial Highlights......................
Investment Objectives and Policies........
Additional Investment Policies............
Risk Factors.........................
The Trust and Its Management..............
Distribution Plans........................
Income Dividends and Taxes................
How Net Asset Value is Determined.........
Performance Information and Reports.......
Other Information.........................
How To Buy Shares.........................
How To Make Withdrawals (Redemptions).....
Exchange Privilege........................
Retirement Plans..........................
Other Shareholder Services................
Shareholder Accounts......................
THE FLEX-PARTNERS
PROSPECTUS
APRIL 30, 1998
<PAGE>
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>
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
April 30, 1998, 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
Financial Highlights...................... 4
Investment Objective and Policies......... 5
Securities and Investment Practices....... 7
Risk Considerations....................... 13
The Trust and Its Management.............. 16
Distribution Plan......................... 19
Income Dividends and Taxes................ 19
How Net Asset Value is Determined......... 21
Performance Information and Reports....... 22
Other Information......................... 23
SHAREHOLDER MANUAL
How to Buy Shares......................... 24
How to Make Withdrawals (Redemptions)..... 28
Exchange Privilege........................ 28
Retirement Plans.......................... 29
Other Shareholder Services................ 29
Shareholder Accounts...................... 30
INVESTMENT ADVISER: R. MEEDER & ASSOCIATES, INC.
INVESTMENT SUBADVISER: COMMERCIAL UNION INVESTMENT MANAGEMENT, LIMITED
PROSPECTUS DATED APRIL 30, 1998
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
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),
Roth IRA, Education 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
<PAGE>
organization which has managed global and international assets since 1861, and
can trace its roots back to 1696. As of December 31, 1997, the Subadviser and
its affiliates have $115 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."
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.
- --------------------------------------------------------------------------------
SYNOPSIS OF FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Initial Sales Charge Imposed
on Purchases (as a percentage
of offering price)..................... 4.00%1
Maximum Sales Charge Imposed on
Reinvested Dividends................... none
Maximum Contingent Deferred Sales
Charge (as a percentage of original
purchase price or redemption
proceeds, as applicable)(2)............ none
Redemption Fees............................. none
Exchange Fees............................... none
ANNUAL FUND OPERATING EXPENSES**
(As a percentage of average net assets)
Management Fees............................. 1.00%
Rule 12b-1 Fees(3).......................... 0.25%
Other Expenses (After Expense
Reimbursements*)....................... 0.50%
Service Fees(4)........................ 0.25%
-----
TOTAL FUND OPERATING EXPENSES**........... 2.00%
(After Expense Reimbursements*)
<PAGE>
EXAMPLE:
An investor would pay the following expense on a $1,000 investment in the
International Equity Fund, assuming (1) an operating expense ratio of 2.00% for
the Fund, (2) a 5% annual return throughout the period, and (3) redemption at
the end of each time period:
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
1 YEAR 3 YEARS
------ -------
$59 $100
*The Manager presently intends to reimburse the International Equity Fund
through an expense reimbursement to the extent necessary to keep total expenses
at 2.00% of average daily net assets. The Manager may change this policy at any
time without notice to shareholders. This would, in some circumstances, have a
material adverse effect on the net income of the Fund and the return earned by
shareholders. For planning purposes, prospective investors and shareholders
should assume that expense reimbursements will not be made.
** Except as provided in the next sentence, expenses used in these illustrations
are based on expenses actually incurred for shares of the International Equity
Fund for the period ending December 31, 1997. For the period ending December 31,
1997, the International Equity Fund charged no 12b-1 fees or service fees;
however, the Fund intends to charge these fees in 1998.
Expenses shown as "After Expense Reimbursements" for shares of the International
Equity Fund are based on actual fees paid by the Fund. Had expenses not been
reimbursed, Other Expenses and Total Fund Operating Expenses, as a percentage of
average net assets would have been 1.69% and 2.68%, respectively.
- --------------------------------------------------------------------------------
(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.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights for the International Equity Fund are shown below.
This information has been audited in conjunction with the audits of the
<PAGE>
financial statements of The Flex-Partners by KPMG Peat Marwick LLP, independent
certified public accountants, for the period from September 2, 1997 through
December 31, 1997.
INTERNATIONAL EQUITY FUND 1997*
NET ASSET VALUE, BEGINNING OF PERIOD $12.50
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (LOSS) (0.02)
Net Gains or Losses on Securities
(both realized and unrealized) (0.30)
Total from Investment Operations (0.32)
LESS DISTRIBUTIONS
Dividends (from net investment income) --
Distributions (from capital gains) --
Distributions (in excess of capital gains) --
Total Distributions --
NET ASSET VALUE, END OF PERIOD $12.18
TOTAL RETURN (2.56)%(1)
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) $12,190
Ratio of Expenses to Average Net Assets 2.00%(2)
Ratio of Net Income (Loss) to Average Net Assets (0.43%)(2)
Ratio of Expenses to Average Net Assets,
before reimbursement of fees 2.68%(2)
Ratio of Net Income (Loss) to Average Net Assets,
before reimbursement of fees (1.11%)(2)
Portfolio Turnover Rate 13%
Average Brokerage Commission Per Share $0.0316
* September 2, 1997 (date of commencement of operations) to December
31, 1997
(1) Not Annualized
(2) Annualized
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
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
<PAGE>
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.
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, 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.
<PAGE>
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.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
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.
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).
<PAGE>
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 an
investment in open-end investment companies, such as money market funds, are
described under "Open-End Investment Companies."
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
market-to-market basis) to the current market value of the securities loaned.
<PAGE>
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.
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
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
<PAGE>
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.
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. The Fund may also invest all of its assets in an open-end investment
company having substantially the same investment objective as the Fund (See
"Investment Objectives and Policies"). Some countries have authorized the
formation of open-end investment companies to facilitate indirect foreign
<PAGE>
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 advisors of the underlying open-end
investment companies are made independently of the Fund and its Subadviser.
Therefore, the investment advisor 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 investor 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.
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,
<PAGE>
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.
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.
<PAGE>
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 60%.
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 portfolio turnover rate for the Fund was 13% for the period from
September 2, 1997 (date of commencement of operations) through December 31,
1997.
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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.
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
<PAGE>
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 has
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
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
<PAGE>
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.
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. 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. Successful 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.
Like other mutual funds and businesses, the Fund could be adversely
affected if the computer systems used by the Adviser, Mutual Funds Service Co.
and other service providers to the Fund are unable to process and calculate
date-related information and data from and after January 1, 2000. Therefore, the
Adviser and Mutual Funds Service Co. are currently taking steps they believe are
reasonably designed to assess any potential Year 2000 problems affecting the
computer systems upon which they or the Fund rely. In addition, the Fund has
obtained reasonable assurances that comparable steps are being taken by its
other service providers. All service providers have informed the Fund that they
plan to be Year 2000 compliant by the end of 1998, and the Fund will continue to
monitor their progress.
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.
<PAGE>
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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.
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 0.15%
of the first $10 million, 0.10% of the next $20 million, 0.02% of the next $50
million, and 0.01% in excess of $80 million of the 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
<PAGE>
necessary personnel to perform administrative functions for the Fund; and
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. These fees
are reviewable annually by the Board of Trustees. For the period from September
2, 1997 (date of commencement of operations) to December 31, 1997, the Fund's
total payments to Mutual Funds Service Co. amounted to $23,353.
A broker-dealer, including the Manager's affiliate, Adviser Dealer
Services, Inc., 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 global and international
assets since 1861, and can trace its roots back to 1696. The Subadviser was
established in 1986 by the Commercial Union plc. as an independent investment
management company in its own right, and as of December 31, 1997, the Subadviser
and its affiliates have $115 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 of 1986.
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, Cape Town 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.
<PAGE>
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 joined Commercial Union plc. in 1971 and the Subadviser at its inception in
1986, and he 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.
Jane Coffee, Rodney Reid, Andrew Hitchings, Carrie Schloss and Mamoru Imai
exercise regional portfolio management responsibilities for the Fund. Jane
Coffee, European Fund Manager of the Subadviser, joined Commercial Union plc. in
1997 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 limit 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.
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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.
<PAGE>
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.
"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."
<PAGE>
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 each day the New York Stock
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. The net asset value per share will be calculated on each such day on
the basis of portfolio values determined at 3:00 p.m. Eastern time. 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.
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.
<PAGE>
- --------------------------------------------------------------------------------
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, 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.
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.
<PAGE>
- --------------------------------------------------------------------------------
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
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
<PAGE>
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.
- --------------------------------------------------------------------------------
SHAREHOLDER MANUAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
the Fund. The minimum for subsequent investments in the 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 and 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.
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
<PAGE>
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
THE 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 "International Equity Fund."
PLEASE INCLUDE YOUR ACCOUNT NUMBER ON THE CHECK AND MAIL AS FOLLOWS:
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.
<PAGE>
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.
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.
<PAGE>
SALES CHARGE WAIVERS: The Manager and the Subadviser; and 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, 1998 in mutual funds (except for The Flex-Partners' funds) whose portfolios
are advised by the Manager, and (ii) remain continuously 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, broker-dealers and financial planners, who are purchasing on behalf of
their clients or on behalf of clients in wrap accounts, 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
<PAGE>
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.
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 Roth IRA, an Education 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
APRIL 30, 1998
<PAGE>
THE FLEX-PARTNERS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE INSTITUTIONAL FUND
--------------------------
Part A.
Item No. Prospectus Caption
- -------- ------------------
1 Cover Page
2 Highlights
Synopsis of Financial Information
3 Financial Highlights
4 The Trust and its Management
Investment Objectives 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) Other Information - Investment Structure
7(a) Not applicable
7(b) How Net Asset Value is Determined
Institutional Fund Yield
7(c) Exchange Privilege
Flex-funds Retirement Plans
Other Shareholder Services
7(d) How to Buy Shares
7(e) Not applicable
7(f) Distribution Plan
8(a) How to Make Withdrawals (Redemptions)
8(b) Not applicable
8(c) Shareholder Accounts
8(d) How to Make Withdrawals (Redemptions)
9 Not applicable
<PAGE>
PROSPECTUS APRIL 30, 1998
THE INSTITUTIONAL FUND
A MONEY MARKET FUND
6000 Memorial Drive
Dublin, OH 43017
800-325-FLEX
614-760-2159
THE INSTITUTIONAL FUND (THE "INSTITUTIONAL FUND" OR THE "FUND") IS A MEMBER
OF THE FLEX-PARTNERS FAMILY OF MUTUAL FUNDS, WHICH IS ORGANIZED AS A BUSINESS
TRUST (THE "TRUST") CONSISTING OF FIVE SEPARATE PORTFOLIOS. THE FUND, WHICH
REQUIRES A MINIMUM INVESTMENT OF $5 MILLION, IS DESIGNED PRIMARILY FOR
INSTITUTIONAL INVESTORS AS AN ECONOMICAL AND CONVENIENT MEANS FOR INVESTING IN
MONEY MARKET INSTRUMENTS. THE FUND'S OBJECTIVE IS CURRENT INCOME AND STABLE
ASSET VALUES THROUGH INVESTMENT IN A PORTFOLIO OF MONEY MARKET INSTRUMENTS. THE
FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS
INVESTABLE ASSETS IN THE MONEY MARKET PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE SAME INVESTMENT
OBJECTIVE AS THE FUND. ACCORDINGLY, INVESTORS SHOULD CAREFULLY CONSIDER THIS
INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION REGARDING THIS UNIQUE CONCEPT,
SEE "INVESTMENT OBJECTIVE AND POLICIES" AND "OTHER INFORMATION - SHARES OF
BENEFICIAL INTEREST AND INVESTMENT STRUCTURE."
THE FUND WILL SEEK TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1 PER SHARE,
ALTHOUGH THERE IS NO ASSURANCE IT WILL BE ABLE TO DO SO. INVESTMENTS IN FUND
SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
There are no commissions, fees or charges for the purchase or redemption of
shares, although the Fund has a Rule 12b-1 distribution plan for using as much
as 3/100 of 1% of net assets annually to aid in the distribution of shares.
This Prospectus sets forth basic information about the Fund that a
prospective investor should know before investing and it should be retained for
future reference. A STATEMENT OF ADDITIONAL INFORMATION, dated April 30, 1998,
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: 1-800-325-FLEX, or (614) 760-2159.
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.
INVESTMENT ADVISER: R. MEEDER & ASSOCIATES, INC.
PROSPECTUS -- APRIL 30, 1998
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The Institutional Fund's investment objective is current
income and stable asset values through investment in a portfolio of money market
instruments. The Fund seeks to achieve its objective by investing all of its
investable assets in a corresponding open-end management investment company (the
"Portfolio") having the same investment objective as the Fund. See "Investment
Objective and Policies."
LIQUIDITY: As an open-end investment company, The Institutional Fund
continuously offers and redeems shares of beneficial interest at next determined
net asset value per share. See "How to Buy Shares" and "How to Make Withdrawals
(Redemptions)."
DIVERSIFICATION: The Fund is a diversified mutual fund because the assets of the
Fund's Portfolio are restricted by the following rules: (1) No more than 5% may
be invested in the securities of a single company, and (2) the Fund's Portfolio
may not purchase more than 10% of any company's outstanding voting securities.
NO SALES OR REDEMPTION CHARGES: There are no commissions, fees, or charges for
the purchase or redemption of shares. See "Synopsis of Financial Information,"
"How to Buy Shares," and "How to Make Withdrawals (Redemptions)."
MINIMUM INVESTMENT: A minimum investment of $5 million is required to open an
account. 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 $5 million
because of shareholder redemptions. The shareholder will be given 30 days'
written notice and an opportunity to restore the account to $5 million. See "How
to Buy Shares" and "Shareholder Accounts."
INVESTMENT ADVISER AND MANAGER: R. Meeder & Associates, Inc. is the Portfolio'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."
DISTRIBUTION PLAN: The Institutional Fund has adopted a Rule 12b-1 distribution
plan for using as much as 3/100 of 1% of net assets annually to aid in the
distribution of shares. See "Distribution Plan."
HOW TO BUY SHARES: Complete the New Account Application and forward with payment
as directed. Investments in The Institutional Fund are priced at the net asset
value next determined after an order is received by Mutual Funds Service Co.,
the Transfer Agent for the Fund, provided Star Bank, N.A. (the "Bank"), the
Custodian for the Fund, receives federal funds by 4:00 p.m. Eastern time that
same day. The Institutional Fund intends to maintain a constant net asset value
of $1.00 per share, although there is no assurance it will be able to do so. See
"How to Buy Shares" and "How Net Asset Value is Determined."
<PAGE>
SHAREHOLDER INQUIRIES: Shareholder inquiries should be directed to the Fund by
writing or telephoning the Fund at the address or telephone number 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 only if the shareholder identifies the account by account
number or by the taxpayer identification number listed on the account.
FOR MORE INFORMATION ABOUT SPECIFIC SHAREHOLDER ISSUES, PLEASE SEE THE
SHAREHOLDER MANUAL.
- --------------------------------------------------------------------------------
SYNOPSIS OF FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES THE INSTITUTIONAL FUND
Maximum Sales Load Imposed on Purchases ............... none
Maximum Deferred Sales Load............................ none
Maximum Sales Load Imposed on Reinvested
Dividends ......................................... none
Maximum Redemption Fees................................ none
Exchange Fee........................................... none
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (Net of Fees Waived).................... 0.15%
Distribution Plan (12b-1 Fees)**....................... 0.02%
Other Expenses (After Expense Reimbursements).......... 0.08%
-----
TOTAL FUND OPERATING EXPENSES*
(Net of Fees Waived and
After Expense Reimbursements)......................... 0.25%
EXAMPLE
An investor would pay the following expense on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period.
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------- ------ ------- ------- --------
The Institutional Fund -
Net of Fees Waived and After
Expense Reimbursements $3 $8 $14 $32
*Expenses used in these illustrations are based upon expenses actually
incurred for both The Institutional Fund and its proportionate share of expenses
from its corresponding Portfolio, the Money Market Portfolio, for the year ended
December 31, 1997. During the year, the Investment Adviser waived a portion of
its management fees in order to reduce the operating expenses of the Fund.
Expenses shown as "Net of Fees Waived" and "After Expense Reimbursements" are
based on actual fees paid by the Fund. Had the fees not been waived and expenses
not reimbursed, Management Fees and Other Expenses, as a percentage of average
net assets, would have been 0.28% and 0.16%, respectively. Total Fund Operating
Expenses, as a percentage of average net assets, would have been 0.47%.
<PAGE>
The Investment Adviser presently intends to reimburse the Fund through an
expense reimbursement to the extent necessary to keep total expenses at 0.25% of
average daily net assets.
The Investment Adviser may change this policy at any time without notice to
shareholders. This would, in some circumstances, have a material adverse effect
on the net income of the Fund, and the yield earned by shareholders. For
planning purposes, prospective investors and shareholders should assume that
expenses will not be reimbursed.
**Distribution Plan Expense: The Fund has adopted a Rule 12b-1 distribution
plan to aid in the distribution of its shares. Permitted expenses include:
payment of incentives in the form of commissions and fees, periodic reports and
other sales materials to prospective investors; advertising; payment for
marketing programs and the services of public relations consultants; and the
cost of special telephone service to encourage the sale of Fund shares. (See
"Distribution Plan.")
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 a sales charge, exchange fee or redemption
fee. For more complete descriptions of the various costs and expenses of the
Fund see "The Trust and and Its Management" and "Distribution Plan."
The Board of Trustees of the Fund believes that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if it retained the services of an
investment adviser and the assets of the Fund were invested directly in the type
of securities being held by the Portfolio. For additional information concerning
expenses incurred by the Fund and the Portfolio, see "The Trust and Its
Management" herein and "Investment Adviser and Manager" in the Statement of
Additional Information.
THE TABLE AND HYPOTHETICAL EXAMPLE ABOVE 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.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights of The Institutional Fund are listed below. This
information has been audited in conjunction with the annual audits of the
financial statements of The Institutional Fund by KPMG Peat Marwick LLP,
independent certified public accountants, for each of the years ended December
31, 1995, 1996 and 1997; and for the period from June 15, 1994 through December
31, 1994.
<PAGE>
THE INSTITUTIONAL FUND
1997 1996 1995 1994*
---- ---- ---- -----
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net Investment income 0.054 0.053 0.059 0.026
- --------------------------------------------------------------------------------
Net Gains or Losses on Securities
(both realized and unrealized) - - - -
- --------------------------------------------------------------------------------
Total from Investment Operations 0.054 0.053 0.059 0.026
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends (from net investment income) (0.054) (0.053) (0.059) (0.026)
- --------------------------------------------------------------------------------
Distributions (from capital gains) - - - -
- --------------------------------------------------------------------------------
Tax Return of Capital - - - -
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.054) (0.053) (0.059) (0.026)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------
TOTAL RETURN 5.53% 5.43% 6.01% 4.80%(1)
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net Assets, End of Period ($000) 415,994 232,142 113,205 59,494
- --------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 0.25% 0.25% 0.25% 0.20%(1)
- --------------------------------------------------------------------------------
Ratio of Net Income to Average Net Assets 5.41% 5.30% 5.87% 4.51%(1)
- --------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets,
before waiver and reimbursement of fees(2) 0.47% 0.46% 0.55% 0.46%(1)
- --------------------------------------------------------------------------------
Ratio of Net Income to Average Net Assets,
before waiver and reimbursement of fees(2) 5.19% 5.09% 5.57% 4.25%(1)
- --------------------------------------------------------------------------------
(1) Annualized
(2) Includes proportionate share of fees waived in corresponding portfolio. See
"Synopsis of Financial Information" for explanation of Investment Adviser's
waiver of fees and reimbursement of expense.
*For the period June 15, 1994 to December 31, 1994.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Institutional Fund and the Money Market Portfolio have their own
separate investment objectives and policies, as set forth below. These
investment objectives and policies, which are identical, are not fundamental and
may be changed by their respective Trustees without approval of the Fund's
shareholders, or approval of the Portfolio's investors. No such change would be
made in the Fund, or Portfolio, without 30 days' written notice to shareholders.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. For more information concerning the
investment structure of the Fund which invests its assets in a corresponding
Portfolio, see "Other Information - Investment Structure."
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the investment policies of the Portfolio appears in the Statement of
Additional Information. There can be no assurance that the investment objectives
of the Fund and the Portfolio will be achieved.
The investment objective of the Portfolio is current income and stable
asset values through investment in money market instruments. The Portfolio will
seek to maintain a constant net asset value of $1 per share, although there is
no assurance it will be able to do so. The Portfolio will seek to achieve its
objective by investing in a portfolio of high-quality money market instruments
which mature in 397 days or less. Further, the Portfolio will seek to minimize
changes in the value of its assets caused by market factors by maintaining a
dollar-weighted average portfolio maturity of 90 days or less.
The Portfolio will value its securities by the amortized cost method and
will normally include any accrued discount or premium in its daily dividend and
thereby keep constant the value of its assets and its net asset value per share.
This method does not take into account unrealized capital gains or losses.
Further, the Portfolio may change its average portfolio maturity or level
of quality to protect its and the Fund's net asset value when it is perceived
that changes in the liquidity of major financial institutions may adversely
affect the money markets. Consequently, for temporary defensive purposes, the
Portfolio may shorten the average maturity of its investments and/or invest only
in the highest quality debt instruments, including, for example, U.S. Government
or Agency obligations.
The Portfolio will invest exclusively in money market instruments which are
deemed eligible securities pursuant to rules under the Investment Company Act
applying to money market funds. At least 95% of the Portfolio's assets will be
<PAGE>
invested in securities defined by the rules as "first-tier" securities.
First-tier securities must have two quality ratings which are in the highest
rating category, or one if rated by only one organization. Second-tier
securities must have ratings in the highest two rating categories and will be
limited to a maximum of five percent of assets with each position limited to the
greater of $1,000,000 or 1% of assets. The Portfolio also intends to comply with
all other quality and credit quality monitoring criteria applying to money
market funds. The Portfolio will limit its purchases to U.S. government
securities and securities of its agencies and instrumentalities, bank
obligations and instruments secured thereby, high quality commercial paper, high
grade corporate obligations and repurchase agreements. The Portfolio will not
invest more than 10% of its assets, at time of purchase, in repurchase
agreements which mature in excess of seven days or in illiquid or not readily
marketable securities. Information concerning specific quality criteria is set
forth in the Fund's Statement of Additional Information.
RISK FACTORS
The Investment Adviser exercises due care in the selection of the
Portfolio's money market instruments. However, there is a risk that the issuers
of the securities may not be able to meet their obligations to pay interest or
principal when due. There is also a risk that some of the Portfolio's securities
might have to be liquidated prior to maturity at a price less than original
amortized cost 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's shares.
The Portfolio may invest in repurchase agreements with banks and securities
brokers. All repurchase agreements entered into by the Portfolio will be fully
collateralized. The Portfolio's risk is that the seller may fail to repurchase
the security on the delivery date. If the seller defaults, the underlying
security constitutes collateral for the seller's obligation to pay. It is a
policy of the Portfolio to make settlement on repurchase agreements only upon
proper delivery of the underlying collateral. In the event of a bankruptcy or
other default of a seller of a repurchase agreement to the Portfolio, the
Portfolio could encounter delays and expenses in enforcing its rights and could
experience losses, including a decline in the value of the underlying securities
and loss of income. Repurchase agreements usually are for short periods, such as
one week or less, but could be longer.
The Portfolio may invest in private placement commercial paper. Private
placement commercial paper ("Rule 144A securities") consists of unregistered
securities which are traded in public markets to qualified institutional
investors, such as the Portfolio. The Portfolio's risk is that the universe of
potential buyers for the securities, should the Portfolio desire to liquidate a
position, is limited to qualified dealers and institutions, and therefore such
securities could have the effect of being illiquid.
<PAGE>
- --------------------------------------------------------------------------------
THE TRUST AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
The Trust is a diversified, open-end management investment company
organized as a Massachusetts business trust, on June 22, 1992. The Fund and such
trust are collectively referred to as the "Fund." The Fund's offices are at 6000
Memorial Drive, Dublin, OH 43017. The business and affairs of the Fund are
managed under the direction of its Board of Trustees.
The Fund has no investment adviser because the Fund seeks to achieve its
investment objective by investing its assets in the Portfolio. The Portfolio 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 Portfolio pursuant to an Investment Advisory
Contract under the terms of which it has agreed to provide an investment program
within the limitations of the Portfolio's investment policies and restrictions,
and to furnish all executive, administrative, and clerical services required for
the transaction of Portfolio business, other than accounting services and
services which are provided by the Portfolio's custodian, transfer agent,
independent accountants and legal counsel.
The Manager 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 the Manager; Mutual Funds Service Co.,
the Trust's transfer agent; Adviser Dealer Services, Inc., a registered
broker-dealer; Opportunities Management Co., a venture capital investor; Meeder
Advisory Services, Inc., a registered investment adviser and OMCO, Inc., a
registered commodity trading adviser and commodity pool operator.
Philip A. Voelker is the portfolio manager primarily responsible for the
day-to-day management of the Money Market Portfolio. Mr. Voelker is Vice
President and Trustee of the Money Market Portfolio, the Trust, The Flex-funds,
mutual funds whose corresponding portfolios are also advised by the Manager, and
their Portfolios. He is Senior Vice President and Chief Investment Officer of
the Manager. Mr. Voelker has been associated with the Manager since 1975 and has
managed the Money Market Portfolio since 1985.
The Manager earns an annual fee, payable in monthly installments, from the
Portfolio at the rate of 0.40% of the first $100 million and 0.25% in excess of
$100 million, of average net assets.
The Investment Adviser presently intends to reimburse the Fund through an
expense reimbursement fee to the extent necessary to keep total expenses at
0.25% of average daily net assets. The Investment Adviser may change this policy
at any time without notice to shareholders. For planning purposes prospective
investors and shareholders should assume that expenses will not be reimbursed.
(See "Synopsis of Financial Information.")
<PAGE>
Accounting, stock transfer, dividend disbursing and shareholder services
are provided to the Portfolio and 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 in the Portfolio is
$30,000. Subject to the applicable minimum fee, the fee is computed at the rate
of 0.15% of the first $10 million, 0.10% of the next $20 million, 0.02% of the
next $50 million and 0.01% in excess of $80 million of the Portfolio's average
net assets. In addition, the Fund incurs (subject to a $4,000 annual minimum
fee) an annual fee of the greater of $20 per shareholder account or 0.06% of the
Fund's average net assets, payable monthly, for stock transfer, dividend
disbursing and shareholder support services. Mutual Funds Service Co. also
serves as Administrator to the Fund pursuant to an Administration Services
Agreement. Services provided to the Fund include coordinating and monitoring any
third party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
fee, payable monthly, of 0.05% of the Fund's average net assets. These fees are
reviewable annually by the respective Trustees of the Trust and the Portfolio.
For the year ended December 31, 1997, total payments to Mutual Funds Service Co.
amounted to $495,106 for the Fund and Portfolio.
Information concerning the Trustees and officers of both the Fund and the
Portfolio appears in the Statement of Additional Information.
- --------------------------------------------------------------------------------
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
The Trust has adopted a Rule 12b-1 distribution plan (the "Plan"), which
authorizes The Institutional Fund to bear a portion of the expense of any
activity which is primarily intended to result in the sale of Fund shares. This
Plan permits, among other things, payment for distribution in the form of
commissions and fees, advertising, the services of public relations consultants,
and direct solicitation. Possible recipients include securities brokers,
attorneys, accountants, investment advisers, investment performance consultants,
pension actuaries, banks, and service organizations, all of them being hereafter
referred to as "Consultants."
The Fund may expend as much as, but not more than, 3/100 of 1% of its
average net assets annually pursuant to the Plan. The Plan was approved by the
Board of Trustees, who made a determination that there is a reasonable
likelihood that the Plan will benefit the Fund.
The Fund may enter into agreements whereby Consultants are paid for their
assistance in explaining and interpreting the Fund, its investment objectives
and policies, and its retirement plans to their clients. Under these agreements,
Consultants are paid quarterly compensation by the Fund on the average value of
<PAGE>
Fund shares held by their clients. Although the compensation is thus seen to be
continuing, the Fund retains the right to terminate any Consultant's agreement
on 60 days' notice, without further obligation beyond the date of termination.
Although the objective of the Fund is to pay Consultants for a portion of
the expenses they incur and to provide them with some incentive to be of
assistance to the Fund and its shareholders, no effort has been made to
determine the actual expenses incurred by Consultants. If any Consultant's
expenses are in excess of what the Fund pays, such excess will not be paid by
the Fund. Conversely, if the Consultant's expenses are less than what the Fund
pays, the Consultant is not obligated to refund the excess, and this excess
could represent a profit for the Consultant.
Total payments made in The Institutional Fund under the Plan for the period
ended December 31, 1997, as a percentage of average net assets amounted to 0.02%
(See "Synopsis of Financial Information").
- --------------------------------------------------------------------------------
INCOME DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
It is the policy of the Trust to distribute substantially all of its net
income, which for the Fund consists of the income it earns from its investment
in the Portfolio, less expenses. The Fund's net income is calculated daily and
declared as a dividend to shareholders of record at the close of the previous
business day, and to the holders of shares purchased that same day prior to 3:00
p.m., with one exception. If a shareholder requests a redemption and the request
is received by 3:00 p.m., then the shares so redeemed that day will not be paid
that day's dividend. Net income earned by The Institutional Fund on a weekend or
a holiday is declared as a dividend on Friday or the day prior to the holiday.
All such dividends of net income are automatically reinvested in additional
shares of the Fund at the net asset value on the last business day of each
month. A shareholder may elect to receive dividends in cash either by checking
the appropriate box on the New Account Application, or by notifying the Fund in
writing. If the entire account of a shareholder is withdrawn, all dividends
accrued at the time of withdrawal will be paid at that time.
The Internal Revenue Code of 1986 imposes on the Fund a nondeductible
excise tax unless the Fund distributes annually at least 98% of its net
investment income earned during the calendar year, at least 98% of capital gain
net income realized in the 12 months preceding October 31, and any undistributed
balances from the previous year. In addition, the Tax Reform Act of 1986
provides that any dividend declared by the Fund in October, November, or
December and paid in January will be deemed to have been paid by the Fund and to
have been received by each shareholder in December.
Dividends and capital gains distributions will be taxable to the
shareholder as income in the year distributed, whether received in cash or
reinvested in additional shares. Shareholders not otherwise subject to tax on
their income will not be required to pay tax on amounts distributed to them.
Each shareholder will receive a statement annually informing him of the amount
of the income and capital gains which have been distributed to him during the
calendar year.
<PAGE>
The Trust files a federal income tax return for each of the Funds. Each
Fund is treated as a separate entity for federal income tax purposes. The Fund
qualified as a "regulated investment company" for each of the last four fiscal
years.
The foregoing discussion of taxes is limited to federal income taxes.
Distributions, whether in cash or in kind, may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions relating to federal, state and local taxes.
The Fund is required to withhold and remit to the federal government 31% of
any reportable payments (which may include dividends, capital gains
distributions, if any, and redemptions) paid to certain shareholders. In order
to avoid this withholding requirement, each shareholder must certify on the New
Account Application that the social security or taxpayer identification number
is correct and that the shareholder is not currently subject to backup
withholding or is exempt from backup withholding.
- --------------------------------------------------------------------------------
HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
Net asset value per share (the price at which shares are purchased and
redeemed) is determined each day the Fund is open for business. The Fund's
shares will not be priced on Good Friday or on any holiday observed by the
Federal Reserve system. These presently include New Year's Day, Martin Luther
King Day, President's Day, Memorial Day, Independence Day, Columbus Day,
Veterans Day, Thanksgiving Day, and Christmas Day. Net asset value is obtained
by dividing the value of the Fund's assets (i.e., the value of its investment in
the Portfolio and other assets), less liabilities, by the total number of its
shares of beneficial interest outstanding at the time. The assets of the
Portfolio are valued on the basis of amortized cost method, which involves
valuing a portfolio instrument at its cost initially and, thereafter, assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. The
Fund will seek to maintain a constant net asset value of $1.00 per share.
- --------------------------------------------------------------------------------
INSTITUTIONAL FUND YIELD
- --------------------------------------------------------------------------------
The Institutional Fund will advertise its yield and effective yield. The
simple annualized yield represents the net income for a seven day period,
expressed on an annualized basis. The effective yield will be higher than the
yield because of the compounding effect of the assumed reinvestment of dividends
over a period of one year. Both yield figures are based upon historical earnings
and are not intended to indicate future performance. Yields will fluctuate daily
as net income fluctuates. The method by which the Fund computes its yield is
described in the Statement of Additional Information. For current yield
information call 1-800- 325-FLEX, or in central Ohio (614) 760-2159.
<PAGE>
Comparative performance information may be used from time to time in
advertising or marketing information relative to the Fund, including data from
Lipper Analytical Services, Inc., IBC/Donoghue Money Fund Report and other
publications.
- --------------------------------------------------------------------------------
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 with a par
value of $.10 per share. Shares are fully paid, nonassessable and fully
transferable when issued. All shares are issued as full or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
Each Fund of the Trust will issue its own series of shares of beneficial
interest. The Trust's 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 vote together as one series. On an
issue affecting a particular series, only its shares vote as a separate series.
An example of such an issue would be a fundamental investment restriction
pertaining to only one series. In voting on a Distribution Plan, approval of the
Plan by the shareholders of a particular series would make the Plan effective as
to that series, whether or not it had been approved by the shareholders of any
other series.
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 on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust 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 a
Fund are not entitled to vote on a matter that does not affect that Fund but
that does require a separate vote of any other Fund. There normally will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
<PAGE>
Fund'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 a Fund by a specified number of shareholders) the
right to communicate with other shareholders in connection with requesting a
meeting of shareholders for the purpose of removing one or more Trustees.
Each Portfolio, in which all the assets of a corresponding Fund will be
invested, is organized as a trust under the laws of the State of New York. Each
Portfolio's Declaration of Trust provides that a Fund and other entities
investing in that Portfolio (e.g., other investment companies, insurance company
separate accounts, and common and commingled trust funds) will each be liable
for all obligations of that Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and that Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trust believe that neither a
Fund nor its shareholders will be adversely affected by reason of a Fund's
investing in the corresponding Portfolio. In addition, whenever the Trust is
requested to vote on matters pertaining to the fundamental policies of the
Portfolio, the Trust will hold a meeting of shareholders and will cast its vote
as instructed by the Fund's shareholders.
INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objectives by
investing all of its assets in a corresponding Portfolio, a separate registered
investment company with the same investment objective as the Fund. Therefore, an
investor's interest in the Portfolio's securities is indirect. In addition to
selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in the Portfolio are not required to sell their shares at the same
public offering price as the Fund. Investors in the Fund should be aware that
these differences may result in differences in returns experienced by investors
in the different funds that invest in the Portfolio. Such differences in returns
are also present in other mutual fund structures. Information concerning other
holders of interests in the Portfolio is available by contacting the Trust by
calling: 1-800-325-FLEX, or (614) 760-2159.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility also exists for traditionally structured funds which have large or
institutional investors.) Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Trust is requested to vote on matters pertaining to the
Portfolio, the Trust will hold a meeting of shareholders of the Fund and will
<PAGE>
cast all of its votes in the same proportion as do the Fund's shareholders.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Trust to withdraw the Fund's interest in the
Portfolio. Any such withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution from the Portfolio). In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund.
The Fund may withdraw the investment from its corresponding Portfolio at
any time, if the Board of Trustees of the Trust determines that it is in the
best interests of the Fund to do so. Upon any such withdrawal, the Board of
Trustees would consider what action might be taken, including the investment of
all the assets of the Fund in another pooled investment entity having the same
investment objective as that Fund or the retaining of an investment adviser to
manage the Fund's assets in accordance with the investment policies with respect
to the Portfolio. The inability to find an adequate investment pool or
investment adviser could have a significant impact on shareholders' investment
in the Fund.
As stated in "Investment Objective and Policies," the Fund's investment
objective and policies are not fundamental and may be changed by Trustees
without shareholder approval. (No such change would be made, however, without 30
days' written notice to shareholders.)
For descriptions of the investment objective and policies of the Portfolio,
see "Investment Objective and Policies." For descriptions of the management and
expenses of the Portfolio, see "The Trust and Its Management" herein, and
"Investment Adviser and Manager" and "Officers and Trustees" in the Statement of
Additional Information.
YEAR 2000
Like other mutual funds and businesses, the Fund could be adversely
affected if the computer systems used by the Adviser, Mutual Funds Service Co.
and other service providers to the Fund are unable to process and calculate
date-related information and data from and after January 1, 2000. Therefore, the
Adviser and Mutual Funds Service Co. are currently taking steps they believe are
reasonably designed to assess any potential Year 2000 problems affecting the
computer systems upon which they or the Fund rely. In addition, the Fund has
obtained reasonable assurances that comparable steps are being taken by its
other service providers. All service providers have informed the Fund that they
plan to be Year 2000 compliant by the end of 1998, and the Fund will continue to
monitor their progress.
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER MANUAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Shares are offered continuously and sold without a direct sales charge.
(See "Distribution Plan" and "Synopsis of Financial Information".) Shares of The
Institutional Fund are sold at net asset value per share next determined after
receipt of both a purchase order and payment in federal funds. The Institutional
Fund intends to maintain a constant net asset value of $1.00 per share. (See
"How Net Asset Value Is Determined.")
MINIMUM INVESTMENT - The minimum investment to open an account is $5
million.
OPENING AN ACCOUNT - You may open an account by bank wire or mail as
follows:
BY BANK WIRE: If the wire order is for a new account in the Fund, YOU MUST
TELEPHONE THE FUND PRIOR TO MAKING YOUR INITIAL INVESTMENT. Call
1-800-325-FLEX, or (614) 760-2159. 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 INSTITUTIONAL FUND
Credit Account Number: 851-2204
Account Name (your name)
Your Institutional Fund account number
BY MAIL: To purchase shares, fill out the New Account Application
accompanying this Prospectus. Mail a check payable to The Institutional
Fund along with the New Account Application to the following address:
THE FLEX-PARTNERS, C/O R. MEEDER & ASSOCIATES, INC., P.O. BOX 7177, DUBLIN,
OHIO 43017
On new accounts, a completed application must be sent to The Flex-Partners,
c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH 43017 on the same
day your wire is sent. THE FUND WILL NOT PERMIT REDEMPTIONS UNTIL IT RECEIVES
THE NEW ACCOUNT APPLICATION IN GOOD ORDER.
SUBSEQUENT INVESTMENTS -- 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 prior to 3:00 p.m. will result
in a delay of the effective date of your purchase. Subsequent investments in an
existing account in the Fund may be made by mailing a check payable to The
Institutional Fund (please include your account number on the check) and mail as
follows:
<PAGE>
THE FLEX-PARTNERS
LOCATION NUMBER: 00215
CINCINNATI, OHIO 45264-0215
WHEN PURCHASES ARE EFFECTIVE -- An Initial Wire Purchase and subsequent
wire purchase orders for The Institutional Fund which are received prior to 3:00
p.m., Eastern time on a business day, earn dividends for that entire day,
provided payment in federal funds (bank wire) is received by the bank by 4:00
p.m. Eastern time that day. Purchase orders which are received after 3:00 p.m.,
or for which payment is not received by 4:00 p.m. Eastern time, are accepted as
a purchase the following day.
Investments made by check are credited to shareholder accounts, and begin
to earn income dividends, on the second business day following receipt.
If a shareholder's check is dishonored, his purchase and any dividends paid
thereon will be reversed. If shares are purchased with federal funds, they may
be redeemed at any time thereafter and the shareholder may secure his funds as
explained below. (See "How to Make Withdrawals (Redemptions).") However, if
shares are purchased by check(s), Mutual Funds Service Co. will delay payment of
redemption proceeds until the check used to purchase shares has cleared which
could be fifteen (15) calendar days or more subsequent to the purchase of the
shares. The Fund will forward proceeds promptly once the check has cleared.
DISTRIBUTOR: Shares of the Fund are sold by the Fund itself in those states
where its shares have been registered for sale or a valid exemption exists.
States where registration or an exemption exists can be obtained by calling
1-800-325-FLEX or (614) 760-2159.
- --------------------------------------------------------------------------------
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 TELEPHONE -- A shareholder may redeem by telephone: 1-800-325-FLEX, or
call (614) 760-2159. Shareholders who wish to use this procedure must so elect
on the New Account Application. Amounts withdrawn from an account by telephone
are mailed without charge to the address printed on your account statement.
As a special service, a shareholder may arrange to have amounts in excess
of $10,000 wired in federal funds to a designated commercial bank account. To
<PAGE>
use this procedure please designate on the New Account Application a bank and
bank account number to receive the proceeds of wire withdrawals. There is no
charge for this service.
A shareholder may change the bank account designated to receive
redemptions. This may be done at any time upon written request to the Fund. The
shareholder's signature must be guaranteed. Further documentation may be
required from corporations or trustees, and other fiduciaries.
Neither the Fund nor Mutual Funds Service Co. ("MFSCo") will be responsible
for any loss, expense, or cost arising from any telephone redemption request
made according to the authorization set forth in the New Account Application if
they reasonably believe such request to be genuine and follow reasonable
procedures designed to verify the identity of the person requesting the
redemption. If MFSCo fails to follow reasonable procedures, MFSCo or the Fund
may be liable for losses due to unauthorized or fraudulent transactions. MFSCo
will provide each investor seeking telephone redemption privileges with a
personalized security code which, along with other information, will be required
of the caller upon request of a telephone redemption. Other information may also
be required and calls may be recorded.
BY MAIL -- A shareholder may redeem shares by mailing a written request in
good order to The Flex-Partners, c/o R. Meeder & Associates, Inc., 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 an eligible guarantor
institution (a bank, broker-dealer, credit union, securities exchange and
association, clearing agency and savings association). The Trust does not accept
signatures guaranteed by a notary public. 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. The Trust may
waive these requirements in certain instances.
Amounts withdrawn are mailed without charge to the address printed on your
account statement.
WHEN REDEMPTIONS ARE EFFECTIVE -- Redemptions are made at the net asset
value per share (stabilized at $1.00 per share as a matter of policy) next
determined after receipt of a redemption request in good order. (See "How Net
Asset Value Is Determined.")
WHEN PAYMENTS ARE MADE -- If a telephone request for a redemption is
received prior to 3:00 p.m., Eastern time the redemption request will be
processed that day. Requests received after 3:00 p.m., will be processed the
next business day. Amounts withdrawn by telephone are normally mailed on the
next business day following the effective date of the order for withdrawal. If
the request is for a wire redemption, funds will be wired on the same day.
Amounts withdrawn by mail are normally sent by mail within one business day
after the request is received, and must be mailed within seven days with the
following exception: If shares are purchased by check, Mutual Funds Service Co.
will not pay a redemption until reasonably satisfied the check used to purchase
shares has been collected which could be fifteen (15) calendar days or more
after shares are first paid for, unless payment was made with federal funds. The
Fund will forward proceeds promptly once the check has cleared. (See "How to Buy
Shares.")
<PAGE>
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
A shareholder may exchange shares of The Institutional Fund for shares of
any fund offered by The Flex-funds that are available for sale in your state at
their respective net asset values.
The Flex-funds family of funds has a variety of investment objectives. Read
the prospectus for relevant information concerning the fund that meets your
investment goals. A prospectus may be obtained from The Flex-funds, c/o R.
Meeder & Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017 or by telephone:
1-800-325-FLEX, in Ohio call (614) 760-2159.
- --------------------------------------------------------------------------------
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 STATEMENTS -- You will receive a statement of your account
confirming your initial purchase of shares. Thereafter, you will receive a
confirmation statement on all purchase and sale transactions as well as dividend
reinvestment information.
ACCOUNTS BELOW MINIMUMS -- 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 $5 million
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 $5 million.
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
<PAGE>
INVESTMENT ADVISER
R. Meeder & Associates, Inc.
ADDRESS OF FUND & ADVISER
6000 Memorial Drive
Dublin, OH 43017
800-325-FLEX
614-760-2159 (in Central Ohio)
CUSTODIAN
Star Bank, N.A.
Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Mutual Funds Service Co.
6000 Memorial Drive
Dublin, OH 43017
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
TABLE OF CONTENTS
Page
Highlights................................ 2
Synopsis of Financial Information......... 3
Financial Highlights...................... 4
Investment Objective and Policies......... 6
Risk Factors......................... 7
The Trust and Its Management.............. 8
Distribution Plan......................... 9
Income Dividends and Taxes................ 10
How Net Asset Value is Determined......... 11
Institutional Fund Yield.................. 11
Other Information......................... 12
Shareholder Manual
How To Buy Shares......................... 15
How To Make Withdrawals (Redemptions)..... 16
Exchange Privilege........................ 18
Shareholder Accounts...................... 18
THE INSTITUTIONAL FUND
PROSPECTUS
April 30, 1998
<PAGE>
THE FLEX-PARTNERS
CORE 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
Investment Sub-subadvisers
16(c) Portfolio Transactions
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) Not applicable
21(c) Not applicable
22(a) Not applicable
22(b) Performance
23 Financial Statements
<PAGE>
CORE EQUITY FUND
A FUND OF THE FLEX-PARTNERS TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
This Statement is not a prospectus but should be read in conjunction with The
Flex-Partners' current Prospectus (dated April 30, 1998). Please retain this
document for future reference. To obtain an additional copy of the Prospectus,
please call Mutual Funds Service Co. at 1-800-494-3539. Capitalized terms used
and not otherwise defined herein have the same meanings as defined in the
Prospectus.
The Fund offers two classes of shares which may be purchased at the next
determined net asset value per share plus a sales charge which at the election
of the investor may be imposed (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class C shares). These alternatives permit an investor
to choose the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances.
Each Class A and Class C share represents an identical legal interest in the
investment portfolio of the Fund and has the same rights except that the Class C
shares bear the higher expenses of a distribution plan for such class which will
cause the Class C shares to have a higher expense ratio and to pay lower
dividends than the Class A shares. Each class will have exclusive voting rights
with respect to its distribution plan. Although the legal rights of holders of
Class A and Class C shares are identical the different expenses borne by each
class will result in different net asset values and dividends. The two classes
also have different exchange privileges.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 12
Valuation of Portfolio Securities 14
Performance 15
Additional Purchase and Redemption Information 18
Distributions and Taxes 22
Investment Adviser and Manager 23
Investment Subadviser 26
Investment Sub-subadvisers 27
The Distributor 31
Trustees and Officers 33
Flex-Partners Retirement Plans 37
Contracts With Companies Affiliated With Manager 42
Description of the Trust 42
Principal Holders of Outstanding Shares 44
Financial Statements 45
INVESTMENT ADVISER INVESTMENT SUBADVISER
R. Meeder & Associates, Inc. Sector Capital Management, L.L.C.
DISTRIBUTOR TRANSFER AGENT
Adviser Dealer Services, Inc. Mutual Funds Service Co.
<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 Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940) of the Fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Trustees without shareholder approval. THE FOLLOWING ARE
THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY;
PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS WILL PREVENT THE
FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN OPEN-END MANAGEMENT
INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND OR
THE PORTFOLIO MAY NOT:
(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
government of the United States, or any of its agencies or instrumentalities)
if, as a result thereof, (a) more than 5% of the Portfolio's total assets would
be invested in the securities of such issuer, or (b) the Fund would hold more
than 10% of the voting securities of such issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of its total assets including the amount borrowed less
liabilities (other than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33-1/3% limitation;
(4) underwrite securities issued by others (except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
<PAGE>
if, as a result, 25% or more of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business); or
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Portfolio from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities).
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The Portfolio does not currently intend to engage in short sales, but
may engage in short sales "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
(ii) The Portfolio does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
(iii) The Portfolio may borrow money only from a bank. The Portfolio will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding.
(iv) The Portfolio does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued, including repurchase agreements with remaining maturities in excess of
seven days or securities without readily available market quotes.
(v) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.
<PAGE>
(vi) The Portfolio does not currently intend to purchase securities of
other investment companies. This limitation does not apply to securities
received as dividends, through offers of exchange, or as a result of
reorganization, consolidation, or merger.
(vii) The Portfolio does not currently intend to purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. Government or
political subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of continuous
operation.
(viii) The Portfolio does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, may
be warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.
(ix) The Portfolio does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(x) The Portfolio does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the Trust and those officers and
directors of the Manager, the Subadviser, or the Sector Advisers who
individually own more than 1/2 of 1% of the securities of such issuer, together
own more than 5% of such issuer's securities.
For the Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions." For the
Portfolio's limitations on short sales, see the section entitled "Short Sales."
MONEY MARKET INSTRUMENTS When investing in money market instruments, the
Portfolio will limit its purchases, denominated in U.S. dollars, to the
following securities.
U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal or interest
by the United States or its agencies (such as the Export Import Bank of the
United States, Federal Housing Administration, and Government National Mortgage
Association) or its instrumentalities (such as the Federal Home Loan Bank,
Federal Intermediate Credit Banks and Federal Land Bank), including Treasury
bills, notes and bonds.
Bank Obligations and Instruments Secured Thereby - obligations (including
certificates of deposit, time deposits and bankers' acceptances) of domestic
banks having total assets of $1,000,000,000 or more, instruments secured by such
obligations and obligations of foreign branches of such banks, if the domestic
parent bank is unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may also
<PAGE>
invest in obligations (including certificates of deposit and bankers'
acceptances) of domestic branches of foreign banks having assets of
$1,000,000,000 or more, if the domestic branch is subject to the same regulation
as United States banks. The Portfolio will not invest at time of purchase more
than 25% of its assets in obligations of banks, nor will the Portfolio invest
more than 10% of its assets in time deposits.
High Quality Commercial Paper - The Portfolio may invest in commercial
paper rated no lower than "A-2" by Standard & Poor's Corporation or "Prime-2" by
Moody's Investors Services, Inc., or, if not rated, issued by a company having
an outstanding debt issue rated at least A by Standard & Poor's or Moody's.
Private Placement Commercial Paper - Private placement commercial paper
consists of unregistered securities which are traded in public markets to
qualified institutional investors, such as the Portfolio. The Portfolio's risk
is that the universe of potential buyers for the securities, should the
Portfolio desire to liquidate a position, is limited to qualified dealers and
institutions, and therefore such securities could have the effect of being
illiquid.
High Grade Corporate Obligations - obligations rated at least A by Standard
& Poor's or Moody's. See rating information below.
Repurchase Agreements - See "Repurchase Agreements" below.
The Manager exercises due care in the selection of money market
instruments. However, there is a risk that the issuers of the securities may not
be able to meet their obligations to pay interest or principal when due. There
is also a risk that some of the Portfolio's securities might have to be
liquidated prior to maturity at a price less than original amortized cost or
value, face amount or maturity value to meet larger than expected redemptions.
Any of these risks, if encountered, could cause a reduction in net income or in
the net asset value of the Portfolio.
RATINGS
1. Moody's Investors Services, Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
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.
<PAGE>
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA - Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the adverse
effect of changes in economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in their market
behavior but, to some extent, also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
3. Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
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.
<PAGE>
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
4. Description of Permitted Money Market Investments:
Commercial Paper - refers to promissory notes issued by corporations in
order to finance their short term credit needs.
U.S. Government Obligations - are bills, certificates of indebtedness notes
and bonds issued by the U.S. Treasury and agencies, authorities and
instrumentalities of the U.S. Government established under the authority of an
act of Congress. Some obligations of U.S. Government agencies, authorities and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, as for example, the Government National Mortgage Association; others
by the right of the issuer to borrow from the Treasury, as in the case of
Federal Farm Credit Banks and Federal National Mortgage Association; and others
only by the credit of the agency, authority or instrumentality; as for example,
Federal Home Loan Mortgage and Federal Home Loan Bank.
Repurchase Agreements - See "Repurchase Agreements" below.
Certificates of Deposit - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified or variable rate
of return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
Corporate Obligations - include bonds and notes issued by corporations in
order to finance longer term credit needs.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Trustees, the Manager, Subadviser
<PAGE>
and/or Sector Advisers determine the liquidity of the Portfolio's investments
and, through reports from the Manager, Subadviser and/or Sector Advisers, the
Board monitors investments in illiquid instruments. In determining the liquidity
of the Portfolio's investments, the Manager, Subadviser and Sector Advisers may
consider various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, over-the-counter
options, and non-government stripped fixed-rate mortgage-backed securities.
Also, the Manager, Subadviser and/or Sector Advisers may determine some
restricted securities to be illiquid. However, with respect to over-the-counter
options the Portfolio writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the Portfolio may have to close out the
option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets, or other circumstances, the
Portfolio were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Portfolio may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. The Portfolio may engage in repurchase
agreements with respect to any security in which it is authorized to invest.
While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to the Portfolio
in connection with bankruptcy proceedings), it is the Portfolio's current policy
to limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Manager.
<PAGE>
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) write call options if, as a result, more than 25% of the Portfolio's total
assets would be hedged with options under normal conditions; or (b) purchase
futures contracts if, as a result, the Portfolio's total obligations upon
settlement or exercise of purchased futures contracts would exceed 25% of its
total assets. These limitations do not apply to options attached to or acquired
or traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options. The above limitations
on the Portfolio's investments in futures contracts and options, and the
Portfolio's policies regarding futures contracts and options discussed elsewhere
in this Statement of Additional Information, may be changed as regulatory
agencies permit.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When the Portfolio sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract.
Some currently available futures contracts are based on indices of
securities-prices, such as the Standard & Poor's 500 Composite Stock Price Index
(S&P 500). Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant (FCM), when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value.
If the value of either party's position declines, that party will be
required to make additional "variation margin" payments to settle the change in
value on a daily basis. The party that has a gain may be entitled to receive all
<PAGE>
or a portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Portfolio's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
WRITING CALL OPTIONS. Writing a call option obligates the Portfolio to sell
or deliver the option's underlying instrument, in return for the strike price,
upon exercise of the option. The characteristics of writing call options are
similar to those of writing put options, except that writing calls generally is
a profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange traded options and futures contracts, it is likely that the
standardized contracts available will not match the Portfolio's current or
anticipated investments exactly. The Portfolio may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts.
The Portfolio may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Portfolio's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
<PAGE>
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolio to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Portfolio to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Portfolio will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
SHORT SALES. The Portfolio may enter into short sales "against the box"
with respect to equity securities it holds. For example, if a Sector Adviser
anticipates a decline in the price of a stock the Portfolio holds, it may sell
the stock short "against the box." If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of the
stock's decline. The Portfolio currently intends to hedge no more than 15% of
its total assets with short sales "against the box" on equity securities under
normal circumstances.
When the Portfolio enters into a short sale "against the box", it will be
required to own or have the right to obtain at no added cost securities
identical to those sold short "against the box" and will be required to continue
to hold them while the short sale "against the box" is outstanding. The
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
PORTFOLIO TURNOVER.
The Portfolio's portfolio turnover rate for the fiscal year ended December
31, 1997 was 130% (1996 - 82%). The increase in the portfolio turnover rate for
fiscal year 1997 was primarily due to the adoption by the Portfolio and the
Trust of a new investment objective effective January 1, 1997 and the resulting
change in the portfolio of the Portfolio.
Major changes in the Portfolio have resulted in portfolio turnover rates of
as much as 338%, which is greater than most other investment companies,
including many which emphasize capital appreciation as a basic policy. The
policies of the Growth Stock Portfolio may be expected to result in
correspondingly heavier brokerage commissions and taxes, which ultimately must
be borne by the Trust's shareholders.
<PAGE>
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Portfolio by the Manager, Subadviser or Sector Advisers pursuant
to authority contained in the investment advisory agreement, investment
subadvisory agreement and investment sub-subadvisory agreements. The Manager,
Subadviser and Sector Advisers are also responsible for the placement of
transaction orders for accounts for which they or their affiliates act as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, the Manager, Subadviser and Sector
Advisers consider various relevant factors, including, but not limited to, the
size and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions, and arrangements for payment of Portfolio
expenses.
The Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolio or other accounts over
which the Manager, Subadviser or Sector Advisers or their affiliates exercise
investment discretion. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or the purchasers or sellers of securities;
furnishing analyses and reports concerning issuers industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). The selection of such broker-dealers
generally is made by the Manager, Subadviser and Sector Advisers (to the extent
possible consistent with execution considerations) in accordance with a ranking
of broker-dealers determined periodically by the Manager, Subadviser and Sector
Advisers' investment staffs based upon the quality of research and execution
services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the Portfolio may be useful to the Manager, Subadviser and Sector
Advisers in rendering investment management services to the Portfolio or their
other clients, and conversely, such research provided by broker-dealers who have
executed transaction orders on behalf of other Manager, Subadviser and Sector
Advisers' clients may be useful to the Manager, Subadviser and Sector Advisers
in carrying out their obligations to the Portfolio. The receipt of such research
is not expected to reduce the Manager, Subadviser and Sector Advisers' normal
independent research activities; however, it enables the Manager, Subadviser and
Sector Advisers to avoid the additional expenses that could be incurred if the
Manager, Subadviser and Sector Advisers tried to develop comparable information
through their own efforts.
<PAGE>
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Portfolio to pay such higher commissions, the Manager, Subadviser and/or Sector
Advisers must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided by such
executing broker-dealers viewed in terms of a particular transaction or the
Manager, Subadviser and/or Sector Advisers' overall responsibilities to the
Portfolio and their other clients. In reaching this determination, the Manager,
Subadviser and/or Sector Advisers will not attempt to place a specific dollar
value on the brokerage and research services provided or to determine what
portion of the compensation should be related to those services.
The Manager, Subadviser and Sector Advisers are authorized to use research
services provided by and to place portfolio transactions with brokerage firms
that have provided assistance in the distribution of shares of the Fund or
shares of other Flex-funds funds or Flex-Partners funds to the extent permitted
by law.
The Manager, Subadviser and Sector Advisers may allocate brokerage
transactions to broker-dealers who have entered into arrangements with the
Manager, Subadviser and Sector Advisers under which the broker-dealer allocates
a portion of the commissions paid by the Portfolio toward payment of the
Portfolio or the Fund's expenses, such as transfer agent fees of Mutual Funds
Service Co. or custodian fees. The transaction quality must, however, be
comparable to those of other qualified broker-dealers.
The Trustees of the Portfolio periodically review the Manager, Subadviser
and Sector Advisers' performance of their responsibilities in connection with
the placement of portfolio transactions on behalf of the Portfolio and review
the commissions paid by the Portfolio over representative periods of time to
determine if they are reasonable in relation to the benefits to the Portfolio.
From time to time, the Trustees of the Portfolio will review whether the
recapture for the benefit of the Portfolio of some portion of the brokerage
commissions or similar fees paid by the Portfolio on portfolio transactions is
legally permissible and advisable.
The Portfolio seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Trustees of the Portfolio intend to continue to review
whether recapture opportunities are available and are legally permissible and,
if so, to determine in the exercise of their business judgment, whether it would
be advisable for the Portfolio to seek such recapture.
Although the Trustees and officers of the Portfolio are substantially the
same as those of other portfolios managed by the Manager, investment decisions
for the Portfolio are made independently from those of other portfolios managed
by the Manager or accounts managed by affiliates of the Manager. It sometimes
<PAGE>
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 policy considered by the Portfolio Trustees to be equitable to each
portfolio. In some cases this system could have a detrimental effect on the
price or value of the security as far as the Portfolio is concerned. In other
cases, however, the ability of the Portfolio to participate in volume
transactions will produce better executions and prices for the Portfolio. It is
the current opinion of the Trustees of the Portfolio that the desirability of
retaining the Manager as investment adviser to the Portfolio outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions. During the period from January 1, 1997 to December 31, 1997, the
Growth Stock Portfolio paid total commissions of $100,888 ($5,137 in 1996;
$44,655 in 1995) on the purchase and sale of securities, of which $3,829 in
commissions were paid on the purchase and sale of futures and options contracts.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Equity securities for which the primary
market is the U.S. are valued at last sale price or, if no sale has occurred, at
the closing bid price. Short-term securities less than 60 days to maturity are
valued either at amortized cost or at original cost plus accrued interest, both
of which approximate current value. Fixed-income securities are valued primarily
by a pricing service that uses a vendor security valuation matrix which
incorporates both dealer-supplied valuations and electronic data processing
techniques.
This twofold approach is believed to more accurately reflect fair value
because it takes into account appropriate factors such as institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data without exclusive reliance
upon quoted, exchange, or over-the-counter prices.
Securities and other assets for which there is no readily available market
are valued in good faith by the Board of Trustees. The procedures set forth
above need not be used to determine the value of the securities owned by the
Portfolio if, in the opinion of the Board of Trustees, some other method (e.g.,
closing over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
<PAGE>
Generally, the valuation of equity securities, as well as corporate bonds,
U.S. government securities, money market instruments, and repurchase agreements,
is substantially completed each day at the close of the New York Stock Exchange
(NYSE).
The values of any such securities held by the Portfolio are determined as
of such time for the purpose of computing the Portfolio's net asset value. If an
extraordinary event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange on which that security
is traded, then the security will be valued as determined in good faith by the
Board of Trustees.
PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the Fund's net asset value over
the period. Average annual total return is determined separately for Class A and
Class C shares. 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.
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:
<PAGE>
P (1+T)n = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
CORE EQUITY FUND (CLASS A SHARES):
Total Return
-------------------------------------------------
Since Inception
(8/1/97)
Period Ended
DECEMBER 31, 1997
Value of Account
At end of Period $1,020.04
Value of Account
At beginning of Period 1,000.00
Base Period Return $ 20.04
Average Total Return 2.00%
CORE EQUITY FUND (CLASS C SHARES):
Total Return
-------------------------------------------------
Since Inception
(8/1/97)
Period Ended
DECEMBER 31, 1997
Value of Account
At end of Period $1,018.76
Value of Account
At beginning of Period 1,000.00
Base Period Return $ 18.76
Average Total Return 1.88%
<PAGE>
The Total Return performance data in this hypothetical example represents past
performance and the investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis. Total
returns, yields, and other performance information may be quoted numerically, or
in a table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted net asset value includes any distributions paid by the
Fund and reflects all elements of its return. Unless otherwise indicated, the
Fund's adjusted net asset values are not adjusted for sales charges, if any.
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
<PAGE>
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.
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.
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
<PAGE>
following holiday closings: New Year's Day, Martin Luther King Day (observed),
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day
(observed). The NYSE may modify its holiday schedule at any time.
The Fund's net asset value is determined as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if
trading on the NYSE is restricted or as permitted by the SEC. To the extent that
portfolio securities are traded in other markets on days when the NYSE is
closed, the Fund's NAV may be affected on days when investors do not have access
to the Fund to purchase or redeem shares.
Shareholders of the Fund will be able to exchange their Class A 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 Class A shares of
the Fund may use the exchange privilege only to acquire Class A shares of a
Flex-Partners Fund.
Shareholders of the Fund may exchange their Class C shares for Class C
shares of other Flex-Partners Funds. If Class C shares of the Fund are exchanged
for Class C shares of other Flex-Partners Funds, no contingent deferred sales
charge will be payable upon such exchange of Class C shares, but a contingent
deferred sales charge will be payable upon the redemption of Class C shares
acquired as a result of the exchange. The applicable sales charge will be that
imposed by the Fund in which shares were initially purchased and the purchase
date will be deemed to be the date of the initial purchase rather than the date
of the exchange.
At any time after acquiring shares of other funds participating in the
Class C exchange privilege, the shareholder may again exchange those shares (and
any reinvested dividends and distributions) for Class C shares of the Fund
without subjecting such shares to any contingent deferred sales charge. Shares
of any fund participating in the Class C exchange privilege that were acquired
through reinvestment of dividends or distributions may be exchanged for Class C
shares of other funds without being subject to any contingent deferred sales
charge.
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
<PAGE>
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 Class A shares of the Fund
concurrently with Class A shares of another 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);
(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
<PAGE>
Privilege," may aggregate the value of their existing holdings of the Class A
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 INTENTION. Reduced sales charges are also available to investors
(or an eligible group of related investors) who enter into a written Letter of
Intention providing for the purchase, within a thirteen-month period, of Class A
shares of the Fund and Class A shares of other Flex-Partners Funds. All Class A
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 Intention are not available to individual participants in
retirement and group plans described below under "Flex-Partners Retirement
Plans."
A Letter of Intention 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 Intention
will be held by the Transfer Agent in escrow in the name of the purchaser. The
effective date of a Letter of Intention 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 Intention
goal.
The Letter of Intention does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intention 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 Class A shares of the Fund pursuant to a Letter of Intention should
carefully read such Letter of Intention.
<PAGE>
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 Class A and Class C 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). Except as otherwise provided in the Prospectus,
to the extent such withdrawals exceed the current net asset value of reinvested
dividends, they may be subject to the contingent deferred sales charge. See "How
to Buy Shares - Class C Shares" and "Other Shareholder Services" in the
Prospectus.
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 (i) the purchase of Class
A shares and (ii) the withdrawal of Class C 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.
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 Transfer Agent may reinvest your distributions at
the then-current NAV. All subsequent distributions will then be reinvested until
you provide the Transfer Agent with alternate instructions.
<PAGE>
DIVIDENDS. A portion of the Fund's dividends derived from certain U.S.
government obligations may be exempt from state and local taxation. The Fund
will send each shareholder a notice in January describing the tax status of
dividends and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the Fund on
the sale of securities by the Portfolio and distributed to shareholders of the
Fund are federally taxable as long-term capital gains regardless of the length
of time shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Fund and such shares are
held six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends, not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be liable
for federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes at the Fund level, the Fund intends to distribute
substantially all of its net investment income (consisting of the income it
earns from its investment in the Portfolio, less expenses) and net realized
capital gains within each calendar year as well as on a fiscal year basis. The
Fund intends to comply with other tax rules applicable to regulated investment
companies.
The Fund 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.
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 Portfolio.
<PAGE>
Pursuant to the Investment Advisory Contract, the Manager, subject to the
supervision of the Portfolio's Board of Trustees and in conformity with the
stated objective and policies of the Portfolio, has general oversight
responsibility for the investment operations of the Portfolio. In connection
therewith, the Manager is obligated to keep certain books and records of the
Portfolio. The Manager also administers the Fund's corporate affairs, and in
connection therewith, furnishes the Fund with office facilities, together with
those ordinary clerical and bookkeeping services which are not being furnished
by Star Bank, N.A., the Portfolio's custodian and Mutual Funds Service Co., the
Fund's transfer and disbursing agent. The management services of the Manager are
not exclusive under the terms of the Investment Advisory Contract and the
Manager is free to, and does, render management services to others.
The Manager invests the Portfolio's liquidity reserves and may invest the
Portfolio's assets in financial futures contracts and related options.
The Investment Advisory Contract for the Portfolio was separately approved
by a vote of a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940) of the Portfolio. The Investment Advisory Contract is to remain in force
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days prior written notice by Majority Vote of the
Portfolio, by the Trustees of the Portfolio, or by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities 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, Sector Capital Management, L.L.C or
any of the Sector Advisers; association dues; the cost of printing and mailing
confirmations, prospectuses, proxies, proxy statements, notices and reports to
existing shareholders; state registration fees; distribution expenses within the
percentage limitations of each Class of Shares' 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>
The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Manager, Subadviser or Sector Advisers; registration
fees; membership dues allocable to the Portfolio; fees and expenses of
independent accountants, of legal counsel and of any transfer agent or
accountant of the Portfolio; insurance premiums and other miscellaneous
expenses.
Expenses of the Portfolio also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions, fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager under the Investment Advisory Contract and other
miscellaneous expenses.
The Board of Trustees of the Trust believe that the aggregate per share
expenses of the Fund and the Portfolio will be less than the expenses which the
Fund would incur if it retained the services of an investment adviser and the
assets of the Fund were invested directly in the type of securities being held
by the Portfolio.
The Manager earns an annual fee, payable in monthly installments, at the
rate of 1% of the first $50 million, 0.75% of the next $50 million, and 0.60% in
excess of $100 million, of the Portfolio's average net assets. The Manager will
receive 70% and the Subadviser 30% of the fee payable with respect to the net
assets of the Portfolio upon effectiveness of the subadvisory arrangement; then
the Manager will receive 30% and the Subadviser 70% of the fee attributable to
any additional net assets of the Portfolio up to an amount of net assets equal
to the net assets upon effectiveness of the subadvisory arrangement, then the
Manager and the Subadviser will share equally the fee attributable to any
additional net assets of the Portfolio up to $50 million of the net assets. With
respect to net assets of more than $50 million and less than $100 million, the
applicable fees of 0.75% will be shared such that the Manager would receive
0.35% and the Subadviser 0.40%. For net assets of $100 million and more, the
applicable 0.60% fee will be shared such that the Manager will receive 0.25% and
the Subadviser 0.35%. For the year ended December 31, 1997, the Portfolio paid
fees to the Manager totaling $317,772 ($258,239 in 1996; $238,640 in 1995).
R. Meeder & Associates, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors are: Robert S. Meeder, Sr.
Chairman and Sole Director; Philip A. Voelker, Senior Vice President and Chief
Investment Officer; Donald F. Meeder, Vice President and Secretary; Sherrie L.
Acock, Vice President; Robert D. Baker, Vice President; Robert S. Meeder, Jr.,
President; and Wesley F. Hoag, Vice President and General Counsel. Mr. Robert S.
Meeder, Sr. is President and a Trustee of the Trust, the Portfolio, The
<PAGE>
Flex-funds and the other corresponding portfolios. Each of Donald F. Meeder and
Wesley F. Hoag is an officer of the Trust, the Portfolio, The Flex-funds and
other corresponding portfolios. Each of Philip A. Voelker and Robert S. Meeder,
Jr. is a Trustee and officer of the Trust, the Portfolio, The Flex-funds and the
other corresponding portfolios. Messrs. Robert S. Meeder, Sr. and Robert S.
Meeder, Jr. are directors of the Distributor. Mr. Voelker is President and a
director of the Distributor. Messrs. Donald F. Meeder and Craver are officers of
the Distributor.
INVESTMENT SUBADVISER
Sector Capital Management L.L.C. serves as the Portfolio's subadviser. The
Subadviser is a Georgia limited liability company. William L. Gurner and John K.
Donaldson control the Subadviser. Messrs. Gurner and Donaldson are Managers and
Members of the Subadviser. The Subadviser's officers are as set forth as
follows: William L. Gurner, President and Administrator; George S. Kirk,
Director, Sales and Marketing; and Kenneth L. Riffle, Director, Client
Relations. Mr. Gurner is a Trustee of the Trust; the Portfolio, The Flex-funds,
mutual funds whose corresponding portfolios are also advised by the Manager; and
such portfolios. The Investment Subadvisory Agreement provides that the
Subadviser shall furnish investment advisory services in connection with the
management of the Portfolio. The Portfolio and the Manager have entered into an
Investment Subadvisory Agreement with the Subadviser which, in turn, has entered
into a investment sub-subadvisory agreement with each of the Sector Advisers
selected for the Portfolio. Under the Investment Subadvisory Agreement, the
Subadviser is required to (i) supervise the general management and investment of
the assets and securities portfolio of the Portfolio; (ii) provide overall
investment programs and strategies for the Portfolio and (iii) select Sector
Advisers for the Portfolio, except as otherwise provided, and allocate the
Portfolio's assets among such Sector Advisers. The Subadviser is obligated to
keep certain books and records of the Portfolio. The Manager continues to have
responsibility for all investment advisory services pursuant to the Investment
Advisory Agreement and supervises the Subadviser's performance of such services.
Under the Investment Subadvisory Agreement, the Manager, not the Portfolio, pays
the Subadviser an investment advisory fee in an amount described above under
"Investment Adviser and Manager."
The Subadviser may invest the Portfolio's assets in financial futures
contracts and related options.
The Investment Subadvisory Agreement provides that the Subadviser will not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Portfolio, except a loss resulting from misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment
Subadvisory Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty to the Fund or the Portfolio by
the Manager, the Trustees of the Portfolio or by the vote of a majority of the
outstanding voting securities of the Portfolio upon not less than 30 days
written notice. The Investment Subadvisory Agreement will continue in effect for
a period of more than two years from the date of execution only so long as such
continuance is specifically approved at least annually in conformity with the
<PAGE>
1940 Act. The Investment Subadvisory Agreement was approved by the Board of
Trustees of the Portfolio, including all of the Trustees who are not parties to
the contract or "interested persons" of any such party, and by the investors in
the Portfolio.
INVESTMENT SUB-SUBADVISERS
Except as otherwise described above under "Investment Adviser and Manager"
and "Investment Subadviser", the assets of the Portfolio are managed by asset
managers (each a "Sector Manager" and collectively, the "Sector Managers")
selected by the Subadviser, subject to the review and approval of the Trustees
of the Portfolio. The Subadviser recommends, to the Trustees of the Portfolio,
Sector Advisers for each industry sector based upon its continuing quantitative
and qualitative evaluation of the Sector Advisers' skills in managing assets
pursuant to specific investment styles and strategies. The Portfolio has applied
for an exemptive order from the SEC permitting the Subadviser, subject to
certain conditions, to enter into sub-subadvisory agreements with Sector
Advisers approved by the Trustees of the Portfolio but without the requirement
of investor approval. At a meeting held on December 20, 1996, the shareholders
of the Portfolio approved the operation of the Portfolio in this manner.
Pursuant to the terms of the exemptive application, the Subadviser is to be
able, subject to the approval of the Trustees of the Portfolio, but without
investor approval, to employ new Sector Advisers for the Portfolio. Although
investor approval will not be required for the termination of sub-subadvisory
agreements, investors of the Portfolio will continue to have the right to
terminate such agreements for the Portfolio at any time by a vote of a majority
of outstanding voting securities of the Portfolio.
Except as otherwise provided above under "Investment Adviser and Manager"
and "Investment Subadviser," the assets of the Portfolio are allocated by the
Subadviser among the Sector Advisers selected for the Portfolio. Each Sector
Adviser has discretion, subject to oversight by the Trustees and the Subadviser,
to purchase and sell portfolio assets, consistent with the Portfolio's
investment objectives, policies and restrictions. For its services, the
Subadviser receives a management fee from the Manager. A part of the fee paid to
the Subadviser is used by the Subadviser to pay the advisory fees of the Sector
Advisers. Each Sector Adviser is paid a fee for its investment advisory services
that is computed daily and paid monthly based on the value of the average net
assets of the Portfolio assigned by the Subadvisor to the Sector Adviser at an
annual rate equal to .25%.
The Investment Sub-subadvisory Agreements provide that the Sector Advisers
will not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
portfolio transactions for the Portfolio, except a loss resulting from
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Investment Sub-subadvisory Agreements provide that they will terminate
automatically if assigned, and that they may be terminated without penalty to
the Fund or the Portfolio by the Subadviser, the Trustees of the Portfolio or by
<PAGE>
the vote of a majority of the outstanding voting securities of the Portfolio
upon not less than 15 days written notice. The Investment Sub-subadvisory
Agreements will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the 1940 Act. The Investment Sub-subadvisory
Agreements were approved by the Board of Trustees of the Portfolio, including
all of the Trustees who are not parties to the contract or "interested persons"
of any such party, and by the investors in the Portfolio.
A Sector Adviser may also serve as a discretionary or non-discretionary
investment adviser to management or advisory accounts unrelated in any manner to
the Portfolio or its affiliates. The investment Sub-subadvisory agreements among
the Sector Advisers, the Portfolio and the Subadviser require fair and equitable
treatment to the Portfolio in the selection of the Portfolio investments and the
allocation of investment opportunities, but do not obligate the Sector Advisers
to give the Portfolio exclusive or preferential treatment.
Although the Sector Advisers make investment decisions for the Portfolio
independent of those for their other clients, it is likely that similar
investment decisions will be made from time to time. When the Portfolio and
another client of a Sector Adviser are simultaneously engaged in the purchase or
sale of the same security, the transactions are, to the extent feasible and
practicable, averaged as to price and allocated as to amount between the
Portfolio and the other client(s). In specific cases, this system could have
detrimental effect on the price or volume of the security to be purchased or
sold, as far as the Portfolio is concerned. However, the Trustees of the
Portfolio believe, over time, that coordination and the ability to participate
in volume transactions should be to the benefit of the Portfolio.
Listed below are the Sector Advisers selected by the Subadviser to invest
certain of the Portfolio's assets:
MILLER/HOWARD INVESTMENTS, INC. serves as Sector Adviser to the utilities
and transportation sectors of the Growth Stock Portfolio. Miller/Howard is a
registered investment adviser which has been providing investment services to
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1997, Miller/Howard held discretionary investment authority over
approximately $103 million of assets. Lowell G. Miller and Helen Hamada who are,
respectively, Miller/Howard's President, Secretary and a director and its Vice
President, Treasurer and a director, each owns more than 10% of the outstanding
voting securities of Miller/Howard. Mr. Miller controls Miller/Howard through
stock ownership. Miller/Howard is also the subadviser to the Utilities Stock
Portfolio, a corresponding portfolio to The Flex-funds' Total Return Utilities
Fund and The Flex-Partners' Utility Growth Fund. Mr. Miller is the portfolio
manager primarily responsible for the day-to-day management of those assets of
the Growth Stock Portfolio allocated to Miller/Howard. Mr. Miller has been
associated with Miller/Howard since 1984. Mr. Miller is a Trustee of the Trust,
the Portfolio, and The Flex-funds, mutual funds whose corresponding portfolios
are also advised by the Manager, and such portfolios. Miller/Howard's principal
executive offices are located at 141 Upper Byrdcliffe Road, Post Office Box 549,
Woodstock, New York 12498.
<PAGE>
HALLMARK CAPITAL MANAGEMENT, INC. serves as Sector Adviser to the capital
goods sector of the Growth Stock Portfolio. Hallmark is a registered investment
adviser which has been providing investment services to individuals; banks;
pension, profit sharing, and other retirement plans; trusts; endowments;
foundations; and other charitable organizations since 1986. As of December 31,
1997, Hallmark held discretionary investment authority over approximately $145
million of assets. Peter S. Hagerman, Katherine A. Skwieralski, and Jeffrey P
Braff each own more than 10% of the outstanding voting securities of Hallmark.
Mr. Hagerman, Chairman of the Board, President, and Chief Executive Officer,
Thomas S. Moore, Senior Vice President and Chief Investment Officer, and Kathryn
A. Skwieralski, Senior Vice President, Treasurer, Chief Financial and
Administrative Officer, are the directors of Hallmark. Mr. Hagerman is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Hallmark. Mr. Hagerman has
been associated with Hallmark since 1986. Hallmark's principal executive offices
are located at One Greenbrook Corporate Center, 100 Passaic Avenue, Fairfield,
New Jersey 07004.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as Sector Adviser to the
consumer durable and non-durable sectors of the Growth Stock Portfolio. Barrow
is a registered investment adviser which has been providing investment services
to banks; investment companies; pension and profit sharing plans; charitable
organizations and corporations since 1979. As of December 31, 1997, Barrow held
discretionary investment authority over approximately $28.8 billion of assets.
Barrow is a wholly-owned subsidiary of United Asset Management. Bryant M.
Hanley, Jr., President and Chief Executive Officer, is the sole director of
Barrow. Michael C. Mewhinney is the portfolio manager primarily responsible for
the day-to-day management of those assets of the Growth Stock Portfolio
allocated to Barrow. Mr. Mewhinney has been associated with Barrow since 1979.
Barrow's principal executive offices are located at 3232 McKinney Avenue, 15th
Floor, Dallas, Texas 75204-2429.
THE MITCHELL GROUP, INC. serves as Sector Adviser to the energy sector of
the Growth Stock Portfolio. The Mitchell Group is a registered investment
adviser which has been providing investment services to individuals; banks;
investment companies; pension and profit sharing plans; charitable
organizations, corporations and other institutions since 1989. As of December
31, 1997, The Mitchell Group held discretionary investment authority over
approximately $315 million of assets. Rodney Mitchell, President, Chief
Executive Officer, Chief Financial Officer and sole director, owns more than 10%
of the outstanding voting securities of The Mitchell Group. Mr. Mitchell is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to The Mitchell Group. Mr.
Mitchell has been associated with The Mitchell Group since 1989. The Mitchell
Group's principal executive offices are located at 1100 Louisiana, #4810,
Houston, Texas 77002.
<PAGE>
ASHLAND MANAGEMENT INCORPORATED serves as Sector Adviser to the materials
and services sector of the Growth Stock Portfolio. Ashland is a registered
investment adviser which has been providing investment services to individuals,
pension and profit sharing plans, charitable organizations, corporations and
other institutions since 1975. As of December 31, 1997, Ashland managed accounts
having a value of approximately $1.3 billion. Charles C. Hickox, Chairman of the
Board, Chief Executive Officer and a director, and Parry v.S. Jones, President,
Chief Operating Officer and a director, each owns more than 10% of the
outstanding voting securities of Ashland. Terrence J. McLaughlin, Managing
Director of Ashland and Deborah C. Ohl, a Portfolio Management Associate, are
the portfolio managers primarily responsible for the day-to-day management of
those assets of the Growth Stock Portfolio allocated to Ashland. Mr. McLaughlin
has been associated with Ashland since 1984. Ms. Ohl has been employed by
Ashland since August, 1992 and has served as a Portfolio Management Associate
for Ashland since 1993. From May, 1991 until July, 1992, Ms. Ohl was a research
and sales assistant with Kidder, Peabody & Co., Incorporated. Ashland's
principal executive offices are located at 26 Broadway, New York, New York
10004.
SCUDDER KEMPER INVESTMENTS, INC. serves as Sector Adviser to the finance
sector of the Growth Stock Portfolio. Scudder Kemper is a registered investment
adviser which has been providing investment services to individuals, banks,
investment companies, pension and profit sharing plans, charitable
organizations, corporations and other institutions for more than seventy years.
As of January 31, 1998, Scudder Kemper held discretionary investment authority
over approximately $210 billion of assets. Scudder Kemper is approximately 70%
owned by Zurich Insurance Company, with the balance owned by Scudder Kemper's
officers and employees. Thaddeus W. Paluszek is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Growth Stock
Portfolio allocated to Scudder Kemper. Mr. Paluszek is Vice President of Scudder
Kemper and has been associated with Scudder Kemper since 1993. Scudder Kemper's
principal executive offices are located at 345 Park Avenue, New York, NY 10017.
DRESDNER RCM GLOBAL INVESTORS, L.L.C. (formerly RCM Capital Management,
L.L.C.) serves as Sector Adviser to the technology sector of the Growth Stock
Portfolio. Dresdner RCM is a registered investment adviser that provides
investment services to institutional and individual clients and registered
investment companies, with approximately $30.0 billion of assets under
management as of December 31, 1997. Dresdner RCM was established in April 1996,
as the successor to the business and operations of RCM Capital Management, a
California Limited Partnership, which, with its predecessors, has been in
operation since 1970. Dresdner RCM is a wholly-owned subsidiary of Dresdner Bank
AG, an international banking organization with principal executive offices in
Frankfurt, Germany. The Board of Managers of Dresdner RCM is comprised of
William L. Price, Chairman of the Board, Chief Investment Officer and Principal
of Dresdner RCM, Michael J. Apatoff, President and Principal of Dresdner RCM,
Gerhard Eberstadt, Senior Chairman of Dresdner, George N. Fugelsang, Senior
General Manager of Dresdner, Joachim Madler, Director of Dresdner, Luke D.
Knecht, Senior Vice President of Dresdner RCM, Jeffrey S. Rudsten, Principal of
Dresdner RCM, William S. Stack, Principal of Dresdner RCM, and Kenneth B.
<PAGE>
Weeman, Jr., Principal and Head of Equity Trading of Dresdner RCM. Walter C.
Price and Huachen Chen, each Principals of Dresdner RCM, are the portfolio
managers primarily responsible for the day-to-day management of those assets of
the Growth Stock Portfolio allocated to Dresdner RCM. Messrs. Price and Chen
have managed equity portfolios on behalf of Dresdner RCM since 1985. Dresdner
RCM's principal executive offices are located at Four Embarcadero Center, San
Francisco, CA 94111.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
certain banking entities, such as Dresdner, from sponsoring, organizing,
controlling or distributing the shares of a registered investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities. However, banks and their affiliates generally can
act as an adviser (or sub-subadviser) to an investment company and can purchase
shares of an investment company as agent for and upon the order of customers.
Dresdner RCM believes that it may perform the services contemplated by the
investment management agreement without violating these banking law regulations.
However, future changes in legal requirements relating to the permissible
activities of banks and their affiliates at will as future interpretations of
current requirements, could prevent Dresdner RCM from continuing to perform
investment management services for the Growth Stock Portfolio.
ALLIANCE CAPITAL MANAGEMENT L.P. serves as Sector Adviser to the health
sector of the Growth Stock Portfolio. Alliance, a registered investment adviser,
is an international investment manager supervising client accounts with assets
as of December 31, 1997 totaling approximately $218.7 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. The general partner of Alliance, Alliance Capital Management Corporation,
is an indirect subsidiary of, and is controlled by, AXA-UAP, a French insurance
holding company. Raphael L. Edelman, Vice President of Alliance, is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Alliance. Mr. Edelman, who has
fourteen years of investment experience, joined Alliance's research department
in 1986 as an analyst after working two years as a manager in Alliance's mutual
fund division. Alliance's principal executive offices are located at 1345 Avenue
of the Americas, New York, NY 10105.
THE DISTRIBUTOR
Adviser Dealer Services, Inc. (the "Distributor"), 6000 Memorial Drive,
Dublin, Ohio 43017, acts as the distributor of the Class A shares and the Class
C shares of the Fund. The Distributor is an affiliate of the Manager and a
subsidiary of Muirfield Investors, Inc.
<PAGE>
Pursuant to separate plans of distribution (the Class A Plan and the Class
C Plan, collectively, the Plans) 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 Class A shares and
Class C shares. See "Distribution Plans" 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 Class A or Class C Plan or in any agreement
related to the Plans (the Rule 12b-1 Trustees), at a meeting called for the
purpose, have adopted a plan of distribution for each of the Class A shares and
the Class C shares of the Fund. The Class A Plan was approved by Class A
shareholders of the Fund. The Class C Plan was approved by Class C shareholders
of the Fund.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. See "How
to Buy Shares" in the Prospectus.
The Plans continue 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. Either 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 relevant class of outstanding shares of the Fund. Neither Plan
may be amended to increase materially the amounts to be spent for the services
described therein without approval by the shareholders of Class A and Class C,
as applicable, 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 either the Class A or
Class C Plan if it is terminated or not continued.
Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of the Class A
and Class C 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 Plans remain 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.
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 1940 Act. The Underwriting
Agreement was approved by the Board of Trustees, including a majority of the
Rule 12b-1 Trustees.
The Distributor for the Fund, is an affiliated person of the Manager and
the Fund and received the following commissions and other compensation from the
Trust during the fiscal year ended December 31, 1997.
NET UNDERWRITING COMPENSATION
NAME OF PRINCIPAL DISCOUNTS AND ON REDEMPTIONS BROKERAGE OTHER
UNDERWRITER COMMISSIONS AND REPURCHASES COMMISSIONS COMPENSATION
- ----------- ----------- --------------- ----------- ------------
Adviser Dealer
Services, Inc. $174,319 $772 $0 $0
<PAGE>
TRUSTEES AND OFFICERS
The Trust and the Portfolio are managed by their trustees and officers.
Their names, positions and principal occupations during the past five years are
listed below. Except as indicated, each individual has held the office shown or
other offices in the same company for the last five years. Except as otherwise
shown, all persons named as Trustees also serve in similar capacities for all
other mutual funds advised by the Manager, including The Flex-funds 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 the Sector Advisers are
indicated by an asterisk (*).
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
- --------------------- ------------- --------------------
ROBERT S. MEEDER, SR.*+, 69 Trustee/President Chairman, R. Meeder &
Associates, Inc., an
investment adviser.
MILTON S. BARTHOLOMEW, 69 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
the Portfolio's Audit
Committee.
ROGER D. BLACKWELL, 57 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
JOHN M. EMERY, 77 Trustee Retired; formerly Vice
2390 McCoy Road President and Treasurer of
Columbus, OH 43220 Columbus & Southern Ohio
Electric Co.; member of
the Portfolio's Audit
Committee.
RICHARD A. FARR, 79 Trustee President of R&R Supply
3250 W. Henderson Road Co. and Farrair Concepts,
Columbus, OH 43220 Inc., two companies
involved in engineering,
consulting and sales of
heating and 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
Memphis, TN 38119 1995); Manager of Trust
Investments of Federal
Express Corporation (1987-
1994).
RUSSEL G. MEANS, 72 Trustee Retired; formerly Chairman
5711 Barry Trace of Employee Benefit
Dublin, OH 43017 Management Corporation,
consultants and
administrators of self-
funded health and
retirement plans.
ROBERT S. MEEDER, JR.*+, 37 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
Woodstock, NY 12498 Portfolio and the
Utilities Stock Portfolio.
WALTER L. OGLE, 59 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
CHARLES A. DONABEDIAN, 55 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
companies; CEO, Winston
Advisors, Inc., an
investment advisor.
JAMES W. DIDION, 67 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm (1991-
1997).
<PAGE>
PHILIP A. VOELKER*+, 44 Trustee and Senior Vice President and
Vice President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 54 Assistant Practicing Attorney;
42 Miller Hill Road Secretary Special Counsel to Flex-
Box 811 Partners, Flex-funds and
Dover, MA 02030 their Portfolios; Senior
Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 59 Secretary/ Vice President of R.
Treasurer Meeder & Associates, Inc.,
and President of Mutual
Funds Service Company.
WESLEY F. HOAG*+, 41 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).
*"Interested Person" of the Trust (as defined in the Investment Company Act of
1940), 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 Portfolio and the
Fund Complex as a whole to the Trustees of the Portfolio and the Fund Complex
during the fiscal year ended December 31, 1997.
<PAGE>
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits Estimated from
Aggregate Accrued Benefits Registrant
Compensation as Part of Annual and Fund
from the Portfolio or Upon Complex Paid
TRUSTEE PORTFOLIO FUND EXPENSE RETIREMENT TO TRUSTEE
- ------- --------- ------------ ---------- ----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $1,723 None None $11,633
John M. Emery $1,723 None None $11,633
Richard A. Farr $1,540 None None $10,633
William F. Gurner None None None None
Russel G. Means $1,040 None None $7,883
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $1,373 None None $9,883
Philip A. Voelker None None None None
Roger A. Blackwell $1,373 None None $9,883
Charles A. Donabedian $ 826 None None $5,541
James W. Didion None 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; however, the Portfolio and other members of the Fund Complex have
accrued the payment of certain Trustee fees which have not yet been paid to the
Trustees.
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios. In addition, each such Trustee
earns an annual fee, payable quarterly, based on the average net assets in each
Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of
the amount of average net assets between $500 million and $1 billion; 0.00025%
of the amount of average net assets exceeding $1 billion. For the other four
Portfolios, including the Portfolio, each Trustee is paid a fee of 0.00375% of
the amount of each Portfolio's average net assets exceeding $15 million. Messrs.
<PAGE>
Bartholomew, Emery and Donabedian comprise the Audit Committee for The
Flex-funds Trust, The Flex-Partners Trust, and each corresponding Portfolio of
The Flex-funds and the Flex-Partners Trusts. Each member of the Audit Committee
is paid $500 for each meeting of the Audit Committee attended. Trustees fees for
the Portfolio totaled $9,231 for the year ended December 31, 1997. Audit
Committee fees for the Fund totaled $367 for the year ended December 31, 1997.
All other officers and Trustees serve without compensation from the Trust.
As of April 1, 1998, Robert S. Meeder, Sr. owns beneficially and of record
28.149% of the Class A shares of the Fund and the Manager's Employee Salary
Savings Plan and Trust owns beneficially and of record 11.533% of the Class C
shares of the Fund.
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 and Roth IRA accounts are described below.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA):
DEDUCTIBLE CONTRIBUTIONS
All contributions (other than certain rollover contributions) must be made
in cash and are subject to the following limitations:
REGULAR. Contributions to an IRA (except for rollovers or employer
contributions under a simplified employee pension) may not exceed the amount of
compensation includible in gross income for the tax year or $2,000, whichever is
less. If neither you nor your spouse is an active participant in an employer
plan, you may make a contribution up to this limit and take a deduction for the
entire amount contributed. If you or your spouse is an active participant and
your adjusted gross income (AGI) is below a certain level you may also make a
contribution and take a deduction for the entire amount contributed. However, if
you or your spouse is an active participant and your AGI is above the specified
level, the dollar limit of the deductible contribution you make to your IRA may
be reduced or eliminated.
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. You do not have to file an itemized federal
tax return to take an IRA deduction. Deductions are not allowed for any
contribution in excess of the deduction limit. Contributions for a year may be
made during such year or by the tax return filing date for such year (not
including extensions), if irrevocably designated for such year, in writing, when
such contribution is made.
<PAGE>
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA. The contribution
limits apply separately to the compensation of each of you, without regard to
the community property laws of your state, if any.
SPOUSAL. You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
If you are the compensated (or higher compensated) spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established by
your spouse as the depositor or grantor of his or her own IRA and your spouse
becomes subject to all of the privileges, rules, and restrictions generally
applicable to IRAs. This includes conditions of eligibility for distribution;
penalties for premature distribution, excess accumulation (failure to take a
required distribution) and prohibited transaction; designation of beneficiaries
and distribution in the event of your spouse's death; income and estate tax
treatment of withdrawals and distributions.
ADJUSTED GROSS INCOME (AGI). If you are an active participant or are
considered an active participant, the amount of your AGI for the year (if you
and your spouse file a joint tax return, your combined AGI) will be used to
determine if you can make a deductible IRA contribution. The instructions for
your tax return will show you how to calculate your AGI for this purpose. If you
are at or below a certain AGI level, called the Threshold Level, you can make a
deductible contribution under the same rules as a person who is not an active
participant. This AGI level may change each year. The instructions for your tax
return will show you the AGI level in effect for that year.
For example, if you are single, or treated as being single, your AGI
Threshold Level is $30,000 for 1998. If you are married and file a joint tax
return, your AGI Threshold Level is $50,000 for 1998. If you are not an active
participant, but you file a joint tax return with your spouse who is an active
participant, your AGI Threshold Level is $150,000. If you are married, file a
separate tax return, and live with your spouse for any part of the year, your
AGI Threshold Level is $0.
If your AGI is less than $10,000* above your AGI Threshold Level, you will
still be able to make a deductible contribution, but it will be limited in
amount. The amount by which your AGI exceeds your AGI Threshold Level (AGI minus
AGI Threshold Level) is called your Excess AGI. The Maximum Allowable Deduction
is $2,000 per individual. You may determine your Deduction Limit by using the
following formula:
<PAGE>
($10,000* - EXCESS AGI ) Maximum Allowable = Deduction
--------------------- X Deduction Limit
$10,000*
Round the result up to the next higher multiple of $10 (the next higher
whole dollar amount that ends in zero). If the final result is below $200, but
above zero, your Deduction Limit is $200. Your Deduction Limit cannot exceed
100% of your compensation.
*For years after 2006, $20,000 if you are married, filing jointly.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make rollover
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS (ROTH IRA):
CONTRIBUTIONS:
All contributions must be made in cash and are subject to the following
limitations:
REGULAR. Contributions to a Roth IRA (except for rollovers) cannot exceed
the amount of compensation includible in gross income for the tax year or
$2,000, whichever is less. If our adjusted gross income (AGI) is below a certain
level, you may contribute the maximum amount. However, if your AGI is above a
specified level, the dollar limit of the contribution you make to your Roth IRA
may be reduced or eliminated.
If you are single, and your adjusted gross income (AGI) is $95,000 or less
($150,000 or less if married and filing jointly, or $0 or less if married and
filing separately) you are eligible to contribute the full amount to a Roth IRA.
Contributions to a Roth IRA are aggregated with Traditional IRA
contributions for the purpose of the annual contribution limit. Therefore, you
may contribute up to the lesser of $2,000 or 100% of earned income per year to a
Traditional IRA and a Roth IRA combined.
<PAGE>
SPOUSAL. You may make spousal Roth IRA contributions for a year, if: 1)
your spouse has "compensation" that is includible in gross income for such year;
2) you have less compensation than your spouse for such year; and 3) you file a
joint federal income tax return for such year.
If you are the higher compensated spouse, your contribution must be made in
accordance with the regular contribution rules above. If you are the
noncompensated (or lower compensated) spouse, your contribution may not exceed
the lesser of $2,000 or 100% of the combined compensation of you and your
spouse, reduced by the amount of your spouse's Roth IRA contribution.
Contributions for your spouse must be made to a separate Roth IRA
established by your spouse as the depositor or grantor of his or her own Roth
IRA and your spouse becomes subject to all of the privileges, rules, and
restrictions generally applicable to Roth IRAs. This includes conditions of
eligibility for distribution; designation of beneficiaries and distribution in
the event of your spouse's death; tax treatment of withdrawals and
distributions. This form may be used to establish such Roth IRA.
NO MAXIMUM AGE LIMIT. There is no maximum age limit for making a Roth IRA
contribution. Attainment of age 70 1/2 does not prevent you from contributing to
a Roth IRA.
APRIL 15 FUNDING DEADLINE. Contributions to a Roth IRA for the previous tax
year must be made by the tax-filing deadline (not including extensions) for
filing your federal income tax return. If you are a calendar-year taxpayer, your
deadline is usually April 15. If April 15 falls on a Saturday, Sunday, or legal
holiday, the deadline is the following business day.
LOWER CONTRIBUTION LIMITS. To determine the maximum contribution to a Roth
IRA if your AGI is between $95,000 and $110,000 (between $150,000 and $160,000
if married, filing jointly or between $0 and $10,000 if married, filing
separately), the following steps must be taken:
(a) Subtract your AGI from $110,000 ($160,000 if married, filing jointly;
$10,000 if married, filing separately).
(b) Multiply the result in Step `a' by .1333 (.20 if married).
(c) If the result in Step `b' is not a multiple of $10, round up to the
next multiple of $10.
<PAGE>
(d) The result in Step `c' is your allowable contribution limit. If it is
more than $0, but less that $200, your allowable contribution limit is
$200.
INDIVIDUALS NOT ELIGIBLE TO MAKE CONTRIBUTIONS. If you are a single
taxpayer and your AGI is $110,000 or above ($160,000 or above if married and
filing jointly, or $10,000 or above if married and filing separately), you are
not permitted to make a Roth IRA contribution for the year. For this purpose, a
deductible Traditional IRA contribution is not allowed as a deduction in
computing AGI, and any amount of a rollover-conversion from a Traditional IRA to
a Roth IRA is not taken into account. Whether an individual, or his spouse, is
an active participant in an employer retirement plan is irrelevant for
determining whether he may make a Roth contribution.
EXCESS ROTH CONTRIBUTIONS. Excess contributions to a Roth IRA are subject
to a 6% penalty tax unless removed (along with attributable earnings) by your
tax-filing deadline (plus extensions). An excess contribution could occur for
many reasons including, for example, if you contribute more than $2,000 or 100%
of earned income, or if you are not permitted to make a Roth contribution
because your AGI is too high.
CONVERSION OF TRADITIONAL CONTRIBUTIONS TO ROTH CONTRIBUTIONS. Generally,
if you make a contribution to a Traditional IRA, you may transfer the
contribution plus attributable earnings to a Roth IRA by your tax-filing
deadline (not including extensions). The transferred contribution amount is not
taxable if no deduction was allowed for the contribution. Such a contribution is
treated as a Roth IRA contribution.
ROLLING OVER/CONVERTING TRADITIONAL IRAS TO ROTH IRAS
You are allowed to roll over, transfer, or "convert" your Traditional IRAs
to Roth IRAs beginning in 1998. Regardless of whether a Traditional IRA is
rolled over/converted to a Roth IRA in 1998 or afterwards, the
rollover/conversion amount is subject to federal income taxation (but no 10%
penalty tax).
$100,000 AGI LIMIT FOR ROLLOVER. If you are a single taxpayer, or a married
individual who files jointly, you may roll over, transfer, or convert your
Traditional IRAs to Roth IRAs if your AGI is $100,000 or less. If you are a
single taxpayer (or a married individual who files jointly) with AGI of more
than $100,000 you may not roll over, transfer, or convert your Traditional IRAs
to Roth IRAs. Also, if you are a taxpayer who is married, but files separately,
you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs
regardless of AGI.
ROLLOVER/CONVERSION IN 1998. If you roll over a Traditional IRA
distribution received after 1998 to a Roth IRA, the taxable portion of the
Traditional IRA distribution is included in your income ratably over a four-year
period starting with 1998 (i.e., the amount included in gross income is spread
evenly over four years beginning with 1998), but the amount is not subject to
the IRS 10% early distribution penalty.
<PAGE>
ROLLOVER/CONVERSION AFTER 1998. If you roll over a Traditional IRA
distribution received after 1998, to a Roth IRA the taxable portion of the
Traditional IRA distribution is included in your income for the year in which
the Traditional IRA distribution is received, but the amount is not subject to
the IRS 10% early distribution penalty. No special tax treatments apply.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. provides accounting, stock transfer, dividend
disbursing, and shareholder services to the Fund Complex. The minimum annual fee
for accounting services for the Portfolio is $7,500. Subject to the applicable
minimum fee, the Portfolio's annual fee, payable monthly, is computed at the
rate of 0.15% of the first $10 million, 0.10% of the next $20 million, 0.02% of
the next $50 million and 0.01% in excess of $80 million of the Portfolio's
average net assets. Subject to a $4,000 annual minimum fee, the Fund will incur
an annual fee, payable monthly, which will be the greater of $15 per shareholder
account or 0.10% 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.
These fees are reviewable annually by the respective Trustees of the Trust and
the Portfolio.
For the year ended December 31, 1997, total payments to Mutual Funds
Service Co. by the Portfolio and the Fund amounted to $34,330.
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. These assets 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.
<PAGE>
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.
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, if approved by vote of the holders of a
majority of the Trust or the Fund, as determined by the current value of each
shareholder's investment in the Fund or Trust, or upon liquidation and
distribution of its assets, if approved by a majority of the Trustees of the
Trust. If not so terminated, the Trust and the Fund will continue indefinitely.
CUSTODIAN. Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is
custodian of the assets of the Portfolio. The custodian is responsible for the
safekeeping of the Portfolio's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the investment
policies of the Portfolio or in deciding which securities are purchased or sold
by the Portfolio. The Portfolio may, however, invest in obligations of the
custodian and may purchase or sell securities from or to the custodian.
<PAGE>
AUDITORS. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio
43215, serves as the Trust's independent auditors. The auditors audit financial
statements for the Fund Complex and provide other assurance, tax, and related
services.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of April 1, 1998, the following persons owned 5% or more of the Fund's
outstanding shares of beneficial interest:
Number of
Name Name & Address Shares of Record Percent
OF FUND OF BENEFICIAL OWNER AND BENEFICIALLY OF CLASS
- ------- ------------------- ---------------- --------
Core Equity William G. Kelley 10,563.657 36.936%
Fund Class A Lois E. Kelley JTWROS/
Equity
c/o R. Meeder & Associates
P. O. Box 7177
Dublin, OH 43017
Morgan Keegan & Co. Inc. 2,102.578 7.352%
C/F Lydia S. Teague - IRA
426 Kimberly Drive
Clarksville, TN 37043
Star Bank, NA Cincinnati 8,050.789 28.149%
C/F Robert Meeder Sr.
IRA Rollover
c/o R. Meeder & Associates
P. O. Box 7177
Dublin, OH 43017
Core Equity R. Meeder & Associates 3,987.490 11.533%
Fund Class C Employee Salary Svg Pl
& Tr Dtd 1-9-87
R. Meeder, Jr., Trustee
P. O. Box 7177
Dublin, OH 43017
<PAGE>
Christopher L. Becker 1,753.005 5.070%
& Linda K. Becker
Revocable Living Trust
Dtd 1-25-91
16319 Audubon Village Drive
Grover, MO 63040
Star Bank Cincinnati, C/F 1,784.582 5.162%
Frances L. Dubose IRA
769 Linlen Avenue
Mobile, AL 36609
Julius E. Beard 1,920.320 5.554%
P. O. Box 74
Semmes, AL 36575
FINANCIAL STATEMENTS
Financial statements for Core Equity Fund and Growth Stock Portfolio are
presented on the following pages.
<PAGE>
THE FLEX-PARTNERS UTILITY GROWTH 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(a)(b) Trustees and Officers
14(c) Not applicable
15(a) Not applicable
15(b) Principal Holders of Outstanding Shares
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
20 Distributions and Taxes
21(a) The Distributor
21(b) Not applicable
21(c) Not applicable
22(a) Not applicable
22(b) Performance
23 Financial Statements
<PAGE>
UTILITY GROWTH FUND
A FUND OF THE FLEX-PARTNERS TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
This Statement is not a prospectus but should be read in conjunction with
the Prospectus of The Flex-Partners (dated April 30, 1998). 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.
The Fund offers two classes of shares which may be purchased at the next
determined net asset value per share plus a sales charge which at the election
of the investor may be imposed (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class C shares). These alternatives permit an investor
to choose the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other circumstances.
Each share of Class A and Class C represents an identical legal interest in
the investment portfolio of the Fund and has the same rights, except that the
Class C shares bear the higher expenses of a distribution plan for such class
which will cause the Class C shares to have a higher expense ratio and to pay
lower dividends than the Class A shares. Each class will have exclusive voting
rights with respect to its distribution plan. Although the legal rights of
holders of Class A and Class C shares are identical,the different expenses borne
by each class will result in different net asset values and dividends. The two
classes also have different exchange privileges and Class C shares purchased, or
acquired through the reinvestment of dividends and distributions, on or before
April 30, 1998 have a conversion feature.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 20
Valuation of Portfolio Securities 23
Performance 24
Additional Purchase and Redemption Information 27
Distributions and Taxes 32
Investment Adviser and Manager 33
Investment Subadviser 35
The Distributor 36
Trustees and Officers 37
Flex-Partners Retirement Plans 41
Contracts With Companies Affiliated With Manager 46
Description of the Trust 46
Principal Holders of Outstanding Shares 48
Financial Statements 49
INVESTMENT ADVISER INVESTMENT SUBADVISER
R. Meeder & Associates, Inc. Miller/Howard Investments, Inc.
DISTRIBUTOR TRANSFER AGENT
Adviser Dealer Services, Inc. Mutual Funds Service Co.
<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 Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without
approval by a majority of the outstanding voting securities (as defined in the
Investment Company Act of 1940) of the Fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Trustees without shareholder approval. THE FOLLOWING ARE
THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY;
PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS WILL PREVENT THE
FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN OPEN-END MANAGEMENT
INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND OR
THE PORTFOLIO MAY NOT
(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
government of the United States or any of its agencies or instrumentalities) if,
as a result thereof, (a) more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer or (b) the Fund would hold more than
10% of the voting securities of such issuer;
(2) issue senior securities except as permitted under the Investment
Company Act of 1940;
(3) borrow money except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33-1/3% limitation;
(4) underwrite securities issued by others (except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
<PAGE>
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, 25% or more of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry except that the Portfolio, under normal circumstances, will invest
25% or more of its total assets in securities of public utility companies;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Portfolio from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities); 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 Portfolio 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 Portfolio does not currently intend to purchase securities on
margin except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
(iii) The Portfolio may borrow money only (a) from a bank, or from a
registered investment company for which the Manager serves as investment adviser
if an applicable exemptive order has been granted or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements are treated
as borrowings for purposes of fundamental investment limitation (3)). The
Portfolio will not purchase any security while borrowings representing more than
5% of its total assets are outstanding. The Portfolio will not borrow from other
funds advised by the Manager if total outstanding borrowings immediately after
such borrowing would exceed 15% of the Portfolio's total assets.
<PAGE>
(iv) The Portfolio does not currently intend to purchase any security if,
as a result more than 10% of its net assets would be invested in securities that
are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued, including repurchase agreements with remaining maturities in excess of
seven days or securities without readily available market quotes.
(v) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.
(vi) The Portfolio does not currently intend to lend assets other than
securities to other parties except by (a) lending money (up to 5% of the
Portfolio's net assets) to a registered investment company for which the Manager
serves as investment adviser or (b) acquiring loans, loan participations, or
other forms of direct debt instruments and in connection therewith assuming any
associated unfunded commitments of the sellers. (This limitation does not apply
to purchases or debt securities or to repurchase agreements.)
(vii) The Portfolio does not currently intend to purchase securities of
other investment companies.
This limitation does not apply to securities received as dividends, through
offers of exchange, or as a result of reorganization, consolidation, or merger.
(viii) The Portfolio 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.
(ix) The Portfolio does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, may
be warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.
(x) The Portfolio does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xi) The Portfolio does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the Trust and those officers and
<PAGE>
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.
(xii) The Portfolio does not currently intend to invest in electric
utilities whose generation of power is derived from nuclear reactors.
For the Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions" beginning
on page 13. For the Portfolio's limitations on short sales, see the section
entitled "Short Sales" on page 17.
MONEY MARKET INSTRUMENTS. When investing in money market instruments, the
Portfolio will limit its purchases, denominated in U.S. dollars, to the
following securities.
* U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal
or interest by the United States or its agencies (such as the Export
Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities
(such as the Federal Home Loan Bank, Federal Intermediate Credit Banks
and Federal Land Bank), including Treasury bills, notes and bonds.
* Bank Obligations and Instruments Secured Thereby - obligations
including certificates of deposit, time deposits and bankers'
acceptances) of domestic banks having total assets of $1,000,000,000
or more, instruments secured by such obligations and obligations of
foreign branches of such banks, if the domestic parent bank is
unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may
also invest in obligations (including certificates of deposit and
bankers acceptances) of domestic branches of foreign banks having
assets of $1,000,000,000 or more if the domestic branch is subject to
the same regulation as United States banks. The Portfolio will not
invest at time of purchase more than 25% of its assets in obligations
of banks nor will the Portfolio invest more than 10% of its assets in
time deposits.
* High quality Commercial Paper - The Portfolio may invest in commercial
paper rated no lower than A-2 by Standard & Poor's Corporation or
Prime-2 by Moody's Investors Services Inc. or, if not rated, issued by
a company having an outstanding debt issue rated at least A by
Standard & Poor's or Moody's.
* Private Placement Commercial Paper - Private placement commercial
paper consists of unregistered securities which are traded in public
markets to qualified institutional investors such as the Portfolio.
The Portfolio's risk is that the universe of potential buyers for the
securities should the Portfolio desire to liquidate a position is
limited to qualified dealers and institutions and therefore such
securities could have the effect of being illiquid.
<PAGE>
* 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 Portfolio's securities might have to be
liquidated prior to maturity at a price less than original amortized cost or
value face amount or maturity value to meet larger than expected redemptions.
Any of these risks if encountered could cause a reduction in net income or in
the net asset value of the Portfolio.
RATINGS
1. Moody's Investors Services Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
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.
<PAGE>
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.
<PAGE>
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 Portfolio's investments and through reports from
the Subadviser, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Portfolio'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 Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, over-the-counter options
and non-government stripped fixed-rate mortgage-backed securities. Also, the
Subadviser may determine some restricted securities, government-stripped
<PAGE>
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 Portfolio writes all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the Portfolio may have to close out the
option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets or other circumstances, the
Portfolio were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions pursuant to an exemption from registration under the Securities Act
of 1933 or in a registered public offering. Where registration is required, the
Portfolio may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time it decides to seek registration
and the time the Portfolio may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Portfolio might obtain a less favorable price
than prevailed when it decided to seek registration of the security.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. The Portfolio may engage in repurchase
agreements with respect to any security in which it is authorized to invest.
While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to the Portfolio
in connection with bankruptcy proceedings), it is the Portfolio's current policy
to limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Subadviser.
REVERSE REPURCHASE AGREEMENTS In a reverse repurchase agreement, a
Portfolio sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is outstanding,
the Portfolio will maintain appropriate liquid assets in a segregated custodian
account to cover its obligation under the agreement. The Portfolio will enter
into reverse repurchase agreements only with parties whose creditworthiness has
been found satisfactory by the Subadviser. Such transactions may increase
fluctuations in the market value of the Portfolio's assets and may be viewed as
a form of leverage.
<PAGE>
SECURITIES LENDING. The Portfolio may lend securities to parties such as
broker-dealers or institutional investors.
Securities lending allows the Portfolio 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 Portfolio may engage in loan transactions only under the following
conditions: (1) the Portfolio 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 Portfolio must be able to terminate the
loan at any time; (4) the Portfolio 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 Portfolio 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.
Cash received through loan transactions may be invested in any security in
which the Portfolio 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.
<PAGE>
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.
The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio.
<PAGE>
In connection with purchases and sales of securities denominated in foreign
currencies, the Portfolio 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 Portfolio's foreign investments. The Portfolio 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 Portfolio may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if the Portfolio 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 Portfolio could also hedge the position by selling
another currency expected to perform similarly to the pound sterling - for
example, by 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 Portfolio will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. The Portfolio 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 Portfolio's investment exposure to
changes in currency exchange rates and could result in losses to the Portfolio
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 Portfolio by
selling that currency in exchange for dollars, the Portfolio would be unable to
participate in the currency's appreciation. If the Subadviser hedges currency
exposure through proxy hedges, the Portfolio 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 Portfolio's
exposure to a foreign currency and that currency's value declines, the Portfolio
<PAGE>
will realize a loss. There is no assurance that the Subadviser's use of forward
currency contracts will be advantageous to the Portfolio or that it will hedge
at an appropriate time. The policies described in this section are
non-fundamental policies of the Portfolio.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) sell futures contracts, purchase put options or write call options if, as a
result, more than 50% of the Portfolio'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 Portfolio'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
Portfolio would exceed 5% of the Portfolio'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 Portfolio's investments in
futures contracts and options and the Portfolio's policies regarding futures
contracts and options discussed elsewhere in this Statement of Additional
Information may be changed as regulatory agencies permit.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When the Portfolio sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract.
Some currently available futures contracts are based on 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 Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant (FCM), when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value.
<PAGE>
If the value of either party's position declines, that party will be
required to make additional "variation margin" payments to settle the change in
value on a daily basis. The party that has a gain may be entitled to receive all
or a portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Portfolio's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
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 Portfolio 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 Portfolio 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 Portfolio exercises the option, it completes
the sale of the underlying instrument at the strike price. The Portfolio 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).
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 Portfolio 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 Portfolio 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 Portfolio will be required to make margin payments to an FCM as described
above for futures contracts. The Portfolio may seek to terminate its position in
<PAGE>
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 Portfolio has written, however, the Portfolio 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 Portfolio to sell or deliver the
option's underlying instrument in return for the strike price, upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
COMBINED POSITIONS. The Portfolio 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 Portfolio 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.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Portfolio's current or
anticipated investments exactly. The Portfolio may invest in options and futures
contracts based on securities with different issuers, maturities or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
<PAGE>
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 Portfolio's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolio to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Portfolio to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.
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 Portfolio 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.
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.
<PAGE>
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The Portfolio
may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The Portfolio 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 Portfolio against a price decline
resulting from deterioration in the issuer's creditworthiness. Because the value
of the Portfolio'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 Portfolio's investments exactly
over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Portfolio will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.
SHORT SALES. The Portfolio may enter into short sales with respect to
stocks underlying its convertible security holdings. For example, if the
Subadviser anticipates a decline in the price of the stock underlying a
convertible security the Portfolio holds, 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 on the
value of the convertible security. The Fund currently intends to hedge no more
than 15% of its total assets with short sales on equity securities underlying
its convertible security holdings under normal circumstances.
When the Portfolio 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
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
SOCIAL INVESTMENT POLICY. The Fund offers investors the opportunity for
capital appreciation, current income, and growth of income, in environmentally
and socially preferable equity investment strategies. The Fund provides a unique
opportunity to be involved in the equity market without being involved in many
areas of the economy that may be objectionable to an investor. The Portfolio
combines carefully selected and screened portfolios with positive social action
on policy issues through proxy voting and shareholder advocacy.
<PAGE>
STOCK SELECTION PROCESS. The Subadviser makes use of third party research
from sources such as Investor Responsibility Resource Center (IRRC), the Council
on Economic Priorities (CEP), Franklin Research and Development Corp., Kinder,
Lyndenberg, and Domini, Value Line, and the internet to develop an overall
social profile and screen companies that meet its financial criteria, paying
particular attention to the following:
EXCLUSIONARY SCREENS
TOBACCO/ALCOHOL/GAMBLING/FIREARMS. The Portfolio is free from companies
with primary or subsidiary businesses involved in the alcohol, tobacco, gambling
and firearms industries.
WEAPONS/MILITARISM. None of the companies in the Portfolio has a primary
involvement in the defense industry, and companies with greater than three
percent dependence on revenues from weapons production will be screened out.
NUCLEAR POWER. The Portfolio will not invest in any company involved in
nuclear power production. If a company merges with, acquires or is acquired by a
company that is involved in nuclear power production, the Portfolio will divest.
ANIMAL TESTING. The Portfolio will not invest in any company involved in
animal testing or animal usury.
EQUAL EMPLOYMENT OPPORTUNITY/LABOR ISSUES. The Portfolio is committed to
promoting workplace diversity (see section on proxy voting/shareholder
activism). If a company has unremediated or egregious problems in the area of
Equal Employment Opportunity (such as discrimination or harassment), Workplace
Safety (such as OSHA safety violations), or Union/Labor Issues (such as WARN act
violations), the fund will either divest or participate in shareholder action in
an attempt to work with the company to address the issues.
THE ENVIRONMENT. Excluding companies involved in nuclear power generation
is not the only positive environmental feature of the Fund.
The investment portfolio typically invests across all the essential service
areas: telephone, electric, water, and natural gas. Consideration is given to
natural gas not only because it's an environmentally preferable alternative
fuel, but because the industry shows tremendous potential as an area of growth.
In addition, the Portfolio seeks to invest in companies involved in energy
production from renewable and alternative resources, whenever such investments
are in keeping with the financial objectives and liquidity concerns of the
strategy.
<PAGE>
The Portfolio seeks to exclude companies that have a history of
environmental negligence or a pattern of violation of environmental regulations.
If a company has unremediated or egregious problems in the area of environmental
performance, the Subadviser will either divest or participate in shareholder
action in an attempt to work with the company to address the issues.
INTERNATIONAL LABOR ISSUES. Sweatshop operations and slave labor are other
potential areas of concern. If these issues exist at companies the Portfolio
invests in, the Subadviser will work to open dialogue in an attempt to encourage
the company to adopt comprehensive supplier standards.
In the case of companies with Maquiladora operations, the Subadviser will
work to encourage the company to address any environmental problems or labor
related issues, such as below subsistence wages or unsafe working conditions.
SHAREHOLDER ADVOCACY/PROXY VOTING GUIDELINES. Socially responsible
investing is a complex process involving education and choice. All companies
have the potential to improve their performance in a number of areas that affect
the environment and quality of life. Investors have an opportunity to engage
corporate management in dialogue about issues that are of concern to them.
Proxy voting is one of the best ways for an investor to communicate support
or disagreement with management policy. The Subadviser votes proxies on a case
by case basis, but will generally vote with management on most standard business
issues such as the appointment of independent auditors and the election of board
directors. In cases where a company's board lacks representation of women and
minorities, the Subadviser will vote against the board and send a letter to
management explaining their position and encourage diversity on the board.
In addition to the "standard" issues placed on the ballot by management,
there may be a number of other important issues put forward by shareholders for
inclusion on the ballot in the form of shareholder resolutions. Shareholder
resolutions can cover a wide range of issues, such as workplace diversity,
militarism, labor relations, and the environment. The primary goal of the
resolution process is not a vote, but to engage the company in a dialogue on an
issues. These resolutions are filed well in advance of the annual meeting, and
if dialogue with the company is fruitful, the filers may withdraw the resolution
before it even comes to a vote.
The Subadviser is an associate member of the Interfaith Center on Corporate
Responsibility (ICCR), and makes use of information from ICCR as well as
research from Investor Responsibility Resource Center (IRRC) to keep track of
resolutions as they are filed. When a resolution is filed on an issue of concern
for the Portfolio, a letter is sent to the company echoing the concern of the
filers and encouraging the company to enter a dialogue on the subject. In
<PAGE>
addition, the Subadviser co-files resolutions on issues such as the
implementation of the Coalition for Environmentally Responsible Economies
(CERES) principles (1997: Enron Corporation, U.S. West, Inc.) and foreign
military sales reporting (1997: GTE Corporation).
The Subadviser will likely support and vote for resolutions such as those
requesting reports on workplace diversity, the implementation of the CERES
principles, reports on foreign military sales, implementation of the MacBride
principles, shareholder approval of golden parachute plans and other social and
environmental issues. When a vote on such a resolution is made, a position
letter is sent to management, in an effort to re-enforce the importance of the
issues, and to urge a greater level of management awareness.
PORTFOLIO TURNOVER. The portfolio turnover rate for 1997 was 41% (1996 -
51%). The turnover rate was a result of rebalancing the portfolio to take
advantage of market opportunities as well as to realize gains in the independent
power and telecommunications areas. The Portfolio has no fixed policy with
respect to portfolio turnover; however, as a result of the Portfolio's
investment policies, the Subadviser expects the annual portfolio turnover rate
will be 60% 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 Portfolio'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 Portfolio.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Portfolio 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 Portfolio
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.
<PAGE>
The Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolio 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.
The receipt of research from broker-dealers that execute transactions on
behalf of the Portfolio may be useful to the Subadviser in rendering investment
management services to the Portfolio or its 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 Portfolio. 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
Portfolio 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 Portfolio 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
<PAGE>
allocates a portion of the commissions paid by the Portfolio toward payment of
the Portfolio's or the Fund's expenses, such as transfer agent fees of Mutual
Funds Service Co. or custodian fees. The transaction quality must, however, be
comparable to those of other qualified broker-dealers. For the year ended
December 31, 1997, directed brokerage payments of $3,934 were made to reduce
expenses of the Portfolio ($3,377 in 1996).
The Trustees of the Portfolio periodically review the Subadviser's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Portfolio and review the commissions
paid by the Portfolio over representative periods of time to determine if they
are reasonable in relation to the benefits to the Portfolio.
From time to time, the Trustees of the Portfolio will review whether the
recapture for the benefit of the Portfolio of some portion of the brokerage
commissions or similar fees paid by the Portfolio on portfolio transactions is
legally permissible and advisable.
The Portfolio seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Trustees of the Portfolio intend to continue to review
whether recapture opportunities are available and are legally permissible and,
if so, to determine in the exercise of their business judgment, whether it would
be advisable for the Portfolio to seek such recapture.
Although the Trustees and officers of the Portfolio are substantially the
same as those of other portfolios managed by the Manager, investment decisions
for the Portfolio are made independently from those of other portfolios managed
by the Manager or accounts managed by affiliates of the Manager. It sometimes
happens that the same security is held in the portfolio of more than one of
these funds or accounts. Simultaneous transactions are inevitable when several
portfolios are managed by the same investment adviser, particularly when the
same security is suitable for the investment objective of more than one
portfolio.
When two or more portfolios are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the portfolios involved to be
equitable to each portfolio. In some cases this system could have a detrimental
effect on the price or value of the security as far as the Portfolio is
concerned. In other cases, however, the ability of the Portfolio to participate
in volume transactions will produce better executions and prices for the
Portfolio. It is the current opinion of the Trustees of the Portfolio that the
desirability of retaining the Manager as investment adviser to the Portfolio
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
The Portfolio may effect transactions in its portfolio securities on
securities exchanges on a non-exclusive basis through Adviser Dealer Services,
Inc. (the "Distributor") in its capacity as a broker-dealer. For the year ended
December 31, 1997, the Portfolio paid total commissions of $15,202 on the
purchase and sale of portfolio securities ($13,594 in 1996).
<PAGE>
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 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
Portfolio if, in the opinion of the Board of Trustees, some other method (e.g.,
closing over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.
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 Portfolio are determined as
of such time for the purpose of computing the Portfolio'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 the close of the NYSE 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.
<PAGE>
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 total return is determined separately for Class A and
Class C shares. 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.
Below are examples of the total return calculation for Utility Growth Fund
(Class A shares and Class C shares) assuming a hypothetical investment of $1,000
at the beginning of each period.
Total return is computed by finding the average annual compounded rates of
return over the length of the base periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
P(1+T)n = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
<PAGE>
UTILITY GROWTH FUND (CLASS A SHARES):
TOTAL RETURN
---------------------------------------------
Since Inception
1 Year (July 11, 1995)
Period Ended Period Ended
DECEMBER 31, 1997 DECEMBER 31, 1997
Value of Account
At end of Period $1,284.14 $1,664.64
Value of Account
At beginning of Period 1,000.00 1,000.00
--------- ---------
Base Period Return $ 284.14 $ 664.64
Total Return 28.41% 22.86%
UTILITY GROWTH FUND (CLASS C SHARES):
TOTAL RETURN
Since Inception
1 Year (July 11, 1995)
Period Ended Period Ended
DECEMBER 31, 1997 DECEMBER 31, 1997
Value of Account
At end of Period $1,282.51 $1,659.60
Value of Account
At beginning of Period 1,000.00 1,000.00
---------- ---------
Base Period Return $ 282.51 $ 659.60
Total Return 28.25% 22.71%
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
<PAGE>
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.
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.
<PAGE>
The Fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
The Fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a 31%
rate. An equivalent tax-deferred investment would have an after-tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is
calculated each day the NYSE is open for trading. The NYSE has designated the
following holiday closings: New Year's Day, Martin Luther King Day (observed),
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day
(observed). 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. All redemptions in kind will be of
readily marketable securities.
Shareholders of the Fund will be able to exchange their Class A 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 Class A shares of
the Fund may use the exchange privilege only to acquire Class A shares of a
Flex-Partners Fund.
<PAGE>
Shareholders of the Fund may exchange their Class C shares for Class C
shares of other Flex-Partners Funds. If Class C shares of the Fund are exchanged
for Class C shares of other Flex-Partners Funds, no contingent deferred sales
charge will be payable upon such exchange of Class C shares, but a contingent
deferred sales charge will be payable upon the redemption of Class C shares
acquired as a result of the exchange. The applicable sales charge will be that
imposed by the Fund in which shares were initially purchased and the purchase
date will be deemed to be the date of the initial purchase rather than the date
of the exchange.
At any time after acquiring shares of other funds participating in the
Class C exchange privilege, the shareholder may again exchange those shares (and
any reinvested dividends and distributions) for Class C shares of the Fund
without subjecting such shares to any contingent deferred sales charge. Shares
of any fund participating in the Class C exchange privilege that were acquired
through reinvestment of dividends or distributions may be exchanged for Class C
shares of other funds without being subject to any contingent deferred sales
charge
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 Class A 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:
<PAGE>
(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);
(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 the Class A
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 Class A
shares of the Fund and Class A shares of other Flex-Partners Funds. All Class A
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
<PAGE>
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.
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 Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
CONVERTIBLE CLASS C SHARES. Class C shares purchased, or acquired through
the reinvestment of dividends and distributions, on or before April 30, 1998
("convertible Class C shares") will automatically convert to Class A shares
seven years after the end of the calendar month in which the purchase order for
convertible Class C shares was accepted, on the basis of the relative net asset
values of the two classes and subject to the following terms: Class C shares
acquired through the reinvestment of dividends and distributions on or before
April 30, 1998 ("reinvested convertible Class C shares") will be converted to
Class A shares on a pro-rata basis only when convertible Class C shares not
acquired through reinvestment of dividends or distributions ("purchased
convertible Class C shares") are converted. The portion of reinvested
convertible Class C shares to be converted will be determined by the ratio that
the purchased convertible Class C shares eligible for conversion bear to the
total amount of purchased convertible Class C shares in the shareholder's
account. For the purposes of calculating the holding period, convertible Class C
shares will be deemed to have been issued on the sooner of: (a) the date on
which the issuance of convertible Class C shares occurred, or (b) for
convertible Class C shares obtained by an exchange or series of exchanges, the
date on which issuance of the original convertible Class C shares occurred. This
conversion to Class A shares will relieve convertible Class C shares that have
been outstanding for at least seven years (a period of time sufficient for the
Distributor to have been compensated for distribution expenses related to such
convertible Class C shares) from the higher ongoing distribution fee paid by
convertible Class C shares. Only convertible Class C shares have this conversion
<PAGE>
feature. Conversion of convertible Class C shares to Class A shares is
contingent on the availability of a private letter revenue ruling from the
Internal Revenue Service or an opinion of counsel affirming that such conversion
does not constitute a taxable event for the shareholder under the Internal
Revenue Code. If such revenue ruling or opinion of counsel is no longer
available, conversion of convertible Class C shares to Class A shares would have
to be suspended, and convertible Class C shares would continue to be subject to
the Class C distribution fee until redeemed.
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 Class A and Class C 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). Except as otherwise provided in the Prospectus,
to the extent such withdrawals exceed the current net asset value of reinvested
dividends, they may be subject to the contingent deferred sales charge. See "How
to Buy Shares - Class C Shares" and "Other Shareholder Services" in the
Prospectus.
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. The Transfer Agent
acts as agent for the shareholder in redeeming sufficient full and fractional
shares to provide the amount of the periodic withdrawal payment. The plan may be
terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the applicable sales charges to (i) the purchase of Class
A shares and (ii) the withdrawal of Class C 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 the Subadviser 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 Portfolio and distributed to shareholders of the
Fund are federally taxable as long-term capital gains regardless of the length
of time shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Fund and such shares are
held six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be liable
for federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes at the Fund level, the Fund intends to distribute
substantially all of its net investment income (consisting of the income it
earns from its investment in the Portfolio, less expenses) and net realized
capital gains within each calendar year as well as on a fiscal year basis. The
Fund intends to comply with other tax rules applicable to regulated investment
companies.
The Fund 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
<PAGE>
federal income taxes, shareholders may be subject to state and local taxes on
Fund distributions. Investors should consult their tax advisers to determine
whether the Fund is suitable to their particular tax situation.
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. (the "Manager") is the investment adviser and
manager for, and has an Investment Advisory Contract with, the Portfolio.
Pursuant to the Investment Advisory Contract with the Portfolio, the
Manager, subject to the supervision of the Portfolio's Board of Trustees and in
conformity with the stated objective and policies of the Fund, manages both the
investment operations of the Fund and the composition of the Portfolio'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 Portfolio. The Manager also administers the Fund's
corporate affairs, and in connection therewith, furnishes the Fund with office
facilities, together with those ordinary clerical and bookkeeping services which
are not being furnished by Star Bank, N.A., the Portfolio's custodian, and
Mutual Funds Service Co., the Fund's transfer and disbursing agent. The
management services of the Manager are not exclusive under the terms of the
Investment Advisory Agreement, and the Manager is free to, and does, render
management services to others.
The Investment Advisory Contract for the Portfolio was separately approved
by a vote of a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940) of the Portfolio. The Investment Advisory Contract is to remain in force
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days' prior written notice by Majority Vote of the
Portfolio, by the Trustees of the Portfolio, or by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities 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;
<PAGE>
insurance premiums; the fees and expenses of Trustees who do not receive
compensation from R. Meeder & Associates or Miller/Howard Investments, Inc.;
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
each Class of Shares' 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.
The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Adviser or Subadviser; registration fees; membership
dues allocable to the Portfolio; fees and expenses of independent accountants,
of legal counsel and of any transfer agent or accountant of the Portfolio;
insurance premiums and other miscellaneous expenses.
Expenses of the Portfolio also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions; fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager under the Investment Advisory Contract and other
miscellaneous expenses.
The Board of Trustees of the Trust believe that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if it retained the services of an
investment adviser and the assets of the Fund were invested directly in the type
of securities being held by the Portfolio.
The Manager earns an annual fee, payable in monthly installments as
follows. The fee for the Portfolio is based upon the average net assets of the
Portfolio and is at the rate of 1% of the first $50 million, 0.75% of the next
$50 million and 0.60% in excess of $100 million of average net assets.
For the year ended December 31, 1997, the Utilities Stock Portfolio paid
fees to the Manager totaling $88,486 ($65,190 in 1996).
The Manager presently intends to reimburse the Fund through an expense
reimbursement fee to the extent necessary to keep total expenses at 2.00% of
average daily net assets for Class A Shares and 2.25% of average daily net
assets for Class C shares. The Manager may change this policy at any time
without notice to shareholders.
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
<PAGE>
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 Investment Officer; Donald F. Meeder, Vice President and Secretary;
Sherrie L. Acock, Vice President; Robert D. Baker, Vice President; and Wesley F.
Hoag, Vice President and General Counsel. Mr. Robert S. Meeder, Sr. is President
and a Trustee of the Trust and the Portfolio. Messrs. Robert S. Meeder, Jr. and
Philip A. Voelker are Trustees and officers of the Trust and the Portfolio. Each
of Mr. Donald F. Meeder and Wesley F. Hoag is an officer of the Trust and the
Portfolio. Messrs. Robert S. Meeder, Sr. and Robert S. Meeder, Jr. are directors
of the Distributor. Mr. Voelker is President and a director of the Distributor.
Messrs. Donald F. Meeder and Craver are officers of the Distributor.
INVESTMENT SUBADVISER
Miller/Howard Investments, Inc., 141 Upper Byrdcliffe, Woodstock, New York
12498, serves as the Portfolio's Subadviser. Lowell G. Miller controls the
Subadviser through the ownership of voting common stock. Lowell G. Miller is a
Trustee of the Trust and the Portfolio. The Investment Subadvisory Agreement
provides that the Subadviser shall furnish investment advisory services in
connection with the management of the Portfolio. In connection therewith, the
Subadviser is obligated to keep certain books and records of the Portfolio. The
Manager continues to have responsibility for all investment advisory services
pursuant to the Investment Advisory Agreement and supervises the Subadviser's
performance of such services. Under the Investment Subadvisory Agreement, the
Manager, not the Portfolio, pays the Subadviser a fee, computed daily and
payable monthly, computed at the rate of .00% of the first $10 million; .40% of
the next $50 million; .30% of the next $40 million and .25% in excess of $100
million of the Portfolio's average net assets.
The Investment Subadvisory Agreement provides that the Subadviser will not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Portfolio, except a loss resulting from misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment
Subadvisory Agreement provides that it will terminate automatically if assigned,
and that it may be terminated by the Manager without penalty to the Fund or the
Portfolio by the Manager, the Trustees of the Portfolio or by the vote of a
majority of the outstanding voting securities of the Portfolio upon not less
than 30 days' written notice. The Investment Subadvisory Agreement will continue
in effect for a period of more than two years from the date of execution only so
long as such continuance is specifically approved at least annually in
conformity with the 1940 Act. The Investment Subadvisory Agreement was approved
by the Board of Trustees of the Portfolio, including all of the Trustees who are
not parties to the contract or "interested persons" of any such party, and by
the shareholders of the Fund.
<PAGE>
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
Class A shares and the Class C shares of the Fund. Pursuant to separate plans of
distribution (the Class A Plan and the Class C Plan, collectively, the Plans)
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 Class A shares and Class C shares. See "Distribution
Plans" in the Prospectus.
On August 4, 1994, 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 Class A or Class C 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 Class A Plan, adopted a plan of
distribution for the Class A shares of the Fund. On August 4, 1994, the Board of
Trustees, including the Rule 12b-1 Trustees, at a meeting called for the purpose
of voting on the Class C Plan, adopted a plan of distribution for the Class C
shares of the Fund. The Class A Plan was approved by Class A shareholders of the
Fund. The Class C Plan was approved by Class C shareholders of the Fund.
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. See "How
to Buy Shares" in the Prospectus.
The Plans continue 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 Plans 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. Neither Plan may be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of Class A and Class C, as applicable, 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 either the Class A or Class C Plan if it is terminated
or not continued.
Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of the Class A
and Class C 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 Plans remain 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, February 8, 1997. Total payments made by
the Fund to the former distributors of the Fund, Roosevelt & Cross, Incorporated
and Midwest Group Financial Services, Inc., for the year ended December 31, 1997
amounted to $4,698. Directed payments to parties with selling agreements
amounted to $13,941 in 1997. The balance of the payments made to Roosevelt &
Cross, Incorporated and Midwest Group Financial Services, Inc. were used to
offset a portion of the initial commissions paid to securities dealers for the
sale of Fund shares.
The Distributor for the Fund, is an affiliated person of the Manager and
the Fund and received the following commissions and other compensation from the
Trust during the fiscal year ended December 31, 1997.
NET UNDERWRITING COMPENSATION
NAME OF PRINCIPAL DISCOUNTS AND ON REDEMPTIONS BROKERAGE OTHER
UNDERWRITER COMMISSIONS AND REPURCHASES COMMISSIONS COMPENSATION
- ----------- ----------- --------------- ----------- ------------
Adviser Dealer
Services, Inc. $174,319 $772 $0 $0
TRUSTEES AND OFFICERS
The Trust and the Portfolio are managed by their trustees and officers.
Their names, positions and principal occupations during the past five years are
listed below. Except as indicated, each individual has held the office shown or
other offices in the same company for the last five years. Except as otherwise
shown, all persons named as Trustees also serve in similar capacities for all
other mutual funds advised by the Manager, including The Flex-funds 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 are indicated by an asterisk (*).
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
- --------------------- ------------- --------------------
ROBERT S. MEEDER, SR.*+, 69 Trustee/President Chairman, R. Meeder &
Associates, Inc., an
investment adviser.
MILTON S. BARTHOLOMEW, 69 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
the Portfolio's Audit
Committee.
ROGER D. BLACKWELL, 57 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
<PAGE>
JOHN M. EMERY, 77 Trustee Retired; formerly Vice
2390 McCoy Road President and Treasurer of
Columbus, OH 43220 Columbus & Southern Ohio
Electric Co.; member of
the Portfolio's Audit
Committee.
RICHARD A. FARR, 79 Trustee President of R&R Supply
3250 W. Henderson Road Co. and Farrair Concepts,
Columbus, OH 43220 Inc., two companies
involved in engineering,
consulting and sales of
heating and air
conditioning equipment.
WILLIAM L. GURNER*, 51 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment
5350 Poplar Avenue, Suite 490 adviser (since January
Memphis, TN 38119 1995); Manager of Trust
Investments of Federal
Express Corporation (1987-
1994).
RUSSEL G. MEANS, 72 Trustee Retired; formerly Chairman
5711 Barry Trace of Employee Benefit
Dublin, OH 43017 Management Corporation,
consultants and
administrators of self-
funded health and
retirement plans.
ROBERT S. MEEDER, JR.*+, 37 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
Woodstock, NY 12498 Portfolio and the
Utilities Stock Portfolio.
WALTER L. OGLE, 59 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
<PAGE>
CHARLES A. DONABEDIAN, 55 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
companies; CEO, Winston
Advisors, Inc., an
investment advisor.
JAMES W. DIDION, 67 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm (1991-
1997).
PHILIP A. VOELKER*+, 44 Trustee and Senior Vice President and
Vice President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 54 Assistant Practicing Attorney;
42 Miller Hill Road Secretary Special Counsel to Flex-
Box 811 Partners, Flex-funds and
Dover, MA 02030 their Portfolios; Senior
Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 59 Secretary/ Vice President of R.
Treasurer Meeder & Associates, Inc.,
and President of Mutual
Funds Service Company.
WESLEY F. HOAG*+, 41 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).
* Interested Person of the Trust (as defined in the Investment Company Act of
1940), The Flex-funds, Flex-Partners and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F.
Meeder's uncle.
<PAGE>
The following table shows the compensation paid by the Fund and the Fund
Complex as a whole to the Trustees of the Trust and the Fund Complex during the
fiscal year ended December 31, 1997.
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits Estimated from
Aggregate Accrued Benefits Registrant
Compensation as Part of Annual and Fund
from the Portfolio or Upon Complex Paid
TRUSTEE PORTFOLIO FUND EXPENSE RETIREMENT TO TRUSTEE
- ------- --------- ------------ ---------- ----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $1,183 None None $11,633
John M. Emery $1,183 None None $11,633
Richard A. Farr $1,000 None None $10,633
William F. Gurner None None None None
Russel G. Means $ 500 None None $7,883
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $ 833 None None $9,883
Philip A. Voelker None None None None
Roger A. Blackwell $ 833 None None $9,883
Charles A. Donabedian $ 500 None None $5,541
James W. Didion None 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; however, the Portfolio and other members of the Fund Complex have
accrued the payment of certain Trustee fees which have not yet been paid to the
Trustees.
<PAGE>
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios. In addition, each such Trustee
earns an annual fee, payable quarterly, based on the average net assets in each
Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of
the amount of average net assets between $500 million and $1 billion; 0.00025%
of the amount of average net assets exceeding $1 billion. For the other four
Portfolios, including the Portfolio, each Trustee is paid a fee of 0.00375% of
the amount of each Portfolio's average net assets exceeding $15 million. Messrs.
Bartholomew, Emery and Donabedian comprise the Audit Committee for each of The
Flex-Partners and The Flex-funds Trusts, and each corresponding portfolio of The
Flex-Partners and The Flex-funds Trusts. Each member of the Audit Committee is
paid $500 for each meeting of the Audit Committee attended. Trustees fees for
the Portfolio totaled $6,033 for the year ended December 31, 1997 ($4,162 in
1996). Audit Committee fees for the Fund and the Portfolio totaled $367 for the
year ended December 31, 1997 ($100 in 1996).
All other officers and Trustees serve without compensation from the Trust.
The Trustees and officers of the Fund and the Portfolio own, in the
aggregate, less than 1% of the Fund's total outstanding shares.
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 and Roth IRA accounts are described below.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA):
DEDUCTIBLE CONTRIBUTIONS
All contributions (other than certain rollover contributions) must be made
in cash and are subject to the following limitations:
REGULAR. Contributions to an IRA (except for rollovers or employer
contributions under a simplified employee pension) may not exceed the amount of
compensation includible in gross income for the tax year or $2,000, whichever is
less. If neither you nor your spouse is an active participant in an employer
plan, you may make a contribution up to this limit and take a deduction for the
entire amount contributed. If you or your spouse is an active participant and
your adjusted gross income (AGI) is below a certain level you may also make a
contribution and take a deduction for the entire amount contributed. However, if
you or your spouse is an active participant and your AGI is above the specified
level, the dollar limit of the deductible contribution you make to your IRA may
be reduced or eliminated.
<PAGE>
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. You do not have to file an itemized federal
tax return to take an IRA deduction. Deductions are not allowed for any
contribution in excess of the deduction limit. Contributions for a year may be
made during such year or by the tax return filing date for such year (not
including extensions), if irrevocably designated for such year, in writing, when
such contribution is made.
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA. The contribution
limits apply separately to the compensation of each of you, without regard to
the community property laws of your state, if any.
SPOUSAL. You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
If you are the compensated (or higher compensated) spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established by
your spouse as the depositor or grantor of his or her own IRA and your spouse
becomes subject to all of the privileges, rules, and restrictions generally
applicable to IRAs. This includes conditions of eligibility for distribution;
penalties for premature distribution, excess accumulation (failure to take a
required distribution) and prohibited transaction; designation of beneficiaries
and distribution in the event of your spouse's death; income and estate tax
treatment of withdrawals and distributions.
ADJUSTED GROSS INCOME (AGI). If you are an active participant or are
considered an active participant, the amount of your AGI for the year (if you
and your spouse file a joint tax return, your combined AGI) will be used to
determine if you can make a deductible IRA contribution. The instructions for
your tax return will show you how to calculate your AGI for this purpose. If you
are at or below a certain AGI level, called the Threshold Level, you can make a
deductible contribution under the same rules as a person who is not an active
participant. This AGI level may change each year. The instructions for your tax
return will show you the AGI level in effect for that year.
For example, if you are single, or treated as being single, your AGI
Threshold Level is $30,000 for 1998. If you are married and file a joint tax
<PAGE>
return, your AGI Threshold Level is $50,000 for 1998. If you are not an active
participant, but you file a joint tax return with your spouse who is an active
participant, your AGI Threshold Level is $150,000. If you are married, file a
separate tax return, and live with your spouse for any part of the year, your
AGI Threshold Level is $0.
If your AGI is less than $10,000* above your AGI Threshold Level, you will
still be able to make a deductible contribution, but it will be limited in
amount. The amount by which your AGI exceeds your AGI Threshold Level (AGI minus
AGI Threshold Level) is called your Excess AGI. The Maximum Allowable Deduction
is $2,000 per individual. You may determine your Deduction Limit by using the
following formula:
($10,000* - EXCESS AGI ) Maximum Allowable = Deduction
--------------------- X Deduction Limit
$10,000*
Round the result up to the next higher multiple of $10 (the next higher
whole dollar amount that ends in zero). If the final result is below $200, but
above zero, your Deduction Limit is $200. Your Deduction Limit cannot exceed
100% of your compensation.
*For years after 2006, $20,000 if you are married, filing jointly.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make rollover
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS (ROTH IRA):
CONTRIBUTIONS:
All contributions must be made in cash and are subject to the following
limitations:
REGULAR. Contributions to a Roth IRA (except for rollovers) cannot exceed
the amount of compensation includible in gross income for the tax year or
$2,000, whichever is less. If our adjusted gross income (AGI) is below a certain
level, you may contribute the maximum amount. However, if your AGI is above a
specified level, the dollar limit of the contribution you make to your Roth IRA
may be reduced or eliminated.
<PAGE>
If you are single, and your adjusted gross income (AGI) is $95,000 or less
($150,000 or less if married and filing jointly, or $0 or less if married and
filing separately) you are eligible to contribute the full amount to a Roth IRA.
Contributions to a Roth IRA are aggregated with Traditional IRA
contributions for the purpose of the annual contribution limit. Therefore, you
may contribute up to the lesser of $2,000 or 100% of earned income per year to a
Traditional IRA and a Roth IRA combined.
SPOUSAL. You may make spousal Roth IRA contributions for a year, if: 1)
your spouse has "compensation" that is includible in gross income for such year;
2) you have less compensation than your spouse for such year; and 3) you file a
joint federal income tax return for such year.
If you are the higher compensated spouse, your contribution must be made in
accordance with the regular contribution rules above. If you are the
noncompensated (or lower compensated) spouse, your contribution may not exceed
the lesser of $2,000 or 100% of the combined compensation of you and your
spouse, reduced by the amount of your spouse's Roth IRA contribution.
Contributions for your spouse must be made to a separate Roth IRA
established by your spouse as the depositor or grantor of his or her own Roth
IRA and your spouse becomes subject to all of the privileges, rules, and
restrictions generally applicable to Roth IRAs. This includes conditions of
eligibility for distribution; designation of beneficiaries and distribution in
the event of your spouse's death; tax treatment of withdrawals and
distributions. This form may be used to establish such Roth IRA.
NO MAXIMUM AGE LIMIT. There is no maximum age limit for making a Roth IRA
contribution. Attainment of age 70 1/2 does not prevent you from contributing to
a Roth IRA.
APRIL 15 FUNDING DEADLINE. Contributions to a Roth IRA for the previous tax
year must be made by the tax-filing deadline (not including extensions) for
filing your federal income tax return. If you are a calendar-year taxpayer, your
deadline is usually April 15. If April 15 falls on a Saturday, Sunday, or legal
holiday, the deadline is the following business day.
LOWER CONTRIBUTION LIMITS. To determine the maximum contribution to a Roth
IRA if your AGI is between $95,000 and $110,000 (between $150,000 and $160,000
if married, filing jointly or between $0 and $10,000 if married, filing
separately), the following steps must be taken:
(a) Subtract your AGI from $110,000 ($160,000 if married, filing jointly;
$10,000 if married, filing separately).
(b) Multiply the result in Step `a' by .1333 (.20 if married).
<PAGE>
(c) If the result in Step `b' is not a multiple of $10, round up to the
next multiple of $10.
(d) The result in Step `c' is your allowable contribution limit. If it is
more than $0, but less that $200, your allowable contribution limit is
$200.
INDIVIDUALS NOT ELIGIBLE TO MAKE CONTRIBUTIONS. If you are a single
taxpayer and your AGI is $110,000 or above ($160,000 or above if married and
filing jointly, or $10,000 or above if married and filing separately), you are
not permitted to make a Roth IRA contribution for the year. For this purpose, a
deductible Traditional IRA contribution is not allowed as a deduction in
computing AGI, and any amount of a rollover-conversion from a Traditional IRA to
a Roth IRA is not taken into account. Whether an individual, or his spouse, is
an active participant in an employer retirement plan is irrelevant for
determining whether he may make a Roth contribution.
EXCESS ROTH CONTRIBUTIONS. Excess contributions to a Roth IRA are subject
to a 6% penalty tax unless removed (along with attributable earnings) by your
tax-filing deadline (plus extensions). An excess contribution could occur for
many reasons including, for example, if you contribute more than $2,000 or 100%
of earned income, or if you are not permitted to make a Roth contribution
because your AGI is too high.
CONVERSION OF TRADITIONAL CONTRIBUTIONS TO ROTH CONTRIBUTIONS. Generally,
if you make a contribution to a Traditional IRA, you may transfer the
contribution plus attributable earnings to a Roth IRA by your tax-filing
deadline (not including extensions). The transferred contribution amount is not
taxable if no deduction was allowed for the contribution. Such a contribution is
treated as a Roth IRA contribution.
ROLLING OVER/CONVERTING TRADITIONAL IRAS TO ROTH IRAS
You are allowed to roll over, transfer, or "convert" your Traditional IRAs
to Roth IRAs beginning in 1998. Regardless of whether a Traditional IRA is
rolled over/converted to a Roth IRA in 1998 or afterwards, the
rollover/conversion amount is subject to federal income taxation (but no 10%
penalty tax).
$100,000 AGI LIMIT FOR ROLLOVER. If you are a single taxpayer, or a married
individual who files jointly, you may roll over, transfer, or convert your
Traditional IRAs to Roth IRAs if your AGI is $100,000 or less. If you are a
single taxpayer (or a married individual who files jointly) with AGI of more
than $100,000 you may not roll over, transfer, or convert your Traditional IRAs
to Roth IRAs. Also, if you are a taxpayer who is married, but files separately,
you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs
regardless of AGI.
ROLLOVER/CONVERSION IN 1998. If you roll over a Traditional IRA
distribution received after 1998 to a Roth IRA, the taxable portion of the
Traditional IRA distribution is included in your income ratably over a four-year
<PAGE>
period starting with 1998 (i.e., the amount included in gross income is spread
evenly over four years beginning with 1998), but the amount is not subject to
the IRS 10% early distribution penalty.
ROLLOVER/CONVERSION AFTER 1998. If you roll over a Traditional IRA
distribution received after 1998, to a Roth IRA the taxable portion of the
Traditional IRA distribution is included in your income for the year in which
the Traditional IRA distribution is received, but the amount is not subject to
the IRS 10% early distribution penalty. No special tax treatments apply.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. provides accounting, stock transfer, dividend
disbursing, and shareholder services to the Fund and the Portfolio. The minimum
annual fee for accounting services for the Portfolio is $7,500. Subject to the
applicable minimum fee, the Portfolio's annual fee, payable monthly, is computed
at the rate of 0.15% of the first $10 million, 0.10% of the next $20 million,
0.02% of the next $50 million and 0.01% in excess of $80 million of the
Portfolio's average net assets. Subject to a $4,000 annual minimum fee, each
class of shares of the Fund will incur an annual fee, payable monthly, which
will be 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 fee, payable monthly, of .05% of
the Fund's average net assets. These fees are reviewable annually by the
respective Trustees of the Trust and the Portfolio.
For the year ended December 31, 1997, total payments to Mutual Funds
Service Co. by the Fund and the Portfolio amounted to $22,549.
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.
<PAGE>
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.
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. Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is
custodian of the assets of the Portfolio. The custodian is responsible for the
safekeeping of the Portfolio's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the investment
policies of the Portfolio or in deciding which securities are purchased or sold
by the Portfolio. The Portfolio may, however, invest in obligations of the
custodian and may purchase or sell securities from or to the custodian.
<PAGE>
AUDITORS. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio
43215, serves as the trust's independent auditors. The auditors audit financial
statements for the Fund and provide other assurance, tax, and related services.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of April 1, 1998, the following persons owned 5% or more of a class of
the Fund's outstanding shares of beneficial interest:
Number of
Class Name and Address Shares of Record Percent
OF SHARES OF BENEFICIAL OWNER AND BENEFICIALLY OF CLASS
Class A Donaldson Lufkin Jenrette 4,235.790 5.876%
Securities Corporation Inc.
P. O. Box 2052
Jersey City, NJ 07303-9998
Class C First Albany Corporation 4,241.740 5.728%
FBO Mario Palleschi
41 State Street
Albany, NY 11766
First Albany Corporation 4,240.350 5.726%
Arthur Stone
41 State Street
Albany, GA 31411
First Albany Corporation 4,240.350 5.726%
Betty Jane Sullivan
41 State Street
Albany, NY 12207
First Albany Corporation 8,227.333 11.111%
Timothy F. Murphy
41 State Street
Albany, NY 12207
First Albany Corporation 3,797.736 5.129%
Ashley Legal Advertising
Corp.
41 State Street
Albany, NY 12207
<PAGE>
First Albany Corporation 6,445.862 8.705%
FBO James A. Holleran
IRA Rollover
41 State Street
Albany, NY 11777
FINANCIAL STATEMENTS
Financial Statements for Utility Growth Fund and Utilities Stock Portfolio
are presented on the following pages.
<PAGE>
THE FLEX-PARTNERS
TACTICAL ASSET ALLOCATION 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 Related Matters
14(a)(b) Officers and Trustees
14(c) Not applicable
15(a)(b) Not applicable
15(c) Officers and Trustees
16(a)(b) Investment Adviser and Manager
16(c) Not applicable
16(d) Contracts with Companies Affiliated with the 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 the Manager
17 Purchase and Sale of Portfolio Securities
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
20 Distributions and Taxes
21(a) The Distributor
21(b) Not applicable
21(c) Not applicable
22(a) Not applicable
22(b) Calculation of Total Return
23 Financial Statements
<PAGE>
TACTICAL ASSET ALLOCATION FUND
A FUND OF THE FLEX-PARTNERS TRUST
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of The Flex-Partners dated April 30,
1998. 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.
The Fund offers two classes of shares which may be purchased at the next
determined net asset value per share plus a sales charge which, at the election
of the investor, may be imposed (i) at the time of purchase (Class A shares) or
(ii) on a deferred basis (Class C shares). These alternatives permit an investor
to choose the method of purchasing shares that is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares, and other circumstances.
Each share of Class A and Class C represents an identical legal interest in
the investment portfolio of the Fund and has the same rights, except that the
Class C shares bear the higher expenses of a distribution plan for such class
which will cause the Class C shares to have a higher expense ratio and to pay
lower dividends than the Class A shares. Each class will have exclusive voting
rights with respect to its distribution plan. Although the legal rights of
holders of Class A and Class C shares are identical, the different expenses
borne by each class will result in different net asset values and dividends. The
two classes also have different exchange privileges and Class C shares
purchased, or acquired through the reinvestment of dividends and distributions,
on or before April 30, 1998 have a conversion feature.
TABLE OF CONTENTS
PAGE
Investment Policies and Related Matters 2
General 2
The Mutual Fund Portfolio 2
Money Market Instruments and Bonds 4
Ratings 5
Hedging Strategies 8
Investment Restrictions 10
Portfolio Turnover 12
Purchase and Sale of Portfolio Securities 12
Valuation of Portfolio Securities 13
Calculation of Total Return 14
Additional Purchase and Redemption Information 15
Distribution and Taxes 20
Investment Adviser and Manager 21
Officers and Trustees 23
The Distributor 27
Flex-Partners Retirement Plans 28
Contracts with Companies Affiliated with the Manager 33
Description of the Trust 34
Financial Statements 35
INVESTMENT ADVISER TRANSFER AGENT
R. Meeder & Associates, Inc. Mutual Funds Service Co.
DISTRIBUTOR
Adviser Dealer Services, Inc.
<PAGE>
INVESTMENT POLICIES AND RELATED MATTERS
GENERAL
As described in the Prospectus, the Trust seeks to achieve the investment
objective of the Fund by investing all of its investable assets in the Mutual
Fund Portfolio (the "Portfolio"), the Fund's corresponding portfolio having the
same investment objective, policies and restrictions as the Fund. Since the
investment characteristics of the Fund correspond directly to those of its
corresponding portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio.
The investment policies set forth below in this section represent the
Portfolio's policies as of the date of this Statement of Additional Information.
The investment policies are not fundamental and they may be changed by the
Trustees of the Portfolio without shareholder approval. (No such change would be
made, however, without 30 days written notice to shareholders.)
The Manager of the Portfolio places a high degree of importance on
protecting portfolio values from severe market declines. Consequently, the
Portfolio's assets may at times be invested for defensive purposes in bonds and
money market instruments. (See "Money Market Instruments and Bonds" below.)
Because the Manager intends to employ flexible defensive investment
strategies when market trends are not considered favorable, the Manager may
occasionally change the entire portfolio of the Portfolio. High transaction
costs could result when compared with other funds.
THE MUTUAL FUND PORTFOLIO
The Manager will select mutual funds for inclusion in the Portfolio on the
basis of the industry classifications represented in their portfolios, their
specific portfolio holdings, their performance records, their expense ratios,
and the compatibility of their investment policies and objectives with those of
the Portfolio.
The Manager utilizes an asset allocation system for deciding when to invest
in mutual funds or alternatively in temporary investments such as are described
below. The use of this system entails recurring changes from a fully invested
position to a fully defensive position and vice-versa. (See "Additional
Investment Policies" in the Trust's Prospectus.)
<PAGE>
In purchasing shares of other mutual funds, the Portfolio will agree to
vote the shares in the same proportion as the vote of all other holders of such
shares.
The Portfolio has adopted certain investment restrictions which cannot be
changed except with the vote of a majority of the Portfolios outstanding
interests. These restrictions are applicable to the Portfolio and are described
elsewhere in this Statement of Additional Information. Investment restrictions
for the Portfolio differ from the restrictions applicable to the portfolios in
which other Flex-Partners' funds are invested, in that the Portfolio is
permitted to purchase the shares of other investment companies (mutual funds);
is permitted to invest more than 5% of its assets in the securities of any one
investment company (mutual fund); and may invest 25% or more of its assets in
any one industry.
The Portfolio may only purchase up to 3% of the total outstanding
securities of any underlying mutual fund. The holdings of any "affiliated
persons" of the Trust and the Portfolio, as defined in the Investment Company
Act, must be included in the computation of the 3% limitation. Accordingly, when
"affiliated persons" hold shares of an underlying mutual fund, the Portfolio
will be limited in its ability to fully invest in that mutual fund. The Manager
may then, in some instances, select alternative investments.
The Investment Company Act also provides that an underlying mutual fund
whose shares are purchased by the Portfolio may be allowed to delay redemption
of its shares in an amount which exceeds 1% of its total outstanding securities
during any period of less than 30 days. Shares held by the Portfolio in excess
of 1% of a mutual fund's outstanding securities therefore may not be considered
readily disposable securities.
Under certain circumstances, an underlying mutual fund may determine to
make payment of a redemption by the Portfolio wholly or partly by a distribution
in kind of securities from its portfolio, in lieu of cash, in conformity with
rules of the Securities and Exchange Commission. In such cases, the Portfolio
may hold securities distributed by an underlying mutual fund until the Manager
determines that it is appropriate to dispose of such securities.
Portfolio investment decisions by an underlying mutual fund will be made
independent of investment decisions by other underlying mutual funds. Therefore,
an underlying mutual fund may be purchasing shares of a company whose shares are
simultaneously being sold by some other underlying mutual fund. The result of
this would be an indirect transaction expense (principally commissions) for the
Mutual Fund Portfolio, without its having changed its investment position.
The Portfolio may invest in common stocks based upon the criteria described
in its investment objectives. Because the Portfolio will only invest directly in
common stocks to replicate the performance of popular stock market indices, the
selection of stocks would be limited to those stocks found in a particular
index. Generally, investments in common stocks will not exceed 25% of the
Portfolio's net assets.
<PAGE>
For temporary defensive purposes, the Portfolio may invest in (or enter
into repurchase agreements with banks and broker-dealers with respect to)
corporate bonds, U.S. Government securities commercial paper, certificates of
deposit or other money market instruments. The Portfolio may engage in hedging
transactions to the extent and for the purposes set forth in the Trust's
Prospectus.
MONEY MARKET INSTRUMENTS AND BONDS
When investing in money market instruments or bonds, the Portfolio will
limit its purchases, denominated in U.S. dollars, to the following securities.
* 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 Portfolio may
also invest in obligations (including certificates of deposit and
bankers' acceptances) of domestic branches of foreign banks having
assets of $1,000,000,000 or more, if the domestic branch is subject to
the same regulation as United States banks. The Portfolio will not
invest at time of purchase more than 25% of its assets in obligations
of banks, nor will the Portfolio invest more than 10% of its assets in
time deposits.
* High Quality Commercial Paper - The Portfolio may invest in commercial
paper rated no lower than "A-2" by Standard & Poor's Corporation or
"Prime-2" by Moody's Investors Services, Inc., or, if not rated,
issued by a company having an outstanding debt issue rated at least A
by Standard & Poor's or Moody's.
* Private Placement Commercial Paper - Private placement commercial
paper ("Rule 144A securities") consists of unregistered securities
which are traded in public markets to qualified institutional
investors, such as the Portfolio. The Portfolio's risk is that the
universe of potential buyers for the securities, should the Portfolio
desire to liquidate a position, is limited to qualified dealers and
institutions, and therefore such securities could have the effect of
being illiquid.
<PAGE>
* High Grade Corporate Obligations - obligations rated at least A by
Standard & Poor's or Moody's. See rating information below.
* Repurchase Agreements Pertaining to the Above - The Portfolio may
invest without limit in any of the above securities subject to
repurchase agreements with any Federal Reserve reporting dealer or
member bank of the Federal Reserve System. A repurchase agreement is
an instrument under which the purchaser (i.e., the Portfolio) acquires
ownership of a debt security and the seller agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. The underlying securities could be
any of those described above, some of which might bear maturities
exceeding one year. The Portfolio's risk is that the seller may fail
to repurchase the security on the delivery date. If the seller
defaults, the underlying security constitutes collateral for the
seller's obligation to pay. It is a policy of the Portfolio to make
settlement on repurchase agreements only upon proper delivery of the
underlying collateral. Repurchase agreements usually are for short
periods, such as one week or less, but could be longer. the Portfolio
may enter into repurchase agreements with its custodian (Star Bank,
N.A., Cincinnati) when it is advantageous to do so. The Portfolio will
not invest more than 10% of its assets, at the time of purchase, in
repurchase agreements which mature in excess of seven days.
The Manager exercises due care in the selection of money market instruments
and bonds. However there is a risk that the issuers of the securities may not be
able to meet their obligations to pay interest or principal when due. There is
also a risk that some of the Portfolio's securities might have to be liquidated
prior to maturity at a price less than original amortized cost or value, face
amount or maturity value to meet larger than expected redemptions. Any of these
risks, if encountered, could cause a reduction in net income or in the net asset
value of the Portfolio.
RATINGS
1. Moody's Investors Services, Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
<PAGE>
Aa Bonds - which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A Bonds - which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from 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
<PAGE>
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is A-1, A-2, or
A-3.
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
4. Description of Permitted Money Market 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 - A repurchase transaction occurs when an investor
buys a security and simultaneously agrees to resell it at a later date to the
person from whom it was bought, at a higher price.
The price differential represents interest for the period the security is
held. Repurchase transactions will normally be entered into with banks and
securities brokers. The Portfolio could suffer a loss if the bank or securities
broker with which the Portfolio had a repurchase agreement were to default.
Certificates of Deposit - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified or variable rate
of return, and are normally negotiable.
<PAGE>
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.
HEDGING STRATEGIES
The Manager may conduct a hedging program on behalf of the Portfolio for
any of the reasons described in the Prospectus. Such a program would involve
entering into options or futures contracts (hedge transactions).
The objective of an option or futures contract transaction could be to
protect a profit or offset a loss in the Portfolio from future price erosion.
Or, the objective could be to acquire the right to purchase a fixed amount of
securities at a future date for a definite price. In either case, it would not
be necessary for a Portfolio to actually buy or sell the securities currently.
Instead, the hedge transaction would give the Portfolio the right at a future
date to sell, or in other instances buy, the particular securities under
consideration or similar securities. The value of shares of common stock or the
face amount of government bonds or notes covered by the hedge transaction would
be the same, or approximately the same, as the quantity held by the Portfolio or
the quantity under consideration for purchase.
In lieu of the sale of a security, an option transaction could involve the
purchase of a put option contract, which would give the Portfolio the right to
sell a common stock, government bond or futures contract on an index (see
below), at a specified price until the expiration date of the option. The
Portfolio will only purchase a put option contract on a stock or bond when the
number of shares of the issuer's stock or the face amount of government bonds
involved in the option transaction are equal to those owned by the Portfolio.
Limitations on the use of put option contracts on an index are described below.
Also, in lieu of the sale of securities, a futures transaction could
involve the sale of a futures contract which would require the Portfolio either
(a) to deliver to the other party to the contract the securities specified and
receive payment at the price contracted for, prior to the expiration date of the
contract, or (b) to make or entitle it to receive payments representing
(respectively) the loss or gain on the security or securities involved in the
futures contract.
The securities involved in an option or futures contract may be stocks or
government bonds, or a group of stocks represented by a popular stock market
index, and they need not be exactly the same as those owned by the Portfolio.
The Manager will select the futures contract which involves a security, group of
securities, or index which it feels is closest to a mirror image of the
<PAGE>
investments held by the Portfolio. However, the securities involved in the
contract need not be exactly the same as those owned by the Portfolio, and this
may entail additional risk, as described below.
To the extent that the Portfolio enters into futures contracts which sell
an index or group of securities short and which therefore could require the
Portfolio to pay the other party to the contract a sum of money measured by any
increase in a market index, the Portfolio will be exposing itself to an
indeterminate liability. On the other hand, the Portfolio should increase or
decrease in value to approximately the same extent as the market index or group
of securities, so any loss incurred on the contract should be approximately
offset by unrealized gains in the Portfolio's positions. Such an outcome is not
guaranteed, and it would be possible for the value of the index and the
Portfolio to move in opposite directions, in which case the Portfolio would
realize an unexpected gain or loss.
The Portfolio will only sell an index short when the Manager has decided to
reduce the Portfolio's risk for defensive purposes, and will close out the open
liability as soon as the Manager decides that a defensive posture is no longer
appropriate or the open liability represents an inappropriate risk in the
circumstances. In shorting an index, the Portfolio will segregate assets to the
full value of the contract and maintain and supplement such segregation to the
extent necessary until the short position is eliminated.
In lieu of the purchase of a security, an option transaction could involve
the purchase of a call option which would give the Portfolio the right to buy a
specified security (common stock or government bonds) or index aggregate at a
specified price until the expiration date of the option contract. Sufficient
cash or money market instruments will be segregated and maintained in reserve to
complete the purchase. The Portfolio will only purchase call options when the
shares of stock or face amount of bonds or value of the index aggregate included
in the option are equal to those planned to be purchased by the Portfolio.
In lieu of the purchase of securities, a futures transaction could involve
the purchase of a futures contract which would either (a) require the Portfolio
to receive and pay for the securities specified in the futures contract at the
price contracted for prior to the expiration date of the contract or (b) require
the Portfolio to make payment or receive payment representing (respectively) the
loss or gain on the security or securities involved in the contract. The
securities may be government bonds, stocks, or a group of stocks such as a
popular stock market index, and need not be exactly the same as those intended
to be purchased by the Portfolio. The Manager will select the contract
(therefore the group of securities) which it believes is most similar to those
desired to be purchased by the Portfolio.
The Portfolio may sell any put or call option contracts it enters into.
Such a transaction would normally be used to eliminate or close out a hedged
position. The Portfolio may also buy or sell futures contracts to eliminate or
close out a hedged position.
<PAGE>
Option contracts will be purchased through organized exchanges and will be
limited to those contracts which are cleared through the Options Clearing
Corporation. Organized exchanges which presently trade option contracts are the
Chicago Board Options Exchange, the American Stock Exchange, the Philadelphia
Stock Exchange, the Pacific Stock Exchange, and the New York Stock Exchange.
Futures contracts will only be entered into through an organized exchange.
The exchanges which presently trade financial futures contracts are the New York
Futures Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
the Kansas City Board of Trade, and the International Monetary Market (at the
Chicago Mercantile Exchange).
Put and call options and financial futures contracts are valued on the
basis of the daily settlement price or last sale on the exchanges where they
trade. If an exchange is not open, or if there is no sale, the contract is
valued at its last bid quotation unless the trustees determine that such is not
a fair value. In the case of a futures contract which entails a potential
liability for a gain in a market index, the liability is valued at the last sale
of an offsetting contract or, if there was no sale, at the last asked quotation
unless the Trustees determine that such does not fully reflect the liability.
In conducting a hedging program for the Portfolio, the Manager may
occasionally buy a call on an index or futures contract and simultaneously sell
a put on the same index or futures contract. Or, in other circumstances, it may
sell a call and simultaneously buy a put on the same index or futures contract.
When conducting a hedging program on behalf of the Portfolio, the Portfolio
will establish and maintain with the Custodian segregated accounts for the
deposit and maintenance of margin requirements. Such deposits will be in the
form of cash or U.S. Government securities in amounts as shall be required from
time to time by the broker or the exchange on which the transactions are
effected for the Portfolio.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Trust with
respect to the Fund and by the Portfolio as fundamental policies. Under the
Investment Company Act of 1940 (the "Act"), a "fundamental" policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund or the Portfolio, respectively, to which it relates, which is defined
in the Act as the lesser of (a) 67 percent or more of the shares present at a
shareholder meeting if the holders of more than 50 percent of the outstanding
shares are present or represented by proxy, or (b) more than 50 percent of the
outstanding shares ("Majority Vote"). The percentage limitations contained in
the restrictions listed below apply at the time of the purchase of the
securities. Whenever the Fund is requested to vote on a change in the investment
restrictions of the Portfolio, the Trust will hold a meeting of the Fund
shareholders and will cast its votes as instructed by the shareholders.
<PAGE>
Provided that nothing in the following investment restrictions shall
prevent the Trust from investing all or part of the Fund's assets in the
Portfolio, the Fund nor the Portfolio may: (a) Issue senior securities; (b)
Borrow money except as a temporary measure, and then only in an amount not to
exceed 5% of the value of its net assets (whichever is less) taken at the time
the loan is made, or pledge its assets taken at value to any extent greater than
15% of its gross assets taken at cost; (c) Act as underwriter of securities of
other issuers; (d) Invest in real estate except for office purposes; (e)
Purchase or sell commodities or commodity contracts, except that it may purchase
or sell financial futures contracts involving U.S. Treasury Securities,
corporate securities, or financial indexes; (f) Lend its funds or other assets
to any other person; however, the purchase of a portion of publicly distributed
bonds, debentures or other debt instruments, the purchase of certificates of
deposit, U.S. Treasury Debt Securities, and the making of repurchase agreements
are permitted, provided repurchase agreements with fixed maturities in excess of
7 days do not exceed 10% of its total assets; (g) Purchase any security if, as a
result, more than 10% of its net assets would be invested in securities that are
deemed to be liquid 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; (h) Purchase
any securities on margin, or participate in any joint or joint and several
trading account, provided, however, that it may open a margin account to the
extent necessary to engage in hedging transactions which are not precluded by
other particular restrictions; (i) Make any so-called "short" sales of
securities, except against an identical portfolio position (i.e., a "short sale
against the box"), but this restriction shall not preclude a futures contract
which sells short an index or group of securities; (j) Purchase or retain any
securities of an issuer, any of whose officers, directors or security holders is
an officer or director of the Trust or the Portfolio, if such officer or
director owns beneficially more than 1/2 of 1% of the issuer's securities or
together they own beneficially more than 5% of such securities; (k) Invest in
securities of companies which have a record of less than three years' continuous
operation if, at the time of such purchase, more than 5% of its assets (taken at
value) would be so invested; (l) Purchase participations or other direct
interests in oil, gas or other mineral exploration or development programs; and
(m) Invest in warrants.
In order to comply with certain state investment restrictions, each of the
Trust's and the Portfolio's operating policy is not to: (a) Notwithstanding (b)
above, pledge assets having a value in excess of 10% of its gross assets; (b)
Invest in oil, gas or mineral leases or programs; and (c) Purchase real estate
limited partnerships.
<PAGE>
PORTFOLIO TURNOVER
The portfolio turnover rate for the fiscal year ended December 31, 1997 in
the Mutual Fund Portfolio was 395% ( 1996 - 297%). Resultant turnover rates are
primarily a function of the Manager's response to market conditions. In the
Manager's opinion, it was in the best interest of the Portfolio to change its
portfolio from a fully invested position to a partially defensive position at
various times during the year. This defensive investment strategy can produce
high portfolio turnover ratios when calculated in accordance with SEC rules.
PURCHASE AND SALE OF PORTFOLIO SECURITIES
The Portfolio seeks to obtain the best available prices on, and firm
execution of, all purchases and sales of portfolio securities. In order to do
so, it may buy securities from or sell securities to broker/dealers acting as
principals and may use primary markets in the purchase or sale of
over-the-counter securities, unless best price and execution can be obtained in
some other way.
Satisfied that it is obtaining the best available price and favorable
execution, the Portfolio may, from time to time, place orders for the purchase
or sale of portfolio securities with broker/dealers who provide research,
statistical or other financial information or services ("research") to it or to
R. Meeder & Associates, Inc. ("RMA"), or to any other client for which RMA acts
as investment adviser. The reasonableness of brokerage commissions paid by the
Portfolio in relation to transaction and research services received is evaluated
by the staff of RMA on an ongoing basis. The general level of brokerage charges
and other aspects of the Portfolio's portfolio transactions are reviewed
periodically by its Board of Trustees.
RMA is the principal source of information and advice to the Portfolio and
is responsible for making and initiating the execution of investment decisions
for the Portfolio. However, it is recognized by the Trustees that it is
important for RMA, in performing its responsibilities to the Portfolio, to
continue to receive and evaluate the broad spectrum of economic and financial
information which many securities brokers have customarily furnished in
connection with brokerage transactions and that, in compensating brokers for
their services, it is in the interest of the Portfolio to take into account the
value of the information received for use in advising the Portfolio. The extent,
if any, to which the obtaining of such information may reduce the expenses of
RMA in providing management services to the Portfolio is not determinable. In
addition, it is understood by the Trustees that other clients of RMA might also
benefit from the information obtained for the Portfolio, in the same manner that
the Portfolio might also benefit from information obtained by RMA in performing
services to others.
RMA utilizes brokers who have demonstrated an ability to execute orders on
a favorable basis, or who are able to provide research or other services. RMA
does not knowingly authorize a higher rate of commission to one broker than to
<PAGE>
any other. In order to assure itself that the Portfolio is paying reasonable
commissions, RMA will periodically attempt to determine the rates being paid by
other institutional investors of similar size.
Currently, RMA negotiates for commissions equal to no more than 20 basis
points (1/5 of 1%) and is generally able to hold commissions at or below that
level. Debt securities are purchased on a net basis.
RMA and the Trust have previously purchased various research and other
services with brokerage commissions paid to or for the benefit of certain
entities.
It is the opinion of the Trust, the Portfolio and RMA that the receipt of
research from brokers will not materially reduce RMA's own research activities
or the overall cost of fulfilling its contracts with the Trust or the Portfolio.
Neither the Trust nor the Portfolio has any broker/dealer affiliate.
The Portfolio paid no commissions in 1996, 1995 or 1994 on the purchase and
sale of common stock securities. Brokerage commissions paid on the purchase and
sale of futures contracts amounted to $34,089 ($38,925 in 1996) for the year
ended December 31, 1997.
VALUATION OF PORTFOLIO SECURITIES
Securities owned by a Portfolio and listed or traded on any national
securities exchange are valued at each closing of the New York Stock Exchange on
the basis of the last sale on such exchange each day that the exchange is open
for business. If there is no sale on that day, or if the security is not listed,
it is valued at its last bid quotation on the exchange or, in the case of
unlisted securities, as obtained from an established market maker. Futures
contracts are valued on the basis of the cost of closing out the liability;
i.e., at the settlement price of a closing contract or at the asked quotation
for such a contract if there is no sale. Money market instruments (certificates
of deposit, commercial paper, etc.) in the Portfolios, having maturities of 60
days or less, are valued at amortized cost if not materially different from
market value. Portfolio securities for which market quotations are not readily
available are to be valued by the Manager in good faith at its own expense under
the direction of the Trustees.
Other assets, which include cash, prepaid and accrued items and amounts
receivable as income on investments and from the sale of portfolio securities,
are carried at book value, as are all liabilities. Liabilities include accrued
expenses, sums owed for securities purchased, and dividends payable.
<PAGE>
CALCULATION OF TOTAL RETURN
From time to time, the Fund may advertise its average annual total returns
for various periods of time. When applicable, depending on the Fund, the periods
of time shown will be for a one-year period; a five-year period (or relevant
portion thereof) and since inception. Period and average annualized total return
are calculated separately for Class A and Class C shares. The calculation
assumes the reinvestment of all dividends and distributions. Examples of the
total return calculation for the Fund will assume a hypothetical investment of
$1,000 at the beginning of each period.
It is computed by finding the average annual compounded rates of return
over the length of the base periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1+T)n = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
TACTICAL ASSET ALLOCATION FUND (CLASS A SHARES):
TOTAL RETURN
------------------------------------------------
Since Inception
1 Year (August 1, 1996)
Period Ended Period Ended
DECEMBER 31, 1997 DECEMBER 31, 1997
Value of Account
At end of Period $1,172.91 $1,237.53
Value of Account
At beginning of Period $1,000.00 $1,000.00
Base Period Return $ 172.91 $ 237.53
Total Return 17.29% 16.25%
<PAGE>
TACTICAL ASSET ALLOCATION FUND (CLASS C SHARES):
TOTAL RETURN
--------------------------------------------------
Since Inception
1 Year (June 1, 1995)
Period Ended Period Ended
DECEMBER 31, 1997 DECEMBER 31, 1997
Value of Account
At end of Period $1,177.10 $1,417.01
Value of Account
At beginning of Period 1,000.00 1,000.00
Base Period Return $ 177.10 $ 417.01
Total Return 17.71% 14.44%
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, Martin Luther King 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.
Shareholders of the Fund will be able to exchange their Class A 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 Class A shares of
the Fund may use the exchange privilege only to acquire Class A shares of a
Flex-Partners Fund.
Shareholders of the Fund may exchange their Class C shares for Class C
shares of other Flex-Partners Funds. If Class C shares of the Fund are exchanged
for Class C shares of other Flex-Partners Funds, no contingent deferred sales
charge will be payable upon such exchange of Class C shares, but a contingent
deferred sales charge will be payable upon the redemption of Class C shares
<PAGE>
acquired as a result of the exchange. The applicable sales charge will be that
imposed by the Fund in which shares were initially purchased and the purchase
date will be deemed to be the date of the initial purchase, rather than the date
of the exchange.
At any time after acquiring shares of other funds participating in the
Class C exchange privilege, the shareholder may again exchange those shares (and
any reinvested dividends and distributions) for Class C shares of the Fund
without subjecting such shares to any contingent deferred sales charge. Shares
of any fund participating in the Class C exchange privilege that were acquired
through reinvestment of dividends or distributions may be exchanged for Class C
shares of other funds without being subject to any contingent deferred sales
charge.
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 Manager's judgment, the Fund would be unable to
invest effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
All redemptions in kind shall be of readily marketable securities.
COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A 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;
<PAGE>
(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 bedeemed to be controlled by each of its general
partners);
(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 individuals 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 the Class A
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 Class A
shares of the Fund and Class A shares of other Flex-Partners Funds. All Class A
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.
<PAGE>
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.
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 Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.
CONVERTIBLE CLASS C SHARES. Class C shares purchased, or acquired through
the reinvestment of dividends and distributions, on or before April 30, 1998
("convertible Class C shares") will automatically convert to Class A shares
seven years after the end of the calendar month in which the purchase order for
convertible Class C shares was accepted, on the basis of the relative net asset
values of the two classes and subject to the following terms: Class C shares
acquired through the reinvestment of dividends and distributions on or before
April 30, 1998 ("reinvested convertible Class C shares") will be converted to
Class A shares on a pro-rata basis only when convertible Class C shares not
acquired through reinvestment of dividends or distributions ("purchased
convertible Class C shares") are converted. The portion of reinvested
convertible Class C shares to be converted will be determined by the ratio that
the purchased convertible Class C shares eligible for conversion bear to the
total amount of purchased convertible Class C shares in the shareholder's
account. For the purposes of calculating the holding period, convertible Class C
shares will be deemed to have been issued on the sooner of: (a) the date on
which the issuance of convertible Class C shares occurred, or (b) for
convertible Class C shares obtained by an exchange or series of exchanges, the
date on which issuance of the original convertible Class C shares occurred. This
conversion to Class A shares will relieve convertible Class C shares that have
been outstanding for at least seven years (a period of time sufficient for the
Distributor to have been compensated for distribution expenses related to such
convertible Class C shares) from the higher ongoing distribution fee paid by
convertible Class C shares. Only convertible Class C shares have this conversion
feature. Conversion of convertible Class C shares to Class A shares is
<PAGE>
contingent on the availability of a private letter revenue ruling from the
Internal Revenue Service or an opinion of counsel affirming that such conversion
does not constitute a taxable event for the shareholder under the Internal
Revenue Code. If such revenue ruling or opinion of counsel is no longer
available, conversion of convertible Class C shares to Class A shares would have
to be suspended, and convertible Class C shares would continue to be subject to
the Class C distribution fee until redeemed.
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 Distributor.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available
for shareholders having Class A and Class C 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). Except as otherwise provided in the Prospectus,
to the extent such withdrawals exceed the current net asset value of reinvested
dividends, they may be subject to the contingent deferred sales charge. See "How
to Buy Shares - Class C Shares" and "Other Shareholder Services" in the
Prospectus.
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. The Transfer Agent
acts as agent for the shareholder in redeeming sufficient full and fractional
shares to provide the amount of the periodic withdrawal payment. The plan may be
terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the applicable sales charges to (i) the purchase of Class
A shares and (ii) the withdrawal of Class C 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.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS.. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, the Manager may reinvest your distributions at the
<PAGE>
then-current NAV. All subsequent distributions will then be reinvested until you
provide the Manager 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. The Fund
will send each shareholder a notice in January describing the tax status of
dividends and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the Fund on
the sale of securities by the Portfolio and distributed to shareholders of the
Fund are federally taxable as long-term capital gains regardless of the length
of time shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Fund and such shares are
held six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends-received deduction.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be liable
for federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes at the Fund level, the Fund intends to distribute
substantially all of its net investment income (consisting of the income it
earns from its investment in the Portfolio, less expenses) and net realized
capital gains within each calendar year as well as on a fiscal year basis. The
Fund intends to comply with other tax rules applicable to regulated investment
companies.
The Fund 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 Portfolio.
Pursuant to the Investment Advisory Contract with the Portfolio, the
Manager, subject to the supervision of the Portfolio's Board of Trustees and in
conformity with the stated objective and policies of the Fund, manages both the
investment operations of the Fund and the composition of the Portfolio'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 Portfolio. The Manager also administers the Fund's
corporate affairs, and in connection therewith, furnishes the Fund with office
facilities, together with those ordinary clerical and bookkeeping services which
are not being furnished by Star Bank, N.A., the Portfolio's custodian, and
Mutual Funds Service Co., the Fund's transfer and disbursing agent. The
management services of the Manager are not exclusive under the terms of the
Investment Advisory Agreement and the Manager is free to, and does, render
management services to others.
The Investment Advisory Contract for the Portfolio was separately approved
by a vote of a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940) of the Portfolio. The Investment Advisory Contract is to remain in force
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. the Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days' prior written notice by Majority Vote of the
Portfolio, by the Trustees of the Portfolio, or by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities 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; association dues; the cost of printing
and mailing confirmations, prospectuses, proxies, proxy statements, notices and
reports to existing shareholders; state registration fees; distribution expenses
<PAGE>
within the percentage limitations of each Class of Shares' 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.
The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Manager; registration fees; membership dues
allocable to the Portfolio; fees and expenses of independent accountants, of
legal counsel and of any transfer agent or accountant of the Portfolio;
insurance premiums and other miscellaneous expenses.
Expenses of the Portfolio also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions; fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager under the Investment Advisory Contract and other
miscellaneous expenses.
The Board of Trustees of the Trust believe that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if it retained the services of an
investment adviser and the assets of the Fund were invested directly in the type
of securities being held by the Portfolio.
The Manager earns an annual fee, payable in monthly installments as
follows. The fee for the Portfolio is based upon the average net assets of the
Portfolio and is at the rate of 1% of the first $50 million, 0.75% of the next
$50 million and 0.60% in excess of $100 million of average net assets.
For the year ended December 31, 1997, the Mutual Fund Portfolio paid fees
to the Manager totaling $1,130,843 ($1,083,553 in 1996).
The Manager presently intends to reimburse the Fund through an expense
reimbursement fee to the extent necessary to keep total expenses at 2.00% of
average daily net assets for Class A Shares and 2.10% of average daily net
assets for Class C shares. The Manager may change this policy at any time
without notice to shareholders.
R. Meeder & Associates, Inc. was incorporated in Ohio on February l, 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 Investment Officer; Donald F. Meeder, Vice President and Secretary;
Sherrie L. Acock, Vice President; Robert D. Baker, Vice President; and Wesley F.
<PAGE>
Hoag, Vice President and General Counsel. Mr. Robert S. Meeder, Sr. is President
and a Trustee of the Trust and the Portfolio. Each of Robert S. Meeder, Jr. and
Philip A. Voelker is a Trustee and an officer of the Trust and the Portfolio.
Each of Donald F. Meeder and Wesley F. Hoag is an officer of the Trust and the
Portfolio. Messrs. Robert S. Meeder, Sr. and Robert S. Meeder, Jr. are directors
of the Distributor. Mr. Voelker is President and a Director of the Distributor.
Messrs. Donald F. Meeder and Craver are officers of the Distributor.
OFFICERS AND TRUSTEES
The Trust and the Portfolio are managed by their trustees and officers.
Their names, positions and principal occupations during the past five years are
listed below. Except as indicated, each individual has held the office shown or
other offices in the same company for the last five years. Except as otherwise
shown, all persons named as Trustees also serve in similar capacities for all
other mutual funds advised by the Manager, including The Flex-funds 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 are indicated by an asterisk (*).
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
- --------------------- ------------- --------------------
ROBERT S. MEEDER, SR.*+, 69 Trustee/President Chairman, R. Meeder &
Associates, Inc., an
investment adviser.
MILTON S. BARTHOLOMEW, 69 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
the Portfolio's Audit
Committee.
ROGER D. BLACKWELL, 57 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
<PAGE>
JOHN M. EMERY, 77 Trustee Retired; formerly Vice
2390 McCoy Road President and Treasurer of
Columbus, OH 43220 Columbus & Southern Ohio
Electric Co.; member of
the Portfolio's Audit
Committee.
RICHARD A. FARR, 79 Trustee President of R&R Supply
3250 W. Henderson Road Co. and Farrair Concepts,
Columbus, OH 43220 Inc., two companies
involved in engineering,
consulting and sales of
heating and air
conditioning equipment.
WILLIAM L. GURNER*, 51 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment
5350 Poplar Avenue, Suite 490 adviser (since January
Memphis, TN 38119 1995); Manager of Trust
Investments of Federal
Express Corporation (1987-
1994).
RUSSEL G. MEANS, 72 Trustee Retired; formerly Chairman
5711 Barry Trace of Employee Benefit
Dublin, OH 43017 Management Corporation,
consultants and
administrators of self-
funded health and
retirement plans.
ROBERT S. MEEDER, JR.*+, 37 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
Woodstock, NY 12498 Portfolio and the
Utilities Stock Portfolio.
WALTER L. OGLE, 59 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
<PAGE>
CHARLES A. DONABEDIAN, 55 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
companies; CEO, Winston
Advisors, Inc., an
investment advisor.
JAMES W. DIDION, 67 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm (1991-
1997).
PHILIP A. VOELKER*+, 44 Trustee and Senior Vice President and
Vice President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 54 Assistant Practicing Attorney;
42 Miller Hill Road Secretary Special Counsel to Flex-
Box 811 Partners, Flex-funds and
Dover, MA 02030 their Portfolios; Senior
Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 59 Secretary/ Vice President of R.
Treasurer Meeder & Associates, Inc.,
and President of Mutual
Funds Service Company.
WESLEY F. HOAG*+, 41 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).
* Interested Person of the Trust (as defined in the Investment Company Act of
1940), The Flex-funds, Flex-Partners and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F.
Meeder's uncle.
<PAGE>
The following table shows the compensation paid by the Fund and the Fund
Complex as a whole to the Trustees of the Fund and the Fund Complex during the
fiscal year ended December 31, 1997.
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits Estimated from
Aggregate Accrued Benefits Registrant
Compensation as Part of Annual and Fund
from the Portfolio or Upon Complex Paid
TRUSTEE PORTFOLIO FUND EXPENSE RETIREMENT TO TRUSTEE
- ------- --------- ------------ ---------- ----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $5,883 None None $11,633
John M. Emery $5,883 None None $11,633
Richard A. Farr $5,700 None None $10,633
William F. Gurner None None None None
Russel G. Means $5,200 None None $7,883
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $5,533 None None $9,883
Philip A. Voelker None None None None
Roger A. Blackwell $5,533 None None $9,883
Charles A. Donabedian $2,879 None None $5,541
James W. Didion None 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; however, the Portfolio and other members of the Fund Complex have
accrued the payment of certain Trustee fees which have not yet been paid to the
Trustees.
<PAGE>
Each Trustee who is not an "interested person: is paid a meeting fee of
$250 per meeting for each of the five Portfolios. In addition, each such Trustee
earns an annual fee, payable quarterly, based on the average net assets in each
Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of
the amount of average net assets between $500 million and $1 billion; 0.00025%
of the amount of average net assets exceeding $1 billion. For the other four
Portfolios, each Trustee is paid a fee of 0.00375% of the amount of each
Portfolio's average net assets exceeding $15 million. All other officers and
Trustees serve without compensation from the Trust. Messrs. Bartholomew, Emery
and Donabedian comprise the Audit Committee for The Flex-funds and The
Flex-Partners, and each of the corresponding Portfolios of The Flex-funds and
The Flex-Partners Trusts. Each member of the Audit Committee is paid $500 for
each meeting of the Audit Committee attended. Trustees fees for Portfolio
totaled $36,609 for the year ended December 31, 1997 ($4,162 in 1996). Audit
Committee fees for the Fund and the Portfolio totaled $367 for the year ended
December 31, 1997 ($100 in 1996).
All other officers and Trustees serve without compensation from the Trust.
The Trustees and officers of the Fund and the Portfolio own, in the
aggregate, less than 1% of the Fund's total outstanding shares.
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
Class A shares and the Class C shares of the Fund.
Pursuant to separate plans of distribution (the Class A Plan and the Class
C Plan, collectively, the Plans) 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 Class A shares and
Class C shares. See "Distribution Plans" in the Prospectus.
On August 4, 1994, 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 Class A or Class C 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 Class A Plan, adopted a plan of
distribution for the Class A shares of the Fund. On August 4, 1994, the Board of
Trustees, including the Rule 12b-1 Trustees, at a meeting called for the purpose
of voting on the Class C Plan, adopted a plan of distribution for the Class C
shares of the Fund. The Class A Plan was approved by Class A shareholders of the
Fund. The Class C Plan was approved by Class C shareholders of the Fund.
<PAGE>
The Distributor also receives the proceeds of contingent deferred sales
charges paid by investors upon certain redemptions of Class C shares. See "How
to Buy Shares" in the Prospectus.
The Plans continue 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 Plans 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. Neither Plan may be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of Class A and Class C, as applicable, 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 either the Class A or Class C Plan if it is terminated
or not continued.
Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of the Class A
and Class C 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 Plans remain 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.
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, on February 8, 1997. Total payments made by
the Fund to a former distributor of the Fund, Roosevelt & Cross, Incorporated,
for the year ended December 31, 1997 amounted to $5,492. The payments made were
used to offset a portion of initial commissions paid to securities dealers for
the sale of Fund shares.
The Distributor for the Fund, is an affiliated person of the Manager and
the Fund and received the following commissions and other compensation from the
Trust during the fiscal year ended December 31, 1997.
NET UNDERWRITING COMPENSATION
NAME OF PRINCIPAL DISCOUNTS AND ON REDEMPTIONS BROKERAGE OTHER
UNDERWRITER COMMISSIONS AND REPURCHASES COMMISSIONS COMPENSATION
- ----------- ----------- --------------- ----------- ------------
Adviser Dealer
Services, Inc. $174,319 $772 $0 $0
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 and Roth IRA accounts are described below.
<PAGE>
INDIVIDUAL RETIREMENT ACCOUNTS (IRA):
DEDUCTIBLE CONTRIBUTIONS
All contributions (other than certain rollover contributions) must be made
in cash and are subject to the following limitations:
REGULAR. Contributions to an IRA (except for rollovers or employer
contributions under a simplified employee pension) may not exceed the amount of
compensation includible in gross income for the tax year or $2,000, whichever is
less. If neither you nor your spouse is an active participant in an employer
plan, you may make a contribution up to this limit and take a deduction for the
entire amount contributed. If you or your spouse is an active participant and
your adjusted gross income (AGI) is below a certain level you may also make a
contribution and take a deduction for the entire amount contributed. However, if
you or your spouse is an active participant and your AGI is above the specified
level, the dollar limit of the deductible contribution you make to your IRA may
be reduced or eliminated.
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. You do not have to file an itemized federal
tax return to take an IRA deduction. Deductions are not allowed for any
contribution in excess of the deduction limit. Contributions for a year may be
made during such year or by the tax return filing date for such year (not
including extensions), if irrevocably designated for such year, in writing, when
such contribution is made.
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA. The contribution
limits apply separately to the compensation of each of you, without regard to
the community property laws of your state, if any.
SPOUSAL. You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
If you are the compensated (or higher compensated) spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established by
your spouse as the depositor or grantor of his or her own IRA and your spouse
becomes subject to all of the privileges, rules, and restrictions generally
applicable to IRAs. This includes conditions of eligibility for distribution;
penalties for premature distribution, excess accumulation (failure to take a
required distribution) and prohibited transaction; designation of beneficiaries
and distribution in the event of your spouse's death; income and estate tax
treatment of withdrawals and distributions.
<PAGE>
ADJUSTED GROSS INCOME (AGI). If you are an active participant or are
considered an active participant, the amount of your AGI for the year (if you
and your spouse file a joint tax return, your combined AGI) will be used to
determine if you can make a deductible IRA contribution. The instructions for
your tax return will show you how to calculate your AGI for this purpose. If you
are at or below a certain AGI level, called the Threshold Level, you can make a
deductible contribution under the same rules as a person who is not an active
participant. This AGI level may change each year. The instructions for your tax
return will show you the AGI level in effect for that year.
For example, if you are single, or treated as being single, your AGI
Threshold Level is $30,000 for 1998. If you are married and file a joint tax
return, your AGI Threshold Level is $50,000 for 1998. If you are not an active
participant, but you file a joint tax return with your spouse who is an active
participant, your AGI Threshold Level is $150,000. If you are married, file a
separate tax return, and live with your spouse for any part of the year, your
AGI Threshold Level is $0.
If your AGI is less than $10,000* above your AGI Threshold Level, you will
still be able to make a deductible contribution, but it will be limited in
amount. The amount by which your AGI exceeds your AGI Threshold Level (AGI minus
AGI Threshold Level) is called your Excess AGI. The Maximum Allowable Deduction
is $2,000 per individual. You may determine your Deduction Limit by using the
following formula:
($10,000* - EXCESS AGI ) Maximum Allowable Deduction
--------------------- X Deduction = Limit
$10,000*
Round the result up to the next higher multiple of $10 (the next higher
whole dollar amount that ends in zero). If the final result is below $200, but
above zero, your Deduction Limit is $200. Your Deduction Limit cannot exceed
100% of your compensation.
*For years after 2006, $20,000 if you are married, filing jointly.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
<PAGE>
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make rollover
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS (ROTH IRA):
CONTRIBUTIONS:
All contributions must be made in cash and are subject to the following
limitations:
REGULAR. Contributions to a Roth IRA (except for rollovers) cannot exceed
the amount of compensation includible in gross income for the tax year or
$2,000, whichever is less. If our adjusted gross income (AGI) is below a certain
level, you may contribute the maximum amount. However, if your AGI is above a
specified level, the dollar limit of the contribution you make to your Roth IRA
may be reduced or eliminated.
If you are single, and your adjusted gross income (AGI) is $95,000 or less
($150,000 or less if married and filing jointly, or $0 or less if married and
filing separately) you are eligible to contribute the full amount to a Roth IRA.
Contributions to a Roth IRA are aggregated with Traditional IRA
contributions for the purpose of the annual contribution limit. Therefore, you
may contribute up to the lesser of $2,000 or 100% of earned income per year to a
Traditional IRA and a Roth IRA combined.
SPOUSAL. You may make spousal Roth IRA contributions for a year, if: 1)
your spouse has "compensation" that is includible in gross income for such year;
2) you have less compensation than your spouse for such year; and 3) you file a
joint federal income tax return for such year.
If you are the higher compensated spouse, your contribution must be made in
accordance with the regular contribution rules above. If you are the
noncompensated (or lower compensated) spouse, your contribution may not exceed
the lesser of $2,000 or 100% of the combined compensation of you and your
spouse, reduced by the amount of your spouse's Roth IRA contribution.
Contributions for your spouse must be made to a separate Roth IRA
established by your spouse as the depositor or grantor of his or her own Roth
IRA and your spouse becomes subject to all of the privileges, rules, and
restrictions generally applicable to Roth IRAs. This includes conditions of
eligibility for distribution; designation of beneficiaries and distribution in
the event of your spouse's death; tax treatment of withdrawals and
distributions. This form may be used to establish such Roth IRA.
NO MAXIMUM AGE LIMIT. There is no maximum age limit for making a Roth IRA
contribution. Attainment of age 70 1/2 does not prevent you from contributing to
a Roth IRA.
<PAGE>
APRIL 15 FUNDING DEADLINE. Contributions to a Roth IRA for the previous tax
year must be made by the tax-filing deadline (not including extensions) for
filing your federal income tax return. If you are a calendar-year taxpayer, your
deadline is usually April 15. If April 15 falls on a Saturday, Sunday, or legal
holiday, the deadline is the following business day.
LOWER CONTRIBUTION LIMITS. To determine the maximum contribution to a Roth
IRA if your AGI is between $95,000 and $110,000 (between $150,000 and $160,000
if married, filing jointly or between $0 and $10,000 if married, filing
separately), the following steps must be taken:
(a) Subtract your AGI from $110,000 ($160,000 if married, filing jointly;
$10,000 if married, filing separately).
(b) Multiply the result in Step `a' by .1333 (.20 if married).
(c) If the result in Step `b' is not a multiple of $10, round up to the
next multiple of $10.
(d) The result in Step `c' is your allowable contribution limit. If it is
more than $0, but less that $200, your allowable contribution limit is
$200.
INDIVIDUALS NOT ELIGIBLE TO MAKE CONTRIBUTIONS. If you are a single
taxpayer and your AGI is $110,000 or above ($160,000 or above if married and
filing jointly, or $10,000 or above if married and filing separately), you are
not permitted to make a Roth IRA contribution for the year. For this purpose, a
deductible Traditional IRA contribution is not allowed as a deduction in
computing AGI, and any amount of a rollover-conversion from a Traditional IRA to
a Roth IRA is not taken into account. Whether an individual, or his spouse, is
an active participant in an employer retirement plan is irrelevant for
determining whether he may make a Roth contribution.
EXCESS ROTH CONTRIBUTIONS. Excess contributions to a Roth IRA are subject
to a 6% penalty tax unless removed (along with attributable earnings) by your
tax-filing deadline (plus extensions). An excess contribution could occur for
many reasons including, for example, if you contribute more than $2,000 or 100%
of earned income, or if you are not permitted to make a Roth contribution
because your AGI is too high.
CONVERSION OF TRADITIONAL CONTRIBUTIONS TO ROTH CONTRIBUTIONS. Generally,
if you make a contribution to a Traditional IRA, you may transfer the
contribution plus attributable earnings to a Roth IRA by your tax-filing
deadline (not including extensions). The transferred contribution amount is not
taxable if no deduction was allowed for the contribution. Such a contribution is
treated as a Roth IRA contribution.
<PAGE>
ROLLING OVER/CONVERTING TRADITIONAL IRAS TO ROTH IRAS
You are allowed to roll over, transfer, or "convert" your Traditional IRAs
to Roth IRAs beginning in 1998. Regardless of whether a Traditional IRA is
rolled over/converted to a Roth IRA in 1998 or afterwards, the
rollover/conversion amount is subject to federal income taxation (but no 10%
penalty tax).
$100,000 AGI LIMIT FOR ROLLOVER. If you are a single taxpayer, or a married
individual who files jointly, you may roll over, transfer, or convert your
Traditional IRAs to Roth IRAs if your AGI is $100,000 or less. If you are a
single taxpayer (or a married individual who files jointly) with AGI of more
than $100,000 you may not roll over, transfer, or convert your Traditional IRAs
to Roth IRAs. Also, if you are a taxpayer who is married, but files separately,
you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs
regardless of AGI.
ROLLOVER/CONVERSION IN 1998. If you roll over a Traditional IRA
distribution received after 1998 to a Roth IRA, the taxable portion of the
Traditional IRA distribution is included in your income ratably over a four-year
period starting with 1998 (i.e., the amount included in gross income is spread
evenly over four years beginning with 1998), but the amount is not subject to
the IRS 10% early distribution penalty.
ROLLOVER/CONVERSION AFTER 1998. If you roll over a Traditional IRA
distribution received after 1998, to a Roth IRA the taxable portion of the
Traditional IRA distribution is included in your income for the year in which
the Traditional IRA distribution is received, but the amount is not subject to
the IRS 10% early distribution penalty. No special tax treatments apply.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. provides accounting, stock transfer and dividend
disbursing services to the Fund and the Portfolio. The minimum annual fee for
accounting services for the Portfolio is $7,500. Subject to the applicable
minimum fee, the Portfolio's annual fee, payable monthly, is computed at the
rate of 0.15% of the first $10 million, 0.10% of the next $20 million, 0 02% of
the next $50 million and 0.01% in excess of $80 million of the Portfolio's
average net assets. Subject to a $4,000 annual minimum fee, each class of shares
of the Fund will incur an annual fee, payable monthly, which will be the greater
of $15 per shareholder account or 0.10% of the Fund's average net assets, for
stock transfer and dividend disbursing services. These fees are reviewable
annually by the respective Trustees of the Trust and the Portfolio.
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
<PAGE>
in the preparation, filing and distribution of proxy materials periodic reports
to Trustees and shareholders, registration statements and other necessary
documents. The Fund incurs an annual fee, payable monthly, of 0.05% of the
Fund's average net assets. For the year ended December 31, 1997, total payments
to Mutual Funds Service Co. by the Fund and the Portfolio amounted to $79,518.
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. Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is
custodian of the assets of the Portfolio. The custodian is responsible for the
safekeeping of the Portfolio's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the investment
policies of the Portfolio or in deciding which securities are purchased or sold
by the Portfolio. The Portfolio may, however, invest in obligations of the
custodian and may purchase or sell securities from or to the custodian.
Auditors. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215
serves as the Trust's independent auditors. The auditors examine financial
statements for the Fund and provide other assurance, tax, and related services.
FINANCIAL STATEMENTS
Financial statements for Tactical Asset Allocation Fund (formerly, The TAA
Fund) and the Mutual Fund Portfolio are presented on the following pages.
<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
APRIL 30, 1998
This Statement is not a prospectus but should be read in conjunction with
the Prospectus of The Flex-Partners International Equity Fund (dated April 30,
1998). 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 18
Valuation of Portfolio Securities 20
Performance 21
Additional Purchase and Redemption Information 27
Distributions and Taxes 30
Investment Adviser and Manager 31
Investment Subadviser 33
The Distributor 34
Trustees and Officers 35
Flex-Partners Retirement Plans 39
Contracts With Companies Affiliated With Manager 43
Description of the Trust 44
Financial Statements 45
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 manager following
consultation 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.
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
<PAGE>
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 they believe 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.
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
<PAGE>
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;
(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
<PAGE>
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.
(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
<PAGE>
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.
* 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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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).
<PAGE>
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.
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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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).
<PAGE>
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
<PAGE>
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.
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.
<PAGE>
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.
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 a 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
<PAGE>
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.
PORTFOLIO TURNOVER. The portfolio turnover rate for the Portfolio for the
period from inception on September 2, 1997 through December 31, 1997 was 13%.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
Brokerage commissions paid by the Fund on the purchase and sale of
securities amounted to $51,807 for the period from the Fund's inception on
September 2, 1997 through December 31, 1997.
<PAGE>
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 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.
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 p.m. 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.
<PAGE>
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.
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
<PAGE>
INTERNATIONAL EQUITY FUND:
TOTAL RETURN
0.334 Years
Since Inception
Period Ended
DECEMBER 31,1997
Value of Account
At end of Period $ 974.40
Value of Account
At beginning of 1,000.00
Base Period Return $ (25.60)
Average Total Return -2.56%
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
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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, Martin Luther King Day (observed),
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day
(observed). 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.
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.
<PAGE>
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);
(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."
<PAGE>
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.
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).
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
For the period from the Fund's inception on September 2, 1997 through
December 31, 1997, the Fund paid investment advisory fees to the Manager
totaling $36,268.
R. Meeder & Associates, Inc. was incorporated in Ohio on February 1,1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors are as set forth as follows:
Robert S. Meeder, Sr., Chairman and Sole Director; Robert S. Meeder, Jr.,
President; Philip A. Voelker, Senior Vice President and Chief Investment
Officer; Donald F. Meeder, Vice President and Secretary; Sherrie L. Acock, Vice
President; Robert D. Baker, Vice President; and Wesley F. Hoag, Vice President
and General Counsel. 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. Messrs. Robert S. Meeder,
Sr. and Robert S. Meeder, Jr. are directors of the Distributor. Mr. Voelker is
President and a director of the Distributor. Messrs. Donald F. Meeder and Craver
are officers of the Distributor.
<PAGE>
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
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.
As of April 1, 1998, the Subadviser owned beneficially and of record 71% 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.
<PAGE>
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.
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.
The Distributor for the Fund, is an affiliated person of the Manager and
the Fund and received the following commissions and other compensation from the
Trust during the fiscal year ended December 31, 1997.
NET UNDERWRITING COMPENSATION
NAME OF PRINCIPAL DISCOUNTS AND ON REDEMPTIONS BROKERAGE OTHER
UNDERWRITER COMMISSIONS AND REPURCHASES COMMISSIONS COMPENSATION
- ----------- ----------- --------------- ----------- ------------
Adviser Dealer
Services, Inc. $174,319 $772 $0 $0
<PAGE>
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 other 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 Trust, the Manager,
the Subadviser or other subadvisers are indicated by an asterisk (*). The Trust
is managed by its Trustees and officers. Their names, positions and principal
occupations during the past five years are listed below:
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
- --------------------- ------------- --------------------
ROBERT S. MEEDER, SR.*+, 69 Trustee/President Chairman, R. Meeder &
Associates, Inc., an
investment adviser.
MILTON S. BARTHOLOMEW, 69 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
the Portfolio's Audit
Committee.
ROGER D. BLACKWELL, 57 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
<PAGE>
JOHN M. EMERY, 77 Trustee Retired; formerly Vice
2390 McCoy Road President and Treasurer of
Columbus, OH 43220 Columbus & Southern Ohio
Electric Co.; member of
the Portfolio's Audit
Committee.
RICHARD A. FARR, 79 Trustee President of R&R Supply
3250 W. Henderson Road Co. and Farrair Concepts,
Columbus, OH 43220 Inc., two companies
involved in engineering,
consulting and sales of
heating and air
conditioning equipment.
WILLIAM L. GURNER*, 51 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment
5350 Poplar Avenue, Suite 490 adviser (since January
Memphis, TN 38119 1995); Manager of Trust
Investments of Federal
Express Corporation (1987-
1994).
RUSSEL G. MEANS, 72 Trustee Retired; formerly Chairman
5711 Barry Trace of Employee Benefit
Dublin, OH 43017 Management Corporation,
consultants and
administrators of self-
funded health and
retirement plans.
ROBERT S. MEEDER, JR.*+, 37 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
Woodstock, NY 12498 Portfolio and the
Utilities Stock Portfolio.
WALTER L. OGLE, 59 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
CHARLES A. DONABEDIAN, 55 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
companies; CEO, Winston
Advisors, Inc., an
investment advisor.
<PAGE>
JAMES W. DIDION, 67 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm (1991-
1997).
PHILIP A. VOELKER*+, 44 Trustee and Senior Vice President and
Vice President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 54 Assistant Practicing Attorney;
42 Miller Hill Road Secretary Special Counsel to Flex-
Box 811 Partners, Flex-funds and
Dover, MA 02030 their Portfolios; Senior
Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 59 Secretary/ Vice President of R.
Treasurer Meeder & Associates, Inc.,
and President of Mutual
Funds Service Company.
WESLEY F. HOAG*+, 41 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).
*"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, 1997.
<PAGE>
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits Estimated from
Aggregate Accrued Benefits Registrant
Compensation as Part of Annual and Fund
from the Portfolio or Upon Complex Paid
TRUSTEE PORTFOLIO FUND EXPENSE RETIREMENT TO TRUSTEE
- ------- --------- ------------ ---------- ----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $ 333 None None $11,633
John M. Emery $ 333 None None $11,633
Richard A. Farr $ 250 None None $10,633
William F. Gurner None None None None
Russel G. Means None None None $7,883
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $ 333 None None $9,883
Philip A. Voelker None None None None
Roger A. Blackwell $ 333 None None $9,883
Charles A. Donabedian $ 250 None None $5,541
James W. Didion None 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; however, the Portfolio and other members of the Fund Complex have
accrued the payment of certain Trustee fees which have not yet been paid to the
Trustees.
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 and the Fund's average net
assets exceeding $15 million.
<PAGE>
Messrs. Bartholomew, Emery and Donabedian comprise the Audit Committee for
The Flex-funds Trust, The Flex-Partners Trust, and each corresponding Portfolio
of The Flex-funds and the Flex-Partners Trusts. Each member of the Audit
Committee is paid $500 for each meeting of the Audit Committee attended. Trustee
fees for the Fund totaled $2,462 for the period from the Fund's inception on
September 2, 1997 through December 31, 1997. 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.
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 and Roth IRA accounts are described below.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA):
DEDUCTIBLE CONTRIBUTIONS
All contributions (other than certain rollover contributions) must be made
in cash and are subject to the following limitations:
REGULAR. Contributions to an IRA (except for rollovers or employer
contributions under a simplified employee pension) may not exceed the amount of
compensation includible in gross income for the tax year or $2,000, whichever is
less. If neither you nor your spouse is an active participant in an employer
plan, you may make a contribution up to this limit and take a deduction for the
entire amount contributed. If you or your spouse is an active participant and
your adjusted gross income (AGI) is below a certain level you may also make a
contribution and take a deduction for the entire amount contributed. However, if
you or your spouse is an active participant and your AGI is above the specified
level, the dollar limit of the deductible contribution you make to your IRA may
be reduced or eliminated.
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. You do not have to file an itemized federal
tax return to take an IRA deduction. Deductions are not allowed for any
contribution in excess of the deduction limit. Contributions for a year may be
made during such year or by the tax return filing date for such year (not
including extensions), if irrevocably designated for such year, in writing, when
such contribution is made.
<PAGE>
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA. The contribution
limits apply separately to the compensation of each of you, without regard to
the community property laws of your state, if any.
SPOUSAL. You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
If you are the compensated (or higher compensated) spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established by
your spouse as the depositor or grantor of his or her own IRA and your spouse
becomes subject to all of the privileges, rules, and restrictions generally
applicable to IRAs. This includes conditions of eligibility for distribution;
penalties for premature distribution, excess accumulation (failure to take a
required distribution) and prohibited transaction; designation of beneficiaries
and distribution in the event of your spouse's death; income and estate tax
treatment of withdrawals and distributions.
ADJUSTED GROSS INCOME (AGI). If you are an active participant or are
considered an active participant, the amount of your AGI for the year (if you
and your spouse file a joint tax return, your combined AGI) will be used to
determine if you can make a deductible IRA contribution. The instructions for
your tax return will show you how to calculate your AGI for this purpose. If you
are at or below a certain AGI level, called the Threshold Level, you can make a
deductible contribution under the same rules as a person who is not an active
participant. This AGI level may change each year. The instructions for your tax
return will show you the AGI level in effect for that year.
For example, if you are single, or treated as being single, your AGI
Threshold Level is $30,000 for 1998. If you are married and file a joint tax
return, your AGI Threshold Level is $50,000 for 1998. If you are not an active
participant, but you file a joint tax return with your spouse who is an active
participant, your AGI Threshold Level is $150,000. If you are married, file a
separate tax return, and live with your spouse for any part of the year, your
AGI Threshold Level is $0.
If your AGI is less than $10,000* above your AGI Threshold Level, you will
still be able to make a deductible contribution, but it will be limited in
amount. The amount by which your AGI exceeds your AGI Threshold Level (AGI minus
AGI Threshold Level) is called your Excess AGI. The Maximum Allowable Deduction
is $2,000 per individual. You may determine your Deduction Limit by using the
following formula:
<PAGE>
($10,000* - EXCESS AGI ) Maximum Allowable = Deduction
--------------------- X Deduction Limit
$10,000*
Round the result up to the next higher multiple of $10 (the next higher
whole dollar amount that ends in zero). If the final result is below $200, but
above zero, your Deduction Limit is $200. Your Deduction Limit cannot exceed
100% of your compensation.
*For years after 2006, $20,000 if you are married, filing jointly.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make rollover
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS (ROTH IRA):
CONTRIBUTIONS:
All contributions must be made in cash and are subject to the following
limitations:
REGULAR. Contributions to a Roth IRA (except for rollovers) cannot exceed
the amount of compensation includible in gross income for the tax year or
$2,000, whichever is less. If our adjusted gross income (AGI) is below a certain
level, you may contribute the maximum amount. However, if your AGI is above a
specified level, the dollar limit of the contribution you make to your Roth IRA
may be reduced or eliminated.
If you are single, and your adjusted gross income (AGI) is $95,000 or less
($150,000 or less if married and filing jointly, or $0 or less if married and
filing separately) you are eligible to contribute the full amount to a Roth IRA.
Contributions to a Roth IRA are aggregated with Traditional IRA
contributions for the purpose of the annual contribution limit. Therefore, you
may contribute up to the lesser of $2,000 or 100% of earned income per year to a
Traditional IRA and a Roth IRA combined.
SPOUSAL. You may make spousal Roth IRA contributions for a year, if: 1)
your spouse has "compensation" that is includible in gross income for such year;
2) you have less compensation than your spouse for such year; and 3) you file a
joint federal income tax return for such year.
<PAGE>
If you are the higher compensated spouse, your contribution must be made in
accordance with the regular contribution rules above. If you are the
noncompensated (or lower compensated) spouse, your contribution may not exceed
the lesser of $2,000 or 100% of the combined compensation of you and your
spouse, reduced by the amount of your spouse's Roth IRA contribution.
Contributions for your spouse must be made to a separate Roth IRA
established by your spouse as the depositor or grantor of his or her own Roth
IRA and your spouse becomes subject to all of the privileges, rules, and
restrictions generally applicable to Roth IRAs. This includes conditions of
eligibility for distribution; designation of beneficiaries and distribution in
the event of your spouse's death; tax treatment of withdrawals and
distributions. This form may be used to establish such Roth IRA.
NO MAXIMUM AGE LIMIT. There is no maximum age limit for making a Roth IRA
contribution. Attainment of age 70 1/2 does not prevent you from contributing to
a Roth IRA.
APRIL 15 FUNDING DEADLINE. Contributions to a Roth IRA for the previous tax
year must be made by the tax-filing deadline (not including extensions) for
filing your federal income tax return. If you are a calendar-year taxpayer, your
deadline is usually April 15. If April 15 falls on a Saturday, Sunday, or legal
holiday, the deadline is the following business day.
LOWER CONTRIBUTION LIMITS. To determine the maximum contribution to a Roth
IRA if your AGI is between $95,000 and $110,000 (between $150,000 and $160,000
if married, filing jointly or between $0 and $10,000 if married, filing
separately), the following steps must be taken:
(a) Subtract your AGI from $110,000 ($160,000 if married, filing jointly;
$10,000 if married, filing separately).
(b) Multiply the result in Step `a' by .1333 (.20 if married).
(c) If the result in Step `b' is not a multiple of $10, round up to the
next multiple of $10.
(d) The result in Step `c' is your allowable contribution limit. If it is
more than $0, but less that $200, your allowable contribution limit is
$200.
INDIVIDUALS NOT ELIGIBLE TO MAKE CONTRIBUTIONS. If you are a single
taxpayer and your AGI is $110,000 or above ($160,000 or above if married and
filing jointly, or $10,000 or above if married and filing separately), you are
not permitted to make a Roth IRA contribution for the year. For this purpose, a
deductible Traditional IRA contribution is not allowed as a deduction in
computing AGI, and any amount of a rollover-conversion from a Traditional IRA to
a Roth IRA is not taken into account. Whether an individual, or his spouse, is
an active participant in an employer retirement plan is irrelevant for
determining whether he may make a Roth contribution.
<PAGE>
EXCESS ROTH CONTRIBUTIONS. Excess contributions to a Roth IRA are subject
to a 6% penalty tax unless removed (along with attributable earnings) by your
tax-filing deadline (plus extensions). An excess contribution could occur for
many reasons including, for example, if you contribute more than $2,000 or 100%
of earned income, or if you are not permitted to make a Roth contribution
because your AGI is too high.
CONVERSION OF TRADITIONAL CONTRIBUTIONS TO ROTH CONTRIBUTIONS. Generally,
if you make a contribution to a Traditional IRA, you may transfer the
contribution plus attributable earnings to a Roth IRA by your tax-filing
deadline (not including extensions). The transferred contribution amount is not
taxable if no deduction was allowed for the contribution. Such a contribution is
treated as a Roth IRA contribution.
ROLLING OVER/CONVERTING TRADITIONAL IRAS TO ROTH IRAS
You are allowed to roll over, transfer, or "convert" your Traditional IRAs
to Roth IRAs beginning in 1998. Regardless of whether a Traditional IRA is
rolled over/converted to a Roth IRA in 1998 or afterwards, the
rollover/conversion amount is subject to federal income taxation (but no 10%
penalty tax).
$100,000 AGI LIMIT FOR ROLLOVER. If you are a single taxpayer, or a married
individual who files jointly, you may roll over, transfer, or convert your
Traditional IRAs to Roth IRAs if your AGI is $100,000 or less. If you are a
single taxpayer (or a married individual who files jointly) with AGI of more
than $100,000 you may not roll over, transfer, or convert your Traditional IRAs
to Roth IRAs. Also, if you are a taxpayer who is married, but files separately,
you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs
regardless of AGI.
ROLLOVER/CONVERSION IN 1998. If you roll over a Traditional IRA
distribution received after 1998 to a Roth IRA, the taxable portion of the
Traditional IRA distribution is included in your income ratably over a four-year
period starting with 1998 (i.e., the amount included in gross income is spread
evenly over four years beginning with 1998), but the amount is not subject to
the IRS 10% early distribution penalty.
ROLLOVER/CONVERSION AFTER 1998. If you roll over a Traditional IRA
distribution received after 1998, to a Roth IRA the taxable portion of the
Traditional IRA distribution is included in your income for the year in which
the Traditional IRA distribution is received, but the amount is not subject to
the IRS 10% early distribution penalty. No special tax treatments apply.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. 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
<PAGE>
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. For the period from the Fund's inception on
September 2, 1997 through December 31, 1997, total payments to Mutual Funds
Service Co. from the Fund amounted to $15,515.
General Counsel for the Manager performed substantially all of the legal
services in connection with the organization and registration of the Fund with
the Securities and Exchange Commission. The Fund paid the Manager $25,415 for
these legal services.
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.
<PAGE>
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.
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.
AUDITORS. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio
43215, serves as the trust's independent auditors. The auditors audit financial
statements for the Fund and provide other assurance, tax, and related services.
FINANCIAL STATEMENTS
The financial statements for the Fund are presented on the following pages.
<PAGE>
MUTUAL FUND PORTFOLIO
Portfolio of Investments as of December 31, 1997
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 9.0%
AEROSPACE/DEFENSE - 0.5%
Boeing Co. 7,000 $342,563
United Technologies Corp. 7,000 509,687
=======
852,250
-------
ALUMINUM - 0.3%
Aluminum Company of America 7,000 492,625
AUTO AND TRUCK - 0.3%
General Motors Corp. 7,000 424,375
BANKING - 0.5%
J.P. Morgan & Co. 7,000 790,125
BEVERAGE -- SOFT DRINK -0.3%
Coca-Cola Co. 7,000 466,375
CHEMICAL -- DIVERSIFIED - 0.5%
E.I. du Pont de Nemours & Co. 7,000 420,438
Union Carbide Corp. 7,000 300,562
=======
721,000
-------
COMPUTERS & PERIPHERALS - 0.5%
IBM 7,000 731,937
Raytheon Co. - Class A 446 22,013
======
753,950
-------
CONSUMER NON-DURABLE -0.4%
Proctor & Gamble Co. 7,000 558,687
DIVERSIFIED - 0.5%
Allied-Signal, Inc. 7,000 272,562
Minnesota Mining & Manufacturing Co. 7,000 574,438
=======
847,000
-------
DRUG - 0.5%
Merck & Co., Inc. 7,000 743,750
ELECTRICAL EQUIPMENT - 0.3%
General Electric Corp. 7,000 513,625
FINANCIAL SERVICES - 0.4%
American Express Co. 7,000 624,750
HEALTH - 0.3%
Johnson & Johnson 7,000 461,125
INSURANCE - MULTILINE - 0.2%
Travelers Group, Inc. 7,000 377,125
MACHINERY -- CONSTRUCTION & MINING - 0.2%
Caterpillar, Inc. 7,000 339,937
MULTIMEDIA - 0.5%
Walt Disney Co. 7,000 693,438
OFFICE AUTOMATION & EQUIPMENT - 0.3%
Hewlett Packard 7,000 437,500
OIL/GAS -- INTERNATIONAL - 0.6%
Chevron Corp. 7,000 539,000
Exxon Corp. 7,000 428,312
=======
967,312
-------
PAPER & FOREST PRODUCTS - 0.2%
International Paper 7,000 301,875
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 0.3%
Eastman Kodak Co. 7,000 425,688
RESTAURANT - 0.2%
McDonald's Corp. 7,000 334,250
RETAIL STORE - 0.4%
Sears, Roebuck & Co. 7,000 316,750
WalMart Stores, Inc. 7,000 276,062
=======
592,812
-------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 0.3%
AT&T 7,000 428,750
TIRE & RUBBER - 0.3%
Goodyear Tire & Rubber 7,000 445,375
TOBACCO - 0.2%
Philip Morris Companies, Inc. 7,000 317,188
================================================================================
TOTAL COMMON STOCKS
(Cost $13,792,981 ) 13,910,887
- --------------------------------------------------------------------------------
MUTUAL FUNDS - 70.1%
Aim Constellation Fund 94 $2,467
Aim Weingarten Equity Fund 116 2,307
Federated S&P 500 Maxcap Fund 256,148 5,181,865
Federated Stock Trust Fund 201,166 7,058,906
Fidelity Growth & Income Fund 133,547 5,088,141
Fidelity Mid Cap Fund 400,450 6,683,512
Mutual Shares Fund 321 6,840
Neuberger & Berman Focus Trust Fund 7,406 151,231
Neuberger & Berman Partners Fund 49,971 1,314,226
Oppenheimer Quest Growth Fund 76,805 1,018,433
PBHG Growth Fund 624 15,849
Safeco Growth Fund 451,746 10,141,688
SteinRoe Young Investor Fund 43,783 1,019,702
Strong American Utility Fund 135,593 2,009,492
T. Rowe Price New Era Fund 147 3,820
T. Rowe Price New Horizons Fund 155 3,608
Vontobel U.S. Value Fund 61,162 1,009,786
Wasatch Micro-Cap Fund 151,876 571,055
================================================================================
TOTAL MUTUAL FUNDS
(Cost $42,109,119 ) 41,282,928
- --------------------------------------------------------------------------------
MONEY MARKET MUTUAL FUNDS - 70.1%
Charles Schwab Money Market Fund 15,369,715 15,369,715
Fidelity Core Money Market Fund 51,302,044 51,302,044
================================================================================
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $66,671,759 ) 66,671,759
- --------------------------------------------------------------------------------
U.S.TREASURY BILLS - 1.0%
** 5.27%, due 01/08/98 30,100 30,069
* 5.10%, due 03/05/98 $1,500,000 1,486,267
================================================================================
TOTAL U.S. TREASURY BILLS
(Cost $1,516,681 ) 1,516,336
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 8.4%
Merrill Lynch, 6.80%, 1/2/98,
(Collateralized by $13,165,000
Florida Power Corp. Commercial
Paper, 0.00%, 1/30/98, market
value - $13,165,000) 12,968,000 12,968,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $12,968,000 ) 12,968,000
- --------------------------------------------------------------------------------
OPTIONS PURCHASED - 11.5%
CALL OPTIONS
S&P 500 Index futures contract expiring
January 16, 1998 at 960 4,000 8,800,000
PUT OPTIONS
S&P 500 Index futures contract expiring
January 16, 1998 at 980 4,000 8,800,000
================================================================================
TOTAL OPTIONS PURCHASED
(Cost $27,378,320 ) 17,600,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $164,436,860) $153,949,910
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
Long, Midcap 400 Futures, face amount
$3,612,350 expiring March 1998. 22 3,686,650
Long, S&P 500 Futures, face amount
$21,452,550 expiring March 1998. 88 $21,540,200
================================================================================
TOTAL FUTURES CONTRACTS $25,226,850
- --------------------------------------------------------------------------------
WRITTEN OPTIONS OUTSTANDING AS OF DECEMBER 31, 1997.
CALL OPTIONS
S&P 500 Index futures contracts expiring
January 16, 1998 at 980 (4,000) (4,604,000)
PUT OPTIONS
S&P 500 Index futures contracts expiring
January 16, 1998 at 960 (4,000) (5,000,000)
================================================================================
TOTAL OPTIONS WRITTEN
(Proceeds $19,383,673 ) ($9,604,000)
- --------------------------------------------------------------------------------
* Pledged as collateral on futures contracts.
** Pledged as collateral on Letter of Credit.
See accompanying notes to financial statements.
<PAGE>
UTILITIES STOCK PORTFOLIO
Portfolio of Investments as of December 31, 1997
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 97.1%
DIVERSIFIED UTILITY - 1.2%
Citizens Utilities Co.--Class B # 13,808 $132,899
ELECTRIC/GAS UTILITY - 10.7%
AGL Resources, Inc. 16,100 329,044
MDU Resources Group, Inc. 6,000 189,750
NIPSCO Industries, Inc. 4,700 232,356
UtiliCorp United, Inc. 10,000 388,125
=========
1,139,275
---------
ELECTRIC UTILITY - 16.1%
Cinergy Corp. 7,800 298,838
IPALCO Enterprises, Inc. 5,900 247,431
KU Energy Corp. 3,200 125,600
LG&E Energy Corp. 8,600 212,850
New Century Energies, Inc. 5,600 268,450
PacifiCorp 9,800 267,662
TECO Energy, Inc. 10,400 292,500
=========
1,713,331
---------
ENERGY - 2.2%
CalEnergy Co., Inc. # 8,000 230,000
NATURAL GAS (DISTRIBUTOR) - 19.1%
Bay State Gas Co. 11,100 412,088
Consolidated Natural Gas Co. 3,800 229,900
KeySpan Energy Corp. 10,900 401,256
MCN Corp. 6,000 242,250
Pacific Enterprises 6,800 255,850
TransCanada Pipelines Ltd. 8,100 181,237
UGI Corp. 1,900 55,694
WICOR, Inc. 5,600 260,050
=========
2,038,325
---------
OIL/GAS (DOMESTIC) - 5.4%
El Paso Natural Gas Co. 4,220 280,630
Questar Corp. 5,100 227,588
Santa Fe Pacific Pipeline Partners, L.P. 1,600 73,200
=======
581,418
-------
TELECOMMUNICATION EQUIPMENT - 5.3%
Andrew Corp. # 10,000 240,000
QUALCOMM, Inc. # 6,520 329,260
=======
569,260
-------
TELECOMMUNICATION SERVICES - 33.3%
AirTouch Communications, Inc. # 5,400 224,437
Alltel Corp. 7,900 324,394
Bell Atlantic Corp. 2,300 209,300
Frontier Corp. 19,300 464,406
GTE Corp. 5,000 261,250
LCI International, Inc. # 15,000 461,250
MCI Communications Corp. 10,000 428,125
Sprint Corp. 4,300 252,088
Tele Denmark A/S - Sponsored ADR 4,900 150,981
Telecom New Zealand - ADR 5,000 193,750
Telefonica de Espana 3,460 315,076
U.S. West Communications Group 5,900 266,238
=========
3,551,295
---------
WATER UTILITY - 3.8%
American Water Works Co., Inc. 14,900 406,956
================================================================================
TOTAL COMMON STOCKS
(Cost $8,095,774 ) 10,362,759
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS - 0.0%
* 5.27%, due 01/08/98 1,000 1,000
================================================================================
TOTAL U.S. TREASURY BILLS
(Cost $1,000 ) 1,000
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 2.9%
Merrill Lynch, 6.80%, 1/2/98, (Collateralized
by $309,000 Florida Power Corp. Commercial
Paper, 0.00%, 1/30/98, market value - $309,000) 304,000 304,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $304,000 ) 304,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $8,400,774 ) $10,667,759
- --------------------------------------------------------------------------------
* Pledged as collateral on Letter of Credit.
# Represents non-income producing securities.
See accompanying notes to financial statements.
<PAGE>
GROWTH STOCK PORTFOLIO
Portfolio of Investments as of December 31, 1997
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 97.7%
AEROSPACE/DEFENSE - 1.5%
Boeing Co. 819 $ 40,080
General Dynamics Corp. 730 63,099
Gulfstream Aerospace Corp. # 520 15,210
Lockheed Martin Corp. 980 96,530
Northrup Grumman Corp. 535 61,525
Raytheon Co. - Class B # 1,390 70,195
Textron, Inc. 1,060 66,250
Thiokol Corp. 450 36,563
United Technologies Corp. 740 53,881
=======
503,333
-------
AIR TRANSPORTATION - 0.4%
AMR Corp. # 445 57,183
Delta Air Lines, Inc. 175 20,825
Southwest Airlines 1,050 25,856
USAir Group # 410 25,625
=======
129,489
-------
ALUMINUM - 0.2%
Aluminum Company of America 860 60,523
AUTO & TRUCK - 1.8%
Chrysler Corp. 2,900 102,044
Ford Motor Co. 5,900 287,256
General Motors Corp. 3,100 187,938
Meritor Automotive, Inc. 279 5,876
Paccar, Inc. 218 11,445
TRW, Inc. 375 20,016
=======
614,575
-------
BANKING - 0.5%
J.P. Morgan & Co. 1,000 112,875
Washington Mutual Savings Bank 1,170 74,661
=======
187,536
-------
BEVERAGE--ALCOHOLIC - 0.8%
Canadaigua Wine Co. # 5,200 287,950
BEVERAGE--SOFT DRINK - 2.1%
Coca-Cola Co. 8,800 586,300
Pepsico, Inc. 3,000 109,313
=======
695,613
-------
BUILDING MATERIALS - 0.3%
Crane Co. 280 12,145
Masco Corp. 1,075 54,691
Willbros Group # 1,600 24,000
======
90,836
------
CAPITAL GOODS - 0.2%
Cooper Industries 345 16,905
Eaton Corp. 217 19,367
Ingersoll-Rand 478 19,359
======
55,631
------
CHEMICAL--DIVERSIFIED - 2.0%
Air Products & Chemicals, Inc. 535 44,004
Dow Chemical Co. 995 100,993
E.I. du Pont de Nemours & Co. 5,230 314,127
Monsanto Corp. 2,840 119,280
Praxair, Inc. 1,000 45,000
Rohm & Haas Co. 335 32,076
Union Carbide Corp. 460 19,751
=======
675,231
-------
CHEMICAL--SPECIALTY - 0.1%
Sigma Aldrich 440 17,490
W.R. Grace & Co. 410 32,979
======
50,469
------
COMMERCIAL SERVICES - 0.1%
Dun & Bradstreet 1,110 34,341
COMPUTERS & PERIPHERALS - 2.3%
Compaq Computer Corp. 1,905 107,513
Dell Computer Corp. # 1,600 134,400
EMC Corp./Mass # 5,150 141,303
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
IBM 3,395 354,990
Raytheon Co. - Class A 198 9,748
Sun Microsystems # 900 35,888
=======
783,842
-------
COMPUTER SOFTWARE & SERVICES - 4.8%
America Online, Inc. # 520 46,377
Cambridge Technologies Partners, Inc. # 970 40,376
Ceridian Co. # 2,850 130,566
Citrix Systems, Inc. # 380 28,880
Computer Associates International, Inc. 3,255 172,108
Computer Sciences Corp. # 980 81,830
First Data Corp. 2,220 64,935
Manugistics Group, Inc. # 690 30,791
Microsoft Corp. # 4,757 614,842
National Data Corp. 540 19,508
Network Associates, Inc. # 600 31,725
Orcale Corp. # 3,500 78,094
Peoplesoft, Inc. # 2,510 97,890
Sterling Commerce, Inc. # 1,600 61,500
Sungard Data Systems, Inc. # 3,190 98,890
Wind River Systems # 350 13,891
=========
1,612,203
---------
COMPUTER SYSTEMS - 0.1%
Visio Corp. # 690 26,479
CONSUMER DURABLES - 0.4%
Snap-On, Inc. 1,600 69,800
Sunbeam Corp. 1,600 67,400
=======
137,200
-------
CONSUMER NON-DURABLE - 3.8%
Chattem, Inc. # 8,700 128,325
Colgate Palmolive 2,000 147,000
EKCO Group # 11,400 88,350
Haggar Corp. 12,800 201,600
Procter & Gamble Co. 5,800 462,912
RJR Nabisco Holdings Corp. 1,600 60,000
Tupperware Corp. 7,200 200,700
=========
1,288,887
---------
CONTAINERS--PAPER & PLASTIC - 0.5%
First Brands Corp. 4,500 121,219
Sealed Air Corp. # 700 43,225
=======
164,444
-------
COPPER - 0.0%
Phelps Dodge Corp. 240 14,940
COSMETICS - 1.0%
Avon Products, Inc. 1,700 104,444
Estee Lauder Co. 4,600 235,472
=======
339,916
-------
DATA PROCESSING - 0.2%
I2 Technologies, Inc. # 1,040 54,860
DIVERSIFIED - 2.9%
Allied Signal, Inc. 2,080 80,990
Corning, Inc. 740 27,472
FMC Corp. # 859 57,821
Minnesota Mining & Manufacturing Co. 610 50,058
National Service Industries 430 21,312
Norfolk Southern Corp. 1,830 56,387
PPG Industries, Inc. 890 50,841
Ralston Purina 1,000 92,938
Raychem Corp. 540 23,254
Tenneco 615 24,292
Tyco International 1,140 51,371
Westinghouse Electric 9,500 279,656
Whitman Corp. 6,500 169,406
=======
985,798
-------
DRUG - 7.2%
Abbott Labs 3,432 225,011
Bristol Myers Squibb 4,443 420,419
Eli Lilly & Co. 4,916 342,276
Merck & Co., Inc. 5,425 576,406
Pfizer, Inc. 5,714 426,050
Pharmacia & Upjohn 2,213 81,051
Schering Plough Corp. 3,524 218,929
Warner Lambert Co. 1,221 151,404
=========
2,441,546
---------
DRUGSTORE - 0.2%
Longs Drug Stores 2,000 64,250
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
ELECTRIC--INTEGRATED - 0.9%
FPL Group, Inc. 840 49,718
Houston Industries, Inc. 1,600 42,700
Texas Utilities Co. 2,810 116,791
Unicom Corp. 3,270 100,552
=======
309,761
-------
ELECTRIC PRODUCTION - 0.1%
Sundstrand Corp. 820 41,307
ELECTRIC UTILITY - 0.7%
American Electric Power, Inc. 1,250 64,531
Duke Power Co. 1,640 90,815
Southern Co. 2,690 69,604
=======
224,950
-------
ELECTRICAL EQUIPMENT - 3.5%
General Electric Corp. 15,742 1,155,069
Thomas & Betts 350 16,581
=========
1,171,650
---------
ELECTRONIC COMPONENT SEMICONDUCTORS - 1.5%
Analog Devices # 1,000 27,688
Intel 4,370 306,992
KLA -Tencor Corp. # 430 16,609
Linear Tech Corp. 490 28,236
Maxim Integrated Products, Inc. # 1,600 55,200
Motorola, Inc. 930 53,068
Texas Instruments, Inc. 620 27,900
=======
515,693
-------
ELECTRONIC COMPONENTS - 0.3%
Emerson Electric 1,905 107,513
ELECTRONICS - 0.1%
Rockwell International Corp. 840 43,890
ENERGY - 0.1%
Western Atlas # 700 51,800
FINANCE - 9.4%
Banc One Corp. 3,000 162,938
Bank of Boston Corp. 800 75,150
Bankers Trust New York Co. 600 67,462
Barnett Banks, Inc. 1,200 86,250
Chase Manhattan Corp. 3,300 361,350
Citicorp 2,300 290,806
Corestates Financial 1,000 80,063
Equifax, Inc. 1,070 37,918
Federal Home Loan Mortgage Corp. 3,100 130,006
Federal National Mortgage Corp. 2,300 131,244
First Chicago NBD Corp. 1,700 141,950
First Union Corp. 3,800 194,750
Firstplus Financial Group # 4,600 176,525
Fleet Financial Group, Inc. 1,200 89,925
KeyCorp 1,400 99,137
Lehman Brothers Holdings, Inc. 1,300 66,300
Mellon Bank Corp. 1,000 60,625
Merrill Lynch & Co. 600 43,763
NationsBank Corp. 3,800 231,087
Norwest Corp. 6,200 239,475
PNC Bank Corp. 2,400 136,950
Ryder Systems, Inc. 370 12,118
SunTrust Banks, Inc. 900 64,237
Wells Fargo & Co. 600 203,663
=========
3,183,692
---------
FINANCIAL SERVICES - 2.2%
American Express Co. 1,500 133,875
Associates First Capital 1,900 135,137
Avery Dennison Corp. 720 32,220
BankAmerica Corp. 4,400 321,200
HF Ahmanson & Co. 800 53,550
Nationwide Financial Services - Class A 1,900 68,638
=======
744,620
-------
FOOD DIVERSIFIED - 2.4%
CPC International 1,800 193,950
General Mills 3,200 229,200
IBP, Inc. 11,000 230,606
International Home Foods # 1,900 53,200
Kellogg Co. 1,800 89,325
=======
796,281
-------
FOOD WHOLESALER - 0.3%
Nabisco 2,400 116,250
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
FOREST PRODUCTS - 0.3%
Georgia Pacific Corp. 430 26,122
Timber Group # 430 9,756
Weyerhauser Co. 1,010 49,553
Willamette Industries, Inc. 640 20,600
=======
106,031
-------
HEALTH - 1.9%
Allergan, Inc. 283 9,498
American Home Products 2,701 206,627
Humana, Inc. # 751 15,583
Johnson & Johnson 6,062 399,334
=======
631,042
-------
INSTRUMENTS--CONTROLS - 0.2%
Honeywell, Inc. 650 44,525
Johnson Controls, Inc. 237 11,317
Parker Hannifin Corp. 315 14,451
======
70,293
------
INSTRUMENTS--SCIENTIFIC - 0.0%
Perkin Elmer Corp. 50 3,553
INSURANCE--LIFE - 0.6%
American Heritage Life Investment Co. 1,000 36,000
AmerUs Life Holdings, Inc. 4,841 178,522
=======
214,522
-------
INSURANCE--MULTILINE - 3.3%
Allstate 1,800 163,575
American International Group 2,250 244,687
Conseco, Inc. 5,700 258,994
Leucadia National 1,600 55,200
PAULA Financial # 5,000 115,000
Travelers Group, Inc. 5,347 288,070
=========
1,125,526
---------
LASERS--SYSTEMS & COMPONENTS - 0.2%
Uniphase Corp. # 1,680 69,510
MACHINE TOOL - 0.2%
Cincinnati Milacron 2,471 64,100
MACHINERY - 0.4%
Deere & Co. 981 57,205
Dover Corp. 608 21,964
Lancer Corp. # 4,100 45,100
W.W. Grainger 146 14,189
=======
138,458
-------
MACHINERY--CONSTRUCTION & MINING - 0.6%
Case Corp. 211 12,752
Caterpillar, Inc. 1,581 76,777
Halliburton Co. 1,000 51,938
Harnischfeger Industries 1,990 70,272
=======
211,739
-------
MANUFACTURING - 0.8%
Black & Decker 2,400 93,750
Mueller Industries, Inc. # 750 44,250
Owens Illinois # 670 25,418
Samsonite Corp. # 3,100 102,516
=======
265,934
-------
MATERIALS & SERVICES - 0.8%
Champion International Corp. 425 19,258
Dana Corp. 370 17,575
Deluxe Corp. 300 10,350
Hercules, Inc. 570 28,536
Illinois Tool Works, Inc. 1,270 76,359
Service Corp. International 1,650 60,947
Sherwin-Williams Co. 920 25,530
Waste Management, Inc. 990 27,225
=======
265,780
-------
MEDICAL SERVICES - 1.0%
Amgen, Inc. # 1,159 62,731
Beverly Enterprise # 445 5,785
Columbia/HCA Healthcare Corp. 2,897 85,824
HBO & Co. 1,010 48,480
Healthsouth Rehab # 1,321 36,658
Manor Care, Inc. 264 9,240
Shared Medical Systems 420 27,720
Tenet Healthcare # 1,371 45,414
=======
321,852
-------
MEDICAL SUPPLIES - 1.1%
Alza Corp. # 389 12,375
BIOMET 471 12,069
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
Bausch & Lomb, Inc. 249 9,867
Baxter International, Inc. 1,237 62,391
Becton Dickinson 545 27,250
Boston Scientific Co. # 855 39,223
Cardinal Health, Inc. 150 11,269
CR Bard, Inc. 250 7,828
Guidant Corp. 662 41,209
Mallinckrodt, Inc. 331 12,578
Medtronic, Inc. 2,240 117,180
St. Jude Medical, Inc. # 347 10,584
U.S. Surgical 311 9,116
=======
372,939
-------
MEDICAL--HMO - 0.1%
United Healthcare Co. 836 41,539
METAL--DIVERSIFIED - 0.0%
Inco LTD 610 10,370
MINING - 0.1%
Tubos de Acero de Mexico SA # 2,100 45,412
MULTIMEDIA - 0.2%
Walt Disney Co. 800 79,250
NATURAL GAS DISTRIBUTOR - 0.1%
Williams Companies, Inc. 1,400 39,725
NETWORKING PRODUCTS - 1.0%
3Com Corp. # 1,060 37,034
Cisco Systems, Inc. # 5,205 290,179
=======
327,213
-------
OFFICE AUTOMATION & EQUIPMENT - 1.4%
Hewlett Packard 4,610 288,125
Pitney Bowes, Inc. 900 80,944
Xerox Corp. 1,300 95,956
=======
465,025
-------
OIL/GAS--DOMESTIC - 2.5%
Amoco Corp. 2,200 187,275
Apache Corp. 200 7,012
Atlantic Richfield 1,200 96,150
Baker Hughes 1,100 47,988
Burlington Resources 900 40,331
Chieftan International # 1,000 20,250
Devon Energy 700 26,819
Enron Corp. 400 16,625
Mitchell Energy & Development - Class B 1,500 43,687
Mobil Corp. 3,000 216,563
Murphy Oil Corp. 400 21,675
Noble Drilling Co. # 1,400 42,875
Sonat, Inc. 500 22,875
USX Marathon Group 1,900 64,125
=======
854,250
-------
OIL/GAS--INTERNATIONAL - 2.5%
Chevron Corp. 2,500 192,500
Exxon Corp. 10,600 648,588
=======
841,088
-------
OILFIELD SERVICES/EQUIPMENT - 1.1%
Dresser Industries 500 20,969
Enron Exchangeable Notes 1,000 20,625
Schlumberger LTD 2,200 177,100
Union Pacific Resources 800 19,400
Union Texas Petroleum Holdings 1,100 22,894
United Meridian Co. # 1,300 36,562
Veritas DGC, Inc. # 800 31,600
Weatherford Enterra # 800 35,000
=======
364,150
-------
OIL & NATURAL GAS - 0.1%
Amerada Hess 500 27,438
PAPER & FOREST PRODUCTS - 0.5%
Bemis Co., Inc. 310 13,659
Bowater, Inc. 220 9,776
Fort James Corp. 785 30,026
International Paper 1,485 64,041
Mead Corp. 720 20,160
Union Camp Corp. 450 24,159
=======
161,821
-------
PETROLEUM--INTEGRATED - 2.1%
Occidental Petroleum Corp. 400 11,725
Phillips Petroleum 1,500 72,937
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
Royal Dutch Petroleum 8,900 482,269
Texaco 2,000 108,750
Unocal Corp. 1,000 38,813
=======
714,494
-------
PHARMACEUTICAL - 0.0%
PharMerica, Inc. # 202 2,096
PROTECTION--SAFETY EQUIPMENT - 0.9%
Lo-Jack Corp. # 20,000 295,000
RAILROAD TRANSPORTATION - 0.4%
Burlington Northern Santa Fe 740 68,774
Union Pacific Corp. 1,210 75,549
=======
144,323
-------
RECREATION - 0.2%
Polaris Industries 2,000 61,125
RECYCLING - 0.1%
Philip Services Corp. # 2,070 29,756
RESTAURANT - 0.4%
McDonald's Corp. 3,000 143,250
RETAIL GROCERY - 0.4%
Albertsons, Inc. 2,500 118,437
RETAIL STORE - 2.7%
Dillard Department Stores 1,300 45,825
Kmart # 16,700 193,094
OfficeMax # 8,000 114,000
Sears, Roebuck & Co. 4,000 181,000
Toys "R" Us, Inc. # 1,500 47,156
WalMart Stores, Inc. 8,000 315,500
=======
896,575
-------
SERVICES - 0.4%
Automatic Data Processing, Inc. 1,540 94,518
Paychex, Inc. 525 26,578
=======
121,096
-------
STEEL--INTEGRATED - 0.0%
Nucor Corp. 320 15,460
TELECOMMUNICATION EQUIPMENT - 0.8%
Advanced Fibre Communication, Inc. # 410 11,941
General Signal Corp. 1,567 63,659
Newbridge Networks Corp. # 3,170 110,554
Nokia Corp. - Sponsored ADR - Class A 750 52,406
Northern Telecom LTD 295 26,255
=======
264,815
-------
TELECOMMUNICATION SERVICES - 9.1%
Airtouch Communications # 7,630 317,122
Ameritech Corp. 2,540 204,470
AT&T 7,520 460,600
BellSouth Corp. 4,260 239,891
British Telecom plc 3,860 310,006
Cia de Telecomunicaciones de Chile - Sponsore 1,870 55,866
DSC Communications # 620 14,880
Frontier Corp. 2,880 69,300
GTE Corp. 4,420 230,945
LCI International, Inc. # 3,500 107,625
Lucent Technologies, Inc. 3,645 291,144
MCI Communication 3,070 131,434
SBC Communications 4,100 300,325
Sprint Corp. 1,620 94,972
Telefonaktiebolaget LM Ericsson - ADR 400 14,925
Tellabs, Inc. # 950 50,231
U.S. West, Inc. 1,470 66,334
Worldcom, Inc. # 4,280 129,470
=========
3,089,540
---------
TOBACCO - 3.3%
Gallaher Group, plc - ADR 11,400 243,675
Imperial Tobacco 4,900 60,025
Philip Morris Companies 13,200 598,125
UST, Inc. 5,600 206,850
=========
1,108,675
---------
TOYS - 0.3%
Hasbro Bradley, Inc. 3,700 116,550
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
TRANSPORTATION - 0.2%
Alaska Air Group # 530 20,538
Caliber Systems, Inc. 190 9,251
Federal Express Corp. # 530 32,363
======
62,152
------
TRUCKING/TRANSPORTATION LEASING - 0.2%
CSX, Corp. 1,027 55,458
WASTE DISPOSAL--NON-HAZARDOUS - 0.3%
Browning Ferris Industries, Inc. 1,180 43,660
USA Waste Services, Inc. # 1,398 54,871
======
98,531
------
================================================================================
TOTAL COMMON STOCKS
(Cost $27,190,038 ) 33,063,192
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 0.9%
U.S. Treasury Bills
** 5.27%, 01/08/98 6,000 5,994
* 5.10%, 03/05/98 300,000 297,254
================================================================================
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $303,317 ) 303,248
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 1.4%
Merrill Lynch, 6.80%, 1/2/98, (Collateralized
by $470,000 Florida Power Corp. Commercial
Paper, 0.00%, 1/30/98, market value - $470,000) 463,000 463,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $463,000 ) 463,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $27,956,355 ) $33,829,440
- --------------------------------------------------------------------------------
================================================================================
FUTURES CONTRACTS
Long, S&P 500 Futures, face amount $1,711,037
expiring March 1998. 7 $1,713,425
- --------------------------------------------------------------------------------
================================================================================
TOTAL FUTURES CONTRACTS $1,713,425
- --------------------------------------------------------------------------------
* Pledged $300,000 face amount as collateral on futures contracts.
** Pledged $6,000 face amount as collateral on Letter of Credit.
# Represents non-income producing securities.
See accompanying notes to financial statements.
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
Portfolio of Investments as of December 31, 1997
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS - 91.9%
AEROSPACE/DEFENSE - 0.3%
British Aerospace plc 1,246 $ 35,697
AGRICULTURE & FOOD - 0.1%
Kuala Lumpur Kepong Bhd 4,000 8,581
AIR TRANSPORT - 0.4%
British Airways plc 1,262 12,387
KLM Royal Dutch Airlines NV 850 31,447
Singapore Airlines Ltd. 1,000 6,529
======
50,363
------
APPAREL - 1.6%
Adidas AG 600 78,954
Alexon Group plc # 8,204 36,045
Ittierre Holding SpA # 25,000 74,802
Onward Kashiyama Co., Ltd. 1,000 11,614
=======
201,415
-------
AUTO & TRUCK - 2.3%
Daimler - Benz AG 910 63,872
Honda Motor Co., Ltd. 1,000 36,840
Perusahaan Otomobil Nasional Bhd 3,000 2,929
Toyota Motor Corp. 6,000 172,587
=======
276,228
-------
AUTOPARTS -- REPLACEMENT - 0.5%
Betrand Faure SA 540 38,410
Denso Corp. 1,000 18,074
======
56,484
------
BANKING - 14.8%
Abbey National plc 1,259 21,733
Asahi Bank Ltd. 4,000 16,305
Australia & New Zealand Banking Group Ltd. 6,200 40,964
Banca di Roma # 82,400 83,192
Bank of Scotland 6,020 54,583
Bank of Tokyo-Mitsubishi Ltd. 6,000 83,064
Banque Nationale de Paris 920 48,922
Barclays plc 2,206 58,626
Corporacion Bancaria de Espana SA 1,000 60,821
Credit Suisse Group 500 77,477
Dai-Ichi Kangyo Bank Ltd. 4,000 23,688
Dao Heng Bank Group Ltd. 2,500 6,243
Den Danske Bank 400 53,336
Den Norske Bank ASA 18,000 84,969
Deutsche Bank AG 1,840 129,967
Development Bank of Singapore Ltd. 1,000 8,546
Erste Bank Der Oesterreichischen Sparkassen AG 1,550 75,351
HSBC Holdings plc 1,200 29,581
HSBC Holdings plc 3,063 79,183
Halifax plc # 2,670 33,194
Hang Seng Bank Ltd. 2,000 19,295
ING Groep NV 1,450 61,084
Industrial Bank of Japan Ltd. 3,000 21,458
Malayan Banking Bhd 1,000 2,903
Mitsubishi Trust & Banking Corp. 3,000 30,226
National Australia Bank Ltd. 2,560 35,747
National Westminster Bank plc 1,525 25,333
Northern Rock plc # 500 4,904
Overseas-Chinese Banking Corp., Ltd. 1,000 5,816
Royal Bank of Scotland Group plc 1,261 16,144
Sanwa Bank Ltd. 2,000 20,304
Schroders plc 650 20,055
Schweizerischer Bankverein 275 85,602
Societe Generale 385 52,478
Standard Chartered plc 1,228 14,044
Sumitomo Bank Ltd. 5,000 57,298
Sumitomo Trust & Banking Corp. 6,000 31,287
Svenska Handelsbanken 3,710 128,353
Tokai Bank Ltd. 7,000 32,733
Union Bank of Switzerland 35 50,682
United Overseas Bank Ltd. 1,000 5,549
Woolwich plc 2,266 11,969
=========
1,803,009
---------
BEVERAGE -- ALCOHOLIC - 0.8%
Allied Domecq plc 1,746 15,802
Diageo plc 3,105 28,536
Pernod Ricard 900 52,961
======
97,299
------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
BROADCASTING -- CABLE TV - 0.7%
British Sky Broadcasting Group plc 4,057 30,309
Carlton Communications plc 1,415 10,897
Flextech plc # 2,390 20,726
Reuters Holdings plc 1,871 20,582
======
82,514
------
BROADCASTING & PUBLISHING - 0.1%
News Corporation Ltd. 2,000 11,038
BUILDING & CONSTRUCTION - 2.2%
Berkeley Group plc 1,994 20,426
Blue Circle Industries plc 904 5,292
Compagnie de Saint Gobain 280 39,795
Grupo Acciona Sa 250 40,777
New World Infrastructure Ltd. # 5,000 11,261
Obayashi Corp. 14,000 47,808
RMC Group plc 620 8,754
Suez Lyonnaise des Eaux 840 92,995
Taisie Corp. 4,000 6,584
=======
273,692
-------
BUILDING MATERIALS - 0.1%
Pioneer International Ltd. 2,200 6,006
Wolseley plc 1,216 9,665
======
15,671
------
CHEMICALS - 0.9%
Akzo Nobel NV 180 31,042
Bayer AG 1,140 42,607
Shin-Etsu Chemical Co., Ltd. 2,000 38,302
=======
111,951
-------
CHEMICALS -- DIVERSIFIED - 1.0%
BOC Group plc 3,100 51,344
Henkel KGaA 1,200 75,751
=======
127,095
-------
COMPUTERS & PERIPHERALS - 1.0%
Fujitsu Ltd. 5,000 53,837
NEC Corp. 6,000 64,143
=======
117,980
-------
CONSUMER DURABLES - 0.2%
Unilever plc 3,124 26,809
CONTAINERS -- PAPER & PLASTIC - 0.1%
Britton Group plc 6,915 15,760
COSMETICS - 0.6%
Kao Corp. 5,000 72,296
DATA PROCESSING - 0.5%
Industri-Matematik International Corp.
American Depository Receipt # 2,000 57,250
DISTRIBUTION WHOLESALER - 0.8%
Headlam Group plc 6,261 36,420
Marubeni Corp. 6,000 10,568
Mitsui & Co. 8,000 47,500
======
94,488
------
DIVERSIFIED - 2.6%
BTR plc 5,318 16,321
Brambles Industries Ltd. 1,650 32,738
Broken Hill Proprietary Co., Ltd. 1,650 15,321
Citic Pacific Ltd. 4,000 15,900
Compagnie Generale des Eaux 425 59,344
Granada Group plc 2,256 34,785
Hutchison Whampoa Ltd. 4,000 25,090
Lagardere SCA 1,070 35,395
Rio Tinto Ltd. 1,190 13,882
Securicor plc 3,611 17,024
Societe Generale de Belgique 600 54,899
=======
320,699
-------
DRUG - 1.7%
Cortecs plc # 3,705 11,035
Roche Holding AG 20 198,903
=======
209,938
-------
ELECTRIC PRODUCTION -- MISCELLANEOUS - 2.6%
China Light & Power Co. 3,000 16,649
Chubu Electric Power Co., Inc. 3,600 55,099
Endesa SA 3,040 53,953
Hongkong Electric Holdings Ltd. 5,000 19,004
National Grid Group plc 2,274 10,861
Rohm Co., Ltd. 1,000 102,291
Scottish Power plc 4,733 41,785
Southern Electric plc 1,319 10,549
Tenaga Nasional Bhd 3,000 6,397
=======
316,588
-------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENT -- MISCELLANEOUS - 2.2%
Matsushita Electric Industrial Co., Ltd. 5,000 73,450
Minebea Co., Ltd. 5,000 53,837
Siemens AG 820 48,571
Silvermines Group plc 9,120 6,828
Sony Corp. 1,000 89,216
=======
271,902
-------
ENGINEERING RESEARCH & DEVELOPMENT - 0.0%
United Engineers Bhd 1,000 832
FINANCE - 1.6%
Credit Saison Co., Ltd. 1,500 37,148
Lend Lease Corp., Ltd. 1,500 29,322
Lloyds TSB Group plc 6,259 80,954
Nomura Securities Co., Ltd. 4,000 53,530
=======
200,954
-------
FINANCIAL SERVICES - 0.3%
Legal & General Group plc 4,900 42,332
FOOD & BEVERAGE - 0.0%
Want Want Holdings American Depository Receipt # 2,000 2,760
FOOD -- DIVERSIFIED - 1.2%
Cadbury Schweppes plc 3,815 37,980
Nestle SA 70 105,060
=======
143,040
-------
FOOD WHOLESALER - 0.3%
FHTK Holdings Ltd. 13,000 2,932
Nissin Food Products 2,000 36,456
======
39,388
------
HOME APPLIANCE - 0.0%
Guangdong Kelon Elec Holdings 4,000 4,104
HOTEL/GAMING - 1.3%
Accor SA 385 71,614
Genting Bhd 4,600 11,523
Ladbroke Group plc 4,004 17,394
London Clubs International plc 4,322 23,079
Stanley Leisure plc 6,320 26,364
Sydney Harbour Casino Holdings Ltd. # 8,700 8,248
=======
158,222
-------
HOUSEHOLD PRODUCTS - 0.9%
Asahi Glass Co., Ltd. 6,000 28,611
Benckiser NV # 1,900 78,636
=======
107,247
-------
INSURANCE -- MULTILINE - 0.7%
Baloise Holding Ltd. # 26 48,185
Zurich Versicherungs-Gesellschaft 90 42,948
======
91,133
------
INSURANCE -- PROPERTY/CASUALTY - 1.6%
Allianz AG 415 107,558
Assurances Generales de France 1,560 82,696
=======
190,254
-------
INSURANCE - 1.6%
Assicurazioni Generali 1,600 39,321
Guardian Royal Exchange plc 6,784 36,281
Istituto Nazionale delle Assicurazioni 16,500 33,457
Norwich Union plc # 2,529 15,544
Skandia Forsakrings AB 710 33,512
Tokio Marine & Fire Insurance Co. 2,000 22,766
United Assurance Group plc 1,700 14,756
=======
195,637
-------
INVESTMENT COMPANIES - 1.0%
Amvescap plc 7,834 67,228
Corp. Financiera Reunida SA # 10,000 53,472
Mercury Asset Management Group plc 186 5,197
=======
125,897
-------
MACHINERY - 0.9%
Ebara Corp. 4,000 42,455
Mannesmann AG 130 65,723
=======
108,178
-------
MANUFACTURING - 2.8%
FKI plc 7,744 24,467
General Electric Co. plc 2,782 18,266
Mitsubishi Heavy Industries 10,000 41,839
RWE AG 2,400 128,810
Rexam plc 3,215 15,792
Shanghai Industrial Holdings Ltd. 1,000 3,717
Southcorp Ltd. 400 1,324
Unilever NV 1,040 64,128
VEBA AG 690 47,011
=======
345,354
-------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS - 4.6%
Glaxo Wellcome plc 5,408 127,969
Novartis AG 120 194,995
Shield Diagnostics Group plc # 1,733 20,461
Takeda Chemical Industries 2,000 57,222
Yamanouchi Pharmaceutical Co., Ltd. 3,000 64,605
Zeneca Group plc 2,566 90,361
=======
555,613
-------
METAL -- DIVERSIFIED - 0.2%
Union Miniere SA # 340 23,584
METAL FABRICATING - 0.1%
Simsmetal Ltd. 1,200 6,960
MINING - 0.3%
Rio Tinto plc 1,169 13,571
Sumitomo Metal Mining Co. 6,000 19,843
======
33,414
------
MUTUAL FUNDS - 7.6%
Baillie Gifford Japan Trust Fund # 11,000 78,740
Baring Emerging Europe Trust Fund # 65,000 102,375
Foreign & Colonial Emerging Markets Investment
Trust Fun 96,000 167,451
Genesis Emerging Markets Fund # 9,000 145,800
Schroder Japan Growth Fund # 139,000 118,940
Scudder Latin America Investment Trust Fund 70,000 114,037
Templeton Emerging Markets Investment Trust Fund 60,000 117,739
Templeton Latin America Investment Trust Fund 50,000 81,249
=======
926,331
-------
OFFICE AUTOMATION & EQUIPMENT - 0.4%
Canon, Inc. 2,000 46,762
OIL & NATURAL GAS - 6.4%
BG plc 4,053 18,274
British Petroleum Co., plc 6,047 79,655
Cairn Energy plc # 821 6,701
ENI SpA 6,850 38,861
Elf Aquitain SA 835 97,161
Envestra Ltd. 93,500 59,096
Hong Kong & China Gas Co., Ltd. 9,000 17,423
LASMO plc 5,263 23,427
Repsol SA 1,450 61,838
Royal Dutch Petroleum Co. 2,450 134,513
SOCO International plc # 4,008 24,007
Saipem SpA 5,800 30,509
Shell Transport & Trading Co. 14,626 106,259
Smedvig ASA 1,000 21,161
Tokyo Gas Co. 17,000 38,701
Woodside Petroleum Ltd. 2,700 19,036
=======
776,622
-------
OILFIELD SERVICES & EQUIPMENT - 0.6%
ISIS # 703 77,127
PAPER & FOREST PRODUCTS - 1.3%
Metsa Tissue Oyj # 12,000 115,694
Nippon Paper Industries Co. 5,000 19,689
UPM-Kymmene Oyj 1,400 28,024
=======
163,407
-------
PRINTING -- COMMERCIAL - 0.3%
Dai Nippon Printing Co., Ltd. 2,000 37,686
PROTECTION -- SAFETY EQUIPMENT - 0.5%
Secom Co., Ltd. 1,000 64,143
PUBLISHING - 1.9%
Elsevier NV 4,000 64,720
Independent Newspapers Ltd. 3,600 17,978
Johnston Press plc 4,338 14,634
Singapore Press Holdings Ltd. 1,000 12,523
Star Publications 2,000 2,281
United News & Media plc 1,209 13,668
Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit 3,700 104,400
=======
230,204
-------
REAL ESTATE MANAGEMENT & INVESTMENT - 1.5%
Capital Shopping Centers plc 5,424 36,594
Cheung Kong Holdings Ltd. 3,000 19,650
China Resources Enterprise Ltd. 4,000 8,931
City Developments Ltd. 1,000 4,629
HKR International Ltd. 9,680 7,121
Henderson Land Development Co., Ltd. 1,000 4,711
Mitsubishi Estate Co., Ltd. 6,000 65,528
New World Development Co., Ltd. 2,000 6,918
Sun Hung Kai Properties Ltd. 3,000 20,908
Wing Tai Holdings Ltd. 3,000 3,508
=======
178,498
-------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
RECREATION - 0.3%
Berjaya Sports Toto Bhd 6,000 15,338
TABCORP Holdings Ltd. 1,400 6,568
Wembley plc 2,802 13,948
======
35,854
------
RETAIL - 1.6%
Dixons Group plc 1,685 16,678
EMI Group plc 1,264 10,904
Great Universal Stores plc 4,860 59,980
Harvey Nichols plc 1,733 5,490
Vendex International NV 1,800 99,359
=======
192,411
-------
RETAIL GROCERY - 0.8%
Ito-Yokado Co., Ltd. 1,000 51,146
Safeway plc 7,885 44,764
======
95,910
------
RETAIL STORE - 1.5%
Carpetright plc 765 5,728
Family Mart Co., Ltd. 2,000 71,988
Kingfisher plc 6,000 83,726
Marui Co. 1,000 15,613
=======
177,055
-------
SERVICES - 0.3%
BTG plc 3,520 39,388
STEEL -- INTEGRATED - 0.3%
Nippon Steel Corp. 19,000 28,203
Sumitomo Metal Industries 11,000 14,128
======
42,331
------
TELECOMMUNICATIONS - 3.2%
Cable & Wireless plc 3,591 31,584
Nippon Telegraph & Telephone Corp. 20 172,280
Portugal Telecom SA 1,450 67,356
Singapore Telecommunications Ltd. 10,000 18,636
Telecom Corporation of New Zealand Ltd. 5,300 25,698
Telecom Italia SpA 11,700 74,780
=======
390,334
-------
TELECOMMUNICATION EQUIPMENT - 2.5%
Alcatel Alsthom 740 94,102
France Telecom SA # 1,060 38,465
Telecom Italia Mobile SpA 11,400 52,648
Telefonica de Espana 2,900 82,767
Vodafone Group plc 5,286 38,577
=======
306,559
-------
TELECOMMUNICATION SERVICES - 0.8%
British Telecommunications plc 6,497 51,291
China Telecom Ltd. # 4,000 6,866
COLT Telecom Group plc # 658 6,675
Hong Kong Telecommunications Ltd. 3,200 6,587
Telekom Malaysia Bhd 4,000 11,818
Telestra Corp., Ltd. # 5,900 12,456
======
95,693
------
TIRE & RUBBER - 0.5%
Bridgestone Corp. 3,000 65,297
TOBACCO - 0.2%
BAT Industries plc 2,260 20,622
Rothmans of Pall Mall Bhd 400 3,109
======
23,731
------
TOILETRIES & COSMETICS - 0.4%
L'OREAL 115 45,019
TRANSPORTATION - 1.2%
East Japan Railway Co. 15 67,951
FirstGroup plc 1,701 6,270
Kowloon Motor Bus Holdings Ltd. 2,800 6,143
National Express Group plc 1,789 20,180
Peninsular and Oriental Steam Navigation Co. 1,020 11,657
Yamato Transport Co., Ltd. 3,000 40,378
=======
152,579
-------
WATER UTILITY - 0.3%
Severn Trent plc 2,097 33,748
================================================================================
TOTAL COMMON STOCKS
(Cost $11,340,205 ) 11,226,367
- --------------------------------------------------------------------------------
<PAGE>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 8.1%
State Street Bank, 4.50%, 1/2/98, (Collateralized
by $1,005,000 U.S. Treasury Notes, 5.63%,
11/30/99, market value - $1,007,513 984,000 984,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $984,000 ) 984,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $12,324,205 ) 12,210,367
- --------------------------------------------------------------------------------
# Represents non-income producing securities.
================================================================================
Portfolio Composition by Country of Domicile as of 12/31/97.
United Kingdom - 29.3% Sweden - 2.0%
Japan - 22.0% Finland - 1.3%
France - 8.3% Norway - 0.9%
Switzerland - 7.2% Austria - 0.7%
Germany - 7.0% Belgium - 0.7%
Netherlands - 6.0% Malaysia - 0.6%
Italy - 3.8% Portugal - 0.6%
Spain - 3.1% Singapore - 0.6%
Australia - 2.7% Denmark - 0.5%
Hong Kong - 2.3% New Zealand - 0.4%
FORWARD CURRENCY CONTRACTS
Contract Amount Contract Amount Appreciation Delivery
(Local Currency) (U.S. Dollars) (Depreciation) Date
Currency Purchased:
British Pound 30,187.380 $50,449 ($774) 1/2/98
================================================================================
Net receivable (payable) for forward currency contracts purchased ($774)
================================================================================
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
CORE TACTICAL ASSET UTILITY
EQUITY ALLOCATION GROWTH
FUND FUND FUND
Assets:
Investment in corresponding
portfolio, at value $328,462 $14,592,848 $2,541,061
Receivable for capital stock issued --- 12,673 9,602
Receivable from investment adviser 5,355 9,450 25,517
Unamortized organization costs 9,167 20,246 14,118
Other assets --- 5,911 6,533
Total Assets 342,984 14,641,128 2,596,831
================================================================================
Liabilites:
Payable for capital stock redeemed --- 857 1,221
Dividends payable --- 38,771 5,949
Accrued transfer agent and
administrative fees 717 2,156 767
Accrued 12b-1 and shareholder
service fees -- Class A 416 --- 1,675
Accrued 12b-1 and shareholder
service fees -- Class C 176 43,684 2,621
Organizational costs due to adviser 10,005 4,524 3,472
Other accrued liabilities 6,725 14,373 12,560
Total Liabilities 18,039 104,365 28,265
================================================================================
Net Assets 324,945 14,536,763 2,568,566
================================================================================
Components of Net Assets:
Capital 320,520 15,564,856 1,978,163
Accumulated undistributed net realized gains
(losses) from investment transactions (539) (335,671) ---
Net unrealized appreciation of investments
(depreciation) of investments 4,964 (692,422) 590,403
Total Net Assets $324,945 $14,536,763 $2,568,566
================================================================================
Net Assets:
Class A Shares $245,427 $36,080 $1,285,320
Class C Shares 79,518 14,500,683 1,283,246
324,945 14,536,763 2,568,566
================================================================================
Outstanding units of beneficial interest (shares):
(indefinite number of shares authorized,
$0.10 par value)
Class A Shares 19,370 3,259 73,999
Class C Shares 6,281 1,184,066 74,743
25,651 1,187,325 148,742
================================================================================
Net asset value -- redemption price per share:
Class A Shares $12.67 $11.07 $17.37
Class C Shares* $12.66 $12.25 $17.17
Sales charge -- Class A Shares 4.00% 4.00% 4.00%
Maximum offering price per share --
Class A Shares (100%/(100% - sales
charge) of net asset value adjusted
to nearest cent) $13.20 $11.53 $18.09
* Redemption price varies based upon holding period.
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
CORE TACTICAL ASSET UTILITY
EQUITY ALLOCATION GROWTH
FUND* FUND FUND
Net Investment Income from
Corresponding Portfolio:
================================================================================
Interest $868 $322,466 $10,733
Dividends 2,100 119,403 80,269
Expenses (1,996) (132,686) (42,829)
Total Net Investment Income from
Corresponding Portfolio 972 309,183 48,173
================================================================================
Fund Expenses:
================================================================================
Administrative fee 70 8,160 1,333
Transfer agent fees 3,366 20,472 8,118
Shareholder service -- Class A Shares 271 249 3,037
Shareholder service -- Class C Shares 79 37,029 3,632
Audit fees 1,539 4,944 1,418
Legal fees 1,099 3,043 3,353
Printing 1,613 11,145 6,135
Amortization of organizational costs 822 8,376 5,851
Postage 558 4,989 2,395
12b-1 fees -- Class A Shares 271 249 3,037
12b-1 fees -- Class C Shares 238 111,087 10,895
Registration and filing fees 2,776 18,397 16,846
Insurance --- 853 726
Other expenses 959 13,970 4,801
Total Expenses 13,661 242,963 71,577
================================================================================
Expenses reimbursed
by investment adviser (12,760) (62,471) (57,403)
Net Expenses 901 180,492 14,174
================================================================================
NET INVESTMENT INCOME 71 128,691 33,999
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
================================================================================
Net realized gains (losses) from
futures contracts 1,237 800,960 ---
Net realized gains (losses) from
investment transactions 126 2,128,856 234,211
Net change in unrealized appreciation
(depreciation) of investments 4,964 (664,958) 363,380
NET GAIN (LOSS) FROM INVESTMENTS 6,327 2,264,858 597,591
================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,398 $2,393,549 $631,590
================================================================================
* For the period from commencement of operations, August 1, 1997, through
December 31, 1997.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
INTERNATIONAL
EQUITY
FUND
Assets:
Investments, at value (cost $11,340,205) $11,226,339
Repurchase agreements, at cost 984,000
Cash 13,772
Receivable for capital stock issued 99
Receivable for investments sold 984,390
Dividends, interest and tax reclaims receivable 10,817
Receivable from investment adviser 20,735
Unamortized organization costs 27,203
Total Assets 13,267,355
================================================================================
Liabilities:
================================================================================
Payable for capital stock redeemed 2,926
Payable for investments purchased 1,037,843
Foreign currency overdraft, at value (cost $2,483) 2,387
Payable for foreign currency contract 774
Accrued management fees 9,898
Accrued fund accounting fees 2,500
Accrued transfer agent and administrative fees 1,434
Organizational costs due to adviser 2,925
Other accrued liabilities 16,600
Total Liabilities 1,077,287
================================================================================
Net Assets $12,190,068
Components of Net Assets:
Capital $12,483,530
Accumulated undistributed (distributions
in excess of) net investment income (15,575)
Accumulated undistributed net realized gains (losses)
from investment and foreign currency transactions (163,883)
Net unrealized appreciation (depreciation)
of investments and foreign currency (114,004)
Total Net Assets $12,190,068
================================================================================
Net Assets:
Class A Shares $12,190,068
Outstanding units of beneficial interest (shares):
Class A Shares 1,000,472
Net asset value -- redemption price per share:
Class A Shares $12.18
Sales charge -- Class A Shares 4.00%
Maximum offering price per share -- Class A Shares
(100%/(100% - sales charge) of net asset value
adjusted to nearest cent) $12.69
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1997
INTERNATIONAL
EQUITY
FUND*
Investment Income:
================================================================================
Interest $20,364
Dividends 43,417
Foreign taxes withheld (5,835)
Total Investment Income 57,946
Expenses:
================================================================================
Investment management fees 36,268
Administration fees 1,863
Fund accounting fees 17,863
Transfer agent fees 3,627
Audit fees 6,357
Legal fees 971
Custody fees 21,597
Trustees fees and expenses 2,462
Postage expense 140
Registration expense 2,959
Printing expense 1,644
Amortization of organizational costs 1,939
Other expenses 663
Total Expenses 98,353
================================================================================
Expenses reimbursed by investment adviser (24,832)
Net Expenses 73,521
================================================================================
NET INVESTMENT INCOME (LOSS) (15,575)
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
================================================================================
Net realized gains (losses) from investments
and foreign currency transactions (163,883)
Net change in unrealized appreciation
(depreciation) of investments (114,004)
NET GAIN (LOSS) FROM INVESTMENTS (277,887)
================================================================================
NET INCREASE (INCREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ($293,462)
================================================================================
* For the period from commencement of operations, September 2, 1997,
through December 31, 1997.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
CORE EQUITY FUND* TACTICAL ASSET ALLOCATION FUND UTILITY GROWTH FUND
TOTAL CLASS A CLASS C TOTAL CLASS A CLASS C TOTAL CLASS A CLASS C
INCREASE (DECREASE) IN NET
ASSETS:
====================================================================================================================================
OPERATIONS:
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $71 $112 ($41) $128,691 $991 $127,700 $33,999 $16,465 $17,534
Net realized gains (losses)
from investment and futures
contract transactions 1,363 1,001 362 2,929,816 7,934 2,921,882 234,211 116,754 117,457
Net change in unrealized
appreciation (depreciation)
of investments 4,964 3,709 1,255 (664,958) 15,665 (680,623) 363,380 167,064 196,316
Net increase in net assets
resulting from operations 6,398 4,822 1,576 2,393,549 24,590 2,368,959 631,590 300,283 331,307
====================================================================================================================================
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS:
From net investment income (112) (112) --- (128,691) (991) (127,700) (33,999) (16,465) (17,534)
In excess of net investment
income --- --- --- --- --- --- --- --- ---
From net realized gains (1,363) (1,001) (362) (2,929,816) (7,934) (2,921,882) (234,211) (116,754) (117,457)
In excess of net realized
gains (539) (436) (103) (335,671) (926) (334,745) --- --- ---
Tax return of capital --- --- --- --- --- --- --- --- ---
Net decrease in net assets
resulting from dividends
and distributions (2,014) (1,549) (465) (3,394,178) (9,851) (3,384,327) (268,210) (133,219) (134,991)
====================================================================================================================================
CAPITAL TRANSACTIONS:
Issued 641,428 563,486 77,942 983,507 11,333 972,174 376,081 155,854 220,227
Reinvested 2,014 1,549 465 3,352,428 9,851 3,342,577 260,528 128,843 131,685
Redeemed (322,881) (322,881) --- (2,877,993) (136,573) (2,741,420) (1,323,208) (543,220) (779,988)
Net increase (decrease) in net
assets resulting from capital
share transactions 320,561 242,154 78,407 1,457,942 (115,389) 1,573,331 (686,599) (258,523) (428,076)
TOTAL INCREASE (DECREASE)
IN NET ASSETS 324,945 245,427 79,518 457,313 (100,650) 557,963 (323,219) (91,459) (231,760)
====================================================================================================================================
NET ASSETS - Beginning of
period --- --- --- 14,079,450 136,730 13,942,720 2,891,785 1,376,779 1,515,006
NET ASSETS - End of period $324,945 $245,427 $79,518 $14,536,763 $36,080 $14,500,683 $2,568,566 $1,285,320 $1,283,246
====================================================================================================================================
SHARE TRANSACTIONS:
Issued 50,902 44,658 6,244 64,263 786 63,477 24,093 9,531 14,562
Reinvested 159 122 37 271,118 864 270,254 15,263 7,494 7,769
Redeemed (25,410) (25,410) --- (190,148) (9,279) (180,869) (83,469) (34,239) (49,230)
Change in shares 25,651 19,370 6,281 145,233 (7,629) 152,862 (44,113) (17,214) (26,899)
====================================================================================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
INTERNATIONAL
EQUITY
FUND *
INCREASE (DECREASE) IN NET ASSETS:
================================================================================
OPERATIONS:
================================================================================
Net investment income (loss) ($15,575)
Net realized gains (losses) from investments
and foreign currency transactions (163,883)
Net change in unrealized appreciation
(depreciation) of investments (114,004)
Net increase (decrease) in net assets
resulting from operations (293,462)
================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ---
In excess of net investment income ---
From net realized gains ---
In excess of net realized gains ---
Tax return of capital ---
Net decrease in net assets resulting
from dividends and distributions ---
================================================================================
CAPITAL TRANSACTIONS:
Issued 12,536,720
Reinvested ---
Redeemed (53,190)
Net increase (decrease) in net assets
resulting from capital share transactions 12,483,530
TOTAL INCREASE (DECREASE) IN NET ASSETS 12,190,068
================================================================================
NET ASSETS - Beginning of period ---
NET ASSETS - End of period $12,190,068
================================================================================
SHARE TRANSACTIONS:
Issued 1,004,830
Reinvested ---
Redeemed (4,358)
Change in Shares 1,000,472
* For the period from commencement of operations, August 1, 1997 and September
2, 1997 for the Core Equity Fund and the Internationsl Equity Fund,
respectively, through December 31, 1997.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
TACTICAL ASSET ALLOCATION FUND UTILITY GROWTH FUND
TOTAL CLASS A CLASS C TOTAL CLASS A CLASS C
INCREASE (DECREASE) IN NET ASSETS:
==========================================================================================================================
OPERATIONS:
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net investment income $102,837 $1,449 $101,388 $55,104 $24,065 $31,039
Net realized gains (losses) from investment
and futures contract transactions 350,025 5,070 344,955 139,002 57,262 81,740
Net change in unrealized appreciation
of investments 175,349 566 174,783 137,909 73,100 64,809
Net increase in net assets
resulting from operations 628,211 7,085 621,126 332,015 154,427 177,588
==========================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (101,477) (1,449) (100,028) (55,104) (24,065) (31,039)
From net realized gains (318,479) (5,070) (313,409) (138,614) (57,068) (81,546)
Net decrease in net assets resulting
from dividends and distributions (419,956) (6,519) (413,437) (193,718) (81,133) (112,585)
==========================================================================================================================
CAPITAL TRANSACTIONS:
Issued 3,210,419 129,635 3,080,784 2,936,429 982,609 1,953,820
Reinvested 401,724 6,534 395,190 184,771 73,097 111,674
Redeemed (1,264,628) (5) (1,264,623) (1,790,376) (392,983) (1,397,393)
Net increase (decrease) in net assets
resulting from capital share transactions 2,347,515 136,164 2,211,351 1,330,824 662,723 668,101
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,555,770 136,730 2,419,040 1,469,121 736,017 733,104
==========================================================================================================================
NET ASSETS - Beginning of period 11,523,680 --- 11,523,680 1,422,664 640,762 781,902
NET ASSETS - End of period $14,079,450 $136,730 $13,942,720 $2,891,785 $1,376,779 $1,515,006
==========================================================================================================================
SHARE TRANSACTIONS:
Issued 234,121 10,368 223,753 203,707 68,268 135,439
Reinvested 29,750 520 29,230 12,452 4,899 7,553
Redeemed (91,027) --- (91,027) (123,009) (26,877) (96,132)
Change in shares 172,844 10,888 161,956 93,150 46,290 46,860
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 1997
TACTICAL ASSET INTERNATIONAL
CORE EQUITY FUND * ALLOCATION FUND UTILITY GROWTH FUND EQUITY FUND
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C CLASS A
August 1, 1997* September 2, 1997*
to to
December 31, 1997 December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.50 $12.50 $12.56 $13.52 $15.09 $14.91 $12.50
Income from Investment Operations:
Net investment income 0.01 (0.01) 0.40 0.14 0.22 0.19 (0.02)
Net gains (losses) from investments 0.24 0.24 1.78 2.26 4.03 3.99 (0.30)
Total from investment operations 0.25 0.23 2.18 2.40 4.25 4.18 (0.32)
Less Dividends and Distributions:
From net investment income (0.01) --- (0.40) (0.14) (0.22) (0.19) ---
In excess of net investment income --- --- --- --- --- --- ---
From net realized gains (0.05) (0.05) (2.93) (3.17) (1.75) (1.73) ---
In excess of net realized gains (0.02) (0.02) (0.34) (0.36) --- --- ---
Tax return of capital --- --- --- --- --- --- ---
Total distributions (0.08) (0.07) (3.67) (3.67) (1.97) (1.92) ---
Net Asset Value, End of Period $12.67 $12.66 $11.07 $12.25 $17.37 $17.17 $12.18
====================================================================================================================================
Total Return 2.00%(1) 1.88%(1) 17.29% 17.71% 28.41% 28.25% (2.56%)(1)
Ratios/Supplementary Data
Net assets, end of period ($000) $245 $80 $36 $14,501 $1,285 $1,283 $12,190
Ratio of expenses to
average net assets 2.00%(2) 2.25%(2) 2.00% 2.10% 2.00% 2.25% 2.00%(2
Ratio of net investment income to
average net assets 0.10%(2) (0.13%)(2) 0.99% 0.86% 1.36% 1.21% (0.43%)(2)
Ratio of expenses to average net
assets before waiver of fees 9.50%(2) 16.67%(2) 6.16% 2.50% 4.03% 4.51% 2.68%(2
Ratio of net investment income to average
net assets before waiver of fees (7.40%)(2) (14.55%)(2) (3.17%) 0.46% (0.67%) (1.05%) (1.11%)(2)
Portfolio turnover 129.79%(3) 129.79%(3) 395.42%(3) 395.42%(3) 41.22%(3) 41.22%(3) 12.71%
</TABLE>
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION FUND UTILITY GROWTH FUND
June 1, 1995* July 11, 1995* to
1996 to Dec. 31, 1995 1996 December 31, 1995
CLASS A** CLASS C CLASS C CLASS A CLASS C CLASS A CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.50 $13.26 $12.50 $14.26 $14.27 $12.50 $12.50
Income from Investment Operations
Net investment income 0.14 0.10 (0.02) 0.29 0.26 0.12 0.10
Net gains or losses from securities 0.55 0.57 1.84 1.48 1.49 1.76 1.77
Total from investment operations 0.69 0.67 1.82 1.77 1.75 1.88 1.87
Less Distributions
Dividends from net investment income (0.14) (0.10) --- (0.29) (0.26) (0.12) (0.10)
Distributions (from capital gains) (0.49) (0.31) (1.06) (0.65) (0.85) --- ---
Total distributions (0.63) (0.41) (1.06) (0.94) (1.11) (0.12) (0.10)
Net Asset Value, End of Period $12.56 $13.52 $13.26 $15.09 $14.91 $14.26 $14.27
==================================================================================================================================
Total Return 5.51%(1) 5.07% 14.57%(1) 12.61% 12.45% 15.11%(1) 15.07%(1)
Ratios/Supplementary Data
Net assets, end of period ($000) $137 $13,943 $11,524 $1,377 $1,515 $641 $782
Ratio of expenses to average net
assets 1.73%(2) 2.00% 1.97%(2) 1.75% 2.00% 1.75%(2) 2.00%(2)
Ratio of net investment income to
average net 2.60%(2) 0.75% (0.29%)(2) 2.03% 1.85% 2.17%(2) 1.72%(2)
Ratio of expenses to average net
assets before waiver of fees 5.23%(2) 2.40% 2.80%(2) 4.37% 4.65% 22.70%(2) 13.37%(2)
Ratio of net investment income to
average net before waiver of fees (0.90%)(2) 0.35% (1.12%)(2) (0.59%) (0.80%) (18.78%)(2) (9.55%)(2)
Portfolio turnover 297.41%(3) 297.41%(3) 186.13%(3) 50.79%(3) 50.79%(3) 5.06%(3) 5.06%(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Date of commencement of operations.
**August 1, 1996 (date of commencement of operations) to December 31, 1996.
(1)Not annualized.
(2)Annualized.
(3)Represents turnover rate of corresponding portfolio.
(4)Represents the total dollar amount of commissions paid on investment
transactions divided by the total number of shares purchased and sold for
which commissions were charged.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
The Flex-Partners Trust (the "Trust") was organized in 1992 and is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Trust offers five
series, and it is presently comprised of five separate funds as follows: Core
Equity Fund, Tactical Asset Allocation Fund (formerly TAA Fund), Utility Growth
Fund (formerly BTB Fund), International Equity Fund (each a "Fund" and
collectively the "Funds") and Institutional Fund. Core Equity Fund and
International Equity Fund commenced operations August 1, 1997 and September 2,
1997, respectively. Each Fund, except International Equity Fund, invests all of
its investable assets in a corresponding open-end management investment company
(each a "Portfolio" and collectively the "Portfolios") having the same
investment objective as the Fund. Each Fund, each Portfolio into which the Fund
invests and the percentage of each Portfolio owned by the respective Fund is as
follows:
PERCENTAGE OF PORTFOLIO
OWNED BY FUND AS OF
FUND PORTFOLIO DECEMBER 31, 1997
Core Equity Fund Growth Stock Portfolio 1%
Tactical Asset Allocation Fund Mutual Fund Portfolio 10%
Utility Growth Fund Utilities Stock Portfolio 24%
The investment objective of the International Equity Fund is to seek long-term
growth from investing primarily in equity securities of foreign issuers.
The financial statements of the Portfolios, including the Portfolios of
Investments, are included elsewhere in this report and should be read in
conjunction with the financial statements of each respective Fund. The
financial statements of the Institutional Fund are are separately reported.
2. SIGNIFICANT ACCOUNTING POLICES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Valuation of Investments
Each Fund, except International Equity Fund, values its investment in the
corresponding Portfolio at fair value. Valuation of securities held by each
Portfolio is further described at Note 2 of the Portfolios' Notes to Financial
Statements which are included elsewhere in this report.
Securities, including closed-end mutual funds, owned by the International Equity
Fund are valued at 3:00 p.m. eastern time based on the last sales price, or,
lacking any sales, at the closing bid prices.
Foreign Currency Translation
Accounting records of the Funds are maintained in U.S. dollars. The value of
securities, other assets and liabilities of the International Equity Fund
denominated in foreign currency are translated into U.S. dollars at the current
exchange rate. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the exchange rate on the dates of
such transactions. The Funds do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates from those resulting
from changes in market prices of securities held.
Forward Currency Contracts
The International Equity Fund may enter into forward foreign currency exchange
contracts ("forwards") for purposes of hedging against either specific
transactions or portfolio positions. Forwards are agreements between two parties
to exchange currencies at a set price on a future date. The market value of
forwards fluctuates with changes in currency exchange rates. The forward is
marked-to-market daily, and the change in market value is recorded by the Fund
as unrealized appreciation or depreciation. When the forward is offset by entry
into a closing transaction or extinguished by delivery of the currency, the Fund
records a realized gain or loss equal to the fluctuation in value during the
period the forward was open. Risks may arise upon entering forwards from the
potential inability of counterparties to meet the terms of the forwards or from
unanticipated fluctuations in the value of the foreign currency relative to the
U.S. dollar.
<PAGE>
Income Taxes
It is each Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income and net capital gains
to its shareholders. Therefore, no Federal income tax provision is required.
Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. Core Equity Fund
and Tactical Asset Allocation Fund declare dividends from net investment income
on a quarterly basis. Utility Growth Fund declares dividends from net investment
income on a monthly basis. International Equity Fund declares dividends from net
investment income on an annual basis. Each Fund distributes net capital gains,
if any, on an annual basis.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
deferrals of certain losses, expiring capital loss carryforwards, differing
treatment of unrealized gains and losses of futures contracts held by the Fund's
corresponding Portfolio, and differing treatment of gains and losses realized in
transactions denominated in foreign currency. Permanent book and tax basis
differences have been reclassified among the components of net assets.
Organizational Costs
The costs related to the organization of each of the four Funds have been
deferred and are being amortized by each Fund on a straight-line basis over a
five-year period.
Expenses
Expenses incurred by the Trust that do not specifically relate to an individual
Fund of the Trust are allocated to the Funds based on each Fund's relative net
assets or other appropriate basis. Expenses of each Fund, other than expenses
incurred pursuant to the Class A and Class C distribution and shareholder
services plans, are allocated to the separate classes based on their relative
net assets or other appropriate basis. The Funds record daily their
proportionate share of the corresponding Portfolio's income, expenses and
realized and unrealized gains and losses.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), under separate agreements provides each Portfolio with investment
management, research, statistical and advisory services. Under separate
Investment Subadvisory Agreements with RMA, Sector Capital Management, Inc.,
Miller/Howard Investments, Inc., and Commercial Union Investment Management, LTD
serve as subadvisor of the Growth Stock Portfolio, the Utilities Stock
Portfolio, and the International Equity Fund, respectively. Sub-subadvisers,
selected by Sector Capital Management, Inc., subject to the review and approval
of the Trustees of the Growth Stock Portfolio, are responsible for the selection
of individual portfolio securities for the assets of the Portfolio assigned to
them by Sector Capital Management, Inc.
For such services, the International Equity Fund pays RMA monthly fees at the
annual rate of 1.00% of the average daily net asset value of the Fund.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
stock transfer, dividend disbursing and shareholder services agent for each
Fund. Subject to a $4,000 annual minimum fee, each Fund pays MFSCo an annual fee
equal to the greater of $15 per active shareholder account or 0.10% of the
Fund's average daily net assets.
MFSCo provides the Trust with certain administrative services. In compensation
for such services, each Fund pays MFSCo an annual fee equal to 0.05% of each
Fund's average daily net assets. Prior to January 31, 1997, such fees were
payable at an annual rate of 0.03% of average daily net assets.
RMA has voluntarily agreed to reimburse the Funds for the amount by which annual
expenses of each Fund including expenses allocated from its respective Portfolio
(excluding interest, taxes, brokerage fees, and extraordinary expenses) exceed
certain limitations. Such reimbursement, which is subject to change, is limited
to the total of fees charged the Fund by RMA . The limitations currently in
place are as follows:
LIMITATION AS A PERCENTAGE
FUND OF AVERAGE DAILY NET ASSETS
Core Equity Fund -- Class A 2.00%
Core Equity Fund -- Class C 2.25%
Tacticall Asset Allocation -- Class A 2.00%
Tactical Asset Allocation - Class C 2.10%
Utility Growth Fund -- Class A 2.00%
Utility Growth Fund -- Class C 2.25%
International Equity Fund -- Class A 2.00%
<PAGE>
Certain officers of the Funds and trustees of the Trust and the Portfolios are
also officers or directors of MII, RMA and MFSCo.
Pursuant to Rule 12b-1 of the Act, each Fund has adopted two Distribution Plans
(the "Plans"). Under the provisions of the Plans, each Fund pays Adviser Dealer
Services (the "Distributor") an annual fee, at a maximum rate of 0.25% and 0.75%
of average daily net assets of Class A shares and Class C shares, respectively,
to aid in the distribution of Fund shares. Additionally, each Fund has adopted
two Service Plans with the Distributor. Under the provisions of the Service
Plans, each Fund pays the Distributor an annual fee, at a maximum rate of 0.25%
of average daily net assets of Class A shares and Class C shares.
4. SECURITIES TRANSACTIONS
For the period from its commencement of operations, September 2, 1997, through
December 31, 1997, the cost of purchases and proceeds from sales or maturities
of long-term investments for the International Equity Fund were $12,796,008 and
$1,292,592, respectively. Aggregate cost basis of investments for federal income
tax purposes and for financial reporting purposes was substantially the same.
5. FEDERAL INCOME TAX INFORMATION
At December 31, 1997, International Equity Fund had unused capital loss
carryforwards available to offset future capital gains, if any, for Federal
income tax purposes. The following table sets forth the amount of such losses
and the years such losses expire.
AMOUNT OF CAPITAL
FUND LOSS CARRYFORWARD YEAR EXPIRES
International Equity Fund $28,153 2005
6. CAPITAL GAIN DISTRIBUTIONS (UNAUDITED)
Capital gain distributions from long-term capital gains for the Funds for the
year ended December 31, 1997 were as follows:
FUND 28% RATE GAIN 20% RATE GAIN
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
Core Equity Fund $ -- 0.0% $1,232 100.0%
Utility Growth Fund 27,793 18.3% 124,022 81.7%
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Flex-Partners Trust
We have audited the accompanying statements of assets and liabilities of The
Flex-Partners Trust (including, respectively, the Core Equity Fund, Tactical
Asset Allocation Fund (formerly TAA Fund), Utility Growth Fund (formerly BTB
Fund) and International Equity Fund), including the portfolio of investments for
the International Equity Fund, as of December 31, 1997, and the related
statements of operations, statements of changes in net assets and the financial
highlights for each of the periods indicated herein. These financial statements
and the financial highlights are the responsibility of the Flex-Partners Trust
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. With respect to the International Equity Fund, our procedures
included verification of securities owned as of December 31, 1997, by
confirmation with the custodian and brokers and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Flex-Partners Trust at December 31,
1997, the results of their operations, the changes in their net assets and the
financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 12, 1998
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
MUTUAL GROWTH UTILITIES
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
Assets:
Investments at market value* $123,381,910 $33,366,440 $10,363,759
Repurchase agreements, at cost* 12,968,000 463,000 304,000
Cash 947 507 347
Options purchased (cost $27,378,320) 17,600,000 --- ---
Receivable for net variation margin
on futures contracts 12,800 --- ---
Interest receivable 264,050 88 57
Dividends receivable 24,817 52,213 15,135
Prepaid/Other assets 13,924 9,407 27
Unamortized organization costs --- --- 8,288
Total Assets 154,266,448 33,891,655 10,691,613
================================================================================
Liabilites:
Payable for securities purchased --- 433,199 ---
Payable for net variation margin
on futures contracts --- 350 ---
Options written (premiums received
$19,383,673) 9,604,000 --- ---
Payable to investment adviser 97,671 30,236 8,829
Accrued audit fees 6,663 6,760 6,793
Accrued custodian fees 3,826 3,520 588
Accrued trustee fees 14,032 3,883 2,374
Accrued fund accounting fees 3,931 2,719 849
Other accrued liabilities 3,632 17,025 2,462
Total Liabilities 9,733,755 497,692 21,895
================================================================================
Net Assets 144,532,693 33,393,963 10,669,718
================================================================================
Net Assets:
================================================================================
Capital 145,227,170 27,521,228 8,402,733
Net unrealized appreciation
(depreciation) of investments (694,477) 5,872,735 2,266,985
Net Assets $144,532,693 $33,393,963 $10,669,718
================================================================================
*Securities at cost 137,058,540 27,956,355 8,400,774
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
MUTUAL GROWTH UTILITIES
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
NET INVESTMENT INCOME
================================================================================
Interest $3,091,061 $205,328 $20,737
Dividends 1,145,496 485,616 279,789
Total Investment Income 4,236,557 690,944 300,526
================================================================================
Expenses:
================================================================================
Investment advisory fees 1,130,843 317,772 88,486
Audit fees 9,215 9,421 9,223
Custodian fees 15,690 35,996 4,425
Trustees fees and expenses 42,679 9,347 7,454
Legal fees 3,331 11,491 3,053
Amortization of organization cost 4,924 2,545 8,972
Accounting fees 50,886 34,029 13,098
Insurance 2,242 467 80
Other expenses 10,982 5,233 11,131
Total Expenses 1,270,792 426,301 145,922
================================================================================
Investment advisory fees waived --- --- ---
Directed brokerage payments received --- --- (3,934)
Total Net Expenses 1,270,792 426,301 141,988
================================================================================
NET INVESTMENT INCOME 2,965,765 264,643 158,538
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
================================================================================
Net realized gain from futures contracts 7,384,735 851,686 ---
Net realized gain (loss) from
investments 15,349,402 4,450,516 769,055
Net change in unrealized appreciation
(depreciation) of investments (1,244,081) 2,709,218 1,487,258
NET GAIN (LOSS) ON INVESTMENTS 21,490,056 8,011,420 2,256,313
================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $24,455,821 $8,276,063 $2,414,851
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
MUTUAL GROWTH UTILITIES
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
INCREASE (DECREASE) IN NET ASSETS:
================================================================================
OPERATIONS:
================================================================================
Net investment income $2,965,765 $264,643 $158,538
Net realized gain (loss) from
investments and futures contracts 22,734,137 5,302,202 769,055
Net change in unrealized appreciation
(depreciation) of investments (1,244,081) 2,709,218 1,487,258
Net increase in net assets
resulting from operations 24,455,821 8,276,063 2,414,851
TRANSACTIONS OF INVESTORS' BENEFICIAL
INTERESTS:
================================================================================
Contributions 27,375,051 40,513,401 2,517,724
Withdrawals (42,837,747) (39,809,183) (2,227,211)
Net increase (decrease) in net assets
resulting from transactions of
investors' beneficial interests (15,462,696) 704,218 290,513
TOTAL INCREASE (DECREASE) IN NET ASSETS 8,993,125 8,980,281 2,705,364
================================================================================
NET ASSETS - Beginning of period 135,539,568 24,413,682 7,964,354
NET ASSETS - End of period $144,532,693 $33,393,963 $10,669,718
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
MUTUAL GROWTH UTILITIES
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
INCREASE (DECREASE) IN NET ASSETS:
================================================================================
OPERATIONS:
================================================================================
Net investment income $2,510,343 $601,083 $146,376
Net realized gain (loss) from
investments and futures contracts 10,575,124 (1,313,610) 348,392
Net change in unrealized appreciation
(depreciation) of investments (5,130,740) 3,055,094 357,308
Net increase in net assets
resulting from operations 7,954,727 2,342,567 852,076
TRANSACTIONS OF INVESTORS' BENEFICIAL
INTERESTS:
================================================================================
Contributions 32,575,692 4,020,512 5,138,546
Withdrawals (27,099,980) (6,486,427) (2,317,138)
Net increase (decrease) in net assets
resulting from transactions of
investors' beneficial interests 5,475,712 (2,465,915) 2,821,408
TOTAL INCREASE (DECREASE) IN NET ASSETS 13,430,439 (123,348) 3,673,484
================================================================================
NET ASSETS - Beginning of period 122,109,129 24,537,030 4,290,870
NET ASSETS - End of period $135,539,568 $24,413,682 $7,964,354
See accompanying notes to financial statements
<PAGE>
FINANCIAL HIGHLIGHTS
Ratios/Supplemental Data
<TABLE>
MUTUAL FUND PORTFOLIO
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $144,533 $135,540 $122,109 $83,185 $81,605
Ratio of Expenses to Average Net Assets* 0.89% 0.87% 0.95% 1.01% 1.03%
Ratio of Net Investment Income to
Average Net Assets 2.08% 1.86% 1.26% 2.76% 0.09%
Portfolio Turnover Rate 395.42% 297.41% 186.13% 168.17% 279.56%
Average Commission Rate paid(2) $0.0800 --- --- n/a n/a
</TABLE>
<TABLE>
GROWTH STOCK PORTFOLIO
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $33,394 $24,414 $24,537 $22,169 $26,172
Ratio of Expenses to Average Net Assets 1.34% 1.24% 1.25% 1.23% 1.23%
Ratio of Net Investment Income to
Average Net Assets 0.83% 2.33% 3.78% 2.35% 0.99%
Portfolio Turnover Rate 129.79% 81.66% 337.57% 102.76% 99.54%
Average Commission Rate paid(2) $0.0623 $0.0910 $0.0806 N/A N/A
</TABLE>
<TABLE>
UTILITIES STOCK PORTFOLIO
<CAPTION>
Period
Year Ended December 31, June 21, 1995* to
1997 1996 December 31, 1995
<S> <C> <C> <C>
Net Assets, End of Period ($000) $10,670 $7,964 $4,291
Ratio of Expenses to Average Net Assets 1.60% 1.61% 2.32%(1)
Ratio of Net Investment Income to
Average Net Assets 1.79% 2.24% 2.09%(1)
Ratio of Expenses to Average Net Assets
before directed brokerage payments 1.65% 1.66% 2.40%(1)
Ratio of Net Investment Income to Average Net
Assets before directed brokerage payments 1.74% 2.19% 2.01%(1)
Portfolio Turnover Rate 41.22% 50.79% 5.06%
Average brokerage commission per share(2) $0.0600 $0.0600 $0.0600
<FN>
(1) Annualized
(2) Represents the total dollar amount of commissions paid on portfolio
transactions divided by the total number of shares purchased and sold by the
Portfolio for which commissions were charged. Disclosure is not required for
periods ended before December 31, 1995.
* Date of commencement of operations
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
Each Fund of The Flex-Partners Trust (the "Trust") invests all of its investable
assets in a corresponding open-end management investment company (each a
"Portfolio" and collectively the "Portfolios") having the same investment
objective as the Fund. Each Portfolio is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a no-load, open-end management
investment company which was organized as a trust under the laws of the State of
New York. Each Declaration of Trust permits the Trustees, who are the same for
each Portfolio, to issue beneficial interests in each Portfolio.
The investment objective of each Portfolio is as follows:
The Growth Stock Portfolio seeks capital growth by investing in a diversified
portfolio of domestic common stocks with greater than average growth
characteristics selected primarily from the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500").
The Mutual Fund Portfolio seeks growth of capital through investment in the
shares of other mutual funds.
The Utilities Stock Portfolio seeks a high level of current income and growth of
income by investing primarily in equity securities of domestic and foreign
public utility companies; however, it will not invest in electric utilities
whose generation of power is derived from nuclear reactors. The Portfolio also
seeks capital appreciation, but only when consistent with its primary investment
objective.
The financial statements of the Funds are included elsewhere in this report.
2. SIGNIFICANT ACCOUNTING POLICES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Securities which are traded on stock exchanges are valued at the last sales
price as of the close of business of the New York Stock Exchange on the day of
valuation or, lacking any sales, at the closing bid prices. Securities traded
over-the-counter are valued at the most recent bid price or yield equivalent as
obtained from one or more dealers that make markets in such securities. Mutual
funds are valued at the daily redemption value as reported by the underlying
fund. The Portfolios obtain prices from independent pricing services which use
valuation techniques approved by the Board of Trustees.
Money market securities held in the Portfolios maturing more than sixty days
after the valuation date are valued at the last sales price as of the close of
business on the day of valuation, or, lacking any sales, at the most recent bid
price or yield equivalent as obtained from dealers that make markets in such
securities. When such securities are valued within sixty days to maturity, the
difference between the valuation existing on the sixty-first day before maturity
and maturity value is amortized on a straight-line basis to maturity. Securities
maturing within sixty days from their date of acquisition are valued at
amortized cost.
Repurchase Agreements
Each Portfolio may engage in repurchase agreement transactions whereby the
Portfolio takes possession of an underlying debt instrument subject to an
obligation of the seller to repurchase the instrument from the Portfolio and an
obligation of the Portfolio to resell the instrument at an agreed upon price and
term. At all times, the Portfolio maintains the value of collateral, including
accrued interest, at least 100% of the amount of the repurchase agreement, plus
accrued interest. If the seller defaults or the fair value of the collateral
declines, realization of the collateral by the Portfolios may be delayed or
limited.
Futures & Options
Each Portfolio may engage in transactions in financial futures contracts and
options contracts in order to manage the risk of unanticipated changes in market
values of securities held in the portfolio, or which it intends to purchase. The
expectation is that any gain or loss on such transactions will be substantially
offset by any gain or loss on the securities in the underlying portfolio or on
those which are being considered for purchase. To the extent that the Portfolio
enters into futures contracts on an index or group of securities the Portfolio
exposes itself to an indeterminate liability and will be required to pay or
receive a sum of money measured by the change in the market value of the index.
Upon entering into a futures contract the Portfolio is required to deposit an
initial margin, which is either cash or securities in an amount equal to a
certain percentage of the contract value. Subsequently, the variation margin,
which is equal to changes in the daily settlement price or last sale price on
the exchanges where they trade, is received or paid. The Portfolios record
realized gains or losses for the daily variation margin when they are recorded
as a gains or losses from futures contracts.
Call and put option contracts involve the payment of a premium for the right to
purchase or sell an individual security or index aggregate at a specified price
until the expiration of the contract. Such transactions expose the Portfolio to
the loss of the premium paid if the Portfolio does not sell or exercise the
contract prior to the expiration date. In the case of a call option, sufficient
cash or money market instruments will be segregated to complete the purchase.
<PAGE>
Options are valued on the basis of the daily settlement price or last sale on
the exchanges where they trade and the changes in value are recorded as an
unrealized appreciation or depreciation until closed, exercised or expired.
The Portfolios may write covered call or put options for which premiums received
are recorded as liabilities and are subsequently adjusted to current market
value of the options written. When written options are closed or exercised,
premiums received are offset against the proceeds paid, and the Portfolio
records realized gains or losses for the difference. When written options
expire, the liability is eliminated, and the Portfolio records realized gains
for the entire amount of premiums received.
During the year ended December 31, 1997 the Portfolios had the following
activity in futures contracts and written option contracts:
LONG FUTURES CONTRACTS
NUMBER NOTIONAL
OF CONTRACTS AMOUNT
================================================================================
Mutual Fund Portfolio:
Outstanding, beginning of year 260 $92,637,850
Contracts opened 1,173 383,416,903
Contracts closed (1,323) (450,989,853)
Outstanding, end of year 110 25,064,900
================================================================================
Growth Stock Portfolio:
Outstanding, beginning of year 21 $7,817,250
Contracts opened 139 47,173,843
Contracts closed (153) (53,280,056)
Outstanding, end of year 7 1,711,037
================================================================================
COVERED PUT OPTIONS COVERED CALL OPTIONS
NUMBER OF NUMBER OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
================================================================================
Mutual Fund Portfolio:
Outstanding, beginning of year --- --- --- ---
Options written 4,000 $7,391,887 4,000 $11,991,787
Outstanding, end of year 4,000 7,391,887 4,000 11,991,787
================================================================================
Growth Stock Portfolio:
Outstanding, beginning of year --- --- --- ---
Options written --- --- 140 $34,315
Options expired --- --- (140) (34,315)
Outstanding, end of year --- --- --- ---
================================================================================
Income Taxes
It is each Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to it. Therefore, no Federal income tax provision is
required.
Organizational Costs
The costs related to the organization of each Portfolio have been deferred and
are being amortized by the Portfolio on a straight-line basis over a five-year
period. Such costs for Growth Stock Portfolio and Mutual Fund Portfolio have
been fully amortized.
<PAGE>
Securities Transactions
The Portfolios record security transactions on the trade date. Gains and losses
realized from the sale of securities are determined on the specific
identification basis. Dividend income is recognized on the ex-dividend date, and
interest income (including amortization of premium and accretion of discount) is
recognized as earned.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), under separate agreements provides each Portfolio with investment
management, research, statistical and advisory services. Under separate
Investment Subadvisory Agreements with RMA, Sector Capital Management, Inc. and
Miller/Howard Investments, Inc. serve as subadviser of the Growth Stock
Portfolio and the Utilities Stock Portfolio, respectively. Sub-subadvisers,
selected by Sector Capital Management, Inc., subject to the review and approval
of the Trustees of the Growth Stock Portfolio, are responsible for the selection
of individual portfolio securities for the assets of the Portfolio assigned to
them by Sector Capital Management, Inc.
For such services the Portfolios pay monthly fees based upon the average daily
value of each Portfolio's net assets at the following annual rate: 1.00% of
average daily net assets up to $50 million, 0.75% of average daily net assets
exceeding $50 million up to $100 million and 0.60% of average daily net assets
exceeding $100 million.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
accounting services agent for each Portfolio. In compensation for such services,
each Portfolio pays MFSCo an annual fee equal to the greater of: (a.) 0.15% of
the first $10 million of average daily net assets, 0.10% of the next $20 million
of average daily net assets, 0.02% of the next $50 million of average daily net
assets, and 0.01% in excess of $80 million of average daily net assets, or (b.)
$7,500.
Certain officers and trustees of the Portfolios are also officers or directors
of MII, RMA and MFSCo.
4. SECURITIES TRANSACTIONS
For the year ended December 31, 1997, the cost of purchases and proceeds from
sales or maturities of long-term investments for the Portfolios were as follows:
PORTFOLIO PURCHASES SALES
Growth Stock Portfolio $44,982,486 $35,676,667
Mutual Fund Portfolio 480,151,975 442,533,548
Utilities Stock Portfolio 4,565,204 3,490,778
As of December 31, 1997, the aggregate cost basis of investments and unrealized
appreciation (depreciation) for Federal income tax purposes was as follows:
NET UNREALIZED
COST BASIS UNREALIZED UNREALIZED APPRECIATION
PORTFOLIO OF INVESTMENTS APPRECIATION DEPRECIATION (DEPRECIATION)
Growth Stock Portfolio $28,054,467 $6,346,447 ($571,824) $5,774,623
Mutual Fund Portfolio 137,376,306 10,599,957 (11,612,200) (1,012,243)
Utilities Stock Portfolio 8,400,774 2,443,238 (176,253) 2,266,985
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of the
Growth Stock Portfolio, Mutual Fund Portfolio and
Utilities Stock Portfolio:
We have audited the accompanying statements of assets and liabilities of the
Growth Stock Portfolio, Mutual Fund Portfolio and Utilities Stock Portfolio
(Portfolios), including the portfolios of investments, as of December 31, 1997,
and the related statements of operations, statements of changes in net assets
and the financial highlights for each of the periods indicated herein. These
financial statements and the financial highlights are the responsibility of the
Portfolios' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1997, by confirmation with the custodian and brokers and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth Stock Portfolio, Mutual Fund Portfolio and Utilities Stock Portfolio at
December 31, 1997, the results of their operations, the changes in their net
assets and the financial highlights for each of the periods indicated herein, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 12, 1998
<PAGE>
THE FLEX-PARTNERS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE INSTITUTIONAL FUND
--------------------------
Part B.
Item No. Statement of Additional Information
- -------- -----------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13(a)(b)(c) Investment Policies and Related Matters
13(d) Not applicable
14(a)(b) Officers and Trustees
14(c) Not applicable
15(a)(b) Not applicable
15(c) Officers and Trustees
16(a)(b) Investment Adviser and Manager
16(c) Not applicable
16(d) Other Services
16(e) Not applicable
16(f) Distribution Plans
16(g) Not applicable
16(h) Other Services
16(i) Other Services
17 Purchase and Sale of Portfolio Securities
18 Not applicable
19(a) Not applicable
19(b) Valuation of Portfolio Securities
20 Not applicable
21 Not applicable
22(a) Calculation of Yield
22(b) Not applicable
23 Financial Statements
<PAGE>
THE INSTITUTIONAL FUND
6000 Memorial Drive
Dublin, Ohio 43017
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1998
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus of The Institutional Fund dated April 30,
1998. A copy of the Prospectus may be obtained from The Institutional Fund c/o
R. Meeder & Associates Inc. at the above address or by calling: 1-800-325-FLEX
or (614) 760-2159. Capitalized terms used and not otherwise defined herein have
the same meanings as defined in the Prospectus.
TABLE OF CONTENTS
PAGE
Investment Policies and Related Matters 2
General 2
The Portfolio 2
Money Market Instruments 2
Ratings 4
Investment Restrictions 6
Purchase and Sale of Portfolio Securities 8
Valuation of Portfolio Securities 8
Calculation of Yield 8
Investment Adviser and Manager 9
Officers and Trustees 11
Distribution Plan 15
Other Services 16
Additional Information 17
Financial Statements 17
<PAGE>
INVESTMENT POLICIES AND RELATED MATTERS
GENERAL
As described in the Prospectus, the Fund seeks to achieve its investment
objective by investing all of its investable assets in the Money Market
Portfolio (the "Portfolio"), a corresponding open-end management investment
company having the same investment objective, policies and restrictions as the
Fund. Since the investment characteristics of the Fund correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio.
The investment policies set forth below in this section represent the
Portfolio's policies as of the date of this Statement of Additional Information.
The investment policies are not fundamental and they may be changed by the
Trustees of the Portfolio without shareholder approval. (No such change would be
made, however, without 30 days written notice to shareholders.)
THE PORTFOLIO
The Portfolio seeks to maintain a constant net asset value of $1.00 per
share, although there is no assurance it will be able to do so. To do so, the
Portfolio utilizes the amortized cost method of valuing its portfolio securities
pursuant to a rule adopted by the Securities and Exchange Commission. The rule
also prescribes portfolio quality and maturity standards. The Portfolio will be
managed in accordance with the requirements of this rule.
MONEY MARKET INSTRUMENTS
The Portfolio will limit its purchases, denominated in U.S. dollars, to the
following securities:
* U.S. Government Securities and Securities of its Agencies and
Instrumentalities obligations issued or guaranteed as to principal or
interest by the United States or its agencies (such as the Export
Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities
(such as the Federal Home Loan Bank, Federal Intermediate Credit Banks
and Federal Land Bank), including Treasury bills, notes and bonds.
* Bank Obligations and Instruments Secured Thereby - obligations
(including certificates of deposit, time deposits and bankers
acceptances) of domestic banks having total assets of $1,000,000,000
or more, instruments secured by such obligations and obligations of
foreign branches of such banks, if the domestic parent bank is
unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may
<PAGE>
also invest in obligations (including certificates of deposit and
bankers acceptances) of domestic branches of foreign banks having
assets of $1,000,000,000 or more, if the domestic branch is subject to
the same regulation as United States banks. The Portfolio will not
invest at time of purchase more than 25% of its assets in obligations
of banks, nor will the Portfolio invest more than 10% of its assets in
time deposits.
* High Quality Commercial Paper - The Portfolio, which is subject to
specific quality criteria and diversification requirements, may invest
in commercial paper rated in either one of the two highest categories
by at least two nationally recognized rating services, or, if not
rated, guaranteed by a company having commercial paper rated in either
one of the two highest categories by at least two nationally
recognized rating services.
* Private Placement Commercial Paper - Private placement commercial
paper ("Rule 144A securities") consist of unregistered securities
which are traded in public markets to qualified institutional
investors, such as the Portfolio. The Portfolio's risk is that the
universe of potential buyers for the securities, should the Portfolio
desire to liquidate a position, is limited to qualified dealers and
institutions, and therefore such securities could have the effect of
being illiquid.
* High Grade Corporate Obligations - obligations rated at least A by
Standard & Poor's or Moody's. See rating information below.
* Repurchase Agreements Pertaining to the Above - The Portfolio may
invest without limit in any of the above securities subject to
repurchase agreements with any Federal Reserve reporting dealer or
member bank of the Federal Reserve System. A repurchase agreement is
an instrument under which the purchaser (i.e., the Portfolio) acquires
ownership of a debt security and the seller agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. The underlying securities might bear
maturities exceeding one year. The Portfolio's risk is that the seller
may fail to repurchase the security on the delivery date. If the
seller defaults, the underlying security constitutes collateral for
the seller's obligation to pay. It is a policy of the Portfolio to
make settlement on repurchase agreements only upon proper delivery of
the underlying collateral. Repurchase agreements usually are for short
periods, such as one week or less, but could be longer. The Portfolio
may enter into repurchase agreements with its custodian (Star Bank,
N.A., Cincinnati) when it is advantageous to do so. The Portfolio will
not invest more than 10% of its assets, at time of purchase, in
repurchase agreements which mature in excess of seven days.
<PAGE>
R. Meeder & Associates, Inc. (the "Manager") exercises due care in the
selection of money market instruments. However, there is a risk that the issuers
of the securities may not be able to meet their obligations to pay interest or
principal when due. There is also a risk that some of the Portfolio's securities
might have to be liquidated prior to maturity at a price less than original
amortized cost or value, face amount or maturity value to meet larger than
expected redemptions. Any of these risks, if encountered, could cause a
reduction in net income or in the net asset value of the Portfolio.
RATINGS
1. Moody's Investors Services, Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA - Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.
<PAGE>
A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from 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.
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
<PAGE>
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 - A repurchase transaction occurs when an investor
buys a security and simultaneously agrees to resell it at a later date to the
person from whom it was bought, at a higher price. The price differential
represents interest for the period the security is held. Repurchase transactions
will normally be entered into with banks and securities brokers. The Portfolio
could suffer a loss if the bank or securities broker with which the Portfolio
had a repurchase agreement were to default.
Certificates of Deposit - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified or variable rate
of return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed accepted when
a bank guarantees their payment at maturity. Corporate Obligations - include
bonds and notes issued by corporations in order to finance longer term credit
needs.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Fund and by the
Portfolio as fundamental policies. Under the Investment Company Act of 1940 (the
"Act"), a fundamental policy may not be changed without the vote of a majority
of the outstanding voting securities of the Fund or Portfolio, respectively, to
which it relates, which is defined in the Act as the lesser of (a) 67 percent or
more of the shares present at a shareholder meeting if the holders of more than
50 percent of the outstanding shares are present or represented by proxy, or (b)
more than 50 percent of the outstanding shares ("Majority Vote"). The percentage
limitations contained in the restrictions listed below apply at the time of the
purchase of the securities. Whenever the Fund is requested to vote on a change
in the investment restrictions of the Portfolio, the Fund will hold a meeting of
its shareholders and will cast its votes as instructed by the shareholders.
Provided that nothing in the following investment restrictions shall
prevent the Fund from investing all or part of its assets in an open-end
management investment company with the same investment objective as the Fund,
neither the Fund nor the Portfolio may: (a) Issue senior securities; (b) Borrow
money except as a temporary measure, and then only in an amount not to exceed 5%
of the value of its net assets (whichever is less) taken at the time the loan is
made, or pledge its assets taken at value to any extent greater than 15% of its
gross assets taken at cost; (c) Act as underwriter of securities of other
issuers; (d) Invest in real estate except for office purposes; (e) Purchase or
sell commodities or commodity contracts, except that it may purchase or sell
financial futures contracts involving U.S. Treasury Securities, corporate
securities, or financial indexes; (f) Lend its funds or other assets to any
other person, however, the purchase of a portion of publicly distributed bonds,
debentures or other debt instruments, the purchase of certificates of deposit,
U.S. Treasury Debt Securities, and the making of repurchase agreements are
<PAGE>
permitted, provided repurchase agreements with fixed maturities in excess of 7
days do not exceed 10% of its total assets; (g) Purchase more than 10% of any
class of securities, including voting securities of any issuer, except that the
purchase of U.S. Treasury debt instruments shall not be subject to this
limitation; (h) Invest more than 5% of its total assets (taken at value) in the
securities of any one issuer, other than obligations of the U.S. Treasury:
provided, however, that this restriction shall not be applicable to any separate
investment series of the Trust or a Portfolio which is created specifically to
invest in the shares of other investment companies; (i) Purchase any securities
on margin, or participate in any joint or joint and several trading account,
provided, however, that it may open a margin account to the extent necessary to
engage in hedging transactions which are not precluded by other particular
restrictions; (j) Make any so-called short sales of securities, except against
an identical portfolio position (i.e., a "short sale against the box"), but this
restriction shall not preclude a futures contract which sells short an index or
group of securities; (k) Invest 25% or more of its total assets at time of
purchase (taken at value) in the securities of companies in any one industry;
provided, however, that this restriction shall not be applicable to any separate
investment series of the Trust or a Portfolio which is created specifically to
invest in the shares of other investment companies; (l) Invest in securities of
other investment companies, except for purchases by the Portfolio (or the Fund)
in the open market involving only customary brokerage commissions, or except as
part of a merger, consolidation or other acquisition; provided, however, that
this restriction shall not be applicable to any separate investment series of
the Trust or a Portfolio which is created specifically to invest in the shares
of other investment companies; (m) Purchase or retain any securities of an
issuer, any of whose officers, directors or security holders is an officer or
director of the Trust or a Portfolio if such officer or director owns
beneficially more than 1/2 of 1% of the issuer's securities or together they own
beneficially more than 5% of such securities; (n) Invest in securities of
companies which have a record of less than three years continuous operation if,
at the time of such purchase, more than 5% of its assets (taken at value) would
be so invested; (o) Purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs; (p) Invest in
warrants; and (q) Invest more than 10% of its assets in restricted securities
and securities for which market quotations are not readily available and
repurchase agreements which mature in excess of seven days; however, this shall
not prohibit the purchase of money market instruments or other securities which
are not precluded by other particular restrictions.
In order to comply with certain state investment restrictions, each of
the Fund's and the Portfolio's operating policy is not to: (a) Notwithstanding
(b) above, pledge assets having a value in excess of 10% of its gross assets;
(b) Invest in oil, gas or mineral leases or programs; and (c) Purchase real
estate limited partnerships.
<PAGE>
PURCHASE AND SALE OF PORTFOLIO SECURITIES
The Portfolio's purchases and sales of securities usually are principal
transactions. Securities are normally purchased directly from the issuer or from
an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases. The Portfolio does not anticipate
paying brokerage commissions. Any transaction for which the Portfolio pays a
brokerage commission will be effected at the best price and execution available.
Purchases from underwriters of securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers are purchased at the offered price.
Allocation of transactions, including their frequency, to various dealers
is determined by the Adviser in its best judgment and in a manner deemed to be
in the best interest of the investors in the Portfolio rather than by any
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.
Investment decisions for the Portfolio will be made independently from
those for any other account or investment company that is or may in the future
become managed by the Adviser or its affiliates. If, however, the Portfolio and
other investment companies or accounts managed by the Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. When purchases or sales of the same security for the Portfolio and for
investment companies managed by the Adviser occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
VALUATION OF PORTFOLIO SECURITIES
The Money Market Portfolio will value its securities by the amortized cost
method as it maintains a dollar-weighted average portfolio maturity of 90 days
or less. Portfolio securities for which market quotations are not readily
available are to be valued by the Manager in good faith at its own expense under
the direction of the Trustees.
Other assets, which include cash, prepaid and accrued items and amounts
receivable as income on investments and from the sale of portfolio securities,
are carried at book value, as are all liabilities. Liabilities include accrued
expenses, sums owed for securities purchased, and dividends payable.
CALCULATION OF YIELD
The Fund will calculate its yield quotations based on the net change,
exclusive of realized and unrealized gains or losses, in the value of a
<PAGE>
hypothetical account over a seven calendar day base period. The following is an
example of the yield calculations for the seven days ended December 31, 1997.
Simple yield:
Value of hypothetical account at end of period $1.00105934
Value of hypothetical account at beginning of period 1.00000000
Base period return $ .00105934
------------
Current seven day yield (.00106055 x (365/7) 5.52%
Effective yield:
Effective yield [(.00106055 + 1)365/7 ] - 1 5.68%
These yields reflect the Manager's decision to voluntarily waive a portion
of its management fee and to reimburse certain operating expenses of the Fund.
Therefore, the Fund realized a higher yield as a result of reduced expenses.
Investors should recognize that yields are not necessarily representative of
future results, but will vary as a function of market conditions and expenses
incurred.
The Manager presently intends to reimburse the Fund through an expense
reimbursement fee and/or waive a portion of the Manager's management fee to the
extent necessary to keep the expenses at 0.25% of average daily net assets. The
Manager may change this policy at any time without notice to shareholders. This
would, in some circumstances, have an adverse effect on the net income of the
Fund, and the yields earned by shareholders. For planning purposes prospective
investors and shareholders should assume that expenses will not be reimbursed.
(See "Synopsis of Financial Information" in the Fund's Prospectus.)
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. (the "Manager") is the investment adviser and
manager for the Money Market Portfolio. The Investment Advisory Contract for the
Portfolio was approved by a vote of a majority of the Trustees, including a
majority of those Trustees who are not "interested persons" (as defined in the
Investment Company Act of 1940) of the Portfolio. The 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 outstanding shares of the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
<PAGE>
The Investment Advisory Contract will terminate automatically if assigned
and may be terminated without penalty at any time upon 60 days' prior written
notice by Majority Vote of the Portfolio, by the Trustees of the Portfolio, or
by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular
Fund are allocated to that Fund. Costs, expenses and liabilities 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; 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 limitation of each Fund's Distribution Plan, including the cost of
printing and mailing of prospectuses and other materials incident to soliciting
new accounts; and other miscellaneous expenses.
Expenses of the Portfolio also include all fees under its Administrative
Services Agreement; the expenses connected with the execution, recording and
settlement of security transactions; fees and expenses of the Portfolio's
custodian for all services to the Portfolio, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of preparing
and mailing reports to investors and to governmental officers and commissions;
expenses of meetings of investors and Trustees; the advisory fees payable to the
Adviser under the Advisory Contract and other miscellaneous expense.
The Board of Trustees of the Trust believes that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if it retained the services of an
investment adviser and the assets of the Fund were invested directly in the type
of securities being held by the Portfolio.
The Manager earns an annual fee, payable in monthly installments, at the
rate of 0.40% of the first $100 million and 0.25% in excess of $100 million, of
average net assets. For the year ended December 31, 1997, the Money Market
Portfolio paid fees to the Manager totaling $774,778 ($548,106 in 1996; $299,240
in 1995; $243,359 in 1994).
R. Meeder & Associates, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors are as set forth as follows:
Robert S. Meeder, Sr. Chairman and Sole Director; Philip A. Voelker, Senior Vice
President and Chief Investment Officer; Donald F. Meeder, Vice President and
Secretary; Sherrie L. Acock, Vice President; Robert D. Baker, Vice President;
Robert S. Meeder, Jr., President; and Wesley F. Hoag, Vice President and General
Counsel. Mr. Robert S. Meeder is President and Trustee of the Trust and the
Portfolio. Messrs. James B. Craver, Wesley F. Hoag, and Donald F. Meeder are
officers of the Trust and the Portfolio. Messrs. Robert S. Meeder, Jr. and
Philip A. Voelker are Trustees and officers of the Trust and the Portfolio.
<PAGE>
OFFICERS AND TRUSTEES
The Trust and the Portfolio are managed by their trustees and officers.
Their names, positions and principal occupations during the past five years are
listed below. Except as indicated, each individual has held the office shown or
other offices in the same company for the last five years. Except as otherwise
shown, all persons named as Trustees also serve in similar capacities for all
other mutual funds advised by the Manager, including The Flex-funds 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 or the Fund Manager are indicated by an asterisk (*).
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
- --------------------- ------------- --------------------
ROBERT S. MEEDER, SR.*+, 69 Trustee/President Chairman, R. Meeder &
Associates, Inc., an
investment adviser.
MILTON S. BARTHOLOMEW, 69 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
the Portfolio's Audit
Committee.
ROGER D. BLACKWELL, 57 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
JOHN M. EMERY, 77 Trustee Retired; formerly Vice
2390 McCoy Road President and Treasurer of
Columbus, OH 43220 Columbus & Southern Ohio
Electric Co.; member of
the Portfolio's Audit
Committee.
<PAGE>
RICHARD A. FARR, 79 Trustee President of R&R Supply
3250 W. Henderson Road Co. and Farrair Concepts,
Columbus, OH 43220 Inc., two companies
involved in engineering,
consulting and sales of
heating and air
conditioning equipment.
WILLIAM L. GURNER*, 51 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment
5350 Poplar Avenue, Suite 490 adviser (since January
Memphis, TN 38119 1995); Manager of Trust
Investments of Federal
Express Corporation (1987-
1994).
RUSSEL G. MEANS, 72 Trustee Retired; formerly Chairman
5711 Barry Trace of Employee Benefit
Dublin, OH 43017 Management Corporation,
consultants and
administrators of self-
funded health and
retirement plans.
ROBERT S. MEEDER, JR.*+, 37 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
Woodstock, NY 12498 Portfolio and the
Utilities Stock Portfolio.
WALTER L. OGLE, 59 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
CHARLES A. DONABEDIAN, 55 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
companies; CEO, Winston
Advisors, Inc., an
investment advisor.
<PAGE>
JAMES W. DIDION, 67 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm (1991-
1997).
PHILIP A. VOELKER*+, 44 Trustee and Senior Vice President and
Vice President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 54 Assistant Practicing Attorney;
42 Miller Hill Road Secretary Special Counsel to Flex-
Box 811 Partners, Flex-funds and
Dover, MA 02030 their Portfolios; Senior
Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 59 Secretary/ Vice President of R.
Treasurer Meeder & Associates, Inc.,
and President of Mutual
Funds Service Company.
WESLEY F. HOAG*+, 41 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).
* Interested Person of the Trust (as defined in the Investment Company Act of
1940), Flex-Partners 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 Portfolio and the
Fund Complex as a whole to the Trustees of the Trust and the Fund Complex during
the fiscal year ended December 31, 1997.
<PAGE>
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits Estimated from
Aggregate Accrued Benefits Registrant
Compensation as Part of Annual and Fund
from the Portfolio or Upon Complex Paid
TRUSTEE PORTFOLIO FUND EXPENSE RETIREMENT TO TRUSTEE
- ------- --------- ------------ ---------- ----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $1,245 None None $11,633
John M. Emery $1,245 None None $11,633
Richard A. Farr $1,062 None None $10,633
William F. Gurner None None None None
Russel G. Means $ 862 None None $7,883
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle $ 895 None None $9,883
Philip A. Voelker None None None None
Roger A. Blackwell $ 562 None None $9,883
Charles A. Donabedian $ 826 None None $5,541
James W. Didion None 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; however, the Portfolio and other members of the Fund Complex have
accrued the payment of certain Trustee fees which have not yet been paid to the
Trustees.
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios. In addition, each such Trustee
earns an annual fee, payable quarterly, based on the average net assets in each
Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of
the amount of average net assets between $500 million and $1 billion; 0.0025% of
the amount of average net assets exceeding $1 billion. For the other four
Portfolios, each Trustee is paid a fee of 0.00375% of the amount of each
Portfolio's average net assets exceeding $15 million. Messrs. Bartholomew, Emery
and Donabedian comprise the Audit Committee for The Flex-funds and the
<PAGE>
Flex-Partners Trusts, and each corresponding Portfolio of The Flex-funds and the
Flex-Partners Trusts. Each member of the Audit Committee is paid $500 for each
meeting of the Audit Committee attended.Trustees fees for the Portfolio totaled
$9,598 for the year ended December 31, 1997. Audit Committee fees for the Fund
totaled $367 for the year ended December 31, 1997. All other officers and
Trustees serve without compensation from any Portfolio.
The Trustees and officers of the Fund and the Portfolio own, in the
aggregate, less than 1% of the Fund's total outstanding shares.
DISTRIBUTION PLAN
Rule 12b-1 (the Rule ) under the Investment Company Act of 1940 (the "Act")
describes the circumstances under which an investment company such as the Fund
may, directly or indirectly, bear the expenses of distributing its shares. The
Rule defines such distribution expenses to include the cost of any activity
which is primarily intended to result in the sale of Fund shares.
The Fund has adopted a Distribution Plan (the "Plan") which authorizes,
among other things, payment of incentives in the form of commissions and fees
advertising, the services of public relations consultants, and direct
solicitation. Possible recipients include securities brokers, attorneys,
accountants, investment advisers, investment performance consultants, pension
actuaries, and service organizations. Another class of recipients is banks.
Currently, The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. Since the only function of banks who may be engaged as
participating organizations, is to perform administrative and shareholder
servicing functions, the Fund believes that such laws should not preclude banks
from acting as participating organizations; however, future changes in either
federal or state statutes or regulations relating to the permissible activities
of banks and their subsidiaries or affiliates, as well as judicial or
administrative decisions or interpretations of statutes or regulations could
prevent a bank from continuing to perform all or a part of its shareholder
service activities. If a bank were prohibited from so acting, its shareholder
customers would be permitted to remain shareholders of the Fund and alternative
means for continuing the servicing of such shareholders would be sought. In such
event, changes in the operation of the Fund might occur and a shareholder being
serviced by such bank might no longer be able to avail himself, or itself, of
any automatic investment or other services then being provided by the bank. It
is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. In addition, state
securities laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
<PAGE>
The Fund may expend as much as, but not more than, 3/100 of 1% of the
Fund's average net assets annually pursuant to the Plan. A report of the amounts
so expended in the Fund and the purpose of the expenditures must be made to and
reviewed by the Board of Trustees at least quarterly. In addition, the Plan
provides that it may not be amended to increase materially the costs which the
Fund may bear for distribution pursuant to the Plan without shareholder approval
of the Plan, and that other material amendments of the Plan must be approved by
the Board of Trustees, and by the Trustees who are not interested persons of the
Fund (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan, by vote cast in person at a meeting
called for the purpose of voting on the Plan.
The Plan is terminable at any time by vote of a majority of the Trustees
who are not interested persons and who have no direct or indirect financial
interest in the operation of the Plan or by vote of a majority of the Fund's
shares. Any service agreement terminates upon assignment and is terminable
without penalty at any time by a vote of a majority of the Trustees who are not
interested persons and who have no direct or indirect financial interest in the
operation of any of the Plans, upon not more than 60 days written notice to the
service organization, or by the vote of the holders of a majority of the Fund's
shares, or, upon 15 days notice, by a party to a service agreement.
The Plan was approved by the Fund's Board of Trustees, who made a
determination that there is a reasonable likelihood that the Plan will benefit
the Fund. The Plan has been approved by shareholders and will continue in effect
only if approved at least annually by the Board of Trustees.
Total payments made by the Fund to parties with service agreements for the
year ended December 31, 1997 amounted to $63,003 ($37,963 in 1996; $3,784 in
1995). In addition, expenditures were approved by the Board of Trustees in the
amount of $18,087 ($6,566 in 1996; $2,651 in 1995) for printing and mailing of
prospectuses, periodic reports and other sales materials to prospective
investors. Other expenditures amounted to $0 for the year ended December 31,
1997 ($0 in 1996; $1,450 in 1995).
OTHER SERVICES
CUSTODIAN - Star Bank, N.A., Star Bank Center, 425 Walnut Street,
Cincinnati, Ohio 45202, is custodian of all of the Portfolio's assets.
AUDITORS - KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio,
43215, has been retained as independent auditors for the Fund.
STOCK TRANSFER AGENT Mutual Funds Service Co., 6000 Memorial Drive, Dublin,
Ohio 43017, a wholly owned subsidiary of Muirfield Investors, Inc., is the
Fund's stock transfer and dividend disbursing agent.
REPORTS TO SHAREHOLDERS - The Fund provides shareholders with quarterly
reports of investments and other information, semi-annual financial statements,
and annual reports.
<PAGE>
ADDITIONAL INFORMATION
REGISTRATION STATEMENT: This Statement of Additional Information omits
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission by the Fund. Items of information which
are thus omitted may be obtained from the Commission upon payment of the fee
prescribed by its Rules and Regulations, or may be examined at the offices of
the Commission without charge.
FINANCIAL STATEMENTS
Financial statements for The Institutional Fund and the Money Market
Portfolio are presented on the following pages. Persons interested in obtaining
information about any of the other Funds and/or Portfolios should contact the
Investment Adviser to obtain a copy of the Fund or Portfolio's current
Registration Statement.
<PAGE>
MONEY MARKET PORTFOLIO
Portfolio of Investments as of December 31, 1997
AMORTIZED
YIELD MATURITY FACE AMOUNT COST
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - 2.6%
BB&T Financial Corp. 5.70% 02/11/98 $15,000,000 $15,000,000
================================================================================
TOTAL CERTIFICATES OF DEPOSIT
(Cost $15,000,000 ) 15,000,000
- --------------------------------------------------------------------------------
COMMERCIAL PAPER - 45.1%
American Trading & Products** 5.75% 03/03/98 5,000,000 4,951,285
American Trading & Products** 5.75% 03/10/98 $9,000,000 $8,902,250
Bear Stearns Co., Inc.** 5.73% 03/25/98 25,000,000 24,669,729
Coopertime Tractor 5.57% 04/21/98 4,100,000 4,030,220
Duff & Phelps Utilities & Corp.** 5.70% 02/17/98 4,500,000 4,466,513
Duff & Phelps Utilities & Corp.** 5.55% 04/02/98 6,500,000 6,408,810
Duff & Phelps Utilities & Corp.** 5.58% 04/23/98 5,000,000 4,913,200
Duff & Phelps Utilities & Corp.** 5.56% 05/21/98 2,741,000 2,681,733
Duff & Phelps Utilities & Corp.** 5.65% 07/02/98 5,000,000 4,857,181
Engelhard Corp. 5.62% 06/09/98 7,435,000 7,250,451
Engelhard Corp. 5.70% 06/10/98 10,000,000 9,746,667
Ford Motor Credit Co. 5.47% 06/24/98 20,000,000 19,471,234
GE Capital Corp. 5.68% 02/19/98 15,000,000 14,884,033
GE Capital Corp. 5.56% 05/20/98 8,000,000 7,828,258
GTE Funding, Inc. 6.10% 01/20/98 24,822,000 24,742,087
LG&E Capital Corp. 5.60% 02/19/98 20,000,000 19,847,555
LG&E Capital Corp. 5.70% 04/01/98 5,700,000 5,618,775
LOCAP, Inc.** 5.70% 01/29/98 18,700,000 18,617,097
MCI Communications Corp.** 5.80% 04/15/98 14,500,000 14,257,044
Merrill Lynch & Co., Inc. 5.65% 05/27/98 10,000,000 9,770,861
Merrill Lynch & Co., Inc. 5.59% 06/02/98 15,000,000 14,645,967
Monsanto Co. 5.53% 04/27/98 10,000,000 9,821,811
Safeco Corp.** 5.57% 01/07/98 20,000,000 19,981,433
================================================================================
TOTAL COMMERCIAL PAPER
(Cost $262,364,194 ) 262,364,194
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 35.5%
AT&T Corp. 5.63% 04/08/98 3,893,000 3,889,653
Albertsons, Inc. 5.65% 03/26/98 1,000,000 999,554
American General Finance Corp. 8.25% 01/15/98 400,000 400,317
American General Finance Corp. 7.25% 03/01/98 5,295,000 5,306,059
Associates Corp., N.A. 7.30% 03/15/98 200,000 200,476
Associates Corp., N.A. 5.25% 09/01/98 180,000 179,007
Barnett Banks, Inc. 6.25% 07/28/98 1,500,000 1,503,172
Care Life Project 6.05%* 01/02/98 1,275,000 1,275,000
Chrysler Financial Corp. 5.66% 01/16/98 1,875,000 1,874,850
Chrysler Financial Corp. 8.26% 01/26/98 10,000,000 10,014,254
Chubb Capital Corp. 6.00% 02/01/98 663,000 662,983
Clark Grave Vault Co. 6.00%* 01/02/98 3,000,000 3,000,000
Comerica Bank 6.75% 05/12/98 4,000,000 4,013,379
Coughlin Family Properties, Inc. 6.00%* 01/15/98 4,675,000 4,675,000
Danis Construction Co. 6.00%* 01/02/98 1,000,000 1,000,000
Dean Witter Discover & Co. 6.00% 03/01/98 2,000,000 2,000,098
Doren, Inc. 6.05%* 01/02/98 675,000 675,000
E.I. du Pont de Nemours & Co. 8.50% 06/25/98 3,095,000 3,129,566
Espanola/Nambe 6.05%* 01/02/98 2,315,000 2,315,000
First Chicago NBD Corp. 5.70% 01/07/98 5,000,000 4,999,808
First Chicago NBD Corp. 8.50% 06/01/98 180,000 181,767
First Fidelity Bancorp. 8.50% 04/01/98 2,000,000 2,012,401
First Union Corp. 6.75% 01/15/98 6,219,000 6,220,662
Ford Motor Credit Co. 6.25% 02/26/98 938,000 938,472
Ford Motor Credit Co. 9.13% 05/01/98 550,000 555,647
General Motors Acceptance Corp. 6.22%* 04/13/98 10,000,000 10,000,000
General Motors Acceptance Corp. 7.13% 05/11/98 11,100,000 11,149,261
GTE California, Inc. 6.25% 01/15/98 1,500,000 1,500,218
Gannett, Inc. 5.25% 03/01/98 2,525,000 2,521,635
GE Capital Corp. 8.63% 03/12/98 5,203,000 5,228,186
Georgia Power Co. 5.50% 04/01/98 1,000,000 999,112
Goldman Sachs Group, L.P. 6.10% 04/15/98 7,550,000 7,554,539
H.J. Heinz Co. 8.00% 01/05/98 5,130,000 5,130,626
Hancor, Inc. 6.05%* 01/02/98 700,000 700,000
Hertz Corp. 8.30% 02/02/98 200,000 200,393
Huntington Bancshares, Inc. 5.91% 06/23/98 5,000,000 5,001,908
Huntington Bancshares, Inc. 6.15% 10/15/98 2,000,000 2,003,222
IBM Credit Corp. 5.90% 08/10/98 2,050,000 2,050,041
Lehman Brother Holdings Corp. 5.75% 02/15/98 1,250,000 1,249,434
Liberty Mutual Capital Corp. 5.96% 06/01/98 7,000,000 7,002,592
Merrill Lynch & Co., Inc. 6.52% 06/22/98 1,000,000 1,002,838
<PAGE>
AMORTIZED
YIELD MATURITY FACE AMOUNT COST
- --------------------------------------------------------------------------------
Midwest Power System, Inc. 6.25% 02/01/98 1,750,000 1,750,325
Morgan Stanley, Inc. 9.25% 03/01/98 1,750,000 1,758,938
Morgan Stanley, Inc. 9.40% 03/05/98 1,000,000 1,006,101
Mubea, Inc. 6.05%* 01/02/98 4,375,000 4,375,000
Mubea, Inc. 6.05%* 01/02/98 6,000,000 6,000,000
National Rural Utilities 8.50% 02/15/98 125,000 125,345
NationsBank Corp. 6.63% 01/15/98 615,000 615,143
Nordstrom, Inc. 8.88% 02/15/98 1,000,000 1,003,462
Nynex Credit Co. 6.72% 06/15/98 10,000,000 10,034,980
Osco Industries, Inc. 6.05%* 01/02/98 3,000,000 3,000,000
Pepsico, Inc. 6.13% 01/15/98 283,000 283,025
Potomac Electric Power Co. 4.38% 02/15/98 100,000 99,807
Presrite Corp. 6.05%* 01/02/98 2,210,000 2,210,000
Proctor & Gamble Co. 9.50% 02/11/98 4,450,000 4,465,491
R.I. Lampus Co. 6.05%* 01/02/98 2,440,000 2,440,000
RSD Technology 6.05%* 01/02/98 3,500,000 3,500,000
Salomon, Inc. 6.92% 04/14/98 3,550,000 3,559,833
Salomon, Inc. 7.25% 05/01/98 2,035,000 2,043,998
Seariver Maritime, Inc. 5.65%* 02/12/98 6,700,000 6,700,000
Southern California Edison Co. 5.88% 02/01/98 600,000 599,955
Surgery Financing Co. 6.05%* 01/12/98 6,585,000 6,585,000
Toyota Motor Corp. 5.63% 03/17/98 2,407,000 2,405,639
Toyota Motor Credit Corp. 5.13% 01/19/98 2,255,000 2,254,036
Toyota Motor Credit Corp. 5.88% 06/26/98 803,000 802,610
Travelers Group, Inc. 5.75% 04/15/98 1,500,000 1,499,727
Unilever Capital Corp. 8.88% 03/26/98 1,400,000 1,408,965
WalMart Stores, Inc. 7.00% 04/27/98 1,100,000 1,103,000
White Castle Project 6.05%* 01/02/98 9,500,000 9,500,000
Wisconsin Public Service Corp. 5.25% 07/01/98 320,000 319,019
================================================================================
TOTAL CORPORATE OBLIGATIONS
(Cost $206,765,529 ) 206,765,529
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.4%
Federal National Mortgage Assoc. 5.73% 04/13/98 500,000 499,519
Federal National Mortgage Assoc. 6.72% 04/27/98 140,000 140,398
Federal Home Loan Bank 6.00% 01/13/98 200,000 199,977
Federal Home Loan Bank 5.85% 10/15/98 2,785,000 2,785,000
Student Loan Marketing Assoc. 5.62%* 01/06/98 5,000,000 5,000,000
Student Loan Marketing Assoc. 5.68%* 01/06/98 4,350,000 4,352,319
Student Loan Marketing Assoc. 5.76% 01/14/98 1,000,000 999,913
Tennessee Valley Authority -
callable 1/20/98 @ 104 7.75% 12/15/22 250,000 260,125
================================================================================
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $14,237,251 ) 14,237,251
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 1.7%
***U.S. Treasury Bill 5.27% 01/08/98 63,100 63,036
U.S. Treasury Note 6.00% 09/30/98 10,000,000 10,019,615
================================================================================
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,082,651 ) 10,082,651
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 12.7%
Merrill Lynch, (Collateralized
by $65,582,000 various Discount
Commercial Papers, 1/7/98-1/30/98,
market value - $65,582,000) 6.80%* 01/02/98 64,413,000 64,413,000
Star Bank, (Collateralized by
$9,615,000 GNMA, 7.00%, 3/20/24,
market value - $9,835,784) 5.50%* 01/02/98 9,635,000 9,635,000
================================================================================
TOTAL REPURCHASE AGREEMENTS
(Cost $74,048,000 ) 74,048,000
- --------------------------------------------------------------------------------
================================================================================
TOTAL INVESTMENTS - 100.0%
(Cost $582,497,625 ) $582,497,625
- --------------------------------------------------------------------------------
* Variable rate security. Interest rate is as of December 31, 1997. Maturity
date reflects the next rate change date.
** Security is restricted as to resale to institutional investors, but has been
deemed liquid in accordance with guidelines approved by the Board of Trustees.
***Pledged as collateral on Letter of Credit.
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
Assets:
Investment in corresponding portfolio at value $417,749,464
Unamortized organization costs 4,739
Other assets 252,299
Total Assets 418,006,502
================================================================================
Liabilites:
Dividends payable 1,937,443
Accrued transfer agent and administrative fees 40,540
Other accrued liabilities 34,179
Total Liabilities 2,012,162
================================================================================
Net Assets 415,994,340
================================================================================
Net Assets:
Capital 415,994,340
Accumulated undistributed net
investment income (loss) ---
Accumulated undistributed net realized
gain (loss) on investments ---
Net Assets $415,994,340
================================================================================
Capital Stock Outstanding (indefinite shares
authorized, $0.100) 415,994,340
================================================================================
Net Asset Value, Offering and Redemption Price Per Share $1.00
================================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Net Investment Income from Corresponding Portfolio:
================================================================================
Interest $21,348,707
Expenses (688,245)
Total Net Investment Income from Corresponding Portfolio 20,660,462
================================================================================
Fund Expenses:
================================================================================
Administrative fee 176,082
Transfer agent fees 229,976
Audit fees 5,364
Legal fees 2,635
Printing 3,201
Amortization of organizational costs 3,185
Distribution plan 112,925
Postage 799
Registration and filing fees 35,644
Insurance 1,895
Other expenses 14,602
Total Expenses 586,308
================================================================================
Expenses reimbursed by investment adviser (320,373)
Net Expenses 265,935
NET INVESTMENT INCOME 20,394,527
================================================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $20,394,527
================================================================================
See accompanying notes to financial statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 and DECEMBER 31, 1996
1997 1996
INCREASE (DECREASE) IN NET ASSETS:
================================================================================
OPERATIONS:
================================================================================
Net investment income $20,394,527 $10,844,857
Net increase in net assets resulting from
operations 20,394,527 10,844,857
================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (20,394,527) (10,844,857)
Net decrease in net assets resulting
from dividends and distributions (20,394,527) (10,844,857)
================================================================================
CAPITAL TRANSACTIONS:
Issued 3,337,084,529 1,024,281,687
Reinvested 3,043,438 4,122,320
Redeemed (3,156,276,005) (909,466,834)
Net increase in net assets resulting from
capital share transactions 183,851,962 118,937,173
TOTAL INCREASE IN NET ASSETS 183,851,962 118,937,173
================================================================================
NET ASSETS - Beginning of period 232,142,378 113,205,205
NET ASSETS - End of period $415,994,340 $232,142,378
================================================================================
SHARE TRANSACTIONS:
Issued 3,337,084,529 1,024,281,687
Reinvested 3,043,438 4,122,320
Redeemed (3,156,276,005) (909,466,834)
Change in shares 183,851,962 118,937,173
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
June 15, 1994*
Year Ended December 31, to
1997 1996 1995 Dec. 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.000 $1.000 $1.000 $1.000
Income from Investment Operations
Net Investment Income 0.054 0.053 0.059 0.026
Total From Investment Operations 0.054 0.053 0.059 0.026
Less Distributions
Dividends (from net investment income) (0.054) (0.053) (0.059) (0.026)
Total Distributions (0.054) (0.053) (0.059) (0.026)
Net Asset Value, End of Period $1.000 $1.000 $1.000 $1.000
Total Return 5.53% 5.43% 6.01% 4.80%(1)
Ratios/Supplementary Data
======================================================================================================
Net Assets, End of Period ($000) $415,994 $232,142 $113,205 $59,494
Ratio of Expenses to Average Net Assets 0.25% 0.25% 0.25% 0.25%(1)
Ratio of Net Investment Income to
Average Net Assets 5.41% 5.30% 5.87% 4.51%(1)
Ratio of Expenses to Average Net Assets,
before waiver of fees(2) 0.47% 0.46% 0.55% 0.46%(1)
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees(2) 5.19% 5.09% 5.57% 4.25%(1)
<FN>
1 Annualized
2 Ratio includes fees waived in corresponding portfolio
* Date of commencement of operations.
</FN>
</TABLE>
See accompanying notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
The Flex-Partners Trust (the "Trust") was organized in 1992 and is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Trust offers five
series, and it is presently comprised of five separate funds. The Institutional
Fund (the "Fund") invests all of its investable assets in a corresponding
open-end management investment company (the "Portfolio") having the same
investment objective as the Fund. The Fund, the Portfolio into which the Fund
invests and the percentage of the Portfolio owned by the Fund is as follows:
PERCENTAGE OF PORTFOLIO OWNED
FUND PORTFOLIO BY FUND AS OF DECEMBER 31, 1997
Institutional Fund Money Market Portfolio 71%
The financial statements of the Portfolio, including the Portfolio of
Investments, are included elsewhere in this report and should be read in
conjunction with the financial statements of the Fund.
2. SIGNIFICANT ACCOUNTING POLICES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Valuation of Investments
The Fund values its investment in the corresponding Portfolio at fair value.
Valuation of securities held by the Portfolio is further described at Note 2 of
the Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income and net capital gains
to its shareholders. Therefore, no Federal income tax provision is required.
Distributions to Shareholders
The Fund declares dividends from net investment income on a daily basis and pays
such dividends on a monthly basis. The Fund distributes net capital gains, if
any, on an annual basis. Distributions from net investment income and from net
capital gains are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Permanent book and tax
basis differences have been reclassified among the components of net assets.
Organizational Costs
The costs related to the organization of the Fund have been deferred and are
being amortized by the Fund on a straight-line basis over a five-year period.
Expenses
Expenses incurred by the Trust that do not specifically relate to an individual
Fund of the Trust are allocated to the Funds based on each Fund's relative net
assets or other appropriate basis. The Fund records daily its proportionate
share of the corresponding portfolio's income and expenses.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), provides the Portfolio with investment management, research,
statistical and advisory services.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
stock transfer, dividend disbursing and shareholder services agent for the Fund.
Subject to a $4,000 annual minimum fee the Fund pays MFSCo an annual fee equal
to the greater of $20 per active shareholder account or 0.06% of the Fund's
average daily net assets.
MFSCo provides the Trust with certain administrative services. In compensation
for such services, the Fund pays MFSCo an annual fee equal to 0.05% of the
Fund's average daily net assets. Prior to January 31, 1997, such fees were
payable at an annual rate of 0.03% of average daily net assets.
RMA has voluntarily agreed to reimburse the Fund for the amount by which annual
expenses of the Fund including expenses allocated from its respective Portfolio
(excluding interest, taxes, brokerage fees, and extraordinary expenses) exceed
0.25% of average daily net assets of the Fund. Such reimbursement is limited to
the total of fees charged the Fund by RMA and MFSCo.
Pursuant to Rule 12b-1 of the Act, the Fund has adopted a Distribution Plan (the
"Plan"). Under the terms of the Plan, the Fund may incur certain expenses
associated with the distribution of fund shares in amounts not to exceed 0.03%
of the average daily net assets of the Fund on an annual basis.
Certain officers of the Funds and trustees of the Trust and the Portfolios are
also officers or directors of MII, RMA and MFSCo.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Flex-Partners Trust
We have audited the accompanying statement of assets and liabilities of The
Flex-Partners Trust -- The Institutional Fund (Fund) as of December 31, 1997,
and the related statement of operations, statements of changes in net assets and
the financial highlights for each of the periods indicated herein. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Flex-Partners Trust -- The Institutional Fund at December 31, 1997, the results
of its operations, the changes in its net assets and the financial highlights
for each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 12, 1998
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
MONEY
MARKET
PORTFOLIO
Assets:
Investments at market value* $508,449,625
Repurchase agreements, at cost* 74,048,000
Cash 551
Options purchased (cost $27,378,320) ---
Receivable for net variation margin on
futures contracts ---
Interest receivable 5,477,161
Dividends receivable ---
Prepaid/Other assets 2,005
Unamortized organization costs ---
Total Assets 587,977,342
=============================================================
Liabilites:
Payable for securities purchased 261,255
Payable for net variation margin on futures
contracts ---
Options written (premiums received $19,383,673) ---
Payable to investment adviser 78,989
Accrued audit fees 10,852
Accrued custodian fees 5,729
Accrued trustee fees 2,369
Accrued fund accounting fees 8,656
Other accrued liabilities 2,753
Total Liabilities 958,695
=============================================================
Net Assets 587,018,647
=============================================================
Net Assets:
=============================================================
Capital 587,018,647
Net unrealized appreciation (depreciation) of
investments
Net Assets $587,018,647
=============================================================
*Securities at cost 582,497,625
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
MONEY
MARKET
PORTFOLIO
NET INVESTMENT INCOME
===========================================================
Interest $29,260,441
Dividends ---
Total Investment Income 29,260,441
===========================================================
Expenses:
===========================================================
Investment advisory fees 1,436,168
Audit fees 14,851
Custodian fees 36,718
Trustees fees and expenses 7,762
Legal fees 3,307
Amortization of organization cost 2,545
Accounting fees 89,048
Insurance 5,027
Other expenses 11,241
Total Expenses 1,606,667
===========================================================
Investment advisory fees waived (661,390)
Directed brokerage payments received ---
Total Net Expenses 945,277
===========================================================
NET INVESTMENT INCOME 28,315,164
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
===========================================================
Net realized gain from futures contracts ---
Net realized gain (loss) from investments ---
Net change in unrealized appreciation
(depreciation) of investments ---
NET GAIN (LOSS) ON INVESTMENTS ---
===========================================================
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $28,315,164
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
1997 1996
INCREASE (DECREASE) IN NET ASSETS:
===============================================================================
OPERATIONS:
===============================================================================
Net investment income $28,315,164 $19,455,266
Net realized gain (loss) from investments
and futures contracts --- ---
Net change in unrealized appreciation
(depreciation) of investments --- ---
Net increase in net assets
resulting from operations 28,315,164 19,455,266
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
===============================================================================
Contributions 3,784,994,914 1,414,075,891
Withdrawals (3,579,221,656)(1,335,249,306)
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests 205,773,258 78,826,585
TOTAL INCREASE (DECREASE) IN NET ASSETS 234,088,422 98,281,851
===============================================================================
NET ASSETS - Beginning of period 352,930,225 254,648,374
NET ASSETS - End of period $587,018,647 $352,930,225
<TABLE>
MONEY MARKET PORTFOLIO
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $587,019 $352,930 $256,126 $224,523 $200,148
Ratio of Expenses to Average Net Assets 0.18% 0.19% 0.21% 0.19% 0.19%
Ratio of Net Investment Income to
Average Net Assets 5.47% 5.34% 5.87% 4.28% 3.09%
Ratio of Expenses to Average Net Assets,
before waiver of fees 0.31% 0.33% 0.37% 0.39% 0.40%
Ratio of Net Investment Income to Average
Net Assets, before waiver of fees 5.34% 5.20% 5.70% 4.08% 2.88%
</TABLE>
See accompanying notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
The Institutional Fund (the "Fund") invests all of its investable assets in a
corresponding open-end management investment company (a "Portfolio") having the
same investment objective as the Fund. The Portfolio is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no-load, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio.
The investment objective of the Money Market Portfolio is to seek current income
and stable net asset values through investment in a portfolio of money market
instruments. The financial statements of the Fund are included elsewhere in this
report.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments
Money market securities held in the Portfolio are valued at amortized cost,
which approximates market value.
Repurchase Agreements
The Portfolio may engage in repurchase agreement transactions whereby the
Portfolio takes possession of an underlying debt instrument subject to an
obligation of the seller to repurchase the instrument from the Portfolio and an
obligation of the Portfolio to resell the instrument at an agreed upon price and
term. At all times, the Portfolio maintains the value of collateral, including
accrued interest, at least 100% of the amount of the repurchase agreement, plus
accrued interest. If the seller defaults or the fair value of the collateral
declines, realization of the collateral by the Portfolios may be delayed or
limited.
Income Taxes
It is the Portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to it. Therefore, no Federal income tax provision is
required.
Organizational Costs
The costs related to the organization of the Portfolio have been deferred and
are being amortized by the Portfolio on a straight-line basis over a five-year
period. Such costs have been fully amortized.
Securities Transactions
The Portfolio records security transactions on the trade date. Interest income
(including amortization of premium and accretion of discount) is recognized as
earned.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), provides the Portfolio with investment management, research,
statistical and advisory services. For such services the Portfolio pays monthly
a fee at the following annual rates: 0.40% of average daily net assets up to
$100 million and 0.25% of average daily net assets exceeding $100 million.
During the year ended December 31, 1997, RMA voluntarily waived a portion of its
investment advisory fees in the Portfolio.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
accounting services agent for the Portfolio. In compensation for such services
the Portfolio pays MFSCo an annual fee equal to the greater of: (a.) 0.15% of
the first $10 million of average daily net assets, 0.10% of the next $20 million
of average daily net assets, 0.02% of the next $50 million of average daily net
assets, and 0.01% in excess of $80 million of average daily net assets, or (b.)
$30,000.
Certain officers and trustees of the Portfolio are also officers or directors of
MII, RMA and MFSCo.
4. SECURITIES TRANSACTIONS
As of December 31, 1997, the aggregate cost basis of investments for Federal
income tax purposes was $582,497,625.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The Money Market Portfolio:
We have audited the accompanying statement of assets and liabilities of the
Money Market Portfolio (Portfolio), including the portfolio of investments, as
of December 31, 1997, and the related statement of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and the financial highlights are
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1997, by confirmation with the custodian and brokers and other
appropriate audit procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Portfolio at December 31, 1997, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated herein, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 12, 1998
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Financial Statements included in Part A
Financial Highlights
Financial Statements included in Part B
REGISTRANT - THE FLEX-PARTNERS' CORE EQUITY, UTILITY GROWTH, TACTICAL
ASSET ALLOCATION AND INTERNATIONAL EQUITY FUNDS
Statements of Assets and Liabilities - December 31, 1997
Statements of Operations - For the periods ended December 31, 1997
Statements of Changes in Net Assets - for the periods ended
December 31, 1997 and December 31, 1996
Financial Highlights - for the periods indicated therein
Notes to Financial Statements
Independent Auditors' Report dated February 12, 1998.
REGISTRANT - THE FLEX-PARTNERS' INSTITUTIONAL FUND
Statements of Assets and Liabilities - December 31, 1997
Statements of Operations - For the period ended December 31, 1997
Statements of Changes in Net Assets for the years ended
December 31, 1997 and December 31, 1996
Financial Highlights - for the periods indicated therein
Notes to Financial Statements
Independent Auditors' Report dated February 12, 1998.
PORTFOLIOS - GROWTH STOCK, UTILITIES STOCK AND MUTUAL FUND PORTFOLIOS
Portfolio of Investments - December 31, 1997
Statements of Assets and Liabilities - December 31, 1997
Statements of Operations - For the period ended December 31, 1997
Statements of Changes in Net Assets for the years ended
December 31, 1997 and December 31, 1996
Financial Highlights - for the periods indicated therein
Notes to Financial Statements
Independent Auditors' Report dated February 12, 1998.
1
<PAGE>
PORTFOLIO - MONEY MARKET PORTFOLIO
Statements of Assets and Liabilities - December 31, 1997
Statements of Operations - For the period ended December 31, 1997
Statements of Changes in Net Assets for the years ended December 31,
1997 and December 31, 1996
Financial Highlights for the periods indicated therein
Notes to Financial Statements
Independent Auditors' Report dated February 12, 1998.
Statements and schedules other than those listed above are omitted because they
are not required, or because the information required is included in the
financial statements or notes thereto.
(b) Exhibits - Tactical Asset Allocation, Utility Growth, Core Equity and
International Equity Funds:
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. Not Applicable.
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 N-1A 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 Star Bank, N.A. --
filed as an exhibit to Registrant's First Post-Effective
Amendment to the Registration Statement on Form N-1A filed with
the Commission on April 12, 1993, which exhibit is incorporated
herein by reference. Custodian Agreement between the Registrant
and State Street Bank and Trust Company -- filed as an exhibit to
Registrant's Sixteenth Post-Effective Amendment to the
Registration Statement on Form N-1A filed with the Commission on
August 28, 1997, which exhibit is incorporated herein by
reference.
2
<PAGE>
9. Administrative Services Agreement between the Tactical Asset
Allocation and Utility Growth Funds and Mutual Funds Service Co.
-- filed as an exhibit to Registrant's Seventh Post-Effective
Amendment to the Registration Statement on Form N-1A filed with
the Commission on February 18, 1995, which exhibit is
incorporated herein by reference. Administrative Services and
Accounting Services Agreements between the Core Equity Fund and
Mutual Funds Service Co. -- filed as an exhibit to Registrant's
Thirteenth Post-Effective Amendment to the Registration Statement
on Form N-1A filed with the Commission on March 13, 1997, which
exhibit is incorporated herein by reference. Administration and
Accounting Services Agreements between the International Equity
Fund and Mutual Funds Service Co. -- filed as an exhibit to
Registrant's Fifteenth Post-Effective Amendment to the
Registration Statement on Form N-1A 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. Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants is filed herewith.
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 Plans for the Class A Shares and Class C Shares
of Utility Growth Fund -- reference is made to the exhibits
referred to in Part C, Item 24(b)(15) of Registrant's Fourth
Post-Effective Amendment to the Registration Statement on Form
N-1A filed with the Commission on or about October 3, 1994, and
is incorporated herein by reference. 12b-1 and Service Plans for
the Class A Shares and Class C Shares of The Tactical Asset
Allocation Fund -- reference is made to the exhibits referred to
in Part C, Item 24(b)(15) of the Registrant's Seventh
Post-Effective Amendment to the Registration Statement on Form
N-1A filed with the Commission on or about February 18, 1995, and
is incorporated herein by reference. 12b-1 and Service Plans for
Class A Shares and Class C Shares of the Core Equity Fund
(formerly The CEF Fund) dated September 23, 1996 -- filed as an
exhibit to Registrant's Thirteenth Post-Effective Amendment to
the Registration Statement on Form N-1A filed with the Commission
on March 13, 1997, which exhibit is incorporated herein by
reference. 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 N-1A filed with the Commission on
June 18, 1997, which exhibit is incorporated herein by reference.
3
<PAGE>
16. Schedules for Computation of Performance Quotation for the Core
Equity, Utility Growth, Tactical Asset Allocation, and
International Equity Funds are filed herewith.
17. Financial Data Schedules for the Core Equity, Utility Growth,
Tactical Asset Allocation, and International Equity Funds are
filed herewith.
18. Multiple Class Plans for Utility Growth Fund and Tactical Asset
Allocation Fund are filed as an exhibit to Registrant's
Seventeenth Post-Effective Amendment to the Registration
Statement on Form N-1A filed with the Commission on or about
February 27, 1998, which exhibit is incorporated herein by
reference. Multiple Class Plan for the Core Equity Fund (formerly
the CEF Fund) -- filed as an exhibit to Registrant's Thirteenth
Post-Effective Amendment to the Registration Statement on Form
N-1A filed with the Commission on March 13, 1997, which exhibit
is incorporated herein by reference.
19. Powers of Attorney of Trustees of Registrant and each Portfolio
-- previously filed and incorporated herein by reference;
however, additional Powers of Attorney for new Trustees of
Registrant and each Portfolio are filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities at December 31, 1997.
Title of Number of
Class Fund Record Holders
----- ---- --------------
Class A Tactical Asset 1
Shares of Allocation Fund
Beneficial
Interest
Class C Tactical Asset 547
Shares of Allocation Fund
Beneficial
Interest
Class A Utility Growth Fund 125
Shares of
Beneficial
Interest
Class C Utility Growth Fund 46
Shares of
Beneficial
Interest
Class A Core Equity Fund 4
Shares of
Beneficial
Interest
Class C Core Equity Fund 3
Shares of
Beneficial
Interest
Shares of International Equity Fund 74
Beneficial
Interest
4
<PAGE>
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,
each 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.
Each 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, each Fund will comply with the provisions
of Investment Company Act.
Item 28. Business and Other Connections of Investment Adviser.
Not applicable.
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,
President Vice President
Joseph A. Zarr* Vice President None
Donald F. Meeder* Secretary Secretary,
Treasurer
Ronald C. Paul* Treasurer None
James B. Craver Asst. Secretary, Assistant
P. O. Box 811 Asst. Treasurer Secretary
Dover, MA 02030-0811
Mark D. Maxwell* Asst. Secretary None
*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 Star Bank, N.A., custodian of
the Core Equity, Utility Growth and Tactical Asset Allocation Funds,
at 425 Walnut Street, Cincinnati, Ohio 45202; and State Street Bank
and Trust Company, custodian of the International Equity Fund, 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.
6
<PAGE>
(b) Exhibits - The Institutional 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. Not Applicable.
6. Not Applicable.
7. Not Applicable.
8. Custodian Agreement -- Between the Registrant and Star Bank, N.A.
filed as an exhibit to Registrant's First Post-Effective
Amendment to the Registration Statement on Form N-1A filed with
the Commission on April 12, 1993, which exhibit is incorporated
herein by reference.
9. Administration Services Agreement between the Fund and Mutual
Funds Service Co. filed as an exhibit to Registrant's Seventh
Post-Effective Amendment to the Registration Statement on Form
N-1A filed with the Commission on or before February 18, 1995,
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. Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants -- filed herewith.
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.
7
<PAGE>
14. Not Applicable.
15. 12b-1 Plan for The Institutional Fund -- reference is made to the
exhibits referred to in Part C, Item 24(b)(15) of Registrant's
Second Post-Effective Amendment to the Registration Statement on
Form N-1A filed with the Commission on or about April 18, 1994,
and is incorporated herein by reference.
16. Schedule for Computation of Performance Quotation for The
Institutional Fund is filed herewith.
17. Financial Data Schedule for The Institutional Fund is filed as an
exhibit herewith.
18. Not Applicable.
19. Powers of Attorney of Trustees of Registrant and each Portfolio
-- previously filed and incorporated herein by reference;
however, Powers of Attorney of new Trustees of Registrant and
each Portfolio are filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities at December 31, 1997.
Title of Number of
Class Fund Record Holders
----- ---- --------------
Shares of The Institutional Fund 37
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.
8
<PAGE>
Item 28. Business and Other Connections of Investment Adviser.
Not applicable.
Item 29. Principal Underwriters.
Not Applicable.
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 Star Bank, N.A., the Fund's custodian, at 425 Walnut Street,
Cincinnati, Ohio 45202. 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.
9
<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 30th day of
April, 1998.
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.
4/30/98 /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, James W. Didion, 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
4/30/98 /s/ Donald F. Meeder
---------------- -------------------------------------
Date Signed Donald F. Meeder
Executed by Donald F. Meeder
Pursuant to Powers of Attorney
<PAGE>
SIGNATURES
Mutual Fund Portfolio (the "Portfolio") has duly caused this Post-Effective
Amendment to the Registration on Form N-1A of The Flex-Partners (File No.
33-48922) to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dublin and State of Ohio on the 30th day of April,
1998.
MUTUAL FUND PORTFOLIO
By: /s/ Donald F. Meeder
--------------------------------
Donald F. Meeder
This Post-Effective Amendment to the Registration Statement on Form N-1A of
The Flex-Partners (File No. 33-48922) has been signed below by the following
persons in the capacities with respect to the Portfolio indicated on April 30,
1998.
Signature Title
--------- -----
Robert S. Meeder, Sr.* President and Trustee
- --------------------------------
Robert S. Meeder, Sr.
Milton S. Bartholomew* Trustee
- --------------------------------
Milton S. Bartholomew
Roger D. Blackwell* Trustee
- --------------------------------
Roger D. Bladkwell
James W. Didion* Trustee
- --------------------------------
James W. Didion
Charles A. Donabedian* Trustee
- --------------------------------
Charles A. Donabedian
John M. Emery* Trustee
- --------------------------------
John M. Emery
Richard A. Farr* Trustee
- --------------------------------
Richard A. Farr
William L. Gurner* Trustee
- --------------------------------
William L. Gurner
Russel G. Means* Trustee
- --------------------------------
Russel G. Means
/s/ Donald F. Meeder Secretary/Treasurer, Principal Financial
- -------------------------------- Officer and Principal Accounting Officer
Donald F. Meeder
Robert S. Meeder, Jr.* Vice President and Trustee
- --------------------------------
Robert S. Meeder, Jr.
<PAGE>
Lowell G. Miller* Trustee
- --------------------------------
Lowell G. Miller
Walter L. Ogle* Trustee
- --------------------------------
Walter L. Ogle
Philip A. Voelker* Vice President and Trustee
- --------------------------------
Philip A. Voelker
*By: /s/ Donald F. Meeder
----------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
<PAGE>
SIGNATURES
Utilities Stock Portfolio (the "Portfolio") has duly caused this
Post-Effective Amendment to the Registration Statement on Form N-1A of The
Flex-Partners to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dublin and State of Ohio on the 30th day of April,
1998.
UTILITIES STOCK PORTFOLIO
By: /s/ Donald F. Meeder
---------------------------
Donald F. Meeder
This Registration Statement on Form N-1A of The Flex-Partners has been
signed below by the following persons in the capacities with respect to the
Portfolio indicated on April 30, 1998.
Signature Title
--------- -----
Robert S. Meeder, Sr.* President and Trustee
- --------------------------------
Robert S. Meeder, Sr.
Milton S. Bartholomew* Trustee
- --------------------------------
Milton S. Bartholomew
Roger D. Blackwell* Trustee
- --------------------------------
Roger D. Bladkwell
James W. Didion* Trustee
- --------------------------------
James W. Didion
Charles A. Donabedian* Trustee
- --------------------------------
Charles A. Donabedian
John M. Emery* Trustee
- --------------------------------
John M. Emery
Richard A. Farr* Trustee
- --------------------------------
Richard A. Farr
William L. Gurner* Trustee
- --------------------------------
William L. Gurner
Russel G. Means* Trustee
- --------------------------------
Russel G. Means
/s/ Donald F. Meeder Secretary/Treasurer, Principal Financial
- -------------------------------- Officer and Principal Accounting Officer
Donald F. Meeder
Robert S. Meeder, Jr.* Vice President and Trustee
- --------------------------------
Robert S. Meeder, Jr.
<PAGE>
Lowell G. Miller* Trustee
- --------------------------------
Lowell G. Miller
Walter L. Ogle* Trustee
- --------------------------------
Walter L. Ogle
Philip A. Voelker* Vice President and Trustee
- --------------------------------
Philip A. Voelker
*By: /s/ Donald F. Meeder
----------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
<PAGE>
SIGNATURES
Growth Stock Portfolio (the "Portfolio") has duly caused this
Post-Effective Amendment to the Registration Statement on Form N-1A of The
Flex-Partners to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dublin and State of Ohio on the 30th day of April,
1998.
GROWTH STOCK PORTFOLIO
By: /s/ Donald F. Meeder
---------------------------
Donald F. Meeder
This Registration Statement on Form N-1A of The Flex-Partners has been
signed below by the following persons in the capacities with respect to the
Portfolio indicated on April 30, 1998.
Signature Title
--------- -----
Robert S. Meeder, Sr.* President and Trustee
- --------------------------------
Robert S. Meeder, Sr.
Milton S. Bartholomew* Trustee
- --------------------------------
Milton S. Bartholomew
Roger D. Blackwell* Trustee
- --------------------------------
Roger D. Bladkwell
James W. Didion* Trustee
- --------------------------------
James W. Didion
Charles A. Donabedian* Trustee
- --------------------------------
Charles A. Donabedian
John M. Emery* Trustee
- --------------------------------
John M. Emery
Richard A. Farr* Trustee
- --------------------------------
Richard A. Farr
William L. Gurner* Trustee
- --------------------------------
William L. Gurner
Russel G. Means* Trustee
- --------------------------------
Russel G. Means
/s/ Donald F. Meeder Secretary/Treasurer, Principal Financial
- -------------------------------- Officer and Principal Accounting Officer
Donald F. Meeder
Robert S. Meeder, Jr.* Vice President and Trustee
- --------------------------------
Robert S. Meeder, Jr.
<PAGE>
Lowell G. Miller* Trustee
- --------------------------------
Lowell G. Miller
Walter L. Ogle* Trustee
- --------------------------------
Walter L. Ogle
Philip A. Voelker* Vice President and Trustee
- --------------------------------
Philip A. Voelker
*By: /s/ Donald F. Meeder
----------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
<PAGE>
SIGNATURES
Money Market Portfolio (the "Portfolio") has duly caused this
Post-Effective Amendment to the Registration Statement on Form N-1A of The
Flex-Partners to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dublin and State of Ohio on the 30th day of April,
1998.
MONEY MARKET PORTFOLIO
By: /s/ Donald F. Meeder
------------------------------
Donald F. Meeder
This Registration Statement on Form N-1A of The Flex-Partners has been
signed below by the following persons in the capacities with respect to the
Portfolio indicated on April 30, 1998.
Signature Title
--------- -----
Robert S. Meeder, Sr.* President and Trustee
- --------------------------------
Robert S. Meeder, Sr.
Milton S. Bartholomew* Trustee
- --------------------------------
Milton S. Bartholomew
Roger D. Blackwell* Trustee
- --------------------------------
Roger D. Bladkwell
James W. Didion* Trustee
- --------------------------------
James W. Didion
Charles A. Donabedian* Trustee
- --------------------------------
Charles A. Donabedian
John M. Emery* Trustee
- --------------------------------
John M. Emery
Richard A. Farr* Trustee
- --------------------------------
Richard A. Farr
William L. Gurner* Trustee
- --------------------------------
William L. Gurner
Russel G. Means* Trustee
- --------------------------------
Russel G. Means
/s/ Donald F. Meeder Secretary/Treasurer, Principal Financial
- -------------------------------- Officer and Principal Accounting Officer
Donald F. Meeder
Robert S. Meeder, Jr.* Vice President and Trustee
- --------------------------------
Robert S. Meeder, Jr.
Lowell G. Miller* Trustee
- --------------------------------
Lowell G. Miller
<PAGE>
Walter L. Ogle* Trustee
- --------------------------------
Walter L. Ogle
Philip A. Voelker* Vice President and Trustee
- --------------------------------
Philip A. Voelker
*By: /s/ Donald F. Meeder
----------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The Flex-Partners, Mutual Fund
Portfolio, Utilities Stock Portfolio,
Growth Stock Portfolio and Money
Market Portfolio:
We consent to the use of our reports included herein dated February 12, 1998 on
the financial statements of the Tactical Asset Allocation Fund, Utility Growth
Fund, Core Equity Fund, International Equity Fund, Institutional Fund, the
Mutual Fund Portfolio, Utilities Stock Portfolio, Growth Stock Portfolio and
Money Market Portfolio as of December 31, 1997 and for the periods indicated in
each Annual Report and to the references to our firm under the headings
"Financial Highlights" in the prospectuses and "Auditors" in the Statements of
Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
April 30, 1998
EXHIBIT 16
THE FLEX-PARTNERS
THE INSTITUTIONAL FUND
YIELD COMPUTATION SCHEDULE
Method by which yield is computed:
YIELD = Base Period Return x (365/7)
EFFECTIVE YIELD = [(Base Period Return + 1)365/7]
Beginning Account Balance 1.00
Dividend Declaration
December 25 0.00015110
December 26 0.00015110
December 27 0.00015110
December 28 0.00015110
December 29 0.00015055
December 30 0.00015110
December 31 0.00015329
----------
0.00105934
Less: Deductions from Shareholder Accounts 0.00
----------
Ending Account Balance 1.00105934
Less: Beginning Account Balance -1.00
----------
Difference 0.00105934
Base Period Return
(Difference/Beginning Account Balance) 0.00105934
Yield Quotation
(Base Period Return x 365/7) 5.52%
Effective Yield Quotation
[(Base Period Return + 1)365/7] - 1 5.68%
The yield quotations were computed based on the seven days ending December 31,
1997 for the period ended December 31, 1997.
<PAGE>
EXHIBIT 16
THE FLEX-PARTNERS
TACTICAL ASSET ALLOCATION FUND
COMPUTATION SCHEDULE
Method by which total return (ending redeemable value) is computed:
P(1 + T)nth power = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or ten year periods (or fractional portion
thereof)
CLASS A 1 YEAR 1.42 YEARS
- ------- ------ ----------
Beginning Account Balance $1,000.00 $1,000.00
Average Annual Total Return 17.29% 16.25%
Ending Redeemable Value $1,172.91 $1,237.53
Formula Computation:
1 year: $1,000(1 + .1729) = $1,172.91
1.42 years $1,000(1 + .1625)1.42nd power = $1.237.53
CLASS C 1 YEAR 2.59 YEARS
- ------- ------ ----------
Beginning Account Balances $1,000.00 $1,000.00
Average Annual Total Return 17.71% 14.44%
Ending Redeemable Value $1,177.10 $1,417.01
Formula Computation:
1 year: $1,000(1 + .1771) = $1,177.10
2.59 years: $1,000(1 + .1444)2.59th power = $1,417.01
The total return quotations represented above were computed for the periods
ended December 31, 1997.
<PAGE>
EXHIBIT 16
THE FLEX-PARTNERS
UTILITY GROWTH FUND
COMPUTATION SCHEDULE
Method by which total return (ending redeemable value) is computed:
P(1 + T)nth power = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or ten year periods (or fractional portion
thereof)
CLASS A 1 YEAR 2.47 YEARS
- ------- ------ ----------
Beginning Account Balance $1,000.00 $1,000.00
Average Annual Total Return 28.41% 22.86%
Ending Redeemable Value $1,284.14 $1,664.64
Formula Computation:
1 year: $1,000(1 + .2841) = $1,284.14
2.47 years: $1,000(1 + .2286)2.47th power = $1,664.64
CLASS C 1 YEAR 2.47 YEARS
- ------- ------ ----------
Beginning Account Balances $1,000.00 $1,000.00
Average Annual Total Return 28.25% 22.71%
Ending Redeemable Value $1,282.51 $1,659.60
Formula Computation:
1 year: $1,000(1 + .2825) = $1,282.51
2.47 years: $1,000(1 + .2271)2.47th power = $1,659.60
The total return quotations represented above were computed for the periods
ended December 31, 1997.
<PAGE>
EXHIBIT 16
THE FLEX-PARTNERS
CORE EQUITY FUND
COMPUTATION SCHEDULE
Method by which total return (ending redeemable value) is computed:
P(1 + T)nth power = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or ten year periods (or fractional portion
thereof)
CLASS A 0.42 YEAR
- ------- ---------
Beginning Account Balance $1,000.00
Average Annual Total Return 2.00%
Ending Redeemable Value $1,020.04
Formula Computation:
0.42 year: $1,000(1 + .0200) = $1,020.04
CLASS C 0.42 YEAR
- ------- ---------
Beginning Account Balances $1,000.00
Average Annual Total Return 1.88%
Ending Redeemable Value $1,018.76
Formula Computation:
0.42 year: $1,000(1 + .0188) = $1,018.76
The total return quotations represented above were computed for the periods
ended December 31, 1997.
<PAGE>
EXHIBIT 16
THE FLEX-PARTNERS
INTERNATIONAL EQUITY FUND
COMPUTATION SCHEDULE
Method by which total return (ending redeemable value) is computed:
P(1 + T)nth power = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or ten year periods (or fractional portion
thereof)
INTERNATIONAL EQUITY FUND 0.33 YEAR
- ------------------------- ---------
Beginning Account Balance $1,000.00
Average Annual Total Return -2.56%
Ending Redeemable Value $ 974.40
Formula Computation:
0.33 year: $1,000(1 - .0256) = $ 974.40
The total return quotations represented above were computed for the periods
ended December 31, 1997.
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker 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 Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (the "Portfolios"), The Flex-Partners
or The Flex-funds (each a "Trusts") 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 Portfolios or the Trusts 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
<PAGE>
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 March, 1998.
/s/ James W. Didion
--------------------------------
James W. Didion
<PAGE>
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A.
Voelker 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 Money Market, Mutual Fund, Growth
Stock, Bond and Utilities Stock Portfolios (collectively, the "Portfolios"), The
Flex-Partners or The Flex-funds (collectively, the "Trusts") 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 Portfolios or
the Trusts 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 March, 1998.
/s/ James W. Didion
---------------------------
James W. Didion
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889170
<NAME> THE FLEX PARTNERS
<SERIES>
<NUMBER> 041
<NAME> CORE EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> AUG-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 323498
<INVESTMENTS-AT-VALUE> 328462
<RECEIVABLES> 5355
<ASSETS-OTHER> 9167
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 342984
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18039
<TOTAL-LIABILITIES> 18039
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 320520
<SHARES-COMMON-STOCK> 19370 <F1>
<SHARES-COMMON-PRIOR> 0 <F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 539
<ACCUM-APPREC-OR-DEPREC> 4964
<NET-ASSETS> 324945
<DIVIDEND-INCOME> 2100
<INTEREST-INCOME> 868
<OTHER-INCOME> 0
<EXPENSES-NET> 2897
<NET-INVESTMENT-INCOME> 71
<REALIZED-GAINS-CURRENT> 1363
<APPREC-INCREASE-CURRENT> 4964
<NET-CHANGE-FROM-OPS> 6398
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 112
<DISTRIBUTIONS-OF-GAINS> 1437
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44658
<NUMBER-OF-SHARES-REDEEMED> 25410
<SHARES-REINVESTED> 122
<NET-CHANGE-IN-ASSETS> 324945
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13661
<AVERAGE-NET-ASSETS> 259379
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0.07
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000889170
<NAME> THE FLEX PARTNERS
<SERIES>
<NUMBER> 042
<NAME> CORE EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> AUG-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 323498
<INVESTMENTS-AT-VALUE> 328462
<RECEIVABLES> 5355
<ASSETS-OTHER> 9167
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 342984
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18039
<TOTAL-LIABILITIES> 18039
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 320520
<SHARES-COMMON-STOCK> 6281
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 539
<ACCUM-APPREC-OR-DEPREC> 4964
<NET-ASSETS> 324945
<DIVIDEND-INCOME> 2100
<INTEREST-INCOME> 868
<OTHER-INCOME> 0
<EXPENSES-NET> 2897
<NET-INVESTMENT-INCOME> 71
<REALIZED-GAINS-CURRENT> 1363
<APPREC-INCREASE-CURRENT> 4964
<NET-CHANGE-FROM-OPS> 6398
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 465
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6244
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 37
<NET-CHANGE-IN-ASSETS> 324945
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