SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 17
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17
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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/ / on pursuant to paragraph (b) of Rule 485.
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/ / 60 days after filing pursuant to paragraph (a)(1).
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/XXX / on April 30, 1998 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 31,1996 was filed with the Commission on February
19, 1997.
The Mutual Fund Portfolio and the Utilities Stock Portfolio have also executed
this Registration Statement.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 17 (the "Amendment") to the Registrant's
Registration Statement on Form N-1A is being filed with respect to the Tactical
Asset Allocation Fund and the Utility Growth Fund. As a result, the Amendment
does not otherwise affect the Registrant's currently effective Prospectus or
Statement of Additional Information with respect to The Institutional Fund, the
Core Equity Fund, or the International Equity Fund, which are incorporated
herein by reference as most recently filed pursuant to Rule 497 under the
Securities Act of 1933, as amended. The Amendment also does not otherwise affect
(i) the financial statements required by Item 23 of Part B of the Registrant's
Registration Statement on Form N-1A contained in Post-Effective Amendment No. 14
or (ii) except as otherwise provided below, Part C of the Registrant's
Registration Statement on Form N-1A as contained in Post-Effective Amendments
Nos. 14, 15, and 16, all of which are incorporated herein by reference. The
Multiple Class Plans for the Tactical Asset Allocation Fund and the Utility
Growth Fund, however, are affected by the Amendment and therefore are attached
hereto as Exhibits 18(a) and (b), respectively, to Part C hereof.
<PAGE>
THE FLEX-PARTNERS
TACTICAL ASSET ALLOCATION FUND
CROSS REFERENCE SHEET TO FORM N-1A
----------------------------------
Part A.
Item A. 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 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
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
TACTICAL ASSET ALLOCATION 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") consisting of five separate portfolios (the
"Funds"), each of which has separate investment objectives and policies. The
objective of Tactical Asset Allocation Fund (the "Fund") is growth of capital
through investment in the shares of other mutual funds. The Trust seeks to
achieve the investment objective of Tactical Asset Allocation Fund by investing
all of the investable assets of the Fund in the Mutual Fund 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 Objectives and Policies" and "Other Information
- -- Shares of Beneficial Interest and Investment Structure."
FLEXIBLE INVESTMENT STRATEGIES
The Portfolio may be invested defensively, for temporary periods, if the
Portfolio's investment adviser deems it advisable because of adverse market
conditions. Because the Fund may invest defensively, it is classified as an
asset allocation fund.
ADDITIONAL INFORMATION
This Prospectus sets forth basic information about the Trust and Tactical
Asset Allocation Fund that a prospective investor should know before investing
and it should be retained for future reference. A STATEMENT OF ADDITIONAL
INFORMATION, dated April ___, 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
Highlights 2 Performance Information and Reports 17
Synopsis of Financial Information 3 Other Information 17
Performance Comparison 5 SHAREHOLDER MANUAL
Financial Highlights 6 How to Buy Shares 20
Investment Objectives and Policies 7 How to Make Withdrawals (Redemptions) 24
Additional Investment Policies 8 Exchange Privilege 25
Risk Factors 10 Retirement Plans 26
The Trust and Its Management 12 Other Shareholder Services 26
Distribution Plans 14 Shareholder Accounts 27
Income Dividends and Taxes 15
How Net Asset Value is Determined 16
INVESTMENT ADVISER: R. MEEDER & ASSOCIATES, INC.
PROSPECTUS DATED APRIL ___, 1998
<PAGE>
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HIGHLIGHTS
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INVESTMENT OBJECTIVE: The objective of Tactical Asset Allocation Fund
(formerly, The TAA Fund) is growth of capital through investment in the shares
of other mutual funds. See "Investment Objectives 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: Tactical Asset Allocation Fund is a diversified mutual
fund.
SALES CHARGES: Investors in the Fund 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. 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),
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. 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
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."
SHARES AVAILABLE THROUGH: The Fund's transfer agent, Mutual Funds Service
Co. ("MFSCO"). See "The Trust and Its Management."
DISTRIBUTION PLANS: The Fund 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 Fund
has adopted a service plan for using as much as 25/100 of 1% of net assets
annually to aid in the distribution of each of Class A shares and Class C
shares. 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."
2
<PAGE>
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 Factors." The Fund should not be considered a complete
investment program.
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SYNOPSIS OF FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
TACTICAL ASSET ALLOCATION FUND
CLASS A CLASS C
SHAREHOLDER TRANSACTION EXPENSES ------- -------
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price)............................ 4.00%1 none
Maximum Deferred Sales Load (as
a percentage of original purchase price
or redemption proceeds, as applicable)2....... none 1.50%
Maximum Sales Load Imposed on Reinvested
Dividends..................................... none none
Redemption Fees.................................... none none
Exchange Fees...................................... none none
ANNUAL FUND OPERATING EXPENSES**
(As a percentage of average net assets)
Management Fees.................................... 0.80% 0.80%
Rule 12b-1 Fees3................................... 0.25% 0.75%
Other Expenses (After Expense
Reimbursements*).............................. 0.43% 0.20%
Service Fees4................................. 0.25% 0.25%
------- -------
TOTAL FUND OPERATING EXPENSES**.................... 1.73% 2.00%
(After Expense Reimbursements*)
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EXAMPLE:
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<TABLE>
<CAPTION>
An investor would pay the following expense
on a $1,000 investment, assuming (1) an
operating expense ratio of 1.73% for Class A CUMULATIVE EXPENSES
Shares and 2.00% for Class C Shares of the PAID FOR THE PERIOD OF:
Fund, (2) a 5% annual return throughout the 1 YEAR 3 YEARS 5 YEARS 10 YEARS
period and (3) redemption at the end of each ------ ------- ------- --------
time period:
<S> <C> <C> <C> <C>
Class A Shares . . . . . . . . . . . . . . . $57 $92 $130 $236
Class C Shares . . . . . . . . . . . . . . . $35 $63 $108 $233
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 . . . . . . . . . . . . . . . $57 $92 $130 $236
Class C Shares . . . . . . . . . . . . . . . $20 $63 $108 $233
- ----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
*The Manager presently intends to reimburse the Fund through an expense
reimbursement fee to the extent necessary to keep total expenses at 1.75% of
average daily net assets for Class A Shares and 2.00% 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 the Fund, and the return earned by
shareholders. For planning purposes, prospective investors and shareholders
should assume that expense reimbursements will not be made.
**Expenses used in these illustrations are based on expenses actually incurred
for Class A and Class C shares of Tactical Asset Allocation Fund, which includes
their proportionate share of expenses of the Mutual Fund Portfolio, for the
period ending December 31, 1996.
Expenses shown as "After Expense Reimbursements" for each Class of shares in
Tactical Asset Allocation Fund 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, would have been 3.93% and
5.23%, respectively, in Tactical Asset Allocation Fund - Class A Shares, and
.40% and 2.40% in Tactical Asset Allocation Fund - Class C Shares.
- -------------------------------------
1 The sales charge applied to purchases of Class A Shares declines as the amount
invested increases. See "How to Buy Shares."
2 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)."
3 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").
4 The Service Fee pertains to Class A Shares and Class C Shares, 100% of which
is allocated to National Association of Securities Dealers, Inc. ("NASD") member
firms for continuous personal service by such members to investors in Class A
Shares and Class C Shares of 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 Plans."
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. For additional information concerning
expenses incurred by the Trust 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 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.
4
<PAGE>
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PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
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 12/31/96)
TOTAL RETURN
TACTICAL ASSET ALLOCATION FUND
Tactical Morningstar's Class A Shares Total Returns
Asset Average Asset (for the periods ended
Allocation The S&P Allocation December 31, 1996)
Fund 500 Index* Fund
---- ---------- ----
A SHARES
$ 9,600 $10,000 $10,000 Since Inception (8/1/96)
1996 $ 9,900 $11,684 $10,991 with sales charge
1.29%
A SHARES
Since Inception (8/1/96)
without sales charge
5.51%
From its inception on August 1, 1996 through December 31, 1996, Tactical Asset
Allocation Fund (formerly, TAA Fund) A shares provided shareholders with a total
return of 5.51% without a sales charge and a total return of 1.29% after sales
charge. For the same period, the S&P 500 Index provided a total return of 16.84%
and the average Asset Allocation mutual fund monitored by Morningstar, Inc.
provided a return of 9.91%.
Periods of volatility in the stock market during 1996 caused Tactical Asset
Allocation Fund to adopt several fully or partially defensive positions over the
course of the year. The Fund achieved a partially defensive position, of as much
as 50 percent, on several occasions during the first half of the year, when the
Mnaager's evaluation of market conditions indicated a growing level of risk in
the stock market. The Fund's only fully defensive position of 1996 came during
the third quarter, from mid-July until late August. While the Manager's
evaluation of the risk present in the market improved as the year drew to a
close, the Fund did not return to a fully invested position until mid-November.
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 does not reflect a sales charge or the
deduction of expenses associated with a mutual fund, such as investment
management and accounting fees. The Fund's performance reflects a sales charge
of 4.00% and the deduction of fees for these value added services.
5
<PAGE>
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 12/31/96)
TOTAL RETURN
TACTICAL ASSET
Tactical Morningstar's ALLOCATION FUND
Asset Average Asset C SHARES
Allocation The S&P Allocation AVERAGE ANNUAL
Fund 500 Index* Fund TOTAL RETURNS
---- ---------- ---- (For the periods ended
December 31, 1996)
$10,000 $10,000 $10,000
1995 $11,457 $11,709 $11,109 C SHARES
1996-1st q $11,715 $12,338 $11,373 1 Year
-2nd q $12,174 $12,891 $11,636 with sales charge
-3rd q $11,681 $13,289 $11,887 3.57%
-4th q $11,862 $14,396 $12,476
C SHARES
1 Year
without sales charge
5.07%
C SHARES
Since Inception (6/1/95)
with sales charge
10.90%
C SHARES
Since Inception (6/1/95)
without sales charge
12.40%
In 1996, Tactical Asset Allocation Fund (formerly, TAA Fund) Class C Shares
provided shareholders with a total return of 5.07% without a sales charge and a
total return of 3.57% after sales charge. For the same period, the S&P 500 Index
provided a total return of 22.95% and the average Asset Allocation mutual fund
monitored by Morningstar, Inc. provided a return of 12.45%.
Periods of volatility in the stock market during 1996 caused Tactical Asset
Allocation Fund to adopt several fully or partially defensive positions over the
course of the year. The Fund achieved a partially defensive position, of as much
as 50 percent, on several occasions during the first half of the year, when the
Manager's evaluation of market conditions indicated a growing level of risk in
the stock market. The Fund's only fully defensive position of 1996 came during
the third quarter, from mid-July until late August. While the Manager's
evaluation of the risk present in the market improved as the year drew to a
close, the Fund did not return to a fully invested position until mid-November.
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 does not reflect a sales charge or the
deduction of expenses associated with a mutual fund, such as investment
management and accounting fees. The Fund's performance reflects a sales charge
of 1.50% and the deduction of fees for these value added services.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights for Tactical Asset Allocation Fund (formerly,
The TAA Fund) are listed below. This information has been audited in conjunction
with the audits of the financial statements of the Tactical Asset Allocation
Fund and its corresponding Portfolio, the Mutual Fund Portfolio, by KPMG Peat
Marwick LLP, independent certified public accountants for the period from August
1, 1996 through December 31, 1996 for the Class A Shares, and for the year ended
December 31, 1996 and for the period from June 1, 1995 through December 31, 1995
for the Class C Shares.
6
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS C
------- ------- -------
For the period For the Period For the Period
August 1, 1996(2) January 1, 1996 June 1, 1995(2)
to to to
December 31, 1996 December 31, 1996 December 31, 1995
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.50 $13.26 $12.50
- --------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.14 0.10 (0.02)
- --------------------------------------------------------------------------------------------------------------
Net Gains or Losses on Securities
(both realized and unrealized) 0.55 0.57 1.84
- --------------------------------------------------------------------------------------------------------------
Total From Investment Operations 0.69 0.67 1.82
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (from investment income) (0.14) (0.10) --
- --------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) (0.49) (0.31) (1.06)
- --------------------------------------------------------------------------------------------------------------
Total Distributions (0.63) (0.41) (1.06)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.56 $13.52 $13.26
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.51% 5.07% 14.57%
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Period ($000) $137 $13,943 $11,524
- --------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.73%(1) 2.00% 1.97%(1)
- --------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets 2.60%(1) 0.75% (0.29%)(1)
- --------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets,
before reimbursement of fees 5.23%(1) 2.40% 2.80%(1)
- --------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income (Loss) to
Average Net Assets, before reimbursement
of fees (0.90%)(1) 0.35% (1.12%)(1)
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 297% 297%
- --------------------------------------------------------------------------------------------------------------
<FN>
(1) Annualized
(2) Date of commencement of operations
</FN>
</TABLE>
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Tactical Asset Allocation Fund (formerly, The TAA Fund) and the Mutual Fund
Portfolio have their 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 the Fund and the Portfolio, are
not fundamental and may be changed by their respective Trustees without approval
of the Fund's shareholders or the Portfolio's investors. No such change would be
made in the Fund, or the Portfolio, without 30 days prior written notice to
shareholders. The Fund seeks to achieve its investment objective by investing
all of its investable assets in the Portfolio. As a result, Tactical Asset
Allocation Fund invests in the Mutual Fund Portfolio. For more information
concerning the investment structure of the Fund which invests its assets in the
Portfolio, see "Other Information - Investment Structure."
7
<PAGE>
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 objective
of the Portfolio will be achieved.
The 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.
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 a Fund without 30 days prior written notice to shareholders.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
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:
8
<PAGE>
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.
o Private Placement Commercial Paper--unregistered securities which are
traded in public markets to qualified institutional investors, such as
the Portfolio.
o Repurchase Agreements Pertaining to the Above--The Portfolio may
invest without limit in any of the above securities subject to
repurchase agreements with any Federal Reserve reporting dealer or
member bank of the Federal Reserve System. Repurchase agreements
usually are for short periods, such as one week or less, but could be
longer. The Portfolio will not invest more than 10% of its assets, at
time of purchase, in repurchase agreements which mature in excess of
seven days or in other illiquid or not readily marketable securities.
The Fund 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 a
portfolio.
HEDGING STRATEGIES
The Portfolio may engage in hedging transactions in carrying out the
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 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.
The Portfolio will not engage in transactions in financial futures
contracts or related options for speculation but only as a hedge against changes
in the market value of securities held in 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 a mutual fund, such as the Portfolio.
All futures transactions for the Portfolio will consequently be subject to the
restrictions on the use of futures contracts established in CFTC rules, such as
observation of the CFTC's definition of "hedging." In addition, whenever the
Portfolio establishes a long futures position, it will set aside cash or cash
equivalents equal to the underlying commodity value of the long futures
contracts held by the Portfolio. Although all futures contracts involve leverage
by virtue of the margin system applicable to trading on futures exchanges, the
Portfolio will not, on a net basis, have leverage exposure on any long futures
contracts that it establishes because of the cash set aside requirement. All
futures transactions can produce a gain or a loss when they are closed,
9
<PAGE>
regardless of the purpose for which they have been established. Unlike short
futures contracts positions established to protect against the risk of a decline
in value of existing securities holdings, the long futures positions established
by the Portfolio to protect against reinvestment risk are intended to protect
the Portfolio against the risks of reinvesting portfolio assets that arise
during periods when the assets are not fully invested in securities.
These financial futures contracts or related options used by the Portfolio
to implement its hedging strategies are considered derivatives. The value of
derivatives can be affected significantly by even small market movements,
sometimes in unpredictable ways (See "Risk Factors.")
The Portfolio may not purchase or sell financial futures or purchase
related options if immediately thereafter the sum of the amount of margin
deposits on the Portfolio's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Portfolio's total
assets.
The Portfolio expects that any gain or loss on hedging transactions will be
substantially offset by any gain or loss on the securities underlying the
contracts or being considered for purchase. There can be no guaranty that the
Portfolio will be able to realize this objective and, as noted below under "Risk
Factors", there are some risks in utilizing a hedging strategy.
RISK FACTORS
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
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.")
Put and call option contracts involve some risk. For example, the total
premium paid for an option contract could be lost if the Portfolio does not sell
the contract or exercise the contract prior to its expiration date.
Futures contracts likewise involve some risk. It is possible that the
contract(s) selected by the Manager 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.
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, security or index.
Accordingly, these financial futures contracts or related options used by the
Mutual Fund Portfolio to implement their 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.
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<PAGE>
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.
The Portfolio may invest in private placement commercial paper and
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.
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.
PORTFOLIO TURNOVER
Because the Manager may employ flexible defensive investment strategies
when market trends are not considered favorable, the Manager may occasionally
change the entire portfolio in the 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 the Fund.
This defensive investment strategy can produce high portfolio turnover
ratios when calculated in accordance with SEC rules. However, viewed in terms of
"round trips", The Mutual Fund Portfolio completed one "round trip" in the stock
market during the year. The Portfolio would have one "round trip", for example,
if 100% of the Portfolio were invested defensively in money market instruments
at the beginning of the year, then 100% of the Portfolio was fully invested in
accordance with its investment objective in the middle of the year and finally,
the Portfolio went 100% defensive again at the end of the year.
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<PAGE>
The Mutual Fund Portfolio's annual portfolio turnover rate is not expected
to exceed 300%. The portfolio turnover rate for the Portfolio was 297% in 1996.
See "Income Dividends and Taxes."
The Portfolio intends to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in the Portfolio's investments. The
Portfolio will strive for a positive investment return each calendar year.
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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.
Neither the Trust nor the Fund has an investment adviser because the Trust
seeks to achieve its investment objective of the Fund 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 R. Meeder & Associates, Inc.; Mutual
Funds Service Co., the Fund's transfer agent; Adviser Dealer Services, Inc., the
Fund's distributor (the "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 the
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. 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 and Portfolio 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 Portfolio is $7,500. Subject to
the applicable minimum fee, the Portfolio's annual fee is computed at the rate
of .15% of the first $10 million, .10% of the next $20 million, .02% of the next
$50 million and .01% in excess of $80 million of the Portfolio's average net
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<PAGE>
assets. In addition, each class of shares of the Fund incurs (subject to a
$4,000 annual minimum fee) an annual fee of the greater of $15 per shareholder
account or .10% of the Fund's average net assets, payable monthly, for stock
transfer and dividend disbursing services. Mutual Funds Service Co. also serves
as Administrator to the Fund pursuant to an Administration Services Agreement.
Services provided to the Fund include coordinating and monitoring any third
party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
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 period ended December 31, 1996, total payments to Mutual
Funds Service Co. amounted to $19,109 and $50,435 from the Fund and Portfolio,
respectively.
A broker-dealer may use a portion of the commissions paid by the Portfolio
to reduce the Portfolio or the Fund's expenses. The Manager may take into
account sales of shares of the Fund and other funds advised by the Manager in
selecting broker-dealers to effect portfolio transactions on behalf of the
Portfolio.
Information concerning the Trustees and officers of both the Trust and the
Portfolio appears in the Statement of Additional Information.
PORTFOLIO MANAGER
Robert S. Meeder, Jr. is the portfolio manager primarily responsible for
the day to day management of the Mutual Fund Portfolio. Mr. Meeder, a Trustee
and Vice President of the Mutual Fund Portfolio and The Flex-Partners, is the
President/Portfolio Manager of the Manager. Mr. Meeder has been associated with
the Manager since 1983 and has managed the Portfolio since 1988.
DISTRIBUTOR
Adviser Dealer Services, Inc. (the "Distributor"), 6000 Memorial Drive,
Dublin, Ohio 43017, an affiliate of the Manager, is a corporation organized
under the laws of the State of Ohio and serves as the distributor of the shares
of the Fund. The Manager may select the Distributor to execute transactions for
the Portfolio, 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
is a corporation organized under the laws of the State of Ohio and provides
stock transfer, dividend disbursing and administrative services to the Fund.
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DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund 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, the Fund 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%
The Fund has adopted two service plans (the "Service Plans"). Under the
provisions of the Service Plans, the fund 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%
Some or all of the service fees are used to reimburse securities dealers
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 the Fund
represents payment for personal services and/or the maintenance of shareholder
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.
The Manager may use its resources to pay expenses associated with the sale
of the Fund 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 Fund shares. However, the Fund does not pay the Manager 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
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 rules also limits the aggregate amount which the 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.
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<PAGE>
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INCOME DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. Tactical Asset Allocation Fund's
dividends are declared payable to shareholders on a quarterly basis.
In December, the Fund may distribute an additional ordinary income dividend
(consisting of net short-term capital gains and undistributed income) in order
to preserve its status as a registered investment company (mutual fund) under
the Internal Revenue Code. Net long-term capital gains, if any, also are
declared and distributed in December. Dividends paid by the Fund 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.
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 qualified as a "regulated investment company" for each of
the last two fiscal years.
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. Tactical Asset
Allocation Fund expects 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 the Fund's dividends may qualify for the dividends-received
deduction available to corporations. The 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.
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<PAGE>
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."
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.
- --------------------------------------------------------------------------------
HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
Net asset value per share is determined at each closing of the New York
Stock Exchange each day the Exchange is open for business and each other day
during which there is a sufficient degree of trading that the current net asset
value of the Fund's shares might be materially affected by changes in the value
of the securities held by the Portfolio. 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 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.
16
<PAGE>
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PERFORMANCE INFORMATION AND REPORTS
- --------------------------------------------------------------------------------
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications to shareholders or prospective
shareholders. Performance information may include the Fund's investment results
and/or comparisons of its investment results to the Standard & Poor's 500
Composite Stock Price 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. Period and average annualized total return are calculated
separately for Class A shares and Class C shares. 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 the Fund will vary depending upon
interest rates, the current market value of the securities held by the 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 the
Fund's financial statements, including listings of investment securities held by
the Portfolio at those dates. Annual reports are audited by independent
accountants.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trust to offer and sell an
unlimited number of full and fractional shares of beneficial interest in each of
the Trust's existing funds and to create additional funds. All shares have a par
value of $.10 per share, are fully paid, non-assessable and fully transferable
when issued. All shares are issued as full or fractional shares.
17
<PAGE>
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 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.
The Portfolio, in which all the investable assets of the Fund will be
invested, is organized as a trust under the laws of the State of New York. The
Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund
investing in the Portfolio. In addition, whenever the Trust is requested to vote
on matters pertaining to the fundamental policies of the Portfolio, the Trust
will hold a meeting of the Fund's shareholders and will cast its vote as
instructed by the Fund's shareholders.
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Each class of shares represents identical interests in the 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, the Fund seeks to achieve its investment objectives by
investing all of its investable assets in the 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
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 the Fund from the 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 the 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.
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As stated in "Investment Objectives and Policies," except as otherwise
expressly provided herein, the Portfolio and the 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 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 "Trustees and Officers" in the Statement of
Additional Information.
- --------------------------------------------------------------------------------
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.
Be sure to specify the name of the Fund and class of shares in which you wish to
invest. A check payable to Tactical Asset Allocation 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 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., the Custodian for the Fund.
20
<PAGE>
If the wire order is for a new account, 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. Have your bank wire federal funds to:
Star Bank, N.A. Cinti/Trust
ABA #: 042-00001-3
Attention: The Flex-Partners
TACTICAL ASSET ALLOCATION FUND
Credit Account Number 483608972
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 the 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 may
be made by mailing a check payable to Tactical Asset Allocation Fund. 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 the Fund. 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
21
<PAGE>
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" of this Prospectus and quantity
discounts for the Class A initial sales charge are set forth below.
CLASS A 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. Class A Shares also
bear a Rule 12b-1 fee of .25% per annum (paid to the Distributor), 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 the Distributor 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 Class
A 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 Class A 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.
22
<PAGE>
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, shown in the Fee Table on page 8, 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 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 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 Portfolio, the Trust, the Manager 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.
23
<PAGE>
The Fund may also sell Class A shares at net asset value without an initial
sales charge to clients of the Manager by making arrangements to do so with the
Trust and the transfer agent; and registered investment advisers and financial
planners purchasing for their clients by making arrangements to do so with the
Trust and the transfer agent.
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).
The Fund may waive 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 Fund may be purchased at net asset value and the Fund
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 other funds, 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.
- --------------------------------------------------------------------------------
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.")
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.
24
<PAGE>
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 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 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 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.
EXCHANGES OF CLASS C SHARES: Class C shares of the Fund are exchangeable at
net asset value only for Class C shares of any other Flex-Partners Fund. Class C
shares of the Fund cannot be exchanged for Class A shares of any Flex-Partners
Fund.
25
<PAGE>
The Fund 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
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.
- --------------------------------------------------------------------------------
RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Trust offers retirement plans which include a prototype Profit Sharing
Plan, a Money Purchase Pension Plan, a Salary Savings Plan--401(k),
Tax-Sheltered Custodial Account - 403(b)(7), an Individual Retirement Account
(IRA), a Simple IRA, and a Simplified Employee Pension (SEP) Plan. Plan Adoption
Agreements and other information required to establish a Flex-Partners
Retirement Plan are available from The Flex-Partners, c/o R. Meeder &
Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017; or call 1-800-494-3539.
Minimum purchase requirements for retirement plan accounts are subject to
the same requirements as regular accounts, except for an IRA, which has a
reduced minimum purchase requirement. (See "How to Buy Shares.")
- --------------------------------------------------------------------------------
OTHER SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC ACCOUNT BUILDER: Regular investments in the Fund of $100 or more
will be deducted from a shareholder's checking or savings account and invested
in shares of the Fund. A shareholder's bank must be a member of the Automated
Clearing House (ACH). Shareholders wishing to add to their investment account
must complete the Automatic Account Builder section of the New Account
Application. There is no additional charge for this service.
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.
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.
26
<PAGE>
- --------------------------------------------------------------------------------
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).
27
<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)
DISTRIBUTOR
Adviser Dealer Services, Inc.
6000 Memorial Drive
Dublin, OH 43017
800-494-3539
614-766-7074 THE FLEX-PARTNERS
TACTICAL ASSET ALLOCATION
CUSTODIAN FUND
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
800-494-3539
614-766-7074 (in Central Ohio)
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
PROSPECTUS
APRIL __, 1998
TABLE OF CONTENTS
Page
Highlights................................ 2
Synopsis of Financial Information......... 3
Performance Comparison.................... 5
Financial Highlights...................... 6
Investment Objectives and Policies........ 7
Additional Investment Policies............ 8
Risk Factors......................... 10
The Trust and Its Management.............. 12
Distribution Plans........................ 14
Income Dividends and Taxes................ 15
How Net Asset Value is Determined......... 16
Performance Information and Reports....... 17
Other Information......................... 17
SHAREHOLDER MANUAL
How To Buy Shares......................... 20
How To Make Withdrawals (Redemptions)..... 24
Exchange Privilege........................ 25
Retirement Plans.......................... 26
Other Shareholder Services................ 26
Shareholder Accounts...................... 27
28
<PAGE>
THE FLEX-PARTNERS UTILITY GROWTH FUND
CROSS REFERENCE SHEET TO FORM N-1A
----------------------------------
Part A.
Item A. 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 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
8(a) How To Make Withdrawals (Redemptions)
8(b) How To Make Withdrawals (Redemptions)
8(c) Shareholder Accounts
8(d) How To Make Withdrawals (Redemptions)
9 Not Applicable
<PAGE>
PROSPECTUS DATED APRIL __, 1998
INVESTMENT ADVISER: R. MEEDER & ASSOCIATES, INC.
THE FLEX-PARTNERS
UTILITY GROWTH 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") consisting of five separate portfolios (the
"Funds"), each of which has separate investment objectives and policies. The
investment objective of Utility Growth Fund (the "Fund") 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. The Trust seeks to achieve the
investment objective of the Utility Growth Fund by investing all of the
investable assets of the Fund in the Utilities Stock 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 Objectives and Policies" and "Other Information
- -- Shares of Beneficial Interest and Investment Structure."
FLEXIBLE INVESTMENT STRATEGIES
The Portfolio may be invested defensively, for temporary periods, if the
Portfolio's investment adviser or subadviser deems it advisable because of
adverse market conditions.
ADDITIONAL INFORMATION
This Prospectus sets forth basic information about the Trust and the
Utility Growth Fund that a prospective investor should know before investing and
it should be retained for future reference. A STATEMENT OF ADDITIONAL
INFORMATION, dated April __, 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.
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
Highlights 2 Performance Information and Reports 18
Synopsis of Financial Information 3 Other Information 19
Performance Comparison 5 SHAREHOLDER MANUAL
Financial Highlights 7 How to Buy Shares 22
Investment Objectives and Policies 7 How to Make Withdrawals (Redemptions) 26
Additional Investment Policies 10 Exchange Privilege 27
Risk Factors 11 Retirement Plans 28
The Trust and Its Management 13 Other Shareholder Services 28
Distribution Plans 15 Shareholder Accounts 29
Income Dividends and Taxes 17
How Net Asset Value is Determined 18
<PAGE>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE: The investment objective of the Utility Growth Fund
(formerly, The BTB Fund) 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. See "Investment Objectives 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 the
Portfolio's assets are restricted by the following rules: (1) No more than 5% of
the Portfolio's assets may be invested in the securities of a single issuer
(other than U.S. Government Securities) and (2) the Portfolio may not purchase
more than 10% of any issuer's outstanding voting securities.
SALES CHARGES: Investors in the Fund 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. 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),
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. 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
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."
2
<PAGE>
SUBADVISER: Miller/Howard Investments, Inc. is the subadviser (the
"Subadviser") for the Utilities Stock Portfolio, the Portfolio in which all of
the investable assets of Utility Growth Fund are invested. The Subadviser 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."
SHARES AVAILABLE THROUGH: The Funds' transfer agent, Mutual Funds Service
Co. ("MFSCO"). See "The Trust and Its Management."
DISTRIBUTION PLANS: The Fund 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 Fund
has adopted a service plan for using as much as 25/100 of 1% of net assets
annually to aid in the distribution of each of Class A shares and Class C
shares. 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."
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 Factors." The Fund should not be considered a complete
investment program.
- --------------------------------------------------------------------------------
SYNOPSIS OF FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
UTILITY GROWTH FUND
CLASS A CLASS C
------- -------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price)............................... 4.00%1 none
Maximum Deferred Sales Load (as
a percentage of original purchase price
or redemption proceeds, as applicable)2.......... none 1.50%
Maximum Sales Load Imposed on Reinvested
Dividends........................................ none none
Redemption Fees....................................... none none
Exchange Fees......................................... none none
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees....................................... 1.00% 1.00%
Rule 12b-1 Fees3...................................... 0.25% 0.75%
Other Expenses (After Expense
Reimbursements*)................................. 0.25% 0.00%
Service Fees4.................................... 0.25% 0.25%
------- -------
TOTAL FUND OPERATING EXPENSES**. 1.75% 2.00%
(After Expense Reimbursements*)
3
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
EXAMPLE: 1 YEAR 3 YEARS YEARS 10 YEARS
------ ------- ------ --------
- --------------------------------------------------------------------------------------
An investor would pay the following
expense on a $1,000 investment,
assuming (1) an operating expense
ratio of 1.75% for Class A Shares,
and 2.00% for Class C Shares of the
Utility Growth Fund, and (2) a 5%
annual return throughout the period
and (3) redemption at the end of
each time period: UTILITY GROWTH FUND
<S> <C> <C> <C> <C>
Class A Shares . . . . . . . . . . . . $57 $93 $131 $238
Class C Shares . . . . . . . . . . . . $35 $63 $108 $233
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 . . . . . . . . . . . . $57 $93 $131 $238
Class C Shares . . . . . . . . . . . . $20 $63 $108 $233
- --------------------------------------------------------------------------------------
</TABLE>
*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. 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.
**Expenses used in these illustrations are based on expenses actually incurred
for Class A and Class C shares of the Utility Growth Fund, which includes its
proportionate share of expenses of the Utilities Stock Portfolio, for the year
ended December 31, 1996.
Expenses shown as "After Expense Reimbursements" for each Class of shares in the
Utility Growth Fund 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, would have been 2.87% and 4.37%, respectively,
in the Utility Growth Fund Class A shares and 2.65% and 4.65%, respectively, in
the Utility Growth Fund Class C shares.
- ---------------------------------------
1 The sales charge applied to purchases of Class A Shares declines as the amount
invested increases. See "How to Buy Shares."
2 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)."
3 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").
4 The Service Fee pertains to Class A Shares and Class C Shares, 100% of which
is allocated to National Association of Securities Dealers, Inc. ("NASD") member
firms for continuous personal service by such members to investors in Class A
Shares and Class C Shares of 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 Plans."
4
<PAGE>
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. For additional information concerning
expenses incurred by the Trust 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 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.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
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 12/31/96)
UTILITY GROWTH FUND
Utility The Dow Jones Morningstar's AVERAGE ANNUAL
Growth Utility Average TOTAL RETURN
Fund Average* Utilities Fund* for the periods ended
---- -------- --------------- (December 31, 1996)
$ 9,600 $10,000 $10,000 A SHARES
1995 $11,051 $11,483 $11,425 1 Year
1996-1st q. $10,942 $10,990 $11,402 with sales charge
1996-2nd q. $11,590 $11,551 $11,848 8.11%
1996-3rd q. $11,554 $11,525 $11,636
1996-4th q. $12,444 $12,528 $12,585 A SHARES
1 Year
without sales charge
12.61%
A SHARES
Since Inception (7/11/95)
with sales charge
15.96%
A SHARES
Since Inception (7/11/95)
without sales charge
19.21%
In 1996, Utility Growth Fund (formerly, The BTB Fund) Class A shares provided
shareholders with a total return of 12.61% without a sales charge and a total
return of 8.11% after sales charge. For the same period, the Dow Jones Utility
Average provided a total return of 9.10% and the average Utilities Fund
monitored by Morningstar, Inc. provided a total return of 9.88%.
As deregulation and rising interest rates gripped the utilities stock market
during 1996, Utility Growth Fund outpaced both the average utility fund and the
Dow Jones Utility average based on the selection of what the Manager believes to
be fundamentally strong stocks. Natural gas stocks played a large part in the
Fund's success over the course of the year based both on sharply higher product
prices and some notable acquisitions. Stocks from the telecommunications service
sector also represented a significant portion of the Portfolio throughout 1996
and contributed to the results achieved by the Fund.
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.
5
<PAGE>
*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. The Fund's performance reflects a sales charge of 4.00% for Class A shares
and 1.50% for Class C shares, and the deduction of fees for these value added
services.
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 12/31/96)
UTILITY GROWTH FUND
Utility The Dow Jones Morningstar's AVERAGE ANNUAL
Growth Utility Average TOTAL RETURN
Fund Average* Utilities Fund* (for the periods ended
---- -------- --------------- December 31, 1996)
$10,000 $10,000 $10,000 C SHARES
1995 $11,507 $11,483 $11,425 1 Year
1996-1st q. $11,391 $10,990 $11,402 with sales charge
-2nd q. $12,043 $11,551 $11,848 10.95%
-3rd q. $12,018 $11,525 $11,636
-4th q. $12,760 $12,528 $12,585 C SHARES
1 Year
without sales charge
12.45%
C SHARES
Since Inception (7/11/95)
with sales charge
17.57%
C SHARES
Since Inception (7/11/95)
without sales charge
19.07%
In 1996, Utility Growth Fund (formerly, The BTB Fund) Class C shares provided
shareholders with a total return of 12.45% without a sales charge and a total
return of 10.95% after sales charge. For the same period, the Dow Jones Utility
Average provided a total return of 9.10% and the average Utilities Fund
monitored by Morningstar, Inc. provided a total return of 9.88%.
As deregulation and rising interest rates gripped the utilities stock market
during 1996, Utility Growth Fund outpaced both the average utility fund and the
Dow Jones Utility average based on the selection of what the Manager believes to
be fundamentally strong stocks. Natural gas stocks played a large part in the
Fund's success over the course of the year based both on sharply higher product
prices and some notable acquisitions. Stocks from the telecommunications service
sector also represented a significant portion of the Portfolio throughout 1996
and contributed to the results achieved by the Fund.
*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. The Fund's performance reflects a sales charge of 4.00% for Class A shares
and 1.50% for Class C shares, and the deduction of fees for these value added
services.
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.
6
<PAGE>
*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. The Fund's performance reflects a sales charge of 1.50% and the deduction
of fees for these value added services.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights for the Utility Growth Fund (formerly, The BTB
Fund) are listed below. This information has been audited in conjunction with
the audits of the financial statements of the Utilities Stock Portfolio by KPMG
Peat Marwick LLP, independent certified public accountants for the year ended
December 31, 1996 and for the period from July 11, 1995 through December 31,
1995.
<TABLE>
<CAPTION>
UTILITY GROWTH FUND
CLASS A CLASS A CLASS C CLASS C
------- ------- ------- -------
For the period For the Period For the Period For the Period
January 1, 1996 July 11, 1995(2) January 1, 1996 July 11, 1995(2)
to to to to
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.26 $12.50 $14.27 $12.50
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.29 0.12 0.26 0.10
- ----------------------------------------------------------------------------------------------------------------------------
Net Gains or Losses on Securities
(both realized and unrealized) 1.48 1.76 1.49 1.77
- ----------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations 1.77 1.88 1.75 1.87
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (from investment income) (0.29) (0.12) (0.26) (0.10)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) (0.65) -- (0.85) --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.94) (0.12) (1.11) (0.10)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.09 $14.26 $14.91 $14.27
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 12.61% 15.11% 12.45% 15.07%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period ($000) $1,377 $641 $1,515 $782
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.75% 1.75%(1) 2.00% 2.00%(1)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income (Loss)
to Average Net Assets 2.03% 2.17%(1) 1.85% 1.72%)(1)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets,
before reimbursement of fees 4.37% 22.70%(1) 4.65% 13.37%(1)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income (Loss) to
Average Net Assets, before reimbursement
of fees (0.59%) (18.78%)(1) (0.80%) (9.55%)(1)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 51% 5% 51% 5%
- ----------------------------------------------------------------------------------------------------------------------------
Average Brokerage Commission Per Share $0.0600 $0.0600 $0.0600 $0.0600
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Annualized
(2) Date of commencement of operations.
</FN>
</TABLE>
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional information.
7
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Utility Growth Fund (formerly, The BTB Fund) and the Utilities Stock
Portfolio have their 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 the Fund the Portfolio, 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 the Portfolio, without 30 days prior
written notice to shareholders. The Fund seeks to achieve its investment
objective by investing all of its investable assets in the Portfolio. As a
result, Utility Growth Fund invests in the Utilities Stock 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 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 Portfolio will be achieved.
The 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 net
assets in securities that are deemed to be illiquid. See "Investment Policies
and Limitations" in the Statement of Additional Information.
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.
8
<PAGE>
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.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT POLICIES
- --------------------------------------------------------------------------------
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:
9
<PAGE>
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.
o Private Placement Commercial Paper--unregistered securities which are
traded in public markets to qualified institutional investors, such as
the Portfolio.
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.
HEDGING STRATEGIES
The Portfolio may engage in hedging transactions in carrying out its
investment policies. A hedging program may be implemented for the following
reasons: (1) To protect the value of specific securities owned or intended to be
purchased while the Subadviser 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.
The Portfolio will not engage in transactions in financial futures
contracts or related options for speculation but only as a hedge against changes
in the market value of securities held in 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 Portfolio.
All futures transactions for the Portfolio will consequently be subject to the
restrictions on the use of futures contracts established in CFTC rules, such as
observation of the CFTC's definition of "hedging." In addition, whenever the
Portfolio establishes a long futures position, it will set aside cash or cash
equivalents equal to the underlying commodity value of the long futures
contracts held by the Portfolio. Although all futures contracts involve leverage
by virtue of the margin system applicable to trading on futures exchanges, the
Portfolio will not, on a net basis, have leverage exposure on any long futures
contracts that it establishes because of the cash set aside requirement. All
futures transactions can produce a gain or a loss when they are closed,
regardless of the purpose for which they have been established. Unlike short
futures contracts positions established to protect against the risk of a decline
in value of existing securities holdings, the long futures positions established
by the Portfolio to protect against reinvestment risk are intended to protect
the Portfolio against the risks of reinvesting portfolio assets that arise
during periods when the assets are not fully invested in securities.
10
<PAGE>
These financial futures contracts or related options used by the Portfolio
to implement its hedging strategies are considered derivatives. The value of
derivatives can be affected significantly by even small market movements,
sometimes in unpredictable ways (See "Risk Factors.")
The Portfolio may not purchase or sell financial futures or purchase
related options if immediately thereafter the sum of the amount of margin
deposits on the Portfolio's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Portfolio's total
assets.
The Portfolio expects that any gain or loss on hedging transactions will be
substantially offset by any gain or loss on the securities underlying the
contracts or being considered for purchase. There can be no guaranty that the
Portfolio will be able to realize this objective and, as noted below under "Risk
Factors," there are some risks in utilizing a hedging strategy.
RISK FACTORS
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,
and rising interest rates can be expected to reduce the Utilities Stock
Portfolio's net asset value. The 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.
11
<PAGE>
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.
Put and call option contracts involve some risk. For example, 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.
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.
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, security or index.
Accordingly, these financial futures contracts or related options used by the
Utilities Stock 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.
The Portfolio may invest in private placement commercial paper and
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.
12
<PAGE>
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. 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.
PORTFOLIO TURNOVER
Because the Subadviser may employ flexible defensive investment strategies
when market trends are not considered favorable, the Subadviser may occasionally
change the entire portfolio in the 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 Utilities Stock
Portfolio was totally invested and did little trading during the year. The
Portfolio's turnover rate for 1996 was 51%. This turnover rate was a result of
rebalancing stock positions within the Portfolio to maximize performance in each
industry represented in the Portfolio.
The Utilities Stock Portfolio's annual portfolio turnover rate is not
expected to exceed 60%. See "Income Dividends and Taxes."
The Portfolio intends to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in the Portfolio's investments. The
Portfolio will strive for a positive investment return each calendar year.
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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.
Neither the Trust nor the Fund has an investment adviser because the Trust
seeks to achieve the investment objective of the Fund 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, and investment advisory services
provided by the Subadviser to the Utilities Stock Portfolio.
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<PAGE>
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 (the "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 the
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. 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 and Portfolio 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 Portfolio is $7,500. Subject to
the applicable minimum fee, the Portfolio's annual fee is computed at the rate
of .15% of the first $10 million, .10% of the next $20 million, .02% of the next
$50 million and .01% in excess of $80 million of the Portfolio's average net
assets. In addition, each class of shares of the Fund incurs (subject to a
$4,000 annual minimum fee) an annual fee of the greater of $15 per shareholder
account or .10% of the Fund's average net assets, payable monthly, for stock
transfer and dividend disbursing services. Mutual Funds Service Co. also serves
as Administrator to the Fund pursuant to an Administration Services Agreement.
Services provided to the Fund include coordinating and monitoring any third
party services to the Fund; providing the necessary personnel to perform
administrative functions for the Fund; assisting in the preparation, filing and
distribution of proxy materials, periodic reports to Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
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 period ended December 31, 1996, total payments to Mutual
Funds Service Co. amounted to $8,379 and $9,541 from the Fund and Portfolio,
respectively.
A broker-dealer may use a portion of the commissions paid by the Portfolio
to reduce the Portfolio or 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 in selecting broker-dealers to effect portfolio transactions on behalf
of the Portfolio.
Information concerning the Trustees and officers of both the Trust and the
Portfolio appears in the Statement of Additional Information.
SUBADVISER
Miller/Howard Investments, Inc. (the "Subadviser"),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 the
Subadviser. The Subadviser 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.
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<PAGE>
The Subadviser, 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, 1996, the Subadviser
held discretionary investment authority over approximately $183 million of
assets.
PORTFOLIO MANAGER
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 Flex-Partners and the Utilities Stock Portfolio and
is a director and the President of the Subadviser. Mr. Miller has been
associated with the Subadviser 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.
DISTRIBUTOR
Adviser Dealer Services, Inc. (the "Distributor"), 6000 Memorial Drive,
Dublin, Ohio 43017, an affiliate of the Manager, is a corporation organized
under the laws of the State of Ohio and serves as the distributor of the shares
of the Fund. The Manager or the Subadviser may select the Distributor to execute
transactions for the Portfolio, 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
is a corporation organized under the laws of the State of Ohio and provides
stock transfer, dividend disbursing and administrative services to the Fund.
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DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
The Fund 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, the Fund 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%
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<PAGE>
The Fund has adopted two service plans (the "Service Plans"). Under the
provisions of the Service Plans, the fund 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%
Some or all of the service fees are used to reimburse securities dealers
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 the Fund
represents payment for personal services and/or the maintenance of shareholder
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.
The Manager or the Subadviser may use its resources to pay expenses
associated with the sale of Fund 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 Fund 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
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 rules also limits the aggregate amount which the 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.
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INCOME DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. The Fund's dividends are
distributed at the end of the month and declared payable to shareholders on the
last business day of each month to shareholders of record as of the previous
business day.
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<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. Dividends paid by the Fund 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.
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 qualified as a "regulated investment company" for each of
the last two fiscal years.
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.
A portion of the Fund's dividends may qualify for the dividends-received
deduction available to corporations. The 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 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.
17
<PAGE>
"BUYING A DIVIDEND." The timing of your investment in the Fund could have
undesirable tax consequences.
If you opened a new account or bought more shares for your current account
just before the day a dividend or capital gain distribution was reflected in the
Fund's share price, you would receive a portion of your investment back as a
taxable distribution. This practice is sometimes referred to as "buying a
dividend."
BACKUP WITHHOLDING. The Fund is required by federal law to withhold 31% of
reportable dividends, capital gain distributions, or redemptions payable to
shareholders who have not complied with IRS regulations. To avoid this
withholding requirement, you must certify on your account application (or on IRS
Form W-9) that your social security or taxpayer identification number (TIN) is
correct and that you are not subject to back-up withholding for previous under
reporting to the IRS, or that you are exempt from backup withholding.
The Fund may refuse to sell shares to investors who have not complied with
these requirements, either before or at the time of purchase. Until we receive
your certified TIN, we may redeem your shares in the Fund at any time.
- --------------------------------------------------------------------------------
HOW NET ASSET VALUE IS DETERMINED
- --------------------------------------------------------------------------------
Net asset value per share is determined at each closing of the New York
Stock Exchange each day the Exchange is open for business and each other day
during which there is a sufficient degree of trading that the current net asset
value of the Fund's shares might be materially affected by changes in the value
of the securities held by the Portfolio. 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 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.
- --------------------------------------------------------------------------------
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 Standard & Poor's 500
Composite Stock Price 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.
18
<PAGE>
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. Period and average annualized total return are calculated
separately for Class A shares and Class C shares. 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 the Fund will vary depending upon
interest rates, the current market value of the securities held by the 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 the
Fund's financial statements, including listings of investment securities held by
the Portfolio at those dates. Annual reports are audited by independent
accountants.
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trust to offer and sell an
unlimited number of full and fractional shares of beneficial interest in each of
the Trust's existing funds and to create additional funds. All shares have a par
value of $.10 per share, are fully paid, non-assessable and fully transferable
when issued. All shares are issued as full or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
Each Fund of the Trust issues its own series of shares of beneficial interest.
The shares of each Fund represent an interest only in the Fund's assets (and
profits or losses) and in the event of liquidation, each share of a particular
Fund would have the same rights to dividends and assets as every other share of
the Fund. The 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.
19
<PAGE>
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 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.
The Portfolio, in which all the investable assets of the Fund will be
invested, is organized as a trust under the laws of the State of New York. The
Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts, and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund
investing in the Portfolio. In addition, whenever the Trust is requested to vote
on matters pertaining to the fundamental policies of the Portfolio, the Trust
will hold a meeting of the Fund's shareholders and will cast its vote as
instructed by the Fund's shareholders.
Each class of shares represents identical interests in the 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, the Fund seeks to achieve its investment objectives by
investing all of its investable assets in the 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
20
<PAGE>
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
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 the Fund from the 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 the 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 Objectives and Policies", except as otherwise
expressly provided herein, the Portfolio and the Fund's investment objectives
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 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", "Investment Subadviser" and "Trustees and
Officers" in the Statement of Additional Information.
21
<PAGE>
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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.
Be sure to specify the name of the Fund and class of shares in which you wish to
invest. A check payable to the Utility Growth Fund must accompany the New
Account Application. Payments may be made by check or Federal Reserve Draft
payable to the Fund specified on the application 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 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., the Custodian for the Fund.
If the wire order is for a new account, 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. Have your bank wire federal funds to:
Star Bank, N.A. Cinti/Trust
ABA #: 042-00001-3
Attention: The Flex-Partners
UTILITY GROWTH FUND
Credit Account Number 483608964
Account Name (your name)
Your Flex-Partners account number
22
<PAGE>
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 the 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 may
be made by mailing a check payable to Utility Growth Fund. 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 the Fund. 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" of this Prospectus and quantity
discounts for the Class A initial sales charge are set forth below.
CLASS A 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. Class A Shares also
bear a Rule 12b-1 fee of .25% per annum (paid to the Distributor), 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 the Distributor as shown below:
23
<PAGE>
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 Class
A 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 Class A 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.
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
24
<PAGE>
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, shown in the Fee Table on page 15, 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 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 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 Portfolio, 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.
The Fund may also sell Class A shares at net asset value without an initial
sales charge to clients of the Manager or the Subadviser by making arrangements
to do so with the Trust and the transfer agent; and registered investment
advisers and financial planners purchasing for their clients by making
arrangements to do so with the Trust and the transfer agent.
25
<PAGE>
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).
The Fund may waive 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 Fund may be purchased at net asset value and the Fund
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 another fund, 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.
- --------------------------------------------------------------------------------
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.")
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.
26
<PAGE>
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 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 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 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.
EXCHANGES OF CLASS C SHARES: Class C shares of the Fund are exchangeable at
net asset value only for Class C shares of any other Flex-Partners Fund. Class C
shares of the Fund cannot be exchanged for Class A shares of any Flex-Partners
Fund.
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 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.
27
<PAGE>
- --------------------------------------------------------------------------------
RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Trust offers retirement plans which include a prototype Profit Sharing
Plan, a Money Purchase Pension Plan, a Salary Savings Plan--401(k),
Tax-Sheltered Custodial Account - 403(b)(7), an Individual Retirement Account
(IRA), a Simple IRA and a Simplified Employee Pension (SEP) Plan. Plan Adoption
Agreements and other information required to establish a Flex-Partners
Retirement Plan are available from The Flex-Partners, c/o R. Meeder &
Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017; or call 1-800-494-3539.
Minimum purchase requirements for retirement plan accounts are subject to
the same requirements as regular accounts, except for an IRA, which has a
reduced minimum purchase requirement. (See "How to Buy Shares.")
- --------------------------------------------------------------------------------
OTHER SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC ACCOUNT BUILDER: Regular investments in the Fund of $100 or more
will be deducted from a shareholder's checking or savings account and invested
in shares of the Fund. A shareholder's bank must be a member of the Automated
Clearing House (ACH). Shareholders wishing to add to their investment account
must complete the Automatic Account Builder section of the New Account
Application. There is no additional charge for this service.
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.
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. The Fund reserves the right to reject any purchase order, and to waive
minimum purchase requirements.
28
<PAGE>
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).
29
<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
Miller/Howard Investments
141 Upper Byrdcliffe Road
P. O. Box 549
Woodstock, NY 12498
DISTRIBUTOR
Adviser Dealer Services, Inc.
6000 Memorial Drive
Dublin, OH 43017
800-494-3539
614-766-7074
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
800-494-3539
614-766-7074 (in Central Ohio)
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
TABLE OF CONTENTS
Page
Highlights................................ 2
Synopsis of Financial Information......... 3
Performance Comparison.................... 5
Financial Highlights...................... 7
Investment Objectives and Policies........ 7
Additional Investment Policies............ 10
Risk Factors......................... 11
The Trust and Its Management.............. 13
Distribution Plans........................ 15
Income Dividends and Taxes................ 17
How Net Asset Value is Determined......... 18
Performance Information and Reports....... 18
Other Information......................... 19
SHAREHOLDER MANUAL
How To Buy Shares......................... 22
How To Make Withdrawals (Redemptions)..... 26
Exchange Privilege........................ 27
Retirement Plans.......................... 28
Other Shareholder Services................ 28
Shareholder Accounts...................... 29
THE FLEX-PARTNERS
UTILITY GROWTH FUND
PROSPECTUS
APRIL ___, 1998
30
<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 Not applicable
<PAGE>
TACTICAL ASSET ALLOCATION FUND
A FUND OF THE FLEX-PARTNERS TRUST
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL ___, 1998
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus of The Flex-Partners Tactical Asset
Allocation Fund dated April ___, 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 19
Investment Adviser and Manager 20
Officers and Trustees 22
The Distributor 26
Flex-Partners Retirement Plans 27
Contracts with Companies Affiliated with the Manager 29
Description of the Trust 30
Financial Statements 31
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 Portfolio intends to comply with the
short-term trading restrictions of Subchapter M of the Internal Revenue Code of
1986, as amended, although these restrictions could inhibit a rapid change in
the Portfolio's investments. The Portfolio will strive for a positive investment
return each calendar year.
On April 16, 1997, the Fund changed its name from "The TAA Fund" to
"Tactical Asset Allocation Fund."
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 Fund's Prospectus.)
2
<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 Portfolio's 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 invest more than 5% of its assets in the securities of any one
issuer; is permitted to purchase the shares of other investment companies
(mutual funds); and may invest more than 25% 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.
3
<PAGE>
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.
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 Fund'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.
4
<PAGE>
* 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.
* 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.
5
<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:
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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 - 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.
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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 the 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
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.
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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.
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<PAGE>
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.
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.
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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.
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PORTFOLIO TURNOVER
The portfolio turnover rate for the fiscal year ended December 31, 1996 in
the Mutual Fund Portfolio was 297% (1995 - 186%). 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.
However, viewed in terms of "round trips", the Portfolio completed one "round
trip" in the stock market during the year.
The Portfolio began the year fully invested in the stock market. For
approximately two months (early March through early May) 50% of the Portfolio's
assets were invested defensively in money market securities. Also, in the period
from mid-July through October, various portions of the Portfolio were invested
defensively in cash equivalents and/or Treasury Bonds. The periods of defensive
positions in March-May and July-October were in response to technical weakness
and negative trends in the equity markets.
The portfolio turnover rate for the Portfolio is not expected to exceed
300% in the current year.
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
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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
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.
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 $38,925 ($30,008 in 1995) for the year
ended December 31, 1996.
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 Portfolio, 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.
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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 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)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
TACTICAL ASSET ALLOCATION FUND (CLASS A SHARES):
Total Return
----------------------------
.42 Year
Period Ended
December 31, 1996
-----------------
Value of Account
At end of Period $1,055.10
Value of Account
At beginning of Period 1,000.00
--------
Base Period Return $ 55.10
Total Return 5.51%
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TACTICAL ASSET ALLOCATION FUND (CLASS C SHARES):
Total Return
---------------------------------
Since Inception
1 Year (June 1, 1995)
Period Ended Period Ended
December 31, 1996 December 31, 1996
----------------- -----------------
Value of Account
At end of Period $1,050.73 $1,203.82
Value of Account
At beginning of Period 1,000.00 1,000.00
-------- --------
Base Period Return $ 50.73 $ 203.82
Total Return 5.07% 12.40%
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is
calculated each day the NYSE is open for trading. The NYSE has designated the
following holiday closings: New Year s Day, Washington s Birthday (observed),
Good Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Thanksgiving Day, and Christmas Day (observed). The NYSE may modify its holiday
schedule at any time.
The Fund's net asset value is determined as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if
trading on the NYSE is restricted or as permitted by the SEC. To the extent that
portfolio securities are traded in other markets on days when the NYSE is
closed, the Fund's NAV may be affected on days when investors do not have access
to the Fund to purchase or redeem shares.
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.
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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 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.
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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 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.
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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 the 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 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.
18
<PAGE>
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
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
19
<PAGE>
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, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of the Fund's
gross income for each fiscal year. Gains from futures contracts and options are
included in this 30% calculation, which may limit the Fund's investments in such
instruments.
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.
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
20
<PAGE>
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the 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
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.
21
<PAGE>
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, 1996, the Mutual Fund Portfolio paid fees to the Manager
totaling $1,083,553 ($874,473 in 1995).
The Manager presently intends to reimburse the Fund through an expense
reimbursement fee to the extent necessary to keep total expenses at 1.75% of
average daily net assets for Class A Shares and 2.00% 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 Operating Officer; Donald F. Meeder, Vice President and Secretary; Sherrie
L. Acock, Vice President; Robert D. Baker, Vice President; Wesley F. Hoag, Vice
President and General Counsel; Steven T. McCabe, Vice President; and Roy E.
Rogers, Vice President. 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, Wesley F. Hoag and Steven T. McCabe is an officer of the Trust and the
Portfolio.
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 (*).
22
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position Held Principal Occupation
- --------------------- ------------- --------------------
<S> <C> <C>
ROBERT S. MEEDER, SR.*+, 68 Trustee/President Chairman, R. Meeder & Associates,
Inc., an investment adviser.
MILTON S. BARTHOLOMEW, 68 Trustee Retired; formerly a practicing
1424 Clubview Boulevard, S. attorney in Columbus, Ohio; member
Worthington, OH 43235 of each Fund's Audit Committee.
ROGER D. BLACKWELL, 56 Trustee Professor of Marketing and Consumer
Blackwell Associates, Inc. Behavior, The Ohio State University;
3380 Tremont Road President of Blackwell Associates,
Columbus, OH 43221 Inc., a strategic consulting firm.
JOHN M. EMERY, 76 Trustee Retired; formerly Vice President and
2390 McCoy Road Treasurer of Columbus & Southern
Columbus, OH 43220 Ohio Electric Co.; member of each
Fund's Audit Committee.
RICHARD A. FARR, 78 Trustee President of R&R Supply Co. and
3250 W. Henderson Road Farrair Concepts, Inc., two
Columbus, OH 43220 companies involved in engineering,
consulting and sales of heating and
air conditioning equipment.
WILLIAM L. GURNER*, 50 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment adviser
5350 Poplar Avenue, Suite 490 (since January 1995); Manager of
Memphis, TN 38119 Trust Investments of Federal Express
Corporation (1987-1994).
RUSSEL G. MEANS, 71 Trustee Retired; formerly Chairman of
5711 Barry Trace Employee Benefit Management
Dublin, OH 43017 Corporation, consultants and
administrators of self-funded health
and retirement plans.
23
<PAGE>
<S> <C> <C>
ROBERT S. MEEDER, JR.*+, 36 Trustee and Vice President President of R. Meeder & Associates,
Inc.
LOWELL G. MILLER*, 48 Trustee President, Miller/Howard
Miller/Howard Investments, Inc. Investments, Inc., an investment
141 Upper Byrdcliffe Road adviser whose clients include the
P. O. Box 549 Utilities Stock Portfolio and the
Woodstock, NY 12498 Growth Stock Portfolio.
WALTER L. OGLE, 58 Trustee Executive Vice President of Aon
400 Interstate North Parkway, Suite 1630 Consulting, an employee benefits
Atlanta, GA 30339 consulting group.
PHILIP A. VOELKER*+, 43 Trustee and Vice President Senior Vice President and Chief
Operating Officer of R. Meeder &
Associates, Inc.
JAMES B. CRAVER*, 53 Assistant Secretary Practicing Attorney; Special Counsel
42 Miller Hill Road to Flex-Partners, Flex-funds and
Box 811 their Portfolios; Senior Vice
Dover, MA 02030 President of Signature Financial
Group, Inc. (January 1991 to August
1995).
STEVEN T. MCCABE*+, 32 Assistant Treasurer Vice President, R. Meeder &
Associates, Inc., and Vice President
of Mutual Funds Service Co.
DONALD F. MEEDER*+, 58 Secretary/Treasurer Vice President of R. Meeder &
Associates, Inc., and President of
Mutual Funds Service Co.
WESLEY F. HOAG*+, 40 Vice President Vice President and General Counsel
of R. Meeder & Associates, Inc.
(since July 1993); Attorney, Porter,
Wright, Morris & Arthur, a law firm
(October 1984 to June 1993).
24
<PAGE>
<FN>
* 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.
</FN>
</TABLE>
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 and the Fund
Complex as a whole to the Trustees of the Fund and the Fund Complex during the
fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or
Retirement Total
Benefits Compensation
Accrued as Estimated from
Aggregate Part of Annual Registrant and
Trustee Compensation Portfolio or Benefits Upon Fund Complex
from the Fund Fund Expense Retirement Paid to Trustee
------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew None None None $7,550
John M. Emery $933 None None $7,550
Richard A. Farr $833 None None $6,750
William F. Gurner $1,750 None None $5,250
Russel G. Means None None None $6,750
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle None None None $6,000
Philip A. Voelker None None None None
Roger A. Blackwell $646 None None $5,250
</TABLE>
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.
25
<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. Mr. Emery comprises the
Audit Committee for each of The Flex-funds and The Flex-Partners Trusts. Mr.
Emery is paid $500 for each meeting of the Audit Committees attended regardless
of the number of Audit Committees on which he serves. Trustees fees for Tactical
Asset Allocation totaled $4,162 for the year ended December 31, 1996 ($2,917 in
1995). Audit Committee fees for the Fund totaled $100 for the year ended
December 31, 1996 ($45 in 1995).
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.
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.
26
<PAGE>
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 the former distributors of the Fund, Roosevelt & Cross, Incorporated
and Midwest Group Financial Services, Inc., for the year ended December 31, 1996
amounted to $96,489.21 and $725.99, respectively. The payments made were used to
offset a portion of initial commissions paid to securities dealers for the sale
of Fund 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 are described below.
DEDUCTIBLE CONTRIBUTIONS
Individual Retirement Accounts (IRA):
Regular - Contributions to an IRA (except for rollovers) cannot exceed the
amount of compensation includible in gross income for the tax year or $2,000,
whichever is less. If neither you nor your spouse is an active participant in an
employer plan, you may make a contribution up to this limit and take a deduction
for the entire amount contributed. If you or your spouse is an active
participant and your adjusted gross income (AGI) is below a certain level you
may also make a contribution and take a deduction for the entire amount
contributed. However, if you or your spouse is an active participant and your
AGI is above the specified level, the dollar limit of the deductible
contribution you make to your IRA may be reduced or eliminated.
27
<PAGE>
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. Contributions for a year may be made during
such year or by the tax return filing date for such year (not including
extensions), if irrevocably designated for such year, in writing, when such
contribution is made.
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA.
Spousal - You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
For a tax year before 1997, the spousal contribution rules limit the
aggregate amount of the contributions to both of your IRAs for a year to the
lesser of $2,250 or the amount of the compensated spouse's compensation for such
year. The contributions do not have to be split equally between the IRAs
belonging to you and your spouse. However, the total contribution to either of
your IRAs may not exceed $2,000.
For tax years after 1996, if you are the compensated spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established 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.
Active Participant - If you are not self-employed, your Form W-2 should
indicate your participation status. If you have questions about your
participation status, check with your employer or your tax advisor.
You are covered by a retirement plan for a year if your employer or union
has a retirement plan under which money is added to your account, or you are
eligible to earn retirement credits, even if you are not yet vested in your
retirement plan. Also, if you make required contributions or voluntary
contributions to an employer-sponsored retirement plan, you are an active
participant.
Adjusted Gross Income (AGI) - If you are an active participant, the amount
of your AGI for the year (if you and your spouse file a joint tax return, your
combined AGI) will be used to determine if you can make a deductible IRA
contribution. If you are at or below a certain AGI level, called the Threshold
Level, you can make a deductible contribution under the same rules as a person
who is not an active participant.
28
<PAGE>
If you are single, or treated as being single, your AGI Threshold Level is
$25,000. If you are married and file a joint tax return, your AGI Threshold
Level is $40,000. If you are married, file a separate tax return, and live with
your spouse for any part of the year, your AGI Threshold Level is $0.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may
still contribute using the rules in the "Deductible Contributions" section
above. The portion of your IRA contribution that is not deductible will be a
nondeductible contribution. You may choose to make a nondeductible IRA
contribution even if you could have deducted part or all of the contribution.
Generally, interest or other earnings on your IRA contribution, whether from
deductible or nondeductible contributions, will not be taxed until distributed
from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make rollover
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. provides accounting, stock transfer 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 administrative 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
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, 1996, total payments
to Mutual Funds Service Co. by the Fund and the Portfolio amounted to $69,544.
29
<PAGE>
DESCRIPTION OF THE TRUST
Trust Organization. The assets of the Trust received for the issue or sale
of the shares of the Fund and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially allocated to
the Fund and constitute the underlying assets of the Fund. The underlying assets
of the Fund are segregated on the books of account, and are to be charged with
the liabilities with respect to the Fund and with a share of the general
expenses of the Trust. Expenses with respect to the Trust are to be allocated in
proportion to the asset value of the respective funds except where allocations
of direct expense can otherwise be fairly made. The officers of the Trust,
subject to the general supervision of the Board of Trustees, have the power to
determine which expenses are allocable to a given fund, or which are general or
allocable to all of the funds. In the event of the dissolution or liquidation of
the Trust, shareholders of each fund are entitled to receive as a class the
underlying assets of such fund available for distribution.
Shareholder and Trustee Liability. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees
include a provision limiting the obligations created thereby to the Trust and
its assets.
The Declaration of Trust provides for indemnification out of each fund's
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that each Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations. The Manager believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects Trustees against any liability to
which they would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
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
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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.
Auditor. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215
serves as the Trust's independent accountant. The auditor examines financial
statements for the Fund and provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Not Applicable.
31
<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 Not applicable
<PAGE>
UTILITY GROWTH FUND
A FUND OF THE FLEX-PARTNERS TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL ___, 1998
This Statement is not a prospectus but should be read in conjunction with
the Prospectus of The Flex-Partners Utility Growth Fund (dated April __, 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.
On April 16, 1997, the Fund changed its name from "The BTB Fund" to
"Utility Growth Fund."
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 18
Valuation of Portfolio Securities 20
Performance 21
Additional Purchase and Redemption Information 25
Distributions and Taxes 29
Investment Adviser and Manager 30
Investment Subadviser 32
The Distributor 33
Trustees and Officers 34
Flex-Partners Retirement Plans 38
Contracts With Companies Affiliated With Manager 40
Description of the Trust 40
Principal Holders of Outstanding Shares 42
Financial Statements 43
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);
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(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, more than 25% 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
more than 25% 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.
3
<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
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.
4
<PAGE>
(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.
5
<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.
6
<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.
7
<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
fixed-rate mortgage-backed securities, loans and other direct debt instruments
and swap agreements to be illiquid. However, with respect to over-the-counter
8
<PAGE>
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.
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.
10
<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.
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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
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.
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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.
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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
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.
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<PAGE>
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,
15
<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.
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<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.
PORTFOLIO TURNOVER. The portfolio turnover rate for 1996 was 51% (1995 -
5%). 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
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<PAGE>
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.
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.
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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
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, 1996, directed brokerage payments of $3,377 were made to reduce
expenses of the Portfolio ($1,212 in 1995).
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.
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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, 1996, the Portfolio paid total commissions of $13,594 on the
purchase and sale of portfolio securities ($8,202 in 1995).
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.
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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.
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
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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)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
UTILITY GROWTH FUND (CLASS A SHARES):
Total Return
---------------------------------------
Since Inception
1 Year (July 11, 1995)
Period Ended Period Ended
December 31, 1996 December 31, 1996
----------------- -----------------
Value of Account
At end of Period $1,126.14 $1,296.28
Value of Account
At beginning of Period 1,000.00 1,000.00
---------- ----------
Base Period Return $ 126.14 $ 296.28
Total Return 12.61% 19.21%
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UTILITY GROWTH FUND (CLASS C SHARES):
Total Return
---------------------------------------
Since Inception
1 Year (July 11, 1995)
Period Ended Period Ended
December 31, 1996 December 31, 1996
----------------- -----------------
Value of Account
At end of Period $1,124.53 $1,293.99
Value of Account
At beginning of Period 1,000.00 1,000.00
---------- ---------
Base Period Return $ 124.53 $ 293.99
Total Return 12.45% 19.07%
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.
23
<PAGE>
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.
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.
24
<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, 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.
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.
25
<PAGE>
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:
(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;
26
<PAGE>
(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
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.
27
<PAGE>
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Transfer Agent or, if not paid, the Transfer Agent will
liquidate sufficient escrowed shares to obtain such difference. If the goal is
exceeded in an amount which qualifies for a lower sales charge, a price
adjustment is made by refunding to the purchaser the amount of excess sales
charge, if any, paid during the thirteen-month period. Investors electing to
purchase 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 the 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 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.
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<PAGE>
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 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, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of the Fund's
gross income for each fiscal year. Gains from futures contracts and options are
included in this 30% calculation, which may limit the Fund's investments in such
instruments.
The Fund is treated as a separate entity from the other funds of The
Flex-Partners Trust for tax purposes.
29
<PAGE>
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.
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.
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<PAGE>
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 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, 1996, the Utilities Stock Portfolio paid
fees to the Manager totaling $65,190 ($14,297 in 1995).
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.
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<PAGE>
R. Meeder & Associates, Inc. was incorporated in Ohio on February 1, 1974
and maintains its principal offices at 6000 Memorial Drive, Dublin, Ohio 43017.
The Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors, and the principal offices
are as set forth as follows: Robert S. Meeder, Sr., Chairman and Sole Director;
Robert S. Meeder, Jr., President; Philip A. Voelker, Senior Vice President and
Chief Operating Officer; Donald F. Meeder, Vice President and Secretary; Sherrie
L. Acock, Vice President; Robert D. Baker, Vice President; Wesley F. Hoag, Vice
President and General Counsel; Steven T. McCabe, Vice President; and Roy E.
Rogers, Vice President. 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, Wesley F. Hoag and Steven T. McCabe is an officer of the Trust and the
Portfolio.
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.
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<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.
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<PAGE>
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, 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, 1996
amounted to $22,392.22. Directed payments to parties with selling agreements
amounted to $3,222.80. 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.
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 (*).
<TABLE>
<CAPTION>
Name, Address and Age Position Held Principal Occupation
- --------------------- ------------- --------------------
<S> <C> <C>
ROBERT S. MEEDER, SR.*+, 68 Trustee/President Chairman, R. Meeder & Associates,
Inc., an investment adviser.
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<PAGE>
<S> <C> <C>
MILTON S. BARTHOLOMEW, 68 Trustee Retired; formerly a practicing
1424 Clubview Boulevard, S. attorney in Columbus, Ohio; member
Worthington, OH 43235 of the Fund's Audit Committee.
ROGER D. BLACKWELL, 56 Trustee Professor of Marketing and Consumer
Blackwell Associates, Inc. Behavior, The Ohio State University;
3380 Tremont Road President of Blackwell Associates,
Columbus, OH 43221 Inc., a strategic consulting firm.
JOHN M. EMERY, 76 Trustee Retired; formerly Vice President and
2390 McCoy Road Treasurer of Columbus & Southern
Columbus, OH 43220 Ohio Electric Co.; member of the
Fund's Audit Committee.
RICHARD A. FARR, 78 Trustee President of R&R Supply Co. and
3250 W. Henderson Road Farrair Concepts, Inc., two
Columbus, OH 43220 companies involved in engineering,
consulting and sales of heating and
air conditioning equipment.
WILLIAM L. GURNER*, 50 Trustee President, Sector Capital
Sector Capital Management, Inc. Management, an investment adviser
5350 Poplar Avenue, Suite 490 (since January 1995); Manager of
Memphis, TN 38119 Trust Investments of Federal Express
Corporation (1987-1994).
RUSSEL G. MEANS, 71 Trustee Retired; formerly Chairman of
5711 Barry Trace Employee Benefit Management
Dublin, OH 43017 Corporation, consultants and
administrators of self-funded health
and retirement plans.
ROBERT S. MEEDER, JR.*+, 36 Trustee and Vice President President of R. Meeder & Associates,
Inc.
35
<PAGE>
<S> <C> <C>
LOWELL G. MILLER*, 48 Trustee President, Miller/Howard
Miller/Howard Investments, Inc. Investments, Inc., an investment
141 Upper Byrdcliffe Road adviser whose clients include the
P. O. Box 549 Utilities Stock Portfolio.
Woodstock, NY 12498
WALTER L. OGLE, 58 Trustee Executive Vice President of Aon
400 Interstate North Parkway, Suite 1630 Consulting, an employee benefits
Atlanta, GA 30339 consulting group.
PHILIP A. VOELKER*+, 43 Trustee and Vice President Senior Vice President and Chief
Operating Officer of R. Meeder &
Associates, Inc.
JAMES B. CRAVER*, 53 Assistant Secretary Practicing Attorney; Special Counsel
42 Miller Hill Road to Flex-Partners, Flex-funds and
Box 811 their Portfolios; Senior Vice
Dover, MA 02030 President of Signature Financial
Group, Inc. (January 1991 to August
1995).
STEVEN T. MCCABE*+, 32 Assistant Treasurer Vice President, R. Meeder &
Associates, Inc., and Vice President
of Mutual Funds Service Co.
DONALD F. MEEDER*+, 58 Secretary/Treasurer Vice President of R. Meeder &
Associates, Inc., and President of
Mutual Funds Service Co.
WESLEY F. HOAG*+, 40 Vice President Vice President and General Counsel
of R. Meeder & Associates, Inc.
(since July 1993); Attorney, Porter,
Wright, Morris & Arthur, a law firm
(October 1984 to June 1993).
<FN>
* 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.
</FN>
</TABLE>
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F.
Meeder's uncle.
36
<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, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or
Retirement Total
Benefits Compensation
Accrued as Estimated from
Aggregate Part of Annual Registrant and
Trustee Compensation Portfolio or Benefits Upon Fund Complex
from the Fund Fund Expense Retirement Paid to Trustee
------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew None None None $7,550
John M. Emery $933 None None $7,550
Richard A. Farr $833 None None $6,750
William F. Gurner $1,750 None None $5,250
Russel G. Means None None None $6,750
Lowell G. Miller None None None None
Robert S. Meeder, Jr. None None None None
Walter L. Ogle None None None $6,000
Philip A. Voelker None None None None
Roger A. Blackwell $646 None None $5,250
</TABLE>
Neither the Trust nor any other member of the Fund Complex pays any pension
or retirement benefits to any Trustee or officer or maintains any plan for such
purpose.
Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for each of the five Portfolios. 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%
37
<PAGE>
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. Mr.
Emery comprises the Audit Committee for each of The Flex-funds and The
Flex-Partners Trusts. Mr. Emery is paid $500 for each meeting of the Audit
Committees attended regardless of the number of Audit Committees on which he
serves. Trustees fees for Utility Growth Fund totaled $4,162 for the year ended
December 31, 1996 ($2,917 in 1995). Audit Committee fees for the Fund totaled
$100 for the year ended December 31, 1996 ($45 in 1995).
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 are described below.
DEDUCTIBLE CONTRIBUTIONS
Individual Retirement Accounts (IRA):
Regular - Contributions to an IRA (except for rollovers) cannot exceed the
amount of compensation includible in gross income for the tax year or $2,000,
whichever is less. If neither you nor your spouse is an active participant in an
employer plan, you may make a contribution up to this limit and take a deduction
for the entire amount contributed. If you or your spouse is an active
participant and your adjusted gross income (AGI) is below a certain level you
may also make a contribution and take a deduction for the entire amount
contributed. However, if you or your spouse is an active participant and your
AGI is above the specified level, the dollar limit of the deductible
contribution you make to your IRA may be reduced or eliminated.
Regular contributions are not allowed for the year in which you attain age
70-1/2 or for any year thereafter. Contributions for a year may be made during
such year or by the tax return filing date for such year (not including
extensions), if irrevocably designated for such year, in writing, when such
contribution is made.
If you and your spouse each receive compensation during the year and are
otherwise eligible, each of you may establish your own IRA.
38
<PAGE>
Spousal - You may make spousal IRA contributions for a year, if: 1) your
spouse has "compensation" that is includible in gross income for such year; 2)
you have less compensation than your spouse for such year; 3) you do not reach
age 70-1/2 by the end of such year; and 4) you file a joint federal income tax
return for such year.
For a tax year before 1997, the spousal contribution rules limit the
aggregate amount of the contributions to both of your IRAs for a year to the
lesser of $2,250 or the amount of the compensated spouse's compensation for such
year. The contributions do not have to be split equally between the IRAs
belonging to you and your spouse. However, the total contribution to either of
your IRAs may not exceed $2,000.
For tax years after 1996, if you are the compensated spouse, your
contribution must be made in accordance with the regular contribution rules
above. If you are the noncompensated (or lower compensated) spouse, your
contribution may not exceed the lesser of $2,000 or 100% of the combined
compensation of you and your spouse, reduced by the amount of your spouse's IRA
contribution.
Contributions for your spouse must be made to a separate IRA established 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.
Active Participant - If you are not self-employed, your Form W-2 should
indicate your participation status. If you have questions about your
participation status, check with your employer or your tax advisor.
You are covered by a retirement plan for a year if your employer or union
has a retirement plan under which money is added to your account, or you are
eligible to earn retirement credits, even if you are not yet vested in your
retirement plan. Also, if you make required contributions or voluntary
contributions to an employer-sponsored retirement plan, you are an active
participant.
Adjusted Gross Income (AGI) - If you are an active participant, the amount
of your AGI for the year (if you and your spouse file a joint tax return, your
combined AGI) will be used to determine if you can make a deductible IRA
contribution. If you are at or below a certain AGI level, called the Threshold
Level, you can make a deductible contribution under the same rules as a person
who is not an active participant.
If you are single, or treated as being single, your AGI Threshold Level is
$25,000. If you are married and file a joint tax return, your AGI Threshold
Level is $40,000. If you are married, file a separate tax return, and live with
your spouse for any part of the year, your AGI Threshold Level is $0.
39
<PAGE>
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.
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, 1996, total payments to Mutual Funds
Service Co. by the Fund and the Portfolio amounted to $17,920.
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
40
<PAGE>
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.
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.
41
<PAGE>
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.
AUDITOR. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
serves as the Trust's independent accountant. KPMG examines financial statements
for the Fund and provides other audit, tax, and related services.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of April 15, 1997, the following persons owned 5% or more of a class of
the Fund's outstanding shares of beneficial interest:
Class Name and Address Amount of Record Percent
of Shares of Beneficial Owner and Beneficially of Class
- --------- ------------------- ---------------- --------
Class A NFSC FEBO 4,354.714 shares 5.824%
OMY-#376493
Jose Barbosa TTEE
The Jose Barbosa 1195 Char
Remainder Uni Tr, U/A
12/1/95
1940 Westwood
Roseville, MN 55113
Class A First Albany Corporation 3,994.188 shares 5.342%
A/C 6350-9458
Helen C. Ollendorff Trust
41 State Street
Albany, NY 11747
Class C First Albany Corporation 14,245.911 shares 13.588%
A/C 1223-1829
Art Stone Theatrical Corp.
Retirement Trust 12/1/74
41 State Street
Albany, NY 11747
42
<PAGE>
Class C First Albany Corporation 14,765.857 shares 14.084%
A/C 1202-8396
Arie Aloni MD
41 State Street
Albany, NY 11747
Class C First Albany Corporation 7,377.875 shares 7.037%
A/C 6097-9768
Timothy F. Murphy &
41 State Street
Albany, NY 11747
Class C First Albany Corporation 5,707.534 shares 5.444%
A/C 7968-6896
Art Stone and
41 State Street
Albany, NY 12207
Class C First Albany Corporation 5,780.339 5.513%
A/C 4286-3524
FBO James A. Holleran
IRA Rollover
41 State Street
Albany, NY 11777
FINANCIAL STATEMENTS
Not Applicable.
43
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements - Not Applicable.
(b) Exhibits - Tactical Asset Allocation Fund and Utility Growth Fund:
1. Not Applicable.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. Not Applicable.
6. Not Applicable.
7. Not Applicable.
8. Not Applicable.
9. Not Applicable.
10. Not Applicable.
11. Not Applicable.
12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Not Applicable.
16. Not Applicable.
17. Not Applicable.
18. (a) Multiple Class Plan for the Utility Growth Fund is filed
herewith.
(b) Multiple Class Plan for the Tactical Asset Allocation Fund is
filed herewith.
19. Not Applicable.
<PAGE>
Item 25. Not Applicable.
Item 26. Not Applicable.
Item 27. Not Applicable.
Item 28. Not applicable.
Item 29. Not Applicable.
Item 30. Not Applicable.
Item 31. Not Applicable.
Item 32. Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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
27th day of February, 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.
2/27/98 /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, 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
2/27/98 /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 27th day of February,
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 February
27, 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
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
<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 27th day of February,
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 February 27, 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
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 18(a)
MULTIPLE CLASS PLAN - TACTICAL ASSET ALLOCATION FUND
The Flex-Partners Trust (the "Trust") will offer two classes of shares of
the Tactical Asset Allocation Fund (the "Fund"): Class A Shares (with a sliding
scale initial sales charge as shown in the Fund's Prospectus) and Class C Shares
(with a contingent deferred sales charge ("CDSC") of 1.50% on shares redeemed
within eighteen months of purchase and 0.75% on shares redeemed more than
eighteen months after purchase and less than twenty-four months after purchase).
CLASS A SHARES. The maximum sales charge for Class A Shares of the Fund is
4.00% of the offering price. The sales charge declines to 1.00% for purchases of
$1 million or more. For all Class A Shares, dividends and capital gains are
reinvested at net asset value. As provided in a plan adopted pursuant to Rule
12b-1 under the Investment Company Act (the "Rule 12b-1 Plan"), the Class A
Shares of the Fund pay the distributor of the shares of the Fund (the
"Distributor") distribution fees of .25% of average daily net assets per annum,
a portion of which the Distributor retains and the remainder of which is paid to
the broker-dealers selling the Class A Shares; and service fees of .25% of
average daily net assets per annum, 100% of which are allocated to National
Association of Securities Dealers ("NASD") member firms for continuous personal
service by such members to investors in the Fund.
CLASS C SHARES. The Class C Shares of the Fund are sold without the
imposition of an initial sales charge, but they are subject to a CDSC of 1.50%
of the net asset value of shares redeemed within eighteen months of purchase and
0.75% on shares redeemed more than eighteen months after purchase and less than
twenty-four months after purchase, which is payable to the Distributor. No CDSC
is imposed on Class C Shares redeemed thereafter, or on appreciation in value of
shares or shares acquired through reinvestment. Under the Rule 12b-1 Plan for
<PAGE>
Class C Shares, the Distributor is paid a distribution fee of .75% per annum of
average daily net assets of Class C Shares and a service fee of .25% per annum
of average daily net assets. Broker-dealers selling Class C Shares are paid by
the Distributor a portion of the distribution fee and all of the service fee as
shown in the Fund's Prospectus. After a specified period, certain Class C Shares
will convert to Class A Shares as described in the Fund's Prospectus and
Statement of Additional Information.
As noted above, the Fund will offer Class A and C Shares. Furthermore, each
share of the Fund will represent an equal pro rata interest in the Fund,
regardless of class, and will be identical in all respects, except for: (1) the
amount and type of fees permitted by Rule 12b-1 distribution plans and the terms
of service agreements, if applicable; (2) voting rights on matters concerning
Rule 12b-1 Plans; (3) exchange privileges; (4) any expenses which the Board of
Trustees of the Trust (the "Board") determines should be allocated or charged on
a class basis ("Differential Expenses"), which are limited to (a) transfer
agency fees as identified by the transfer agent as attributable to a specific
class, (b) printing and postage expenses related to preparing and distributing
class specific material such as shareholder reports, prospectuses and proxies to
current shareholders, (c) Blue Sky and Securities and Exchange Commission (the
"Commission") registration fees incurred by a class of shares, (d) the expenses
of administrative personnel and services as required to support the shareholders
of a specific class, if any, (e) litigation or other legal expenses relating
solely to a specific class of shares, (f) trustees' fees incurred as a result of
issues relating to one class of shares and (g) other expenses that are
subsequently identified and determined to be properly allocated to one class of
shares which shall be approved by the Commission pursuant to an amended order,
(5) the designation of such classes; and (6) any conversion feature applicable
to a class of shares (sometimes (1), (2), (3), (4), (5) and (6) are referred to
herein as the "Class Dissimilarities"). Other than as noted above, the classes
would be identical in all respects.
2
<PAGE>
NET ASSET VALUE. All expenses incurred by the Fund will be allocated among
the various classes of shares based upon the net assets of the Fund attributable
to each class, except that shares of a particular class will bear the
Differential Expenses incurred by such class. Consequently, the net income of,
and the dividends payable with respect to, each particular class would generally
differ from the net income of, and the dividends payable with respect to, the
other classes of shares of the Fund. Therefore, the net asset value per share of
the classes will differ at times. Expenses of the Fund allocated to a class of
shares will be borne on a pro rata basis by each outstanding share of that
class.
MAINTENANCE OF RECORDS. The Fund will maintain the records of calculations
of net asset value, dividend and distributions, expenses and allocation of
income and expenses in connection with the classes of shares of the Fund for a
period of not less than six years, the first two in an easily accessible place.
As provided herein, such calculations will be available for inspection by the
staff of the Commission during this period of time.
RULE 12B-1 PLANS. As discussed above, payments from the Rule 12b-1 Plans
for the Class A and C Shares will be used primarily to compensate the
Distributor for expenses it incurs in promoting and distributing shares of the
Fund. Such fees may be reallocated to broker-dealers for their distribution
efforts as described above.
The Distributor will furnish the Board with quarterly reports detailing
amounts expended by the Distributor (for the quarter and on a cumulative basis)
as sales commissions, related financing costs and, to the extent relevant, other
appropriate distribution expenses, including possible allocations of the
Distributor's general overhead costs (the "Statements"), to enable the Board to
fulfill their responsibilities pursuant to paragraph (d) of Rule 12b-1 under the
Investment Company Act, and to make findings required by paragraph (e) of Rule
12b-1. The Statements will also include service and distribution fees and CDSC
payments received by the Distributor (for the quarter and on a cumulative
basis). The Statements will comply with the requirements of paragraph (b)(3)(ii)
of Rule 12b-1.
3
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In their analysis of the reasonableness of the advisory fees and the Rule
12b-1 distribution fees under Section 36(b) of the Investment Company Act, the
Board, when considering adoption or continuation of the Rule 12b-1 Plans, will
be mindful of the fact that the advisory fee is borne in common by all shares,
but that each of the classes bears separate distribution fees. Consequently, in
connection with the Board's annual consideration of the appropriateness of the
continuation of such Plans, only distribution services and expenditures
attributable to the sale of a particular class of shares will be presented to
the Board to support the service and distribution fee charged to the class.
Given the fact that the method of allocating direct and indirect distribution
expenses is largely predetermined, the Trust does not believe that any conflicts
of interest will result from an investor owning one class of shares rather than
another.
Account executives or sales personnel selling shares of the Fund will be
compensated differently for selling different classes of shares. Because the
amount of compensation an account executive or salesperson receives will vary
from case to case depending on breakpoints, the length of time that client
accounts are maintained, and other factors, the Trust, R. Meeder & Associates,
Inc. (the "Adviser") and the Distributor believe that it is not possible to
generalize as to which class will provide the account executive or salesperson
with the highest level of compensation. The Prospectus of the Fund will describe
the services rendered and compensation paid under the Rule 12b-1 Plans and the
fees payable by the Fund. The Prospectus will disclose all material information
concerning the different classes of shares in a manner that would enable an
investor to make an informed and comparative analysis of the different classes
of shares, and facilitate the making of an investment decision that would be the
most advantageous to a given investor.
4
<PAGE>
EXCHANGE PRIVILEGES. Class A Shares of the Fund will be exchangeable only
for Class A Shares of any other series fund of the Trust or shares of The
Flex-funds Money Market Fund, a single class money market fund managed by the
Adviser. Class C Shares will be exchangeable only for Class C Shares of any
other series fund of the Trust. The applicable exchange privileges will be in
compliance with Rule 11a-3 under the Investment Company Act and will be set
forth in the Fund's prospectus.
CONDITIONS. Each of the following conditions are required by this Plan:
1. Each class of shares will represent interests in the same portfolio of
investments of the Fund and be identical in all respects, except as set
forth below. The only differences among the various classes of shares of
the Fund will relate solely to: (a) the designation of each class of shares
of the Fund; (b) expenses assessed to a class as a result of a rule 12b-1
plan providing for a distribution fee or a service fee; (c) different
Differential Expenses for each class of shares, which are limited to: (i)
transfer agency fees as identified by the transfer agent as being
attributable to a specific class; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; (iii) Blue Sky
registration fees incurred by a class of shares; (iv) Commission
registration fees incurred by a class of shares; (v) the expenses of
administrative personnel and services as required to support the
shareholders of a specific class; (vi) litigation or other legal expenses
relating solely to one class of shares; and (vii) Trustees' fees incurred
as a result of issues relating to one class of shares; (d) the fact that
the classes will vote separately with respect to the Fund's Rule 12b-1
5
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distribution plan, and if applicable, any shareholder servicing plan,
except as provided in condition 11 below; (e) different exchange
privileges; and (f) any conversion feature applicable to a class of shares.
Any additional incremental expenses not specifically identified above that
are subsequently identified and determined to be properly allocated to one
class of shares shall not be so allocated until approved by the Commission.
2. The initial determination of the Differential Expenses that will be
allocated to a particular class and any subsequent changes thereto will be
reviewed and approved by a vote of Trustees, including a majority of the
independent Trustees. Any person authorized to direct the allocation and
disposition of monies paid or payable by the Trust to meet Differential
Expenses shall provide to the Trustees, and the Board shall review, at
least quarterly, a written report of the amounts so expended and the
purpose for which the expenditures were made.
3. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the Investment Company Act and otherwise, will
monitor each Fund for the existence of any material conflicts among the
interests of the various classes of shares. The Trustees, including a
majority of the independent Trustees, will take such action as is
reasonably necessary to eliminate any conflicts that may develop. The
Adviser and the Distributor will be responsible for reporting any potential
or existing conflicts to the Trustees. If a conflict arises, the Adviser
and the Distributor at their own costs will remedy the conflict up to and
including establishing a new registered management investment company.
4. The Trustees will receive quarterly and annual Statements concerning
distribution and shareholder servicing expenditures complying with
paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from time to time.
In the Statements, only expenditures properly attributable to the sale or
servicing of one class of shares will be used to support any distribution
or servicing fee charged to shareholders of that class of shares.
Expenditures not related to the sale or servicing of a specific class of
6
<PAGE>
shares will not be presented to the Trustees to justify any fees charged to
that class of shares. The Statements, including the allocations upon which
they are based, will be subject to the review and approval of the
independent trustees in the exercise of their fiduciary duties.
5. Dividends paid by the Fund with respect to each class of 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 particular Class will bear exclusively its own Differential Expenses
and costs and distribution fees associated with any Rule 12b-1 plan
relating to a particular class.
6. The Trust, Adviser and Distributor have adequate facilities in place to
ensure implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the various classes of
shares and the proper allocation of expenses among the classes of shares.
7. The prospectus of the Fund will include a statement to the effect that a
salesperson and any other person entitled to receive any compensation for
selling or servicing Fund shares may receive different compensation with
respect to one particular class of shares over another in the Fund.
8. The Distributor will adopt compliance standards as to when shares of a
particular class may appropriately be sold to particular investors. The
Trust, Adviser and Distributor will require all persons selling shares of
the Fund to agree to conform to these standards.
9. A Fund will disclose the respective expenses and performance data
applicable to each class of shares in every shareholder report. The
shareholder reports will contain, in the statement of assets and
liabilities and statement of operations, information related to the Fund as
a whole generally and not on a per class basis. A Fund's per share data,
7
<PAGE>
however, will be prepared on a per class basis with respect to the classes
of shares of the Fund. The information provided by the Trust, Adviser and
Distributor for publication in any newspaper or similar listing of the
Fund's net asset values and public offering prices will present each class
of shares separately.
10. Any class of shares with a conversion feature ("Purchase Class") will
convert into another class of shares ("Target Class") on the basis of the
relative net asset values of the two classes, without the imposition of any
sales load, fee, or other charge. The expenses, including payments
authorized under a Rule 12b-1 plan, of the Target Class shall not be higher
than the expenses, including payments authorized under a Rule 12b-1 plan,
for the Purchase Class.
11. If the amount of expenses, including payments authorized under a Rule 12b-1
plan, for the Target Class is increased materially without approval of the
shareholders of the Purchase Class, existing Purchase Class shares will
stop converting into Target Class shares unless the Purchase Class
shareholders, voting separately as a class, approve the proposal. The
Trustees shall take such action as is necessary to ensure that existing
Purchase Class shares are exchanged or converted into a new class of shares
("New Target Class"), identical in all material respects to Target Class as
it existed prior to implementation of the proposal, no later than the date
such shares previously were scheduled to convert into Target Class. If
deemed advisable by the Trustees to implement the foregoing, such action
may include the exchange of all existing Purchase Class shares for a new
class ("New Purchase Class"), identical to existing Purchase Class shares
in all material respects except that New Purchase Class will convert into
New Target Class shares. Exchanges or conversions described in this
condition shall be effected in a manner that the Trustees reasonably
believe will not be subject to federal taxation. In accordance with
8
<PAGE>
condition 3, any additional cost associated with the creation, exchange, or
conversion of New Target Class shares or New Purchase Class shares shall be
borne solely by the Adviser and the Distributor. Purchase Class shares sold
after the implementation of the proposal may convert into Target Class
shares subject to the higher maximum payment, provided that the material
features of the Target Class plan and the relationship of such plan to the
Purchase Class shares are disclosed in an effective registration statement.
9
<PAGE>
EXHIBIT 18(b)
MULTIPLE CLASS PLAN - THE UTILITY GROWTH FUND
The Flex-Partners Trust (the "Trust") will offer two classes of shares of
the Utility Growth Fund (the "Fund"): Class A Shares (with a sliding scale
initial sales charge as shown in the Fund's Prospectus) and Class C Shares (with
a contingent deferred sales charge ("CDSC") of 1.50% on shares redeemed within
eighteen months of purchase and 0.75% on shares redeemed more than eighteen
months after purchase and less than twenty-four months after purchase).
CLASS A SHARES. The maximum sales charge for Class A Shares of the Fund is
4.00% of the offering price. The sales charge declines to 1.00% for purchases of
$1 million or more. For all Class A Shares, dividends and capital gains are
reinvested at net asset value. As provided in a plan adopted pursuant to Rule
12b-1 under the Investment Company Act (the "Rule 12b-1 Plan"), the Class A
Shares of the Fund pay the distributor of the shares of the Fund (the
"Distributor") distribution fees of .25% of average daily net assets per annum,
a portion of which the Distributor retains and the remainder of which is paid to
the broker-dealers selling the Class A Shares; and service fees of .25% of
average daily net assets per annum, 100% of which are allocated to National
Association of Securities Dealers ("NASD") member firms for continuous personal
service by such members to investors in the Fund.
CLASS C SHARES. The Class C Shares of the Fund are sold without the
imposition of an initial sales charge, but they are subject to a CDSC of 1.50%
of the net asset value of shares redeemed within eighteen months of purchase and
0.75% on shares redeemed more than eighteen months after purchase and less than
twenty-four months after purchase, which is payable to the Distributor. No CDSC
is imposed on Class C Shares redeemed thereafter, or on appreciation in value of
shares or shares acquired through reinvestment. Under the Rule 12b-1 Plan for
Class C Shares, the Distributor is paid a distribution fee of .75% per annum of
<PAGE>
average daily net assets of Class C Shares and a service fee of .25% per annum
of average daily net assets. Broker-dealers selling Class C Shares are paid by
the Distributor a portion of the distribution fee and all of the service fee as
shown in the Fund's Prospectus. After a specified period, certain Class C Shares
will convert to Class A Shares as described in the Fund's Prospectus and
Statement of Additional Information.
As noted above, the Fund will offer Class A and C Shares. Furthermore, each
share of the Fund will represent an equal pro rata interest in the Fund,
regardless of class, and will be identical in all respects, except for: (1) the
amount and type of fees permitted by Rule 12b-1 distribution plans and the terms
of service agreements, if applicable; (2) voting rights on matters concerning
Rule 12b-1 Plans; (3) exchange privileges; (4) any expenses which the Board of
Trustees of the Trust (the "Board") determines should be allocated or charged on
a class basis ("Differential Expenses"), which are limited to (a) transfer
agency fees as identified by the transfer agent as attributable to a specific
class, (b) printing and postage expenses related to preparing and distributing
class specific material such as shareholder reports, prospectuses and proxies to
current shareholders, (c) Blue Sky and Securities and Exchange Commission (the
"Commission") registration fees incurred by a class of shares, (d) the expenses
of administrative personnel and services as required to support the shareholders
of a specific class, if any, (e) litigation or other legal expenses relating
solely to a specific class of shares, (f) trustees' fees incurred as a result of
issues relating to one class of shares and (g) other expenses that are
subsequently identified and determined to be properly allocated to one class of
shares which shall be approved by the Commission pursuant to an amended order,
(5) the designation of such classes; and (6) any conversion feature applicable
to a class of shares (sometimes (1), (2), (3), (4), (5) and (6) are referred to
herein as the "Class Dissimilarities"). Other than as noted above, the classes
would be identical in all respects.
2
<PAGE>
NET ASSET VALUE. All expenses incurred by the Fund will be allocated among
the various classes of shares based upon the net assets of the Fund attributable
to each class, except that shares of a particular class will bear the
Differential Expenses incurred by such class. Consequently, the net income of,
and the dividends payable with respect to, each particular class would generally
differ from the net income of, and the dividends payable with respect to, the
other classes of shares of the Fund. Therefore, the net asset value per share of
the classes will differ at times. Expenses of the Fund allocated to a class of
shares will be borne on a pro rata basis by each outstanding share of that
class.
MAINTENANCE OF RECORDS. The Fund will maintain the records of calculations
of net asset value, dividend and distributions, expenses and allocation of
income and expenses in connection with the classes of shares of the Fund for a
period of not less than six years, the first two in an easily accessible place.
As provided herein, such calculations will be available for inspection by the
staff of the Commission during this period of time.
RULE 12B-1 PLANS. As discussed above, payments from the Rule 12b-1 Plans
for the Class A and C Shares will be used primarily to compensate the
Distributor for expenses it incurs in promoting and distributing shares of the
Fund. Such fees may be reallocated to broker-dealers for their distribution
efforts as described above.
The Distributor will furnish the Board with quarterly reports detailing
amounts expended by the Distributor (for the quarter and on a cumulative basis)
as sales commissions, related financing costs and, to the extent relevant, other
appropriate distribution expenses, including possible allocations of the
Distributor's general overhead costs (the "Statements"), to enable the Board to
fulfill their responsibilities pursuant to paragraph (d) of Rule 12b-1 under the
Investment Company Act, and to make findings required by paragraph (e) of Rule
12b-1. The Statements will also include service and distribution fees and CDSC
payments received by the Distributor (for the quarter and on a cumulative
basis). The Statements will comply with the requirements of paragraph (b)(3)(ii)
of Rule 12b-1.
3
<PAGE>
In their analysis of the reasonableness of the advisory fees and the Rule
12b-1 distribution fees under Section 36(b) of the Investment Company Act, the
Board, when considering adoption or continuation of the Rule 12b-1 Plans, will
be mindful of the fact that the advisory fee is borne in common by all shares,
but that each of the classes bears separate distribution fees. Consequently, in
connection with the Board's annual consideration of the appropriateness of the
continuation of such Plans, only distribution services and expenditures
attributable to the sale of a particular class of shares will be presented to
the Board to support the service and distribution fee charged to the class.
Given the fact that the method of allocating direct and indirect distribution
expenses is largely predetermined, the Trust does not believe that any conflicts
of interest will result from an investor owning one class of shares rather than
another.
Account executives or sales personnel selling shares of the Fund will be
compensated differently for selling different classes of shares. Because the
amount of compensation an account executive or salesperson receives will vary
from case to case depending on breakpoints, the length of time that client
accounts are maintained, and other factors, the Trust, R. Meeder & Associates,
Inc. (the "Adviser") and the Distributor believe that it is not possible to
generalize as to which class will provide the account executive or salesperson
with the highest level of compensation. The prospectus of the Fund will describe
the services rendered and compensation paid under the Rule 12b-1 Plans and the
fees payable by the Fund. The prospectus will disclose all material information
concerning the different classes of shares in a manner that would enable an
investor to make an informed and comparative analysis of the different classes
of shares, and facilitate the making of an investment decision that would be the
most advantageous to a given investor.
4
<PAGE>
EXCHANGE PRIVILEGES. Class A Shares of the Fund will be exchangeable only
for Class A Shares of any other series fund of the Trust or shares of The
Flex-funds Money Market Fund, a single class money market fund managed by the
Adviser. Class C Shares will be exchangeable only for Class C Shares of any
other series fund of the Trust. The applicable exchange privileges will be in
compliance with Rule 11a-3 under the Investment Company Act and will be set
forth in the Fund's prospectus.
CONDITIONS. Each of the following conditions are required by this Plan:
1. Each class of shares will represent interests in the same portfolio of
investments of the Fund and be identical in all respects, except as
set forth below. The only differences among the various classes of
shares of the Fund will relate solely to: (a) the designation of each
class of shares of the Fund; (b) expenses assessed to a class as a
result of a rule 12b-1 plan providing for a distribution fee or a
service fee; (c) different Differential Expenses for each class of
shares, which are limited to: (i) transfer agency fees as identified
by the transfer agent as being attributable to a specific class; (ii)
printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to
current shareholders; (iii) Blue Sky registration fees incurred by a
class of shares; (iv) Commission registration fees incurred by a class
of shares; (v) the expenses of administrative personnel and services
as required to support the shareholders of a specific class; (vi)
litigation or other legal expenses relating solely to one class of
shares; and (vii) Trustees' fees incurred as a result of issues
relating to one class of shares; (d) the fact that the classes will
vote separately with respect to the Fund's Rule 12b-1 distribution
plan, and if applicable, any shareholder servicing plan, except as
provided in condition 12 below; (e) different exchange privileges; and
(f) any conversion feature applicable to a class of shares. Any
5
<PAGE>
additional incremental expenses not specifically identified above that
are subsequently identified and determined to be properly allocated to
one class of shares shall not be so allocated until approved by the
Commission.
2. The initial determination of the Differential Expenses that will be
allocated to a particular class and any subsequent changes thereto
will be reviewed and approved by a vote of Trustees, including a
majority of the independent Trustees. Any person authorized to direct
the allocation and disposition of monies paid or payable by the Trust
to meet Differential Expenses shall provide to the Trustees, and the
Board shall review, at least quarterly, a written report of the
amounts so expended and the purpose for which the expenditures were
made.
3. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the Investment Company Act and otherwise, will
monitor each Fund for the existence of any material conflicts among
the interests of the various classes of shares. The Trustees,
including a majority of the independent Trustees, will take such
action as is reasonably necessary to eliminate any conflicts that may
develop. The Adviser and the Distributor will be responsible for
reporting any potential or existing conflicts to the Trustees. If a
conflict arises, the Adviser and the Distributor at their own costs
will remedy the conflict up to and including establishing a new
registered management investment company.
4. The Trustees will receive quarterly and annual Statements concerning
distribution and shareholder servicing expenditures complying with
paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from time to
time. In the Statements, only expenditures properly attributable to
the sale or servicing of one class of shares will be used to support
any distribution or servicing fee charged to shareholders of that
6
<PAGE>
class of shares. Expenditures not related to the sale or servicing of
a specific class of shares will not be presented to the Trustees to
justify any fees charged to that class of shares. The Statements,
including the allocations upon which they are based, will be subject
to the review and approval of the independent trustees in the exercise
of their fiduciary duties.
5. Dividends paid by the Fund with respect to each class of 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 particular Class will bear exclusively its
own Differential Expenses and costs and distribution fees associated
with any Rule 12b-1 plan relating to a particular class.
6. The Trust, Adviser and Distributor have adequate facilities in place
to ensure implementation of the methodology and procedures for
calculating the net asset value and dividends and distributions of the
various classes of shares and the proper allocation of expenses among
the classes of shares.
7. The prospectus of the Fund will include a statement to the effect that
a salesperson and any other person entitled to receive any
compensation for selling or servicing Fund shares may receive
different compensation with respect to one particular class of shares
over another in the Fund.
8. The Distributor will adopt compliance standards as to when shares of a
particular class may appropriately be sold to particular investors.
The Trust, Adviser and Distributor will require all persons selling
shares of the Fund to agree to conform to these standards.
9. A Fund will disclose the respective expenses and performance data
applicable to each class of shares in every shareholder report. The
shareholder reports will contain, in the statement of assets and
liabilities and statement of operations, information related to the
7
<PAGE>
Fund as a whole generally and not on a per class basis. A Fund's per
share data, however, will be prepared on a per class basis with
respect to the classes of shares of the Fund. The information provided
by the Trust, Adviser and Distributor for publication in any newspaper
or similar listing of the Fund's net asset values and public offering
prices will present each class of shares separately.
10. Any class of shares with a conversion feature ("Purchase Class") will
convert into another class of shares ("Target Class") on the basis of
the relative net asset values of the two classes, without the
imposition of any sales load, fee, or other charge. The expenses,
including payments authorized under a Rule 12b-1 plan, of the Target
Class shall not be higher than the expenses, including payments
authorized under a Rule 12b-1 plan, for the Purchase Class.
11. If the amount of expenses, including payments authorized under a Rule
12b-1 plan, for the Target Class is increased materially without
approval of the shareholders of the Purchase Class, existing Purchase
Class shares will stop converting into Target Class shares. The
Trustees shall take such action as is necessary to ensure that
existing Purchase Class shares are exchanged or converted into a new
class of shares ("New Target Class"), identical in all material
respects to Target Class as it existed prior to implementation of the
proposal, no later than the date such shares previously were scheduled
to convert into Target Class. If deemed advisable by the Trustees to
implement the foregoing, such action may include the exchange of all
existing Purchase Class shares for a new class ("New Purchase Class"),
identical to existing Purchase Class shares in all material respects
except that New Purchase Class will convert into New Target Class
shares. Exchanges or conversions described in this condition shall be
8
<PAGE>
effected in a manner that the Trustees reasonably believe will not be
subject to federal taxation. In accordance with condition 3, any
additional cost associated with the creation, exchange, or conversion
of New Target Class shares or New Purchase Class shares shall be borne
solely by the Adviser and the Distributor. Purchase Class shares sold
after the implementation of the proposal may convert into Target Class
shares subject to the higher maximum payment, provided that the
material features of the Target Class plan and the relationship of
such plan to the Purchase Class shares are disclosed in an effective
registration statement.
9