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As filed with the Securities and Exchange Commission on December 6, 1995.
File No. 811- 9028
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
UTILITIES STOCK PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
P.O. Box 7177, 6000 Memorial Drive
Dublin, Ohio 43017
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 614-766-7000
Donald F. Meeder, P.O. Box 7177, 6000 Memorial Drive, Dublin, OH 43017
(Name and Address of Agent for Service)
Copy to:
James B. Craver
One Lewis Wharf
Boston, MA 02110
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PART A
Not Applicable.
A-10
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PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
<TABLE>
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Page
<S> <C>
General Information and History B-1
Investment Objective and Policies B-1
Management of the Portfolio B-12
Control Persons and Principal Holders of Securities B-14
Investment Advisory and Other Services B-14
Brokerage Allocation and Other Practices B-16
Capital Stock and Other Securities B-18
Purchase, Redemption and Pricing of Securities B-19
Tax Status B-19
Underwriters B-20
Calculation of Performance Data B-20
Financial Statements B-20
</TABLE>
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
Part A contains additional information about the investment objective
and policies of the Utilities Stock Portfolio (the "Portfolio"). This Part B
should only be read in conjunction with Part A. The investment policies and
limitations set forth below supplement those set forth in Part A.
INVESTMENT RESTRICTIONS
Under the Investment Company Act of 1940 (the "1940 Act"), a
"fundamental" policy may not be changed without the vote of a majority of the
outstanding voting securities of the Portfolio, which is defined in the 1940 Act
with respect to the Portfolio as the lesser of (a) 67 percent or more of the
Portfolio's beneficial interests represented at a meeting of investors if the
holders of more than 50 percent of the outstanding beneficial interests are
present or represented by proxy, or (b) more than 50 percent of the outstanding
beneficial interests ("Majority Vote"). However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Part B are not fundamental and may be changed by the Trustees
without investor approval. The percentage limitations contained in the
restrictions listed below apply at the time of the purchase of the securities.
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 1940 Act;
B-1
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(3) borrow money, except that the Portfolio may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others (except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
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 may 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 engage in short sales, but may
engage in short sales "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
(ii) The Portfolio does not currently intend to purchase securities on margin,
except that the Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.
(iii) The Portfolio may borrow money only (a) from a bank or from a registered
investment company for which the Manager serves as investment adviser 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.
(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.
(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.
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(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.
(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" on
page B-9. For the Portfolio's limitations on short sales, see the section
entitled "Short Sales" on page B-12.
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.
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* 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 Service, Inc., or, if not rated, issued by a company
having an outstanding debt issue rated at least A by Standard
& Poor's or Moody's.
* Private Placement Commercial Paper - Private
placement commercial paper consists of unregistered securities
which are traded in public markets to qualified institutional
investors, such as the Portfolio. The Portfolio's risk is that
the universe of potential buyers for the securities, should
the Portfolio desire to liquidate a position, is limited to
qualified dealers and institutions, and therefore such
securities could have the effect of being illiquid.
* High Grade Corporate Obligations - obligations rated
at least A by Standard & Poor's or Moody's. See rating
information below.
* Repurchase Agreements -- See "Repurchase Agreements"
below.
The 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 Service, Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length or time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA - Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.
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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.
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.
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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 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, the
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 custodial
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.
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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.
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.
B-7
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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.
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
B-8
<PAGE> 11
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.
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 herein, 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.
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 Portfolio will lose the entire premium it paid. If the Portfolio
B-9
<PAGE> 12
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.
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.
B-10
<PAGE> 13
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts.
The 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.
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.
B-11
<PAGE> 14
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Portfolio will
comply with guidelines established by the SEC with respect to coverage of
options and futures strategies by mutual funds, and if the guidelines so
require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures or option strategy is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
SHORT SALES. The Portfolio may enter into short sales "against the box"
with respect to equity securities it holds. For example, if the Subadviser
anticipates a decline in the price of a stock the Portfolio holds, it may sell
the stock short "against the box." If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of the
stock's decline. The Portfolio currently intends to hedge no more than 15% of
its total assets with short sales "against the box" on equity securities under
normal circumstances.
When the Portfolio enters into a short sale "against the box", it will
be required to own or have the right to obtain at no added cost securities
identical to those sold short "against the box" and will be required to continue
to hold them while the short sale "against the box" is outstanding. The
Portfolio will incur transactions costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Trustees who are
"interested persons" (as defined in the 1940 Act) of the Portfolio. Unless
otherwise indicated, the address of each Trustee and officer is P.O. Box 7177,
6000 Memorial Drive, Dublin, Ohio 43017.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position
Name and Address Held Principal Occupation
---------------- -------- --------------------
<S> <C> <C>
ROBERT S. MEEDER, SR.* Trustee/President Chairman, R. Meeder &
Associates, Inc., an
Investment Adviser.
MILTON S. Trustee Retired, formerly a
BARTHOLOMEW, ESQ. practicing attorney in
1424 Clubview Blvd. S. Columbus, Ohio. Member of
Worthington, OH 43235 the Portfolio's Audit
Committee.
RUSSEL G. MEANS Trustee Chairman of Employee
4789 Rings Road Benefit Management
Dublin, OH 43017 Corporation, consultants
and administrators of
self-funded health and
retirement plans.
WALTER L. OGLE Trustee Executive Vice President
One Corporate Drive of Godwins, Booke &
Clearwater, FL 34622 Dickenson, Inc. employee
benefit, compensation and
human resource
consultants.
</TABLE>
B-12
<PAGE> 15
<TABLE>
<S> <C> <C>
NEIL P. RAMSEY Trustee President, Ramsey
Suite 215 Financial, a private
1230 Hurstbourne Parkway investment management
Louisville, KY 40222 company.
PHILIP A. VOELKER* Trustee Senior Vice President of
and Vice R. Meeder & Associates,
President Inc.
ROBERT S. MEEDER, JR.* Vice President, R. Meeder &
President Associates, Inc.
WESLEY F. HOAG Vice General Counsel and Chief
President Operating Officer of R.
Meeder & Associates, Inc.
(since July 1993);
Attorney, Porter, Wright,
Morris & Arthur, a law
firm (October 1984 to
June 1993).
DONALD F. MEEDER Secretary/ Vice President of R.
Treasurer Meeder & Associates,
Inc., and President of
Mutual Funds Service Co.
STEVEN T. McCABE Assistant Treasurer Controller, R. Meeder &
Associates, Inc. (since
April 1991); Assistant
Treasurer, Cardinal Group
of Funds (October 1986 to
April 1990).
JAMES B. CRAVER Assistant Secretary Senior Vice President of
6 St. James Avenue Signature Financial
Boston, MA 02116 Group, Inc. (since
January 1991); Partner,
Baker & Hostetler, a law
firm (August 1984 to
December 1990)
</TABLE>
B-13
<PAGE> 16
Each Trustee and officer of the Portfolio holds the same positions with
other Portfolios, each a corresponding Portfolio of The Flex-funds or
Flex-Partners, each a Massachusetts business trust consisting of several
separate series. Robert S. Meeder, Sr. is Robert S. Meeder, Jr's. father and
Donald F. Meeder's uncle.
Each Trustee who is not an "interested person" is paid an annual fee of
$3,000, plus $750 for each meeting of the Board of Trustees attended regardless
of the number of Boards of Trustees on which each Trustee serves. Mr.
Bartholomew comprises the Audit Committee for each corresponding Portfolio of
The Flex-funds and the Flex-Partners Trusts. Mr. Bartholomew is paid $400 for
each meeting of the Audit Committee attended regardless of the number of Audit
Committees on which he serves. All other officers and Trustees serve without
compensation from the Portfolio.
The Declaration of Trust provides that the Portfolio will indemnify its
Trustees and officers as described below under Item 18.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of April 18, 1995, R. Meeder & Associates, Inc. and the Total Return
Utilities Fund have each made an investment in the Portfolio in the amount of
$100. No Trustee or officer of the Portfolio or any other person had any
interest in the Portfolio as of the date of this Registration Statement.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
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 Portfolio, manages both
the investment operations of, 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 Portfolio's business affairs,
and in connection therewith, furnishes the Portfolio 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 Portfolio'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 for 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
B-14
<PAGE> 17
terminated without penalty at any time upon 60 days' prior written notice by
Majority Vote of the Portfolio, by the Trustees of the Portfolio, or by the
Manager.
The expenses of the Portfolio include the compensation of the Trustees
who are not affiliated with the Manager 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 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.
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; G. Robert Kincheloe, Senior Vice
President; Philip A. Voelker, Senior Vice President; Donald F. Meeder, Vice
President and Secretary; Sherrie L. Acock, Vice President; Robert D. Baker, Vice
President; Richard W. Arndt, Vice President; Wesley F. Hoag, General Counsel and
Chief Operating Officer; and Steven T. McCabe, Controller. Mr. Robert S. Meeder,
Sr. is President and a Trustee of the Portfolio. Each of Mr. Robert S. Meeder,
Jr., Donald F. Meeder, Wesley F. Hoag and Steven T. McCabe is an officer of the
Portfolio. Mr. Philip A. Voelker is a Trustee and officer of the Portfolio.
The general counsel for the Manager was primarily responsible for
preparing and filing with the Securities and Exchange Commission the
registration statement for the Portfolio. A charge in the amount of $5,000 for
such legal services rendered by the Manager on behalf of the Portfolio will be
paid and amortized by the Portfolio as an organization expense over a period not
exceeding 60 months.
INVESTMENT SUBADVISER
Miller/Howard Investments, Inc., 69 Glasco Turnpike, Woodstock, New
York 12498, serves as the Portfolio's Subadviser. Lowell G. Miller controls the
Subadviser through the ownership of voting common stock. The Investment
Subadvisory Agreement provides that the Subadviser shall furnish investment
advisory services in connection with the management of the 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, in an amount equal to 90% of the
investment advisory fees received by the Manager under its Investment Advisory
Contract with the Portfolio, provided that if a shareholder purchasing shares in
The Flex-Partners BTB Fund or The Flex-funds Total Return Utilities Fund is
solicited by the Manager, the Subadviser is compensated by the Manager in an
amount equal to 60% of such investment advisory fees received by the Manager.
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
B-15
<PAGE> 18
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 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.
TRANSFER AGENT
Mutual Funds Service Co. provides accounting, transfer agency, dividend
disbursing, and shareholder services to 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. These fees are reviewable annually by the Trustees of the
Portfolio.
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.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
serves as the Portfolio's independent accountant. The auditor examines financial
statements for the Portfolio and provides other audit, tax, and related
services.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
All orders for the purchase or sale of portfolio securities are placed
on behalf of the Portfolio by the 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 market for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis the
reasonableness of any commissions, and arrangements for payment of Portfolio
expenses.
The Portfolio's brokerage transactions involving securities of
companies headquartered in countries other than the United States will be
conducted primarily on the markets of 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,
B-16
<PAGE> 19
purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishings analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio
strategy, and performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement). The
selection of such broker-dealers generally is made by the Subadviser (to the
extent possible consistent with execution considerations) in accordance with a
ranking of broker-dealers determined periodically by the Subadviser's investment
staff based upon the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions
on behalf of the Portfolio may be useful to the Subadviser in rendering
investment management services to the Portfolio or its other clients, and
conversely, such research provided by broker-dealers who have executed
transaction orders on behalf of other Subadviser clients may be useful to the
Subadviser in carrying out its obligations to the Portfolio. The receipt of such
research is not expected to reduce the Subadviser's normal independent research
activities; however, it enables the Subadviser to avoid the additional expenses
that could be incurred if the Subadviser tried to develop comparable information
through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Portfolio to pay such higher commissions, the Subadviser must determine in good
faith that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or the Subadviser's overall
responsibilities to the Portfolio and its other clients. In reaching this
determination, the Subadviser will not attempt to place a specific dollar value
on the brokerage and research services provided or to determine what portion of
the compensation should be related to those services.
The Subadviser is authorized to use research services provided by and
to place portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the investors 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 expenses, such a transfer agent fees of Mutual
Funds Service Co. or custodian fees. The transaction quality must, however, be
comparable to those of other qualified broker-dealers.
The Trustees of the Portfolio periodically review the Subadviser's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Portfolio and review the commissions
paid by the Portfolio over representative periods of time to determine if they
are reasonable in relation to the benefits to the Portfolio.
From time to time, the Trustees of the Portfolio will review whether
the recapture for the benefit of the Portfolio of some portion of the brokerage
commissions or similar fees paid by the Portfolio on portfolio transactions is
legally permissible and advisable.
The Portfolio seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Trustees of the Portfolio intend to continue to review
whether recapture opportunities are available and are legally permissible and,
if so, to determine in the exercise of their business judgment, whether it would
be advisable for the Portfolio to seek such recapture.
Although the Trustees and officers of the Portfolio are substantially
the same as those of other portfolios managed by the Manager, investment
decisions for the Portfolio are made independently from those of other
portfolios managed by the Manager or accounts managed by affiliates of the
Manager. It sometimes happens that the same security is held in the portfolio of
more than one of these funds or accounts. Simultaneous transactions
B-17
<PAGE> 20
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 effects transactions in its portfolio securities on
securities exchanges on a non-exclusive basis through Roosevelt & Cross,
Incorporated, the distributor (the "Distributor") for the BTB Fund, all of whose
assets are invested in the Portfolio. Because the Distributor is an "affiliated
person" of the Portfolio (as such term is defined under the Investment Company
Act of 1940) by serving as the distributor of the BTB Fund, the Board of
Trustees of the Portfolio has adopted procedures pursuant to Rule 17e-1 under
the Investment Company Act of 1940 governing the payment of commissions by the
Portfolio to the Distributor in its capacity as a broker-dealer.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and non-assessable, except as
set forth below. Investments in the Portfolio may not be transferred.
Certificates representing an investor's beneficial interest in the Portfolio are
issued only upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees of the Portfolio if they
choose to do so and in such event the other investors in the Portfolio would not
be able to elect any Trustee. The Portfolio is not required to hold annual
meetings of investors but the Portfolio will hold special meetings of investors
when in the judgment of the Portfolio's Trustees it is necessary or desirable to
submit matters for an investor vote. No material amendment may be made to the
Portfolio's Declaration of Trust without the affirmative majority vote of
investors (with the vote of each being in proportion to the amount of their
investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two-thirds of its
investors (with the vote of each being in proportion to the amount of their
investment), except that if the Trustees of the Portfolio recommend such sale of
assets, the approval by vote of a majority of the investors (with the vote of
each being in proportion to the amount of their investment) will be sufficient.
The Portfolio may also be terminated (i) upon liquidation and distribution of
its assets, if approved by the vote of two-thirds of its investors (with the
vote of each being in proportion to the amount of their investment), or (ii) by
the Trustees of the Portfolio by written notice to its investors.
The Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial interest in the Portfolio. The Declaration of Trust also provides
that the Portfolio shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations.
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<PAGE> 21
The Declaration of Trust further provides that obligations of the
Portfolio are not binding upon the Trustees individually but only upon the
property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The Declaration of Trust provides
that the trustees and officers will be indemnified by the Portfolio against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Portfolio, unless, as to
liability to the Portfolio or its investors, it is finally adjudicated that they
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in their offices, or unless with respect to any
other matter it is finally adjudicated that they did not act in good faith in
the reasonable belief that their actions were in the best interests of the
Portfolio. In the case of settlement, such indemnification will not be provided
unless it has been determined by a court or other body approving the settlement
or other disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or in a
written opinion of independent counsel, that such officers or Trustees have not
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Portfolio may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities which are "accredited investors" as defined in
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
The Portfolio determines its net asset value as of 4:00 p.m., New York
time, each Fund Business Day by dividing the value of the Portfolio's net assets
by the value of the investment of the investors in the Portfolio at the time the
determination is made. (As of the date of this Registration Statement, the New
York Stock Exchange is open for trading every weekday except for the following
holidays (or days on which such holiday is observed): New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas.) Purchases and reductions will be effected at
the time of determination of net asset value next following the receipt of any
purchase or reduction order.
Securities owned by the Portfolio and listed or traded on any national
securities exchange are valued at each closing of the NYSE 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 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 in good faith by the Board of Trustees.
ITEM 20. TAX STATUS.
The Portfolio is organized as a trust under New York law. Under the
method of operation of the Portfolio, the Portfolio is not subject to any income
tax. However, each investor in the Portfolio is taxable on its share (as
determined in accordance with the governing instruments of the Portfolio) of the
Portfolio's ordinary income and capital gain in determining its income tax
liability. The determination of such share is made in accordance with the
Internal Revenue Code and regulations promulgated thereunder.
The Portfolio's taxable year-end is December 31. Although, as described
above, the Portfolio is not subject to federal income tax, it files appropriate
federal income tax returns.
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<PAGE> 22
The Portfolio's assets, income and distributions are managed in such a
way that an investor in the Portfolio will be able to satisfy the requirements
of Subchapter M of the Internal Revenue Code assuming that the investor invested
all of its investable assets in the Portfolio.
ITEM 21. UNDERWRITERS.
The exclusive placement agent for the Portfolio is SBDS, which receives
no additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
Not applicable.
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<PAGE> 23
PART C
Not Applicable.
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dublin and State of Ohio on the 6th day of December, 1995.
UTILITIES STOCK PORTFOLIO
By /s/ Wesley F. Hoag
-------------------
Wesley F. Hoag
Vice President
