As filed with the Securities and Exchange Commission on March 1, 1999.
COMMISSION FILE NO. 2-85378
COMMISSION FILE NO. 811-3462
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 40
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 40
THE FLEX-FUNDS
(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
WESLEY F. HOAG, VICE PRESIDENT - 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).
If appropriate, check the following box:
The Growth Stock, Mutual Fund, Bond and Money Market Portfolios have also
executed this Registration Statement.
THE FLEX-FUNDS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE HIGHLANDS GROWTH FUND, THE MUIRFIELD FUND,
THE U.S. GOVERNMENT BOND FUND AND THE MONEY MARKET FUND
PART A.
ITEM NO. PROSPECTUS CAPTION
1(a) Front Cover Page
1(b) Back Cover Page
2(a) Investment Goal
2(b) Strategies
2(c)(1) Main Risk Factors
2(c)(2) Performance
3 Fees and Expenses of the Fund
4(a)(b) More Information About the Funds
How is the Trust Organized?
4(c) More About Risk
Risk and Investment Glossary
5 Results of a $10,000 Investment
6(a) Who Manages the Funds?
6(b) Not applicable
7(a) Transaction Policies
7(b) How to Buy Shares
Other Shareholder Services
7(c) How to Make Withdrawals (Redemptions)
Exchange Privilege
Other Shareholder Services
7(d)(e) How Does Taxation Affect the Funds and Their Shareholders?
7(f) Not applicable
8(a) Not applicable
8(b) Distribution Fees
8(c) More Information About the Funds - Each Fund's Investment in a
Portfolio
9 How to Read the Financial Highlights Table
Financial Highlights
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THE FLEX-FUNDS
PROSPECTUS HIGHLANDS GROWTH FUND
APRIL 30, 1999
TOTAL RETURN UTILITIES FUND
MUIRFIELD FUND
[LOGOS] U. S. GOVERNMENT BOND FUND
MONEY MARKET FUND
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The Flex-funds is a family of funds that includes five no-load mutual funds covering a variety of investment opportunities.
This Prospectus gives you important information about the funds that you should know before you invest. Please read this Prospectus carefully and keep it handy for future reference.
Like all mutual fund shares, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
The Flex-funds 6000 Memorial Drive Dublin, OH 43017 1-800-325-FLEX or 614-760-2159 Internet: WWW.FLEXFUNDS.COM
CONTENTS
-------------------------------------------------------------------- THE FUNDS
A fund by fund look at Highlands Growth Fund _____
investment goals, strategies, Total Return Utilities Fund _____
risks, expenses and performance Muirfield Fund _____
U.S. Government Bond Fund _____
Money Market Fund _____
Information on who may want to Who May Want to Invest _____
invest and who may not want
to invest
Information about the results of Results of a $10,000 Investment _____
a hypothetical $10,000 investment
in the funds versus benchmark
indexes
More information about the funds More Information about the Funds _____
you should know before investing Who Manages the Funds? _____
Distribution Fees _____
How is the Trust Organized? _____
How Does Taxation Affect the
Funds and Their Shareholders? _____
How to Read the Financial
Highlights Table _____
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------------------------------------------------------------ SHAREHOLDER MANUAL
Information about account How to Buy Shares _____
transactions and services How to Make Withdrawals
(Redemptions) _____
Transaction Policies _____
Other Shareholder Services _____
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--------------------------------------------------------------- MORE ABOUT RISK
Investment Practices, Securities and Related Risks _____ Risk and Investment Glossary _____ |
---------------------------------------------------------- FOR MORE INFORMATION
Where to learn more about the funds Back Cover
HIGHLANDS GROWTH FUND - FLCGX
[ICON] INVESTMENT GOAL
The fund seeks growth of capital. To pursue this goal, the fund
invests primarily in a diversified portfolio of domestic common stocks
with greater than average growth characteristics selected primarily
from the Standard & Poor's 500 Composite Stock Price Index (S&P 500).
Current income is not a primary objective.
[ICON] STRATEGIES
The fund invests all of its assets in the Growth Stock Portfolio, a
master fund having the same investment goal as the fund. See "Each
Fund's Investment in a Portfolio" under "More Information About the
Funds." Normally, at least 80% of the Portfolio's total assets will be
invested in domestic common stocks and at least 65% of the Portfolio's
total assets will be invested in growth stocks. At least 70% of the
Portfolio's assets invested in common stocks will be invested in S&P
500 stocks.
The Portfolio consists of investment portfolios representing each of
the industry sectors comprising the S&P 500: utilities,
transportation, capital goods, consumer durables, consumer
non-durables, energy, materials and services, finance, technology and
health. The Portfolio's assets will be allocated to each of these
industry sectors in approximately the same proportion as these
industry sectors are represented in the S&P 500 on a
market-capitalization weighted basis.
The assets of the Portfolio representing each of these industry
sectors are managed by one or more separate investment advisers.
The Portfolio may invest in "traditional" derivatives, such as
financial futures contracts and related options as a hedge against
changes, resulting from market conditions, in the value of securities
held or intended to be held by the Portfolio.
For more information, see "How Does the Fund Pursue Its Investment
Goal?" under "More Information About the Funds."
[ICON] MAIN RISK FACTORS
The value of your investment will fluctuate in response to stock
market movements. To the extent that the fund invests in higher risk
securities, it encounters additional risks that could adversely affect
its performance. The use of several sector advisers or the replacement
of a sector adviser may increase the Portfolio's turnover, gains or
losses, and brokerage commissions. As with any mutual fund, loss of
money is a risk of investing in this fund. Please read "More About
Risk" carefully before investing.
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PERFORMANCE
The bar chart on the left below provides some indication of the risks of investing in the Highlands Growth Fund by showing changes in the fund's performance from year to year over a 10-year period. The table on the right compares the fund's performance with a broad measure of market performance and the returns of an index of funds with similar investment objectives. How the fund has performed in the past is not necessarily an indication of how the fund will perform in the future.
[GRAPH] The following information was presented in the form of a bar graph:
YEAR ANNUAL TOTAL RETURN ---- ------------------- 1989 10.17% 1990 4.31% 1991 21.46% 1992 6.35% 1993 7.21% 1994 -0.69% 1995 24.61% 1996 9.08% 1997* 29.28% 1998* 23.67% |
* The fund changed its investment objective and strategies on January 1, 1997. The annual total return reflects the results of the change in investment objective and strategies.
During the period shown in the bar chart, the highest return for a quarter was 19.82% (quarter ending December 31, 1998), and the lowest return for a quarter was -10.99% (quarter ending September 30, 1998).
Average Annual Total Returns (for the periods ending DECEMBER 31, 1998) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS ------------------------------------------------------------------------------- The Highlands Growth Fund 23.67% 16.63% 13.13% The S&P 500 Composite Stock Price Index* ___% ___% ___% Morningstar's Average Growth Mutual Fund ___% ___% ___% |
*The S&P 500 Composite Stock Price Index is a widely recognized unmanaged index of common stock prices. The S&P 500 does not take into account the deduction of expenses associated with a mutual fund, such as investment management and accounting fees. One cannot invest directly in an index.
[ICON] FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.
There are no sales loads, fees or other charges
|
o to buy fund shares directly from the fund
o to reinvest dividends in additional shares
o to exchange into shares of other funds in the Flex-funds
family of funds
o or to redeem your shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)1
Management Fees 1.00%
Distribution (12b-1) Fees 0.14%
Other Expenses2 0.56%
Total Annual Fund Operating Expenses 1.70%
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(1) This table and the Example below reflect the expenses of the fund and its proportionate share of expenses from its corresponding Portfolio. See "Each Fund's Investment in a Portfolio" under "More Information About the Funds."
(2) "Other Expenses" are estimated based upon expenses actually incurred by the fund for the year ended December 31, 1998.
EXAMPLE OF HYPOTHETICAL FUND COSTS
The example in the table below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
Assuming you
o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $172 $533 $918 $1,998 |
Of course, your actual costs may be higher or lower.
TOTAL RETURN UTILITIES FUND - FLRUX
[ICON] INVESTMENT GOAL
The fund seeks an above average 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 that generate power from nuclear reactors. The fund
also seeks capital appreciation, but only when consistent with its
primary investment objective.
[ICON] STRATEGIES
The fund invests all of its assets in The Utilities Stock Portfolio, a
master fund having the same investment goal as the fund. See "Each
Fund's Investment in a Portfolio" under "More Information About the
Funds." The Portfolio generally invests at least 65% of its total
assets in equity securities of domestic or foreign companies that
provide electricity, natural gas, water, telecommunications or
sanitary services to the public. The remaining 35% of the Portfolio's
total assets may be invested in debt securities of public utility
companies, or debt or equity securities of other issuers who stand to
benefit from developments in the utilities industry.
The subadviser uses fundamental analysis to identify those securities
that it believes provide an above average level of current income and
growth of income. 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 Portfolio may invest in "traditional" derivatives, such as
financial futures contracts and related options as a hedge against
changes, resulting from market conditions, in the value of securities
held or intended to be held by the Portfolio.
For more information, see "How Does the Fund Pursue Its Investment
Goal?" under "More Information About the Funds."
[ICON] MAIN RISK FACTORS
Utility stocks are subject to interest rate risk - i.e., price
fluctuations due to changing interest rates. Rising interest rates can
be expected to reduce the fund's net asset value. Because the fund
concentrates in a single industry, its performance is largely
dependent on the industry's performance, which may differ from that of
the overall stock market. Investments in securities of foreign
companies involve additional risks relating to political and economic
developments abroad, including currency fluctuations. As with any
mutual fund, loss of money is a risk of investing in the fund. Please
read "More About Risk" carefully before investing.
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PERFORMANCE
The bar chart on the left below provides some indication of the risks of investing in the Total Return Utilities Fund by showing changes in the fund's performance from year to year since the fund's inception in 1995. The table on the right compares the fund's performance with a broad measure of market performance and the returns of an index of funds with similar investment objectives. How the fund has performed in the past is not necessarily an indication of how the fund will perform in the future.
[GRAPH] The following information was presented in the form of a bar graph:
YEAR ANNUAL TOTAL RETURN
1996 13.33% 1997 28.68% 1998 8.77% |
During the period shown in the bar chart, the highest return for a quarter was 13.53% (quarter ending December 31, 1998), and the lowest return for a quarter was -10.29% (quarter ending September 30, 1998).
Average Annual Total Returns (for the periods ending DECEMBER 31, 1998) PAST ONE YEAR SINCE INCEPTION (6/21/95) ------------------------------------------------------------------------------- Total Return Utilities Fund 8.77% 18.57% Dow Jones Utility Average* ___% ___% Morningstar's Average Utilities Fund ___% ___% |
*The Dow Jones Utility Average is an unmanaged, price weighted index of fifteen geographically representative gas and electric utility companies. The Dow Jones Utility Average does not take into account the deduction of expenses associated with a mutual fund, such as investment management and accounting fees. One cannot invest directly in an index.
[ICON] FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.
There are no sales loads, fees or other charges
|
o to buy fund shares directly from the fund
o to reinvest dividends in additional shares
o to exchange into shares of other funds in the Flex-funds
family of funds
o or to redeem your shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)1
Management Fees 1.00%
Distribution (12b-1) Fees 0.24%
Other Expenses2 0.87%
Total Annual Fund Operating Expenses 2.11%
Expense Reimbursement3 0.31%
Net Expenses 1.80%
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(1) This table and the Example below reflect the expenses of the fund and its proportionate share of expenses from its corresponding Portfolio. See "Each Fund's Investment in a Portfolio" under "More Information About the Funds."
(2) "Other Expenses" are estimated based upon expenses actually incurred by the fund for the year ended December 31, 1998.
(3) The adviser has agreed to reduce its fees and/or absorb expenses to limit the fund's total annual operating expenses to 1.80%. The adviser may terminate this agreement after December 31, 1999.
EXAMPLE OF HYPOTHETICAL FUND COSTS
The example in the table below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
Assuming you
o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $183 $566 $975 $2,116 |
Of course, your actual costs may be higher or lower.
THE MUIRFIELD FUND - FLMFX
[ICON] INVESTMENT GOAL
The fund seeks growth of capital. To pursue this goal, the fund
invests primarily in other growth mutual funds that are not affiliated
with the fund.
[ICON] STRATEGIES
The fund invests all of its assets in the Mutual Fund Portfolio, a
master fund having the same investment goal as the fund. See "Each
Fund's Investment in a Portfolio" under "More Information About the
Funds." The Portfolio pursues its investment goal through asset
allocation and mutual fund selection. Normally, at least 65% of the
value of the Portfolio's total assets will be invested in mutual
funds. The mutual funds in which the Portfolio invests are primarily
growth funds investing in common stocks. In the underlying mutual
funds, current income will usually be of secondary importance. The
adviser overweights mutual fund types that it believes represent above
average market potential with below average market risk. The adviser
continually evaluates market capitalization (for example, blue chip
versus small capitalization) and sector rotation (for example, high
tech versus industrial companies) when selecting mutual funds.
The Portfolio may invest up to 100% of its assets in money market
securities and investment grade bonds as a defensive tactic. The
Portfolio places a high degree of importance on maintaining and
protecting portfolio values from adverse market conditions. The
Portfolio strives to avoid losses during high risk market environments
and strives to provide attractive returns during low risk markets.
When the adviser's evaluation of the stock market indicates that the
risks of the stock market are greater than the potential rewards, the
Portfolio will reduce or eliminate its position in growth mutual funds
in order to attempt to preserve your capital. The Portfolio may also
invest in common stocks directly.
The Portfolio may invest in "traditional" derivatives, such as
financial futures contracts and related options as a hedge against
changes, resulting from market conditions, in the value of securities
held or intended to be held by the Portfolio.
For more information, see "How Does the Fund Pursue Its Investment
Goal?" under "More Information About the Funds."
[ICON] MAIN RISK FACTORS
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When the Portfolio is invested primarily in growth mutual funds, the value of your investment will fluctuate in response to stock market movements. Investing through the fund in an underlying portfolio of mutual funds involves certain additional expenses and certain tax results which would not arise if you invested directly in the mutual funds in which the fund invests. The underlying mutual funds may invest in smaller or newer companies which are more likely to grow as well as suffer more significant losses than larger or more established companies. Investments in such companies can be both more volatile and more speculative. In addition, if the adviser does not accurately predict changing market conditions and other economic factors, the Portfolio's assets might be allocated in a manner that is disadvantageous. As with any mutual fund, loss of money is a risk of investing in the fund. Please read "More About Risk" carefully before investing.
PERFORMANCE
The bar chart on the left shown below provides some indication of the risks of investing in The Muirfield Fund by showing changes in the fund's performance from year to year over a 10-year period. The table on the right compares the fund's performance with a broad measure of market performance and the returns of an index of funds with similar investment objectives. How the fund has performed in the past is not necessarily an indication of how the fund will perform in the future.
[GRAPH] The following information was presented in the form of a bar graph:
YEAR ANNUAL TOTAL RETURN ---- ------------------- 1989 13.95% 1990 2.33% 1991 29.83% 1992 6.91% 1993 8.11% 1994 2.70% 1995 25.82% 1996 5.99% 1997 18.59% 1998 29.33% |
During the 10-year period shown in the bar chart, the highest return for a quarter was 25.45% (quarter ended December 31, 1998) and the lowest return for a quarter was -6.19% (quarter ending September 30, 1990).
Average Annual Total Returns (for the periods ending DECEMBER 31, 1998) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS -------------------------------------------------------------------------------- The Muirfield Fund 29.33% 16.00% 13.90% The S&P 500 Composite Stock Price Index* ___% ___% ___% Morningstar's Average Asset Allocation Fund ___% ___% ___% |
*The S&P 500 Composite Stock Price Index is a widely recognized unmanaged index of common stock prices. The S&P 500 does not take into account the deduction of expenses associated with a mutual fund, such as investment management and accounting fees. One cannot invest directly in an index.
[ICON] FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.
There are no sales loads, fees or other charges
|
o to buy fund shares directly from the fund
o to reinvest dividends in additional shares
o to exchange into shares of other funds in the Flex-funds
family of funds
o or to redeem your shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)1
Management Fees 0.81%
Distribution (12b-1) Fees 0.11%
Other Expenses2 0.32%
Total Annual Fund Operating Expenses 1.24%
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(1) This table and the Example below reflect the expenses of the fund and its proportionate share of expenses from its corresponding Portfolio. See "Each Fund's Investment in a Portfolio" under "More Information About the Funds."
(2) "Other Expenses" are estimated based upon expenses actually incurred by the fund for the year ended December 31, 1998.
EXAMPLE OF HYPOTHETICAL FUND COSTS
The example in the table below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
Assuming you
o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $126 $393 $681 $1,500 |
Of course, your actual costs may be higher or lower.
U.S. GOVERNMENT BOND FUND - FLXBX
[ICON] INVESTMENT GOAL
The fund seeks to maximize current income through investment in:
o securities which are issued, or guaranteed as to principal
and interest, by the U.S. government or any of its agencies
or instrumentalities and
o repurchase agreements involving these U.S. government
securities
[ICON] STRATEGIES
The fund invests all of its assets in The Bond Portfolio, a master
fund having the same investment goal as the fund. See "Each Fund's
Investment in a Portfolio" under "More Information About the Funds."
Normally, the Portfolio invests at least 65% of the value of its
assets in U.S. government debt securities. The Portfolio may invest in
U.S. Treasuries; agency securities such as Ginnie Maes, Sally Maes,
Fanny Maes and Freddie Macs; and repurchase agreements involving these
securities.
The Portfolio may invest in U.S. government securities having any
maturity. Normally, the Portfolio will invest in 10 year U.S.
government securities if the adviser believes the risk/reward
relationship of the bond market is positive. The Portfolio will invest
in short-term U.S. government securities or money market securities
when the adviser believes the risk/reward relationship of the bond
market is negative. If the adviser believes that long-term interest
rates are significantly greater than inflation, the Portfolio may
invest in U.S. government securities with maturities as long as 30
years.
When analyzing the market for U.S. government securities, the adviser
monitors the following indicators:
o momentum - the trend of U.S. government securities prices
compared to moving averages
o real interest rates - the 10-year Treasury bond yield
compared to the rate of inflation
o yield spread - the 10-year Treasury bond yield as compared
to the 90 day Treasury bill yield
The Portfolio may invest in "traditional" derivatives, such as
financial futures contracts and related options as a hedge against
changes, resulting from market conditions, in the value of securities
held or intended to be held by the Portfolio.
For more information, see "How Does the Fund Pursue Its Investment
Goal?" under "More Information About the Funds."
[ICON] MAIN RISK FACTORS
As with most bond funds, the value of your investment will fluctuate
with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of debt securities (including
U.S. government securities). These and other risks of investing in the
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fund are set forth in "More About Risk." Other factors may affect the market price and yield of the fund's securities, including investor demand and domestic and worldwide economic conditions. As with any mutual fund, loss of money is a risk of investing in the fund.
PERFORMANCE
The bar chart shown on the left below provides some indication of the risks of investing in the U.S. Government Bond Fund by showing changes in the fund's performance from year to year over a 10-year period. The table on the right compares the fund's performance with a broad measure of market performance and the returns of an index of funds with similar investment objectives. How the fund has performed in the past is not necessarily an indication of how the fund will perform in the future.
[GRAPH] The following information was presented in the form of a bar graph:
YEAR ANNUAL TOTAL RETURN ---- ------------------- 1989 8.75% 1990 8.35% 1991 15.30% 1992 3.26% 1993 8.22% 1994 -0.99% 1995 18.32% 1996 0.15% 1997 7.70% 1998 9.62% |
During the 10-year period shown in the bar chart, the highest return for a quarter was 7.60% (quarter ended June 30, 1995) and the lowest return for a quarter was -4.05% (quarter ending March 31, 1992).
Average Annual Total Returns (for the periods ending DECEMBER 31, 1998) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS ------------------------------------------------------------------------------- U.S. Government Bond Fund 9.62% 6.74% 7.72% The Lehman Brothers Intermediate Government Bond Index* ___% ___% ___% Morningstar's Average General Government Bond Fund ___% ___% ___% |
*The Lehman Brothers Intermediate Government Bond Index is an unmanaged index of fixed-rate bonds issued by the U.S. government and its agencies that are rated investment grade or higher and have one to ten years remaining until maturity and at least $100 million outstanding. The Lehman Brother Intermediate Government Bond Index does not take into account the deduction of expenses associated with a mutual fund, such as investment management and accounting fees. One cannot invest directly in an index.
[ICON] FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.
There are no sales loads, fees or other charges
|
o to buy fund shares directly from the fund
o to reinvest dividends in additional shares
o to exchange into shares of other funds in the Flex-funds
family of funds
o or to redeem your shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)1
Management Fees 0.40%
Distribution (12b-1) Fees 0.19%
Other Expenses2 0.57%
Total Annual Fund Operating Expenses 1.16%
Fee Waiver and Expense
Reimbursement3 0.16%
Net Expenses 1.00%
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(1) This table and the Example below reflect the expenses of the fund and its proportionate share of expenses from its corresponding Portfolio. See "Each Fund's Investment in a Portfolio" under "More Information About the Funds."
(2) "Other Expenses" are estimated based upon expenses actually incurred by the fund for the year ended December 31, 1998.
(3) The adviser has agreed to reduce its fees and/or absorb expenses to limit the fund's total annual operating expenses to 1.00%. The adviser may terminate this agreement after December 31, 1999.
EXAMPLE OF HYPOTHETICAL FUND COSTS
The example in the table below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
Assuming you
o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $102 $318 $552 $1,225 |
Of course, your actual costs may be higher or lower.
MONEY MARKET FUND - FFMXX
[ICON] INVESTMENT GOAL
The fund seeks to provide current income while maintaining a stable
share price of $1.00. To pursue this goal, the fund invests primarily
in high-quality, short-term money market instruments, such as
securities backed by the full faith and credit of the U.S. government,
securities issued by U.S. government agencies, or obligations issued
by corporations and financial institutions.
[ICON] PORTFOLIO SECURITIES
The fund invests all of its assets in The Money Market Portfolio, a
master fund having the same investment goal as the fund. See "Each
Fund's Investment in a Portfolio" under "More Information about the
Funds." The Portfolio, like all money funds, follows SEC guidelines on
the quality, maturity and diversification of its investments. These
guidelines are designed to help reduce a money fund's risks so that it
is more likely to keep its share price at $1.00.
o The Portfolio only buys securities that the adviser
determines present minimal credit risks and that are rated
in one of the top two short-term rating categories or that
are comparable unrated securities in the adviser's opinion.
o The Portfolio only buys securities with remaining maturities
of 397 calendar days or less and maintains a dollar-weighted
average portfolio maturity of 90 days or less.
o Generally, the Portfolio may not invest more than 5% of its
total assets in the securities of a single issuer, other
than in U.S. government securities.
o Generally, the adviser will attempt to purchase securities
with longer maturities when it believes interest rates are
falling and will attempt to purchase securities with shorter
maturities when it believes interest rates are rising.
The Portfolio will limit its purchases to U.S. government securities
and securities of its agencies and instrumentalities, bank obligations
and instruments secured thereby, high quality commercial paper, high
grade corporate obligations, funding agreements and repurchase
agreements.
For more information, see "How Does the Fund Pursue Its Investment
Goal?" under "More Information About the Funds."
[ICON] MAIN RISK FACTORS
The fund is subject to income risk, which is the possibility that the
fund's dividends or income will decline because of falling interest
rates. The fund is subject, to a limited extent, to credit risk which
is the possibility that the issuer of a security owned by the fund
will be unable to repay interest and principal in a timely manner.
An investment in the fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although
the fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund. Please
read "More About Risk" carefully before investing.
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PERFORMANCE
The bar chart shown on the left below provides some indication of the risks of investing in the Money Market Fund by showing changes in the fund's performance from year to year over a 10-year period. The table on the right compares the fund's performance with the returns of an index of funds with similar investment objectives. How the fund has performed in the past is not necessarily an indication of how the fund will perform in the future.
[GRAPH] The following information was presented in the form of a bar graph:
YEAR ANNUAL TOTAL RETURN ---- ------------------- 1989 9.32% 1990 8.21% 1991 6.12% 1992 3.70% 1993 2.98% 1994 4.10% 1995 5.85% 1996 5.27% 1997 5.38% 1998 5.31% |
During the 10-year period shown in the bar chart, the highest return for a quarter was 2.40% (quarter ended June 30, 1989) and the lowest return for a quarter was 0.71% (quarter ending June 30, 1993).
The fund's seven-day simple yield ended on December 31, 1998 was 4.96% and the seven-day compound yield ended December 31, 1998 was 5.07%. To request the fund's current seven-day yield, please call 1-800-325-FLEX or 614-760-2159.
Average Annual Total Returns
(for the periods ending
DECEMBER 31, 1998) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
--------------------------------------------------------------------------------
Money Market Fund 5.31% 5.18% 5.61%
Lipper's Average General Purpose
Money Market Fund ____% ___% ___%
[ICON] FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.
There are no sales loads, fees or other charges
|
o to buy fund shares directly from the fund
o to reinvest dividends in additional shares
o to exchange into shares of other funds in the Flex-funds
family of funds
o or to redeem your shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)1
Management Fees 0.27%
Distribution (12b-1) Fees 0.10%
Other Expenses2 0.22%
Total Annual Fund Operating Expenses 0.59%
Fee Waiver and Expense
Reimbursement3 0.19%
Net Expenses 0.40%
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(1) This table and the Example below reflect the expenses of the fund and its proportionate share of expenses from its corresponding Portfolio. See "Each Fund's Investment in a Portfolio" under "More Information About the Funds."
(2) "Other Expenses" are estimated based upon expenses actually incurred by the fund for the year ended December 31, 1999.
(3) Reflects the adviser's agreement to reduce its fees and/or absorb expenses to the extent necessary to achieve an effective yield for the fund that will rank in the top 10% of yields for all general purpose money market funds in 1999. The adviser may terminate this agreement after December 31, 1999.
EXAMPLE OF HYPOTHETICAL FUND COSTS
The example in the table below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
Assuming you
o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- $41 $128 $224 $505 |
Of course, your actual costs may be higher or lower.
WHO MAY WANT TO INVEST
HIGHLANDS GROWTH FUND
The fund may be appropriate for investors who:
o are seeking long-term growth potential
o are seeking a fund for the growth portion of an asset allocation portfolio
o do not want to focus on a particular style of investing (for example, value or growth) or a particular sector of the economy
o are more comfortable with a focus on established, well-known companies
o are seeking to diversify their portfolio
o are willing to accept higher short-term risk along with potentially higher long-term returns
The fund may not be appropriate for investors who:
o are unwilling to accept an investment that will go up and down in value
o are investing to meet short-term financial goals
TOTAL RETURN UTILITIES FUND
The fund may be appropriate if you:
o are seeking a more conservative, income-oriented equity investment or are looking to supplement your core equity holdings
o are a socially responsible investor
The Fund may not be appropriate if you:
o are seeking a short-term investment vehicle
o desire an investment that is diversified over several market sectors
MUIRFIELD FUND
The fund may be appropriate for investors who:
o are seeking long-term growth potential but are concerned about moderating the risks associated with being invested in stocks at all times
o are seeking to diversify their portfolio
o are investing with a long-term horizon
The fund may not be appropriate for investors who:
o are investing to meet short-term financial goals
o are seeking to be invested in the stock market at all times
o are seeking to maximize returns from an aggressive growth strategy that is invested in stocks at all times
U.S. GOVERNMENT BOND FUND
The fund may be appropriate for investors who:
o are seeking a regular stream of income
o have common stock holdings and want a bond investment in order to diversify their portfolio
o are seeking higher potential returns than money market investments provide and are willing to accept moderate risk of volatility
o have retired or are about to retire
The fund may not be appropriate if you:
o require maximum stability of principal
o are investing for a maximum return over a long-term horizon
MONEY MARKET FUND
The fund may be appropriate if you:
o like to earn income at current money market rates while preserving the value of your investment
o are looking for a short-term component of an asset allocation program
o characterize your investment outlook as "very conservative"
o want to be able to move your money into stock or bond investments quickly and without penalty
The fund may not be appropriate if you:
o are investing for maximum return over a long-term horizon
RESULTS OF A $10,000 INVESTMENT
THE HIGHLANDS GROWTH FUND VS. BENCHMARK INDEXES
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98 1 YEAR 23.67% 5 YEARS 16.63% 10 YEARS 13.13% SINCE INCEPTION (1/1/88) 10.90% |
[GRAPH] The following information was presented as a line graph:
Morningstar's
The Highlands Average Growth
YEAR Growth Fund S&P 500 Mutual Fund Index
---- ------------- ------- -----------------
1988 $10,000
1989 $11,017
1990 $11,493
1991 $13,959
1992 $14,846
1993 $15,916
1994 $15,806
1995 $19,697
1996 $21,485
1997 $27,776
1998 $34,351
|
The chart compares The Highlands Growth Fund's shares to benchmark indexes. It is intended to give you a general idea of how the Fund performed compared to these benchmarks over the period 1/1/88-12/31/98. It is important to understand differences between your Fund and these indexes. An index measures performance of a hypothetical portfolio.
A market index such as the S&P 500 Composite Stock Price Index is not managed, incurring no sales charges, expenses, or fees. If you could buy all the securities that make up a market index, you would incur expenses that would affect your investment's return. An index of funds such as the Morningstar's Average Growth Mutual Fund Index includes a number of mutual funds grouped by investment objective. Each of those funds interprets that objective differently, and each employs a different management style and investment strategy.
For a descriptions of indexes referred to on this page, please refer to "Performance."
PAST PERFORMANCE IS NO GUARANTEE OF COMPARABLE FUTURE RESULTS. MARKET VOLATILITY
CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE
TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN.
1998 IN REVIEW
Two words can best describe the performance of the stock market during 1998: "volatile" and "narrow." While the first six months of the year were relatively calm, with the market performing much to our expectations, the second six months were anything but.
Investors received a cold shot of reality during the third quarter, as equity markets plunged in response to financial crises in many emerging markets and concerns about the effect of these crises on U.S. corporate earnings. By early October, the Dow Jones Industrial Average had given back nearly all of its year-to-date gains. However, the spectacular market comeback of the fourth quarter helped the Dow and other large-cap market indexes finish the year in or near record territory.
Through the whipsaw volatility and extreme narrowness that characterized the performance of the stock market in 1998, The Highlands Growth Fund adhered to its investment strategy by remaining nearly fully invested in equities throughout the year. While such exposure may have left some investors feeling queasy at times, especially during the market corrections of the third quarter, our position ultimately helped us achieve strong returns in the fourth quarter and for all of 1998.
For the year, The Highlands Growth Fund had an annual total return of 23.67%, outperforming the 19.37% annual total return for the average growth fund according to Morningstar, but underperforming the 28.5% annual total return of the S&P 500 Index for the year.
RESULTS OF A $10,000 INVESTMENT
THE TOTAL RETURN UTILITIES FUND VS. BENCHMARK INDEXES
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98 1 YEAR 8.77% SINCE INCEPTION (6/25/95) 18.57% |
[GRAPH] The following information was presented as a line graph:
Morningstar's
The Total Return Dow Jones Utility Average Utilities
DATE Utilities Fund Average Index Fund Index
---- ---------------- ----------------- -----------------
6/25/95 $10,000
6/30/95 $ 9,880
9/30/95 $10,427
12/31/95 $11,500
3/31/96 $11,415
6/30/96 $12,103
9/30/96 $12,085
12/31/96 $13,032
3/31/97 $12,729
6/30/97 $13,749
9/30/97 $14,898
12/31/97 $16,770
3/31/98 $18,465
6/30/98 $17,910
9/30/98 $16,067
12/31/98 $18,241
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The chart compares The Total Return Utilities Fund's shares to benchmark indexes. It is intended to give you a general idea of how the Fund performed compared to these benchmarks over the period 6/25/95-12/31/98. (Please note that performance figures for the indexes are from 6/30/95-12/31/98.) It is important to understand differences between your Fund and these indexes. An index measures performance of a hypothetical portfolio.
A market index such as the Dow Jones Utility Average Index is not managed, incurring no sales charges, expenses, or fees. If you could buy all the securities that make up a market index, you would incur expenses that would affect your investment's return. An index of funds such as the Morningstar's Average Utilities Fund Index includes a number of mutual funds grouped by investment objective. Each of those funds interprets that objective differently, and each employs a different management style and investment strategy.
For a description of indexes referred to on this page, please refer to "Performance."
PAST PERFORMANCE IS NO GUARANTEE OF COMPARABLE FUTURE RESULTS. MARKET VOLATILITY
CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE
TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN.
1998 IN REVIEW
1998 proved to be a challenging year for The Total Return Utilities Fund. Following the Fund's strong first quarter performance, this summer's market downturn aversely affected the Fund's returns for the year. A robust 13.53% gain in the fourth quarter helped the Fund finish 1998 on a positive note with an annual total return of 8.77%, below the 18.08% annual total return of the average utilities fund according to Morningstar and the ____% annual total return of the Dow Jones Utility Average Index.
The strong performance of the leading utility funds in the United States was mostly due to the "flight to quality" of investors fleeing the turmoil of the world's equity markets, as well as higher than normal gains by many electric utility companies that generate nuclear power. The Fund's socially-conscious investment policy prevents us from investing in these equities, for we consider the risks and strict regulatory environment of the nuclear power industry to be a hindrance to the long-term profitability of these companies.
RESULTS OF A $10,000 INVESTMENT
THE MUIRFIELD FUND VS. BENCHMARK INDEXES
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98 1 YEAR 29.33% 5 YEARS 16.00% 10 YEARS 13.90% SINCE INCEPTION (8/10/88) 14.00% |
[GRAPH] The following information was presented as a line graph:
Morningstar's
Average Asset
YEAR The Muirfield Fund S&P 500 Allocation Fund
---- ------------------ ------- ---------------
1988 $10,000
1989 $11,395
1990 $11,660
1991 $15,139
1992 $16,185
1993 $17,497
1994 $17,969
1995 $22,608
1996 $23,964
1997 $28,419
1998 $36,752
|
The chart compares The Muirfield Fund's shares to benchmark indexes. It is intended to give you a general idea of how the Fund performed compared to these benchmarks over the period 8/10/88-12/31/98. (Please note that performance figures for the indexes are from 8/31/88-12/31/98.) It is important to understand differences between your Fund and these indexes. An index measures performance of a hypothetical portfolio.
A market index such as the S&P 500 Composite Stock Price Index is not managed, incurring no sales charges, expenses, or fees. If you could buy all the securities that make up a market index, you would incur expenses that would affect your investment's return. An index of funds such as the Morningstar's Average Asset Allocation Fund Index includes a number of mutual funds grouped by investment objective. Each of those funds interprets that objective differently, and each employs a different management style and investment strategy.
For a description of indexes referred to on this page, please refer to "Performance."
PAST PERFORMANCE IS NO GUARANTEE OF COMPARABLE FUTURE RESULTS. MARKET VOLATILITY
CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE
TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN.
1998 IN REVIEW
The Muirfield Fund was able to outperform its peer group with an impressive annual total return of 29.33% for 1998, versus the 12.25% annual total return of the average asset allocation fund according to Morningstar, as well as the 28.5% annual total return of the S&P 500 Index for 1998.
Our evaluation of market conditions through the first half of the year caused us to approach our equity mutual fund investments with caution, as we periodically maintained defensive positions in cash equivalents. Moreover, technical measurements also raised doubts about the health of the market during 1998.
The third quarter confirmed our assessment of overvalution, as the stock market suffered its worst decline in many years. Timely decisions to adopt a more defensive position as the market began to decline significantly helped the Fund preserve year-to-date gains and avoid losses that affected most other equity funds.
Our investment discipline prompted us to return to a fully invested position by late October, once our evaluation of the risk/reward relationships in the stock market turned positive again. Through most of the quarter, the Fund's portfolio was split rather evenly between Nasdaq-oriented funds that favor the technology sector and growth funds that are pegged to the S&P 500 Index.
RESULTS OF A $10,000 INVESTMENT
THE U.S. GOVERNMENT BOND FUND VS. BENCHMARK INDEXES
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98 1 YEAR 9.62% 5 YEARS 6.74% 10 YEARS 7.72% SINCE INCEPTION (1/1/88) 7.40% |
[GRAPH] The following information was presented as a line graph:
The Lehman Bros. Morningstar's Average
The U.S. Government Intermediate Government General Government
DATE Bond Fund Bond Index Bond Fund Index
---- ------------------- ----------------------- ---------------------
1988 $10,000
1989 $10,875
1990 $11,782
1991 $13,585
1992 $14,028
1993 $15,181
1994 $15,030
1995 $17,784
1996 $17,811
1997 $19,189
1998 $21,035
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The chart compares The U.S. Government Bond Fund's shares to benchmark indexes. It is intended to give you a general idea of how the Fund performed compared to these benchmarks over the period 1/1/88-12/31/98. It is important to understand differences between your Fund and these indexes. An index measures performance of a hypothetical portfolio.
A market index such as The Lehman Bros. Intermediate Government Bond Index is not managed, incurring no sales charges, expenses, or fees. If you could buy all the securities that make up a market index, you would incur expenses that would affect your investment's return. An index of funds such as the Morningstar's Average General Government Bond Fund Index includes a number of mutual funds grouped by investment objective. Each of those funds interprets that objective differently, and each employs a different management style and investment strategy.
For a description of indexes referred to on this page, please refer to "Performance."
PAST PERFORMANCE IS NO GUARANTEE OF COMPARABLE FUTURE RESULTS. MARKET VOLATILITY
CAN SIGNIFICANTLY IMPACT SHORT-TERM PERFORMANCE. RESULTS OF AN INVESTMENT MADE
TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN.
1998 IN REVIEW
During 1998, we witnessed some of the most significant swings in interest rates in many years, as the market pendulum swayed from serenity to fear then back again. Throughout all the emotional oscillations of the financial markets in 1998, The U.S. Government Bond Fund posted an annual total return of 9.62%, outperforming the 7.34% annual total return of the average government bond fund, according to Morningstar and the ___% annual total return of The Lehman Brothers Intermediate Government Bond Fund Index.
The Fund's strong performance for the year was due mostly to our adherence to our investment discipline to raise or lower exposure to U.S. Treasury bonds in response to the events which shaped the markets in 1998. Early in the year, the Federal Reserve was prepared to raise rates in order to offset an expanding economy and creeping inflation. Accordingly through the first half of the year, the U.S. Government Bond Fund gradually increased its cash equivalents holdings as yields inched up slowly.
Everything changed upon the arrival of summer. Nervousness over a failing world economy spread like wildfire, as Russia became the latest casualty of the global economic blight. Fears that the U.S. would also succumb to the Asian contagion soon rattled investors. Equity markets began to buckle in July, lowering intermediate and long-term yields as investors rushed to the safety of U.S. bonds in a "flight to quality."
Credit spreads widened further once it became clear that loans the International Monetary Fund had made to Russia had found their way into individual Swiss bank accounts. A confluence of related events (anxiety over the collapse of other emerging markets such as Brazil, and the failure of hedge-fund manager Long Term Capital Management) at last persuaded Federal Reserve Chairman Alan Greenspan to lower short-term interest rates three times in two months. The reduction effectively added badly needed liquidity to the wobbling financial markets and shored up the gaping credit spreads. In response to these events, the Fund reduced its exposure to 10-year U.S. Treasuries from mid-September through mid-November. Stability returned to the markets in December, and we finished 1998 fully-invested in 10-year U.S. Treasuries.
MORE INFORMATION ABOUT THE FUNDS
EACH FUND'S INVESTMENT IN A PORTFOLIO
Each fund seeks to achieve its investment goal by investing all of its assets in a corresponding portfolio. The funds and their corresponding portfolios are as follows:
FUND PORTFOLIO Highlands Growth Fund -- Growth Stock Portfolio Total Return Utilities Fund -- Utilities Stock Portfolio Muirfield Fund -- Mutual Fund Portfolio U.S. Government Bond Fund -- Bond Portfolio Money Market Fund -- Money Market Portfolio |
Each portfolio has the same investment goal as its corresponding fund. Each fund's investment policies are also substantially similar to its corresponding portfolio's, except the fund may pursue its policies by investing in an open-end management investment company with the same investment goal and substantially similar policies and restrictions as the fund. Each fund buys shares of its corresponding portfolio at net asset value. An investment in a fund is an indirect investment in its corresponding portfolio.
It is possible that a fund may withdraw its investment in its corresponding portfolio and subsequently invest in another open-end management investment company with the same investment goal and substantially similar policies. This could happen if a portfolio changes its investment goal or if the board of trustees, at any time, considers it in the fund's best interest.
A fund's structure, where it invests all of its assets in its corresponding portfolio, is sometimes called a "master/feeder" structure. You will find more detailed information about this structure and the potential risks associated with it in the Statement of Additional Information.
HIGHLANDS GROWTH FUND
HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?
Under normal conditions, at least 80% of the Portfolio's total assets will be invested in domestic common stocks and at least 65% of the Portfolio's total assets will be invested in growth stocks.
The manager selects for the Portfolio common stocks from all domestic publicly traded common stocks; however, at least 70% of the assets of the Portfolio invested in common stocks will be invested in common stocks which are included in the S & P 500.
The Portfolio consists of investment portfolios representing each of the industry sectors (identified by the Portfolio's subadviser) comprising the S & P 500. The assets of the Portfolio will be allocated to each of these industry sectors in approximately the same proportion as these industry sectors are represented in the S & P 500 on a market capitalization-weighted basis. The subadviser continuously reviews the representation of the industry sectors in the S & P 500 and continuously groups domestic publicly traded common stocks into a specific industry sector.
The Portfolio subadviser compares the total market value of the common stocks in each industry sector of the S & P 500 to the total market value of all common stocks in the S & P 500 to determine each industry sector's weighting in the S & P 500. If the weighting of any industry sector in the
Portfolio varies from the weighting on a market-capitalization basis of that industry sector in the S & P 500 at the end of any month, the Portfolio subadviser will reallocate the amount of assets in the Portfolio allocated to that industry sector. The subadviser may reallocate more frequently than monthly if it chooses to do so. These reallocations may cause additional transaction costs to the extent that securities may be sold as part of such reallocations.
The assets of the Portfolio representing each of these industry sectors are managed on a discretionary basis by one or more separate investment advisers, called sector advisers, selected by the Portfolio subadviser. The Portfolio subadviser's selection of sector advisers is reviewed and approved by the trustees of the Portfolio.
Assets of the Portfolio representing each of the industry sectors are managed by one or more sector advisers. However, if an advisory agreement between a sector adviser and the Portfolio is terminated leaving no sector adviser to manage the assets of the Portfolio representing an industry sector, the Portfolio's subadviser will, upon termination and until a new sector adviser is selected, manage and "index" the assets of the Portfolio representing the applicable industry sector. In this case, the subadviser will "index" the assets of the Portfolio representing its industry sector by selling any stocks representing the industry sector that are not included in the S&P 500 and investing the assets comprising the industry sector in S&P 500 stocks identified by the Portfolio's subadviser as belonging to that industry sector in the same proportion as those stocks are represented in the S&P 500 on a market capitalization-weighted basis.
Each sector adviser is limited to the list of companies identified by the Portfolio's subadviser which represents the sector adviser's specific industry sector. Each sector adviser then selects those common stocks which, in its opinion, best represent the industry sector the sector adviser has been assigned. In selecting securities for the Portfolio, the sector advisers evaluate factors believed to be favorable to long term growth of capital, including specific financial characteristics of the issuer such as historical earnings growth, sales growth, profitability and return on equity. The sector advisers also analyze the issuer's position within its industry sector as well as the quality and experience of the issuer's management.
Up to 20% of the Portfolio's assets may be invested in temporary defensive investments such as money market instruments and investment grade bonds. The Portfolio may purchase stock index futures contracts and related options. Up to 5% of the total assets of the Portfolio may be invested in American Depositary Receipts.
TOTAL RETURN UTILITIES FUND
HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?
The Portfolio seeks to achieve its goal 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 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.
Investments are selected on the basis of fundamental analysis to identify those securities that, in the judgment of the subadviser, provide an above average level of current income and growth of income, and secondarily, capital appreciation, but only when consistent with its primary investment goal.
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 goal.
The subadviser emphasizes quality in selecting investments for the Portfolio. 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.
During periods when the subadviser deems it necessary for temporary defensive purposes, the fund 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.
The Portfolio, under normal circumstances, will invest 25% or more of its total assets in securities of public utility companies. This concentration policy is fundamental and may not be changed without shareholder approval.
MUIRFIELD FUND
HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?
The Portfolio will seek to achieve its investment goal through asset allocation and mutual fund selection. Under normal circumstances, at least 65% of the value of the Portfolio's total assets will be invested in 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. The Portfolio will not invest in other funds of the Flex-funds family of funds or the Flex-Partners family of funds, the corresponding portfolios of which are also managed by the adviser.
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 waived for purchases or sales made by the Portfolio.
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.
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.
U.S. GOVERNMENT BOND FUND
HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?
Under normal circumstances, at least 65% of the value of the Portfolio's total assets will be invested in U.S. government debt securities.
The U.S. government securities in which the Portfolio invests are either issued or guaranteed by the U.S. government, its agencies, or instrumentalities. These securities are limited to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds;
o notes, bonds, and discount notes of U.S. government agencies or instrumentalities, such as: the Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage Corporation; Federal National Mortgage Association; Government National Mortgage Association; and Student Loan Marketing Association; and
o repurchase agreements relating to any of the foregoing U.S. government securities.
Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government, such as Government National Mortgage Association participation certificates, are backed by the full faith and credit of the U.S. Treasury. No assurance can be given that the U.S. government will provide financial support to other agencies or instrumentalities, since it is not obligated to do so. These agencies and instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
The Portfolio will invest in U.S. government securities of varying maturities. Normally, the Portfolio will invest in 10-year U.S. government securities if the adviser believes the risk/reward relationship of the bond market is positive. The Portfolio will invest in short-term U.S. government securities or money market securities when the adviser believes the risk/reward relationship of the bond market is negative. If the Portfolio's adviser believes that long-term interest rates are significantly greater than inflation, the Portfolio may invest in U.S. government securities with maturities as long as 30 years.
The Portfolio's adviser believes the appropriate way to defend assets against shifts in interest rates is to be invested in short-term U.S. government securities only when it believes that the risk/reward relationship of the bond market is negative. To determine the maturities of U.S. government securities for purchase, the Manager monitors the following indicators:
o Momentum - the trend of U.S. government securities prices versus various moving averages
o Real Rates - the 10-year treasury bond yield as compared to inflation and
o Yield Spread - the 10-year treasury bond yield as compared to the 90-day T-bill yield.
THE MONEY MARKET FUND
HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?
The manager seeks to achieve its goal by investing in high-quality money market instruments which mature in 397 days or less. Also, the Portfolio will seek to minimize changes in the value of its assets due to market factors by maintaining a dollar-weighted average portfolio maturity of 90 days or less.
The Portfolio may change its average portfolio maturity or level of quality to protect its net asset value when it is perceived that changes in the liquidity of major financial institutions may adversely affect the money markets. Consequently, for temporary defensive purposes, the Portfolio may shorten the average maturity of its investments and/or invest only in the highest quality debt instruments, including, for example, U.S. government or agency obligations.
WHAT ARE DERIVATIVES?
A derivative is a financial contract whose value is based on or derived from a traditional security (such as a stock or a bond), an asset (such as a commodity like gold), or a market index (such as the S&P 500 Index). Futures and options are derivatives that have been trading on regulated exchanges for over 20 years. These "traditional" derivatives are standardized contracts that can easily be bought and sold, and whose market values are determined and published daily. It is these characteristics that differentiate futures and options from the relatively new types of derivatives. If used for speculation or as leveraged investments, derivatives can carry considerable risks.
Similar risks exist for warrants (securities that permit their owners to purchase a specific number of shares of stock at a predetermined price), and convertible securities (securities that may be exchanged for a different asset). For this reason, the Portfolios will not use futures, options, warrants or convertible securities for speculative purposes or as leveraged investments that magnify the gains or losses of an investment.
The reasons for which a Portfolio will invest in futures and options are:
o To keep cash on hand to meet shareholder redemptions or other needs while simulating full investment in stocks or bonds;
o To reduce the Portfolio's transaction costs or add value when these instruments are favorably priced;
o To forego taxes that would otherwise have to be paid on gains from the sale of the Portfolio securities; and
o To attempt to protect the value of certain securities owned or intended to be purchased by the Portfolio while the manager is making a change in the Portfolio's investment position.
WHO MANAGES THE FUNDS?
THE BOARD. The board of trustees oversees the management of the funds and the portfolios, and elects their officers. The officers are responsible for the funds and the portfolios' day-to-day operations. Information concerning the trustees and officers of the funds and the portfolios appears in the Statement of Additional Information.
MANAGERS. The Portfolios investment advisers and subadvisers are as follows:
Portfolio and Investment Investment
CORRESPONDING FUND ADVISER SUBADVISER(S)
---------------------- --------------- ----------------------
Growth Stock Portfolio R. Meeder & Sector Capital
(Highlands Growth Fund) Associates, Inc. Management, L.L.C. and
the Sector Advisers
(see "Sector Advisers
- Growth Stock
Portfolio")
Utilities Stock Portfolio R. Meeder & Miller/Howard
(Total Return Utilities Fund) Associates, Inc. Investments, Inc.
Mutual Fund Portfolio R. Meeder & None
(Muirfield Fund) Associates, Inc.
Bond Portfolio R. Meeder & None
(U.S. Government Bond Fund) Associates, Inc.
Money Market Portfolio R. Meeder & None
(Money Market Fund) Associates, Inc.
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INVESTMENT ADVISER. R. Meeder & Associates, Inc. ("RMA") serves as investment adviser to the portfolios. RMA has been an investment adviser to individuals, pension and profit sharing plans, trusts, charitable organizations, corporations and other institutions since 1974. As of December 31, 1998, RMA and its affiliates managed approximately $1.4 billion in assets. RMA has its principal offices at 6000 Memorial Drive, Dublin, OH 43017.
INVESTMENT SUBADVISER - UTILITIES STOCK PORTFOLIO
Miller/Howard Investments, Inc. ("Miller/Howard"), the Utilities Stock Portfolio's subadviser, makes investment decisions for the Utilities Stock Portfolio. RMA continues to have responsibility for all investment advisory services provided to the Utilities Stock Portfolio and supervises Miller/Howard's performance of such services. Miller/Howard is a registered investment adviser that has been providing investment services to broker-dealers, investment advisers, employee benefit plans, endowment portfolios, foundations and other institutions and individuals since 1984. As of December 31, 1998, Miller/Howard managed approximately $165 million in assets. Miller/Howard has its principal offices at 141 Upper Byrdcliffe Road, P. O. Box 549, Woodstock, New York 12498.
INVESTMENT SUBADVISER - GROWTH STOCK PORTFOLIO
Sector Capital Management, L.L.C. ("Sector Capital"), the Growth Stock Portfolio's subadviser, furnishes investment advisory services in connection with the management of the Growth Stock Portfolio. Sector Capital has been a registered investment adviser to individuals, pension and profit sharing plans, trusts, charitable organizations, corporations and other institutions since January 1995. As of December 31, 1998, Sector Capital managed approximately $550 million in assets. Sector Capital has its principal offices at 5350 Poplar Avenue, Suite 490, Memphis, Tennessee 38119.
Sector Capital utilizes its "Sector Plus" investment strategy to manage the assets of the Growth Stock Portfolio. Pursuant to this strategy, Sector Capital divides the assets of the Growth Stock Portfolio among ten industry sectors of the S&P 500, each of which is managed by a separate sector adviser. Sector Capital is responsible for overseeing the sector advisers and recommending their hiring, termination and replacement. RMA and Sector Capital are ultimately responsible for the investment performance of the Growth Stock Portfolio because of RMA's responsibility to oversee Sector Capital and Sector Capital's responsibility to oversee the sector advisers and recommend their hiring, termination and replacement.
Sector Capital and the Growth Stock Portfolio have entered into a sub-subadvisory agreement with each Sector Adviser selected for the Portfolio. Sector Capital is responsible for selecting, subject to the review and approval of the Growth Stock Portfolio's Board of Trustees, the sector advisers that have distinguished themselves by able performance in respective areas of expertise in sector management, and to review their continued performance. In addition, Sector Capital is responsible for categorizing publicly traded domestic common stocks into a specific industry sector. Sector Capital may also invest the Growth Stock Portfolio's financial futures contracts and related options.
During the sector adviser selection process, Sector Capital performs initial due diligence on all prospective sector advisers. In evaluating prospective sector advisers, Sector Capital considers, among other factors, each candidate's level of expertise; relative performance and consistency of performance; level of adherence to investment discipline or philosophy; personnel, facilities and financial strength; and quality of service and client communications.
Sector Capital monitors sector adviser performance through quantitative and qualitative analysis, as well as periodic in-person, telephonic and written consultations with sector advisers. Sector Capital has responsibility for communicating performance expectations and evaluations to sector advisers and ultimately recommending to the Board of Trustees of the Growth Stock Portfolio whether sector advisers' contracts should be renewed, modified, or terminated. Sector Capital provides reports to the Growth Stock Portfolio's Board of Trustees regarding the results of its evaluation and monitoring functions.
The Securities and Exchange Commission has granted the Growth Stock Portfolio an exemptive order that permits the Growth Stock Portfolio and Sector Capital to enter into and materially amend sub-subadvisory agreements with sector advisers, without such agreements being approved by the Growth Stock Portfolio's investors or the Highlands Growth Fund's shareholders. The exemptive order does not apply, however, to sub-subadvisory agreements with affiliated persons of the Growth Stock Portfolio, the Manager or Sector Capital, other than by reason of such affiliated person serving as an existing sector adviser to the Growth Stock Portfolio, which still require shareholder approval. The exemptive order also permits the Growth Stock Portfolio and the Highlands Growth Fund to disclose, on an aggregate basis, the fees paid to sector advisers that are not such affiliated persons. In addition, the exemptive order includes the condition that within 90 days of the hiring of any new sector advisers, the Manager and Sector Capital will furnish shareholders of the fund with an information statement about the new sector adviser and sub-subadvisory agreement. Any changes to the advisory contract between the Growth Stock Portfolio and the manager or the subadvisory agreement among the Growth Stock Portfolio, Manager and Sector Capital will still require shareholder approval. A majority of the shareholders of The Highlands Growth Fund approved the operation of the Trust in accordance with the exemption.
SECTOR ADVISERS - GROWTH STOCK PORTFOLIO
Subject to the supervision and direction of Sector Capital and, ultimately, the Board of Trustees of the Growth Stock Portfolio, each sector adviser's responsibilities are limited to:
o managing its portion of the securities held by the Growth Stock Portfolio in accordance with the Portfolio's stated investment goals and strategies,
o making investment decisions for the Growth Stock Portfolio, and
o placing orders to purchase and sell securities on behalf of the Growth Stock Portfolio.
The following sets forth certain information about each of the sector advisers:
MILLER/HOWARD INVESTMENTS, INC. serves as sector adviser to the utilities and transportation sectors of the Growth Stock Portfolio. Miller/Howard is a registered investment adviser that has been providing investment services to broker-dealers, investment advisers, employee benefit plans, endowment portfolios, foundations and other institutions and individuals since 1984. As of December 31, 1998, Miller/Howard managed approximately $165 million in assets. Lowell G. Miller, President and Secretary of Miller/Howard, is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Miller/Howard. Mr. Miller has been associated with Miller/Howard since 1984. Miller/Howard is also the subadviser to the Utilities Stock Portfolio, a corresponding portfolio to The Flex-funds' Total Return Utilities Fund and The Flex-Partners' Utility Growth Fund. Miller/Howard's principal executive offices are located at 141 Upper Byrdcliffe Road, Post Office Box 549, Woodstock, New York 12498.
HALLMARK CAPITAL MANAGEMENT, INC. serves as sector adviser to the capital goods sector of the Growth Stock Portfolio. Hallmark is a registered investment adviser that has been providing investment services to individuals; banks; pension, profit sharing, and other retirement plans; trusts; endowments; foundations; and other charitable organizations since 1986. As of December 31, 1998, Hallmark managed approximately $180 million in assets. Peter S. Hagerman, Chairman of the Board, President, and Chief Executive Officer of Hallmark, is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Hallmark. Mr. Hagerman has been associated with Hallmark since 1986. Hallmark's principal executive offices are located at One Greenbrook Corporate Center, 100 Passaic Avenue, Fairfield, New Jersey 07004.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as sector adviser to the consumer durable and non-durable sectors of the Growth Stock Portfolio. Barrow is a registered investment adviser that has been providing investment services to banks; investment companies; pension and profit sharing plans; charitable organizations and corporations since 1979. As of December 31, 1998, Barrow managed approximately $36.3 billion in assets. Michael C. Mewhinney is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Barrow. Mr. Mewhinney has been associated with Barrow since 1979. Barrow's principal executive offices are located at 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204-2429.
THE MITCHELL GROUP, INC. serves as sector adviser to the energy sector of the Growth Stock Portfolio. The Mitchell Group is a registered investment adviser that has been providing investment services to individuals, banks, investment companies, pension and profit sharing plans, charitable organizations, corporations and other institutions since 1989. As of December
31, 1998, The Mitchell Group managed approximately $269 million in assets. Rodney Mitchell, President, Chief Executive Officer, and Chief Financial Officer of The Mitchell Group, is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to The Mitchell Group. Mr. Mitchell has been associated with The Mitchell Group since 1989. The Mitchell Group's principal executive offices are located at 1100 Louisiana, #4810, Houston, Texas 77002.
ASHLAND MANAGEMENT INCORPORATED serves as sector adviser to the materials and services sector of the Growth Stock Portfolio. Ashland is a registered investment adviser that has been providing investment services to individuals, pension and profit sharing plans, charitable organizations, corporations and other institutions since 1975. As of December 31, 1998, Ashland managed approximately $1.5 billion in assets. Terence J. McLaughlin, Managing Director of Ashland, and Deborah C. Ohl, a Portfolio Manager, are the portfolio managers primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Ashland. Mr. McLaughlin has been associated with Ashland since 1984. Ms. Ohl has been employed by Ashland since August 1992 and has served as a Portfolio Manager for Ashland since 1993. Ashland's principal executive offices are located at 26 Broadway, New York, New York 10004.
DELTA CAPITAL MANAGEMENT INC. serves as sector adviser to the finance sector of the Portfolio. Delta Capital is a registered investment adviser that has been providing investment services to individuals, endowments, corporations and other institutions since 1992. As of December 31, 1998, Delta Capital managed approximately $700 million in assets. Jonathan Kay is the portfolio manager primarily responsible for the day-to-day management of those assets of the Portfolio allocated to Delta Capital. Mr. Kay has been associated with Delta Capital since April 1998. From 1993 to March 1998, Mr. Kay was a portfolio manager for Scudder Kemper Investments, Inc., a registered investment adviser. Delta Capital's principal executive offices are located at 745 Fifth Avenue, Suite 816, New York, New York 10151.
DRESDNER RCM GLOBAL INVESTORS, L.L.C. (formerly RCM Capital Management, L.L.C.) serves as sector adviser to the technology sector of the Growth Stock Portfolio. Dresdner RCM is a registered investment adviser that provides investment services to institutional and individual clients and registered investment companies. Dresdner RCM was established in April 1996 as the successor to the business and operations of RCM Capital Management, a California Limited Partnership that, with its predecessors, has been in operation since 1970. As of December 31, 1997, Dresdner RCM managed approximately $___ billion in assets. Walter C. Price and Huachen Chen, each Principals of Dresdner RCM, are the portfolio managers primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Dresdner RCM. Messrs. Price and Chen have managed equity portfolios on behalf of Dresdner RCM since 1985. Dresdner RCM's principal executive offices are located at Four Embarcadero Center, San Francisco, CA 94111.
ALLIANCE CAPITAL MANAGEMENT L.P. serves as sector adviser to the health sector of the Growth Stock Portfolio. Alliance, a registered investment adviser, is an international investment manager supervising client accounts with assets as of December 31, 1998 totaling approximately $286.7 billion. Alliance provides investment services primarily to corporate employee benefit funds, public employee retirement systems, investment companies, foundations, and endowment funds. Raphael L. Edelman, Vice President of Alliance, is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Alliance. Mr. Edelman, who has sixteen years of investment experience, joined Alliance's research department in 1986 as an analyst after working two years as a manager in Alliance's mutual fund division. Alliance's principal executive offices are located at 1345 Avenue of the Americas, New York, NY 10105.
PORTFOLIO MANAGERS
The individuals primarily responsible for the management of each of the portfolios are listed below:
THE GROWTH STOCK PORTFOLIO. William L. Gurner, President of Sector Capital, is primarily responsible for the day-to-day management of the Growth Stock Portfolio through interaction with each of the sector advisers. Mr. Gurner is also primarily responsible for managing the futures contracts and related options of the portfolio on behalf of the subadviser. Mr. Gurner has managed the portfolio since December 1996. Philip A. Voelker, Senior Vice President and Chief Investment Officer of RMA, is primarily responsible for managing the portfolio's liquidity reserve and managing the futures contracts and related options of the Portfolio on behalf of RMA. Mr. Voelker has been associated with RMA since 1975. Please see "Sector Advisers - Growth Stock Portfolio" for more information about each of the portfolio's sector advisers.
THE UTILITIES STOCK PORTFOLIO. The portfolio manager responsible for the Utilities Stock Portfolio's investments is Lowell G. Miller, a director and the President of Miller/Howard, the subadviser to the portfolio. Mr. Miller has been associated with Miller/Howard and its predecessor since 1984 and has managed the portfolio since its inception in 1995.
THE MUTUAL FUND PORTFOLIO. The portfolio managers responsible for the Mutual Fund Portfolio's investments are Robert S. Meeder, Jr. and Philip A. Voelker. Mr. Meeder, President of RMA, joined RMA in 1983 and has been the portfolio manager for the portfolio since 1988. Mr. Voelker, Senior Vice President and Chief Investment Officer of RMA, joined RMA in 1975 and began co-managing the portfolio in April 1998.
THE BOND PORTFOLIO. The portfolio manager responsible for the Bond Portfolio's investments is Joseph A. Zarr. Mr. Zarr has been associated with RMA as a portfolio manager since 1991 and has managed the portfolio since 1996.
THE MONEY MARKET PORTFOLIO. The portfolio manager responsible for the Money Market Portfolio's investments is Philip A. Voelker, Senior Vice President and Chief Investment Officer of RMA. Mr. Voelker joined RMA in 1975 and has managed the portfolio since 1985.
MANAGEMENT FEES. During the calendar year ended December 31, 1998, the portfolios paid management fees totaling the following:
Management Fee as Percentage
FUND OF AVERAGE DAILY NET ASSETS
The Growth Stock Portfolio 0.99%
The Utilities Stock Portfolio 1.00%
The Mutual Fund Portfolio 0.81%
The Bond Portfolio 0.24%
The Money Market Portfolio 0.15%
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For more information about management fees, see "Investment Adviser" and "Investment Subadviser" in the Statement of Additional Information.
YEAR 2000. The common past practice in computer programming of using just two digits to identify a year has resulted in the Year 2000 challenge throughout the information technology industry. If unchanged, many computer applications and systems could misinterpret dates occurring after December 31, 1999, leading to errors or failure. This failure could adversely affect the fund's operations, including pricing, securities trading and the servicing of shareholder accounts.
RMA is dedicated to providing uninterrupted, high-quality performance from our computer systems before, during and after 2000. We are now renovating and testing our internal systems. RMA is diligently working with external partners, suppliers, vendors and other service providers to ensure that the systems with which we interact will remain operational at all times.
In addition to taking reasonable steps to secure our internal systems and external relationships, RMA is further developing contingency plans intended to ensure that unexpected systems failures will not adversely affect the fund's operations. RMA intends to monitor these processes through the rollover of 1999 into 2000 and to quickly implement alternative solutions if necessary.
Despite RMA's efforts and contingency plans, however, noncompliant computer systems would have an adverse material effect on the fund's business, operations or financial condition. Additionally, the fund's performance could be hurt if a computer system failure at a company or governmental unit affects the prices of securities the fund owns. Issuers in countries outside the U.S., particularly in emerging markets, may not be required to make the same level of disclosure about year 2000 readiness as required in the U.S. RMA, of course, cannot audit any company and its major suppliers to verify their year 2000 readiness. RMA understands that many foreign countries and companies are well behind their U.S. counterparts in preparing for 2000.
PAST PERFORMANCE OF PRIVATE ACCOUNTS
PURPOSE OF PAST PERFORMANCE. William L. Gurner is the President and portfolio manager of Sector Capital Management, L.L.C. ("Sector Capital"), the subadviser to the Growth Stock Portfolio in which all of the assets of the Highlands Growth Fund are invested. See "Investment Subadviser - Growth Stock Portfolio" and "Portfolio Managers" under "Who Manages the Funds?" The performance information below is provided to show the past performance of Mr. Gurner and Sector Capital in managing substantially similar accounts to the Growth Stock Portfolio and to measure the past performance against a market index, the S&P 500 Composite Stock Price Index.
WHAT PAST PERFORMANCE DOES NOT REPRESENT. THE PAST PERFORMANCE SHOWN BELOW
DOES NOT REPRESENT THE PERFORMANCE OF THE GROWTH STOCK PORTFOLIO OR THE HIGHLANDS GROWTH FUND. You should not consider the past performance shown below as an indication of the future performance of the Growth Stock Portfolio or the Highlands Growth Fund.
SIMILAR ACCOUNTS. Mr. Gurner served as Manager - Trust Investments for an employee benefit plan of a large corporation from September 1987 through December 1994. The employee benefit plan had investment goals, policies, strategies and risks similar to those of the Growth Stock Portfolio and the Highlands Growth Fund, except during the period from September 1987 through December 1994, when the employee benefit plan was managed in a different manner than the Growth Stock Portfolio and the Highlands Growth Fund.
Mr. Gurner left the large corporation in December, 1994 and founded Sector Capital. Sector Capital subadvises the Growth Stock Portfolio and manages private accounts that have investment goals, policies, strategies and risks similar to those of the Growth Stock Portfolio and the Highlands Growth Fund. Mr. Gurner and Sector Capital engaged substantially the same Sector Advisers currently engaged by the Growth Stock Portfolio to manage the employee benefit plan and such private accounts.
CALCULATION OF PAST PERFORMANCE. Mr. Gurner and Sector Capital's composite performance data shown below were calculated in accordance with recommended standards of the Association for Investment Management and Research ("AIMR"*), retroactively applied to all time periods. All returns presented were calculated on a total return basis and include all dividends and interest, accrued income and realized and unrealized gains and losses. All returns reflect the deduction of investment advisory fees, brokerage commissions and execution costs paid by the employee benefit plan and the private accounts without providing for federal or state income taxes. Custodial fees, if any, were not used to reduce performance returns. Sector Capital's composite includes all actual, fee paying, discretionary, private accounts managed by Sector Capital that have investment objectives, policies, strategies and risks substantially similar to those of the Growth Stock Portfolio and the Highlands Growth Fund. Cash and equivalents are included in performance returns. The yearly returns of Sector Capital's composite combine the individual accounts' returns by asset-weighting each individual account's asset value as of the beginning of each quarter. The yearly returns are computed by linking the returns of each quarter within the calendar year.
DIFFERENCES IN REGULATION. The employee benefit plan managed by Mr. Gurner and the private accounts that are included in Sector Capital's composite are not subject to the same types of expenses to which the Growth Stock Portfolio or the Highlands Growth Fund are subject nor to the diversification requirements, specific tax restrictions and investment limitations imposed on the Growth Stock Portfolio and the Highlands Growth Fund by federal securities laws governing mutual funds and tax laws. Consequently, the performance results for the employee benefit plan managed by Mr. Gurner and Sector Capital's composite could have been adversely affected if the employee benefit plan and the private accounts included in the composite had been regulated as mutual funds under the federal securities laws.
The investment results of Mr. Gurner and Sector Capital's composite presented below are unaudited and not intended to predict or suggest the returns that might be experienced by the Growth Stock Portfolio or that you might experience by investing in the Highlands Growth Fund. You should also be aware that the use of a method different from that used below to calculate performance could result in different performance returns.
PAST PERFORMANCE OF PRIVATE ACCOUNTS
SECTOR CAPITAL
YEAR MR. GURNER MANAGEMENT, L.L.C. S&P 500(1)
---- ---------- ------------------ -------
1991(2) 18.79% N.A. 16.66%
1992 8.26% N.A. 7.69%
1993 14.78% N.A. 10.00%
1994 0.97% N.A. 1.30%
1995 N.A. 45.79% 37.53%
1996 N.A. 26.27% 23.08%
1997 N.A. 31.08% 33.35%
1998 N.A. 26.46% 28.58%
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(1) The S&P 500 Index is an unmanaged index containing common stocks of 500 industrial, transportation, utility and financial companies, regarded as generally representative of the U.S. stock market. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing.
(2) For the period from March 1, 1991 through December 31, 1991.
DISTRIBUTION FEES
Rule 12b-1 of the Investment Company Act permits mutual funds that adopt a written plan to pay out of fund assets certain expenses relating to the sale and distribution of their shares. Each of the funds has a 12b-1 plan. Under a plan, each fund, except for The Total Return Utilities Fund, pays an annual fee of up to 0.20% of fund assets for distribution services. The Total Return Utilities Fund pays an annual fee of up to 0.25% of fund assets for distribution services. Payments under each plan are made for distribution in the form of commissions and fees, advertising, sales literature, services of public relations consultants, direct solicitation and expenses of printing prospectuses and
reports used for sales purposes. Persons who receive payments under the plans include securities brokers, attorneys, accountants, investment advisers, investment performance consultants, pension actuaries, banks, and service organizations. Because these fees are paid out of the funds' assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying out other types of sales charges.
HOW IS THE TRUST ORGANIZED?
Each fund is a no-load, open-end management investment company that is a series of The Flex-funds trust (the "Trust").
The Trust is supervised by a board of trustees, an independent body that has ultimate responsibility for the funds' activities. The board retains various companies to carry out the funds' operations, including the investment adviser, custodian, transfer agent and others. The board has the right, and the obligation, to terminate the funds' relationship with any of these companies and to retain a different company if the board believes it is in the shareholders' best interests. At a mutual fund's inception, the initial shareholder (typically the adviser) appoints the fund's board. Thereafter, the board and the shareholders determine the board's membership. The board of the Trust may include individuals who are affiliated with the investment adviser.
The funds do not hold annual shareholder meetings, but may hold special meetings for such purposes as electing or removing board members, changing fundamental policies, approving a management contract or approving a 12b-1 plan (12b-1 fees are explained in "Distribution Fees").
PORTFOLIO TRADES
As long as the advisers believe a brokerage firm can provide a combination of quality execution (i.e., timeliness and completeness) and favorable price, they may consider research and related services when choosing a brokerage firm. Brokerage firms may use a portion of the commissions paid by a portfolio to reduce it, or its corresponding fund's, expenses.
INVESTMENT GOALS
None of the funds' investment goals are fundamental and may be changed without shareholder approval.
DIVERSIFICATION
All of the funds are diversified, which means each fund may not, with respect to at least 75% of its assets (100% of its assets in the case of The Money Market Fund), invest more than 5% in the securities of one company.
HOW DOES TAXATION AFFECT THE FUNDS AND THEIR SHAREHOLDERS?
HOW DOES A PORTFOLIO EARN INCOME AND GAINS?
A Portfolio earns dividends and interest (a Portfolio's "income") on its investments. When a Portfolio sells a security for a price that is higher than it paid, it has a gain. When a Portfolio sells a security for a price that is lower than it paid, it has a loss. If a Portfolio has held the security for more than one year, the gain or loss will be a long-term capital gain or loss. If a Portfolio has held the security for one year or less, the gain or loss will be a short-term capital gain or loss. The Portfolio's gains and losses are netted together, and, if a Portfolio has a net gain (a Portfolio's "gain"), that gain will generally be distributed to you.
TAXATION OF A PORTFOLIO'S INVESTMENTS
A Portfolio invests your money in the securities that are described in the sections "Strategies" and "How Does the Fund Pursue Its Investment Goal?" Special tax rules may apply in determining the income and gains that a Portfolio earns on its investments. These rules may, in turn, affect the amount of distributions that the funds pay to you. These special tax rules are discussed in the SAI.
TAXATION OF A FUND. As a regulated investment company, a fund generally pays no federal income tax on the income and gains that it distributes to you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from a Portfolio's investments in foreign securities. These taxes will reduce the amount of the fund's distributions to you.
TAXATION OF SHAREHOLDERS
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of a fund's income and gains on its corresponding Portfolio's investments in stocks and other securities. The fund's income and short-term capital gains are paid to you as ordinary dividends. The fund's long-term capital gains are paid to you as capital gain distributions. If the fund pays you an amount in excess of its income and gains, this excess will generally be treated as a non-taxable distribution. These amounts, taken together, are what we call the fund's distributions to you. The Money Market Fund and the U.S. Government Bond Fund pay dividends from their net investment income on a monthly basis. The Total Return Utilities Fund pays dividends from its net investment income on a monthly basis. The Highlands Growth Fund and The Muirfield Fund pay dividends from their net investment income on a quarterly basis. All funds distribute capital gains, if any, annually.
DISTRIBUTIONS. Distributions from a fund, whether you receive them in cash or in additional shares, are generally subject to income tax. A fund will send you a statement in January of the current year that reflects the amount of ordinary dividends, capital gain distributions and non-taxable distributions you received from the fund in the prior year. This statement will include distributions declared in December and paid to you in January of the current year, but which are taxable as if paid on December 31 of the prior year. The IRS requires you to report these amounts on your income tax return for the prior year.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified retirement plan, such as a 401(k) plan or IRA, are generally tax-deferred; this means that you are not required to report fund distributions on your income tax return when paid to your plan, but, rather, when your plan makes payments to you. Special rules apply to payouts from Roth and Education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a dividends-received deduction on a portion of the ordinary dividends they receive from a fund.
BUYING A DIVIDEND. Purchasing fund shares in a taxable account shortly before a distribution is known as "buying a dividend." In taxable accounts, you must pay income taxes on the distribution whether you take the distribution in cash or reinvest it. In addition, you will have to pay taxes on the distribution whether the value of your investment decreased, increased or remained the same after you bought the fund shares. The risk in buying a dividend is that the portfolios may build up taxable gains throughout the period covered by a distribution, as securities are sold at a profit. We distribute those gains to you, after subtracting any losses, even if you did not own the shares when the gains occurred.
DIVIDEND REINVESTMENTS. Most investors have their dividends reinvested in additional shares of the same fund. If you choose this option, or if you do not indicate any choice, your dividends will be reinvested on the dividend payable
date. Alternatively, you can choose to have a check for your dividends mailed to you. However, if the check is not deliverable, your dividends will be reinvested.
REDEMPTIONS AND EXCHANGES
WHAT IS A REDEMPTION?
A redemption is a sale by you to a fund of some or all of your shares in the fund. The price per share you receive when you redeem fund shares may be more or less than the price at which you purchased those shares. An exchange of shares in a fund for shares of another Flex-funds' fund is treated as a redemption of fund shares and then a purchase of shares of the other Flex-funds' fund. When you redeem or exchange your shares, you will generally have a gain or loss, depending upon whether the amount you receive for your shares is more or less than your cost or other basis in the shares.
If you redeem your shares or if you exchange your shares in a fund for shares in another Flex-funds fund, you will generally have a gain or loss that the IRS requires you to report on your income tax return. All or a portion of any loss on the redemption or exchange of your shares in a fund will be disallowed by the IRS if you purchase other shares in that fund within 30 days before or after your redemption or exchange.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. Government, subject to certain restrictions. The funds will provide you with information at the end of each calendar year on the amount of any such dividends that may qualify for exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax withholding. Your home country may also tax ordinary dividends, capital gain distributions and gains arising from redemptions or exchanges of your fund shares. Fund shares held by the estate of a non-U.S. investor may be subject to U.S. estate tax. You may wish to contact your tax adviser to determine the U.S. and non-U.S. tax consequences of your investment in the funds.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive from the funds, and gains arising from redemptions or exchanges of your funds shares will generally by subject to state and local income tax. The holding of funds shares may also be subject to state and local intangibles taxes. You may wish to contact your tax adviser to determine the state and local tax consequences of your investment in the funds.
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
This explanation uses the Highlands Growth Fund as an example. The fund began calendar year 1998 with a net asset value (price) of $18.55 per share. During the year, the fund earned $0.06 per share from net investment income (interest and dividends less operating expenses) and $4.32 per share from investments that had appreciated in value or that were sold for higher prices than the fund paid for them.
Shareholders received $1.70 per share in the form of dividend and capital gains distributions. A portion of each year's distributions may come from the prior year's income or capital gains.
The earnings ($4.38 per share) minus the distributions ($1.70 per share) resulted in a share price of $21.23 at the end of the year. This was an increase of $2.68 per share (from $18.55 at the beginning of the year to $21.23 at the end of the year). For a shareholder who reinvested the distributions in the purchase of more shares, the total return from the fund was 23.67% for the year.
As of December 31, 1998, the fund had $43,908,000 in net assets. For the year, its expense ratio was 1.69% ($16.90 per $1,000 of net assets); and its net investment income amounted to 0.31% of its average net assets. It sold and replaced securities valued at 79.98% of its net assets.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the funds' financial performance for the past 5 years (or, if shorter, the period of the funds' operations). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the funds (assuming reinvestment of all dividends and distributions). This information has been audited by KMPG LLP, independent auditors, whose report, along with the funds' financial statements, are included in the annual report, which is available upon request.
THE HIGHLANDS GROWTH FUND
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of period $18.55 $16.41 $15.34 $13.08 $13.45
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.06 0.31 0.50 0.27
Net Gains or (Losses) on Securities
(BOTH REALIZED AND UNREALIZED) 4.32 4.73 1.07 2.68 (0.37)
-------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.38 4.79 1.38 3.18 (0.10)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (from net investment
income) (0.06) (0.06) (0.31) (0.50) (0.27)
DISTRIBUTIONS (FROM CAPITAL GAINS) (1.64) (2.59) - (0.42) -
-------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.70) (2.65) (0.31) (0.92) (0.27)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $21.23 $18.55 $16.41 $15.34 $13.08
--------------------------------------------------------------------------------
TOTAL RETURN 23.67% 29.28% 9.08% 24.61% (0.69%)
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 43,908 33,752 24,204 24,631 22,176
Ratio of Expenses to Average
Net Assets 1.69% 1.87% 1.65% 1.64% 1.63%
Ratio of Net Investment Income to
Average Net Assets 0.31% 0.30% 1.92% 3.38% 1.95%
Ratio of Expenses to Average Net
Assets before Waiver of Fees(1) 1.70% 1.87% 1.65% 1.64% 1.63%
Ratio of Net Investment Income to
Average Net Assets before
Waiver of Fees(1) 0.30% 0.30% 1.92% 3.38% 1.95%
Portfolio Turnover Rate(2) 79.98% 129.79% 81.66% 337.57% 102.76%
|
(1) Annualized ratio includes fees waived in corresponding portfolio.
(2) Represents turnover rate of corresponding portfolio.
Financial Statements and Notes pertaining thereto appear in the Statement of Additional Information Dated April 30, 1999.
THE TOTAL RETURN UTILITIES FUND
1998 1997 1996 1995*
---- ---- ---- -----
NET ASSET VALUE, BEGINNING OF PERIOD $17.72 $14.98 $14.14 $12.50
--------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------------------------------------------------
NET INVESTMENT INCOME 0.25 0.25 0.37 0.21
--------------------------------------------------------------------------------
Net Gains or Losses on Securities
(BOTH REALIZED AND UNREALIZED 1.29 3.99 1.48 1.64
--------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.54 4.24 1.85 1.85
--------------------------------------------------------------------------------
LESS DIVIDENDS AND DIVIDENDS
--------------------------------------------------------------------------------
FROM NET INVESTMENT INCOME (0.25) (0.25) (0.37) (0.21)
--------------------------------------------------------------------------------
FROM NET CAPITAL GAINS 0.00 (1.25) (0.64) --
--------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.25) (1.50) (1.01) (0.21)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $19.01 $17.72 $14.98 $14.14
--------------------------------------------------------------------------------
TOTAL RETURN 8.74% 28.68% 13.33% 15.00%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($000) 10,455 8,405 5,074 2,881
--------------------------------------------------------------------------------
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.80% 1.80% 1.25% 1.25%+
--------------------------------------------------------------------------------
RATIO OF NET INCOME TO AVERAGE NET ASSETS 1.35% 1.57% 2.55% 3.18%+
--------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets,
BEFORE WAIVER OF FEES(1)(2) 2.11% 2.51% 2.95% 4.35%+
--------------------------------------------------------------------------------
Ratio of Net Income to Average Net Assets,
BEFORE WAIVER OF FEES(1)(2) 1.04% 0.86% 0.85% 0.08%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE(3) 51.36% 41.22% 50.79% 5.06%
--------------------------------------------------------------------------------
|
*For the period June 21, 1995 to December 31, 1995.
(1) See "Synopsis of Financial Information" for explanation of waiver of advisory fees.
(2) Includes directed brokerage payments in corresponding portfolio.
(3) Turnover rate of corresponding portfolio.
+ Annualized
Financial Statements and Notes pertaining thereto appear in the Statement of Additional Information Dated April 30, 1999.
THE MUIRFIELD FUND
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of period $5.47 $5.47 $5.73 $5.34 $5.36
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) 0.08 0.11 0.10 0.06 0.14
Net Gains or (Losses) on Securities
(BOTH REALIZED AND UNREALIZED) 1.51 0.91 0.25 1.31 0.00
--------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.59 1.02 0.35 1.37 0.14
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (from net investment
income) (0.08) (0.11) (0.10) (0.06) (0.14)
DISTRIBUTIONS (FROM CAPITAL GAINS) (0.10) (0.91) (0.51) (0.92) (0.02)
--------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.18) (1.02) (0.61) (0.98) (0.16)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.88 $5.47 $5.47 $5.73 $5.34
--------------------------------------------------------------------------------
TOTAL RETURN 29.33% 18.59% 5.99% 25.82% 2.70%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 125.547 130,783 121,335 111,751 83,119
Ratio of Expenses to Average
Net Assets 1.24% 1.29% 1.19% 1.26% 1.22%
Ratio of Net Income (Loss) to
Average Net Assets 1.23% 1.69% 1.54% 0.97% 2.55%
Portfolio Turnover Rate(1) 128.31% 395.42% 297.41% 186.13% 168.17%
|
(1) Represents turnover rate of corresponding portfolio.
Financial Statements and Notes pertaining thereto appear in the Statement of Additional Information Dated April 30, 1999.
THE U.S. GOVERNMENT BOND FUND
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of period $21.19 $20.64 $21.58 $19.25 $20.18
INCOME FROM INVESTMENT OPERATIONS
Net Investment income 0.97 0.99 0.96 1.11 0.72
Net Gains or (Losses) on Securities
(BOTH REALIZED AND UNREALIZED) 1.02 0.55 (0.94) 2.33 (0.93)
--------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.99 1.54 0.02 3.44 (0.21)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (0.97) (0.99) (0.96) (1.11) (0.72)
--------------------------------------------------------------------------------
FROM NET REALIZED GAINS (0.07) -- -- -- --
--------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.04) (0.99) (0.96) (1.11) (0.72)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $22.14 $21.19 $20.64 $21.58 $19.25
--------------------------------------------------------------------------------
TOTAL RETURN 9.26% 7.70% 0.15% 18.32% (0.99%)
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 11,294 16,973 17,783 16,048 12,983
Ratio of Expenses to Average
Net Assets 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Income to Average
Net Assets 4.52% 4.85% 4.61% 5.41% 3.71%
Ratio of Expenses to Average Net
Assets, before waiver of fees(1) 1.16% 1.14% 1.06% 1.14% 1.14%
Ratio of Net Income to Average Net
Assets, before waiver of fees(1) 4.36% 4.71% 4.55% 5.27% 3.57%
|
Portfolio Turnover Rate(2) 225.11% 375.64% 778.59% 232.34% 707.57%
(1) See "Synopsis of Financial Information" for explanation of adviser's waiver of fees.
(2) Represents turnover rate of corresponding portfolio.
Financial Statements and Notes pertaining thereto appear in the Statement of Additional Information dated April 30, 1999.
THE MONEY MARKET FUND
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME 0.052 0.053 0.05 0.06 0.04
--------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.052 0.053 0.05 0.06 0.04
--------------------------------------------------------------------------------
Less Dividends and Distributions
FROM NET INVESTMENT INCOME (0.052) (0.053) (0.05) (0.06) (0.04)
--------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.052) (0.053) (0.05) (0.06) (0.04)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
TOTAL RETURN 5.31% 5.38% 5.27% 5.85% 4.10%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 154,225 169,335 119,947 141,087 164,838
Ratio of Expenses to Average Net
Assets 0.40% 0.40% 0.40% 0.40% 0.37%
Ratio of Net Investment Income to
Average Net Assets 5.19% 5.26% 5.15% 5.70% 4.02%
Ratio of Expenses to Average Net
Assets before waiver of fees(1) 0.59% 0.59% 0.58% 0.64% 0.57%
Ratio of Net Income to Average Net
|
Assets, before waiver of fees(1) 5.00% 5.07% 4.97% 5.46% 3.82%
(1) See "Synopsis of Financial Information" for explanation of adviser's waiver of fees.
Financial Statements and Notes pertaining thereto appear in the Statement of Additional Information Dated April 30, 1999.
SHAREHOLDER MANUAL
HOW TO BUY SHARES
Shares are offered continuously and sold without a sales charge. Shares of The Highlands Growth, Muirfield and Total Return Utilities Funds are purchased at net asset value per share next determined after receipt of the purchase order by Mutual Funds Service Co., the funds' transfer agent, or an authorized agent of the funds. Shares of The U.S. Government Bond Fund are sold at net asset value per share next determined after receipt of both a purchase order and payment by the fund's transfer agent or the fund's authorized agent. Shares of The Money Market Fund are sold at the net asset value per share next determined after receipt of both a purchase order and payment in federal funds. Investments made by check are entered and credited at the net asset value determined on the next business day following receipt.
MINIMUM INVESTMENT. The minimum investment to open an account in each fund 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.
OPENING AN ACCOUNT. You may open an account by mail or bank wire as follows:
BY MAIL: To purchase shares, fill out the New Account Application accompanying this Prospectus. BE SURE TO SPECIFY THE NAME OF THE FUND IN WHICH YOU ARE INVESTING. A check payable to each fund you specify must accompany the New Account Application. The funds do not accept third party checks. Payments may be made by check or Federal Reserve Draft payable to the particular fund(s) specified on the application and should be mailed to the following address: THE FLEX-FUNDS, C/O R. MEEDER & ASSOCIATES, INC., P.O. BOX 7177, DUBLIN, OHIO 43017.
BY BANK WIRE: If the wire order is for a new account, or to open an account in a different fund, YOU MUST TELEPHONE THE FUND PRIOR TO MAKING YOUR INITIAL INVESTMENT. Call 1-800-325-FLEX, or (614) 760-2159. Advise the fund of the amount you wish to invest and obtain an account number and instructions. Money sent by a single wire can only be invested in one fund. Have your bank wire federal funds to:
STAR BANK, N.A. CINTI/TRUST
ABA #: 042-00001-3
ATTENTION: THE FLEX-FUNDS
(AND NAME OF FUND--SEE BELOW) Credit Account Number
(account number for fund as follows):
Highlands Growth Fund -- Account Number 9304932 Muirfield Fund -- Account Number 9305731 Total Return Utilities Fund -- Account Number 483608915 U.S. Government Bond Fund -- Account Number 9305152 Money Market Fund -- Account Number 9305533
Account Name (your name)
Your Flex-funds account number
On new accounts, a completed application must be sent to The Flex-funds c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH 43017 on the same day your wire is sent. A fund will not permit a redemption until it receives the New Account Application in good order.
SUBSEQUENT INVESTMENTS. Subsequent investments in an existing account in any
fund may be made by mailing a check payable to: Highlands Growth Fund; Muirfield
Fund; Total Return Utilities Fund; U.S. Government Bond Fund; or Money Market
Fund. PLEASE INCLUDE YOUR ACCOUNT NUMBER ON THE CHECK AND MAIL AS FOLLOWS:
THE FLEX-FUNDS
LOCATION NUMBER: 00215
CINCINNATI, OH 45264-0215
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.
WHEN PURCHASES ARE EFFECTIVE. New Account Applications for The Highlands Growth, Muirfield, Total Return Utilities and U.S. Government Funds, when accompanied by payment, are accepted immediately and the shares are priced at the next determined net asset value per share. Subsequent purchase orders are handled the same way, except on purchases made by telephone. For purchases made by telephone, payment for shares purchased in The Highlands Growth Fund is due within three business days, whereas payment for shares purchased in The Muirfield and Total Return Utilities Funds is due within one business day. Shares of The U.S. Government Bond Fund are sold at net asset value per share next determined after receipt of both a purchase order and payment. Income dividends in The U.S. Government Bond Fund begin as of the first business day following the day of purchase.
New Account Applications and subsequent purchase orders for The Money Market Fund which are received by or on behalf of the fund prior to 3:00 p.m., Eastern time on a business day, begin earning dividends that day, provided payment in federal funds (bank wire) is received by the bank that day. New Account Applications and subsequent purchase orders which are received after 3:00 p.m., or for which wire payment is not received, are accepted as a purchase the following day. Investments made by check are credited to shareholder accounts, and begin to earn dividends, on the next business day following receipt.
If a shareholder's check is dishonored, the purchase and any dividends paid thereon will be reversed. If shares are purchased with federal funds, they may be redeemed at any time thereafter and the shareholder may secure his funds as explained below. (See "How to Make Withdrawals (Redemptions).")
Financial Institutions: You may buy shares or sell shares of the funds through a broker or financial institution who may charge you a fee for this service. If you are purchasing shares of a fund through a program of services offered or administered by a securities dealer or financial institution, you should read the program materials in conjunction with this Prospectus.
Certain financial institutions that have entered into sales agreements with the funds may enter confirmed purchase orders on behalf of customers by telephone to purchase shares of The Muirfield, Total Return Utilities and U.S. Government Bond Funds. Payment is due no later than the fund's pricing on the following business day. In The Highlands Growth Fund, payment for confirmed purchase orders is due within three business days. Purchase orders for The Money Market Fund which are received prior to 3:00 p.m., Eastern time, begin earning dividends that day, provided Star Bank, N.A., the Custodian for the fund, receives federal funds by 4:00 p.m., Eastern time, that same day. If payment for the purchase of shares is not received in a timely manner, the financial institution could be held liable for any loss incurred by a fund.
HOW TO MAKE WITHDRAWALS (REDEMPTIONS)
Shares are redeemed and funds withdrawn at net asset value per share, and there are no redemption fees. (See "How Net Asset Value Is Determined.")
BY MAIL: You may redeem shares by mailing a written signature guaranteed request to The Flex-funds, c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH 43017. Signature guaranteed means that the request must be signed by you and your signature must be guaranteed by an eligible guarantor institution (a bank, broker-dealer, credit union, securities exchange and association, clearing agency and savings association). We do not accept signatures guaranteed by a notary public. Additional documentation may be required as to the authority of the person requesting redemption of shares held of record in the name of corporations, executors, administrators, trustees, guardians or other fiduciaries. We may waive these requirements in certain instances.
Amounts withdrawn are mailed without charge to the address printed on your account statement.
BY TELEPHONE: You may redeem by telephone: 1-800-325-FLEX, or call (614) 760-2159. If you who wish to use this procedure, you must select this feature on the New Account Application. Amounts withdrawn from an account by telephone are mailed without charge to the address printed on your account statement.
As a special service, you may arrange to have amounts in excess of $1,000 wired in federal funds to a designated commercial bank account. To use this procedure please designate on the New Account Application a bank and bank account number to receive the proceeds of wire withdrawals. There is no charge for this service.
You may change the bank account designated to receive redemptions. This may be done at any time upon written request to the fund. In this case, your signature must be guaranteed. Additional documentation may be required from corporations, executors, administrators, trustees, guardians, or other fiduciaries.
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. Amounts withdrawn by telephone are normally mailed or wired on the next Columbus, Ohio bank business day following the date of the order for withdrawal. In The Money Market Fund, if a request for a wire redemption is received prior to 3:00 p.m., Eastern time, on a bank business day, funds will be wired on the same day. Amounts withdrawn by mail are normally sent by mail within one business day after the request is received, and must be mailed within seven days with the following exception. If shares are purchased by check, the funds' transfer agent will not pay a redemption until reasonably satisfied the check used to purchase shares has been collected. The fund will forward proceeds promptly once the check has cleared. (See "How to Buy Shares.")
CHECK-WRITING REDEMPTION PROCEDURE--MONEY MARKET FUND ONLY: The Money Market Fund will provide a supply of drafts to any shareholder when requested. Drafts are mailed to your address of record normally within two weeks following the date of the initial investment. These drafts may be used to draw against your Money Market Fund account. Drafts may be written in any amount greater than $100. To use this privilege you must complete the check-writing redemption feature on the New Account Application form and complete the signature card, or notify the fund after making an initial investment.
A commercial check package consisting of 300 drafts is available for a nominal charge. If you are interested in a commercial check package, you should contact the funds for additional information.
When a draft is presented to the Bank for payment, the Bank (as your agent) will cause the fund to redeem sufficient shares to cover the amount of the draft. Shares continue earning dividends until the day on which the draft is presented to the Bank for payment. Due to the delay caused by the requirement that redemptions be priced at the next computed net asset value, the Bank will only accept drafts for payment which are presented through normal bank clearing channels. If shares are purchased by check, the funds' transfer agent will return drafts drawn on funds from purchases made by check(s), or any portion thereof, until the check(s) used to purchase shares has cleared. If you anticipate draft redemptions soon after you purchase shares, you are advised to wire funds to avoid the return of any draft(s). If the amount of the draft is greater than the value of the shares held in your account, the draft will be returned and your account will be charged a fee of $15. To avoid the possibility that a draft may not be accepted due to insufficient share balances, you should not attempt to withdraw the full amount of an account or to close out an account by using this procedure. The Money Market Fund, the transfer agent and the Bank will not be liable for any loss or expenses associated with returned drafts. Use of this procedure will be subject to the Bank's rules and regulations governing checking accounts.
You may request a stop payment on any draft and the transfer agent will attempt to carry out your request. The transfer agent cannot guarantee that such efforts will be successful. As the Bank charges the fund for this service, your account will be charged a $27.50 fee for any such request that becomes effective. No fee, other than those specified above, will be charged to you for participation in the check-writing redemption procedure or for the clearance of any drafts.
ACCOUNTS WITH LOW BALANCES. Any fund may redeem shares in your account for their then current net asset value and pay the proceeds to you if at any time your account has shares valued at less than $1,000 ($500 for an IRA) as a result of redemptions you have made. Any fund may redeem the shares in your account if you have opened your account for less than the minimum purchase amount and you do not purchase additional shares to meet the minimum. Before any shares are redeemed for these purposes, you will be notified in writing 30 days before any such redemption to bring the value of shares in the account to $1,000 ($500 for an IRA).
EXCHANGE PRIVILEGE
You may exchange shares of any fund for shares of any other Flex-funds' fund that are available for sale in your state at their respective net asset values. Exchanges are subject to applicable minimum initial and subsequent investment requirements. It will be necessary to complete a separate New Account Application if:
o you wish to register a new account in a different name;
o you wish to add telephone redemption to an account; or
o you wish to have check-writing redemption privileges in a Money Market Fund account.
Exchange requests may be directed to the fund by telephone or written request. If your request is in valid form, and is accepted before the close of the fund's business day, shares will be exchanged that day. Exchange requests from The Money Market Fund to another fund must be received prior to 3:00 p.m., Eastern time, to be exchanged that day. Otherwise, they will be exchanged the next business day.
BY MAIL: Exchange requests may also be made in writing and should be sent to The Flex-funds, c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017. The letter must be signed exactly as your name appears on the fund's account records.
BY TELEPHONE: Exchange requests may be made by telephone: call 1-800-325-FLEX, or call (614) 760-2159. You may make exchanges by telephone if you have telephone redemption privileges for your current account. The registration of additional accounts must be identical.
Any exchange involves a redemption of all or a portion of the shares in one fund and an investment of the redemption proceeds in shares of one of the other funds. The exchange will be based on the respective net asset values of the shares involved, ordinarily at the value next determined after the request is received. An exchange may be delayed briefly if redemption proceeds will not be available immediately for purchase of newly acquired shares. The exchange privilege may be modified or terminated at any time. In addition, each fund may reject any exchange request and limit your use of the exchange privilege.
The exchange of shares of one fund for shares of another fund is treated for federal income tax purposes as a sale of the shares given in exchange.
You may realize a taxable gain or loss on an exchange, and you should consult your tax adviser for further information concerning the tax consequences of an exchange.
TRANSACTION POLICIES
VALUATION OF SHARES. The net asset value per share (NAV) for each fund, except the U.S. Government Bond Fund and the Money Market Fund, is determined each business day at the close of regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern Time) by dividing the fund's net assets by the number of its shares outstanding. The NAV for the U.S. Government Bond Fund and the Money Market Fund are determined each business day that the Federal Reserve System is open. The NAV for the U.S. Government Bond Fund and the Money Market Fund are calculated on each such business day at 3:00 p.m. and 4:00 p.m. Eastern Time, respectively.
The assets of each portfolio, except the Money Market Portfolio, are generally valued on the basis of market quotations or, where market quotations are not readily available, on the basis of fair value as determined by the adviser under procedures adopted by the Board of Trustees. The assets of the Money Market Portfolio (and short-term money market instruments held by other portfolios) are valued on the basis of amortized cost.
BUY AND SELL PRICES. When you buy shares, you pay the NAV. When you sell shares, you receive the NAV.
EXECUTION OF REQUESTS. Each fund, except the U.S. Government Bond Fund and The Money Market Fund, is open on those days when the New York Stock Exchange is open, typically Monday through Friday. The U.S. Government Bond Fund and The Money Market Fund are open on those days when the Federal Reserve System is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after your request is received by the transfer agent.
At times of peak activity, it may be difficult to place requests by phone. During these times, consider sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to seven business days, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded in order to verify their accuracy. In addition, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Proceeds from telephone transactions can only be mailed to the address of record.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares for which the purchase money has not yet been collected, the request
will be executed in a timely fashion, but the fund will not release the proceeds to you until your purchase payment clears. This may take up to fifteen business days after the purchase.
OTHER SHAREHOLDER SERVICES
AUTOMATIC ACCOUNT BUILDER:
Regular investments in any fund of $100 or more will be deducted from your checking or savings account and invested in shares of the fund(s) selected. Your bank must be a member of the Automated Clearing House (ACH). If you wish to add to your investment account, you must complete the Automatic Account Builder section of the New Account Application. There is no charge for this service.
DIRECT DEPOSIT:
Investments of $100 or more may be directly deposited into your account. If you wish to have a financial institution electronically transfer funds into your account, you should contact the fund for information on this service. There is no charge for this service.
SYSTEMATIC WITHDRAWAL PROGRAM:
A Systematic Withdrawal Program is offered if you wish to receive regular distributions from your account. You must either own or purchase shares having a value of at least $10,000 and advise the fund in writing of the amount to be distributed and the desired frequency, i.e., monthly, quarterly or annually. This option may be exercised by completing the appropriate section of the New Account Application. You should realize that if withdrawals exceed income dividends, the invested principal may be depleted. You may make additional investments and may change or stop the program at any time. There is no charge for this program.
RETIREMENT PLANS
The funds offer retirement plans which include a prototype Profit Sharing Plan, a Money Purchase Pension Plan, a Salary Savings Plan - 401(k), an Individual Retirement Account (IRA), a Roth IRA, an Education IRA, a Simple IRA and a Simplified Employee Pension (SEP) Plan. Plan Adoption Agreements and other information required to establish a Flex-funds Retirement Plan are available from The Flex-funds, c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017; or call 1-800-325-FLEX, or call (614) 760-2159.
SUB-ACCOUNTING FOR INSTITUTIONAL INVESTORS:
A fund's optional sub-accounting system offers a separate shareholder account for each participant and a master account record for the institution. Share activity is thus recorded and statements prepared for both individual sub-accounts and for the master account. For more complete information concerning this program contact the fund.
DISTRIBUTOR:
Shares of the funds are sold in those states where their shares have been registered for sale or a valid exemption exists. States where registration or an exemption exists can be obtained by calling 1-800-325-FLEX or (614) 760-2159.
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of each fund's risk profile in the fund-by-fund information.
The funds are permitted to use - within limits established by the trustees
- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief descriptions of these
securities and investment practices, along with the risks associated with them.
The funds follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that a Flex-funds' fund will earn income or show a positive total return over any period of time - days, months or years.
INVESTMENT PRACTICES, SECURITIES AND RELATED RISKS
This table shows each portfolio's investment limitations as a percentage of portfolio assets, if a percentage applies. In each case the principal types of risk are listed (see following pages for definitions). Numbers in this table show allowable usage only; for actual usage, consult the portfolios and funds' annual/semiannual reports.
NL -- No policy limitation on usage; portfolio may be using currently P -- Permitted, but has not typically been used NP -- Not permitted
UTILITIES
GROWTH STOCK BOND MONEY
STOCK PORTFOLIO MUTUAL PORTFOLIO MARKET
PORTFOLIO (TOTAL FUND (U.S. PORTFOLIO
(HIGHLANDS RETURN PORTFOLIO GOV'T (MONEY
GROWTH UTILITIES (MUIRFIELD BOND MARKET
FUND) FUND) FUND) FUND) FUND)
SMALL AND MID-SIZED COMPANY P P NL NP NP
SECURITIES. Market, liquidity
and information risk.
47
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FOREIGN SECURITIES. Market, NP 25% P NP NP
currency, transaction, liquidity,
information and political risk.
SECTOR FOCUS. Market and NP NL P NP NP
liquidity risk.
CONVERTIBLE SECURITIES. P P P NP NP
Market, interest rate, prepayment
and credit risk.
INVESTMENT GRADE BONDS. P P P NP P
Interest rate, prepayment, market
and credit risk.
COMPANIES WITH LIMITED OPERATING P P P NP P
HISTORIES. Market, liquidity and
information risk.
ILLIQUID AND RESTRICTED 10% 10% 10% 10% 10%
SECURITIES. Market, liquidity
and transaction risk.
DEFENSIVE MEASURES. 20% 100% 100% 100% 100%
Opportunity risk.
REPURCHASE AGREEMENTS. 20% 100% 100% 100% 100%
Credit risk.
BORROWING; REVERSE REPURCHASE 33-1/3% 33-1/3% 5% 5% 5%
AGREEMENTS. Leverage and
credit risk.
HEDGING STRATEGIES; FINANCIAL 100% 100% 100% 100% NP
FUTURES AND OPTIONS;
SECURITIES AND INDEX OPTIONS.
Hedging, correlation, opportunity,
leverage, interest rate, market,
and liquidity risks.
CURRENCY CONTRACTS. NP P NP NP NP
Currency leverage, credit,
correlation, liquidity and
opportunity risks.
SECURITIES LENDING. NP 30% NP NP NP
Credit risk.
SHORT-TERM TRADING. NL NL NL NL NL
Market risk.
48
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WHEN-ISSUED SECURITIES AND NP NP P NP NP FORWARD COMMITMENTS. Market, opportunity and leverage risks. |
NOTES TO TABLE.
RISK AND INVESTMENT GLOSSARY
BORROWING refers to a loan of money from a bank or other financial institution undertaken by a portfolio.
COMMON STOCK is a share of ownership (equity) interest in a company.
COMPANIES WITH LIMITED OPERATING HISTORIES are securities issued by companies that have been in continuous operation for less than three years. Sometimes called "unseasoned" issuers.
CONVERTIBLE SECURITIES are debt or equity securities which may be converted on specified terms into stock of the issuer.
CORRELATION RISK occurs when a portfolio "hedges" - uses one investment to offset the fund's position in another. If the two investments do not behave in relation to one another the way portfolio managers expect them to, then unexpected results may occur.
CREDIT RISK means that the issuer of a security or the counterparty to an investment contract may default or become unable to pay its obligations when due.
CURRENCY CONTRACTS involve the right or obligation to buy or sell a given amount of foreign currency at a specified price and future date.
CURRENCY RISK happens when a portfolio buys or sells a security denominated in foreign currency. Foreign currencies "float" in value against the U.S. dollar. Adverse changes in foreign currency value can cause investment losses when a portfolio's investments are converted to U.S. dollars.
DEFENSIVE MEASURES may be taken when a portfolio's adviser believes they are warranted due to market conditions. When this happens, the portfolio may increase its investment in government securities and other short-term securities without regard to the portfolio's investment restrictions, policies or normal investment emphasis.
DIVERSIFICATION means a diversified fund may not, with respect to at least 75% of its assets (in the case of The Money Market Fund, 100% of its assets), invest more than 5% in the securities of one company. A non-diversified fund may be more volatile than a diversified fund because it invests more of its assets in a smaller number of companies and the gains or losses on a single stock will
therefore have a greater impact on the fund's share price. All of the Flex-funds are diversified funds. However, the Mutual Fund Portfolio (the corresponding Portfolio of The Muirfield Fund) may invest more than 5% of its assets in one mutual fund. If this underlying mutual fund performs poorly, this could negatively affect The Muirfield Fund's share price.
FINANCIAL FUTURES are exchange-traded contracts on securities, securities indexes or foreign currencies that obligate the holder to take or make future delivery of a specified quantity of those underlying securities or currencies on a predetermined future date.
FOREIGN SECURITIES are issued by companies located outside of the United States. A fund considers a company to be located outside the United States if the principal securities trading market for its equity securities is located outside the U.S. or it is organized under the laws of, and has its principal office in, a country other than the U.S.
FORWARD FOREIGN CURRENCY CONTRACTS are privately negotiated contracts committing the holder to purchase or sell a specified quantity of a foreign currency on a predetermined future date.
HEDGING RISK comes into play when a portfolio uses a security whose value is based on an underlying security or index to "offset" the portfolio's position in another security or currency. The objective of hedging is to offset potential losses in one security with gains in the hedge. But a hedge can eliminate or reduce gains as well as offset losses. (Also see "Correlation Risk.")
ILLIQUID AND RESTRICTED SECURITIES are securities which, by rules of their issue or by their nature, cannot be sold readily. These include illiquid Rule 144A securities.
INFORMATION RISK means that information about a security or issuer may not be available, complete, accurate or comparable.
INTEREST RATE RISK is the risk that changes in interest rates will adversely affect the value of an investor's securities. When interest rates rise, the value of fixed-income securities will generally fall. Conversely, a drop in interest rates will generally cause an increase in the value of fixed-income securities. Longer-term securities are subject to greater interest rate risk.
INVESTMENT GRADE BONDS are rated BBB (Standard & Poor's) or Baa (Moody's) or above. Bonds rated below investment grade are subject to greater credit risk than investment grade bonds.
LEVERAGE RISK occurs in some securities or techniques that tend to magnify the effect of small changes in an index or a market. This can result in a loss that exceeds the account that was invested in the contract. Also, if the Mutual
Fund Portfolio (the corresponding Portfolio of The Muirfield Fund) invests in mutual funds that use leverage, it will have the risks arising from the use of leverage.
LIQUIDITY RISK occurs when investments cannot be sold readily. A fund may have to accept a less-than-desirable price to complete the sale of an illiquid security or may not be able to sell it at all.
MARKET CAPITALIZATION is the total current market value of a company's outstanding common stock.
MARKET RISK exists in all mutual funds and means the risk that the prices of securities in a market, a sector, or an industry will fluctuate, and that such movements might reduce an investment's value.
OPPORTUNITY RISK means missing out on an investment opportunity because the assets necessary to take advantage of it are committed to less advantageous investments or strategies.
OPTIONS are contracts giving the holder the right but not the obligation to purchase or sell a security on or before a predetermined future date for a fixed price. Options on securities indexes are similar, but settle in cash.
POLITICAL RISK comes into play with investments, particularly foreign investments, which may be adversely affected by nationalization, taxation, war, government instability or other economic or political actions or factors.
PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are more likely to refinance their debts. As a result, the principal on certain fixed income securities may be paid earlier than expected, which could cause investment losses and cause prepaid amounts to have to be reinvested at a relatively lower interest rate.
REPURCHASE AGREEMENTS means the purchase of a security that must later be sold back to the issuer at the same price plus interest.
SECTOR FOCUS occurs when a significant portion of a portfolio's assets are invested in a relatively small number of related industries. None of The Flex-funds, except the Total Return Utilities Fund, will concentrate more than 25% of their total assets in any one industry. However, if the Mutual Fund Portfolio (the corresponding Portfolio of The Muirfield Fund) invests in mutual funds that concentrate investments in one or a small number of related industries, they will have the risks arising from sector focus. Sector focus may increase both market and liquidity risk.
SECURITIES LENDING means the lending of securities to financial institutions, which provide cash or government securities as collateral.
SHORT-TERM TRADING means selling a security soon after purchase. A portfolio engaging in short-term trading will have higher turnover and transaction expenses. Short-term trading may also result in short-term capital gains. Upon the distribution to you of any net short-term capital gains from a fund, you will be taxed at ordinary tax rates. Because the adviser or subadviser may take defensive measures with regard to 100% of the assets in the corresponding portfolios of the Total Return Utilities Fund, the Muirfield Fund, the Money Market Fund and the U.S. Government Bond Fund, the risks and expenses of short-term trading may be higher in these portfolios.
SMALL AND MID-SIZED COMPANY SECURITIES are securities issued by small or mid-sized companies, as measured by their market capitalization. In general, the smaller the company, the greater its risks.
TRANSACTION RISK means that a portfolio may be delayed or unable to settle a transaction or that commissions and settlement expenses may be higher than usual.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS involve the purchase and sale of securities for delivery at a future date, market value may change before delivery.
FOR MORE INFORMATION:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the funds. The SAI has been filed with the Securities and Exchange Commission and is incorporated by reference in this Prospectus (is legally a part of this Prospectus).
ANNUAL AND SEMIANNUAL REPORTS
These reports include portfolio holdings, financial statements, performance information, the auditor's report (in the case of the annual report), and a discussion of the market conditions and investment strategies that significantly affected the funds' performance during their last fiscal year.
The SAI, the reports and other information about the funds may be viewed on the Commission's Internet website at HTTP://WWW.SEC.GOV and copies of this information may be obtained (upon payment of a copying fee) by writing the public reference section of the Commission, Washington, D.C. 20549-6009 (telephone 1-800-SEC-0330).
To request a free copy of the current annual/semi-annual report or SAI, request other information about the funds, or make shareholder inquiries, please write, call or E-mail us at:
The Flex-funds
6000 Memorial Drive
Dublin, OH 43017
Telephone: 1-800-325-3539 or 614-760-2159
WWW.FLEXFUNDS.COM
Investment Company Act File No. 811-3462
THE FLEX-FUNDS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE MONEY MARKET FUND
Part A.
ITEM NO. PROSPECTUS CAPTION
1(a) Front Cover Page
1(b) Back Cover Page
2(a) Investment Goal
2(b) Strategies
2(c)(1) Main Risk Factors
2(c)(2) Performance
3 Fees and Expenses of the Fund
4(a)(b) More Information About the Fund
How is the Trust Organized?
4(c) More About Risk
Risk Glossary
5 Not applicable
6(a) Who Manages the Fund?
6(b) Not applicable
7(a) Transaction Policies
7(b) How to Buy Shares
Other Shareholder Services
7(c) How to Make Withdrawals (Redemptions)
Exchange Privilege
Other Shareholder Services
7(d)(e) How Does Taxation Affect the Funds and Their Shareholders
7(f) Not applicable
8(a) Not applicable
8(b) Distribution Fees
8(c) More Information About the Fund - The Fund's Investment in a
Portfolio
9 How to Read the Financial Highlights Table
Financial Highlights
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THE FLEX-FUNDS
THE MONEY MARKET FUND
PROSPECTUS - APRIL 30, 1999
[LOGOS]
The Money Market Fund is a part of The Flex-funds, a family of funds that includes five no-load mutual funds covering a variety of investment opportunities.
This Prospectus gives you important information about The Money Market Fund that you should know before you invest. Please read this Prospectus carefully and keep it handy for future reference.
Like all mutual fund shares, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
The Flex-funds 6000 Memorial Drive Dublin, OH 43017 1-800-325-FLEX or 614-760-2159 Internet: WWW.FLEXFUNDS.COM
CONTENTS
-------------------------------------------------------- THE MONEY MARKET FUND
A look at investment goals, Investment Goal _____
strategies, risks, performance Strategies _____
and expenses Main Risk Factors _____
Performance _____
Fees and Expenses of the Fund _____
Information on who may want to invest Who May Want to Invest _____
and who may not want to invest
More information about the fund More Information about the Fund _____
you should know before investing Who Manages the Fund? _____
Distribution Fees _____
How is the Trust Organized? _____
How Does Taxation Affect the
Fund and Its Shareholders? _____
How to Read the Financial
Highlights Table _____
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----------------------------------------------------------- SHAREHOLDER MANUAL
Information about account How to Buy Shares _____
transactions and services How to Make Withdrawals
(Redemptions) _____
Transaction Policies _____
Other Shareholder Services _____
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-------------------------------------------------------------- MORE ABOUT RISK
Investment Practices, Securities
and Related Risks _____
Risk and Investment Glossary _____
---------------------------------------------------------- FOR MORE INFORMATION
Where to learn more about the fund Back Cover
MONEY MARKET FUND (FFMXX)
[ICON] INVESTMENT GOAL
The fund seeks to provide current income while maintaining a stable
share price of $1.00. To pursue this goal, the fund invests primarily
in high-quality, short-term money market instruments, such as
securities backed by the full faith and credit of the U.S. government,
securities issued by U.S. government agencies, or obligations issued
by corporations and financial institutions.
[ICON] STRATEGIES
The fund invests all of its assets in The Money Market Portfolio, a
master fund having the same investment goal as the fund. See "The
Fund's Investment in a Portfolio" under "More Information about the
Fund." The Portfolio, like all money funds, follows SEC guidelines on
the quality, maturity and diversification of its investments. These
guidelines are designed to help reduce a money fund's risks so that it
is more likely to keep its share price at $1.00.
o The Portfolio only buys securities that the adviser determines
present minimal credit risks and that are rated in one of the top
two short-term rating categories or that are comparable unrated
securities in the adviser's opinion.
o The Portfolio only buys securities with remaining maturities of
397 calendar days or less and maintains a dollar-weighted average
portfolio maturity of 90 days or less.
o Generally, the Portfolio may not invest more than 5% of its total
assets in the securities of a single issuer, other than in U.S.
government securities.
o Generally, the adviser will attempt to purchase securities with
longer maturities when it believes interest rates are falling and
will attempt to purchase securities with shorter maturities when
it believes interest rates are rising.
The Portfolio will limit its purchases to U.S. government securities
and securities of its agencies and instrumentalities, bank obligations
and instruments secured thereby, high quality commercial paper, high
grade corporate obligations, funding agreements and repurchase
agreements.
For more information, see "How Does the Fund Pursue Its Investment
Goal?" under "More Information About the Fund."
[ICON] MAIN RISK FACTORS
The fund is subject to income risk, which is the possibility that the
fund's dividends or income will decline because of falling interest
rates. The fund is subject, to a limited extent, to credit risk, which
is the possibility that the issuer of a security owned by the fund
will be unable to repay interest and principal in a timely manner.
An investment in the fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although
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the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Please read "More About Risk" carefully before investing.
PERFORMANCE
The bar chart shown on the left below provides some indication of the risks of investing in the Money Market Fund by showing changes in the fund's performance from year to year over a 10-year period. The table compares the fund's performance with the returns of an index of funds with similar investment objectives. How the fund has performed in the past is not necessarily an indication of how the fund will perform in the future.
[GRAPH] The following information was presented in the form of a bar graph:
YEAR ANNUAL TOTAL RETURN ---- ------------------- 1989 9.32% 1990 8.21% 1991 6.12% 1992 3.70% 1993 2.98% 1994 4.10% 1995 5.85% 1996 5.27% 1997 5.38% 1998 5.31% |
During the 10-year period shown in the bar chart, the highest return for a quarter was 2.40% (quarter ended December 31, 1998) and the lowest return for a quarter was 0.071% (quarter ending June 30, 1993).
The fund's seven-day simple yield ended on December 31, 1998 was 4.96% and the seven-day compound yield ended December 31, 1998 was 5.07%. To request the fund's current seven-day yield, please call 1-800-325-FLEX or 614-760-2159.
Average Annual Total Returns
(for the periods ending
DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
--------------------------------------------------------------------------------
The Money Market Fund 5.31% 5.18% 5.61%
Lipper's Average General
Purpose Money Market Fund ___% ___% ___%
[ICON] FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.
There are no sales loads, fees or other charges
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o to buy fund shares directly from the fund
o to reinvest dividends in additional shares
o to exchange into shares of other funds in the Flex-funds
family of funds
o or to redeem your shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)1
Management Fees 0.27%
Distribution (12b-1) Fees 0.10%
Other Expenses2 0.22%
Total Annual Fund Operating Expenses 0.59%
Fee Waiver and Expense Reimbursement3 0.19%
Net Expenses 0.40%
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(1) This table and the Example below reflect the expenses of the fund and its proportionate share of expenses from its corresponding Portfolio. See "The Fund's Investment in a Portfolio" under "More Information About the Fund."
(2) "Other Expenses" are estimated based on expenses actually incurred by the fund for the year ended December 31, 1998.
(3) Reflects the adviser's agreement to reduce its fees and/or absorb expenses to the extent necessary to achieve an effective yield for the fund that will rank in the top 10% of yields for all general purpose money market funds in 1999. The adviser may terminate this agreement after December 31, 1999.
EXAMPLE OF HYPOTHETICAL FUND COSTS
The example in the table below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
Assuming you
o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$41 $128 $224 $505
Of course, your actual costs may be higher or lower.
[ICON] WHO MAY WANT TO INVEST
The fund may be appropriate if you:
o like to earn income at current money market rates while
preserving the value of your investment
o are looking for a short-term component of an asset allocation
program
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o characterize your investment outlook as "very conservative"
o want to be able to move your money into stock or bond investments quickly and without penalty
The fund may not be appropriate if you:
o are investing for maximum return over a long-term horizon
MORE INFORMATION ABOUT THE FUND
THE FUND'S INVESTMENT IN A PORTFOLIO
The fund seeks to achieve its investment goal by investing all of its assets in the Money Market Portfolio, its corresponding portfolio.
The portfolio has the same investment goal as the fund. The fund's investment policies are also substantially similar to the portfolio's, except the fund may pursue its policies by investing in an open-end management investment company with the same investment goal and substantially similar policies and restrictions as the fund. The fund buys shares of the portfolio at net asset value. An investment in the fund is an indirect investment in the portfolio.
It is possible that the fund may withdraw its investment in the portfolio and subsequently invest in another open-end management investment company with the same investment goal and substantially similar policies. This could happen if the portfolio changes its investment goal or if the board of trustees, at any time, considers it in the fund's best interest.
The fund's structure, where it invests all of its assets in its corresponding portfolio, is sometimes called a "master/feeder" structure. You will find more detailed information about this structure and the potential risks associated with it in the Statement of Additional Information.
HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?
The manager seeks to achieve its goal by investing in high-quality money market instruments which mature in 397 days or less. Also, the portfolio will seek to minimize changes in the value of its assets due to market factors by maintaining a dollar-weighted average portfolio maturity of 90 days or less.
The portfolio may change its average portfolio maturity or level of quality to protect its net asset value when it is perceived that changes in the liquidity of major financial institutions may adversely affect the money markets. Consequently, for temporary defensive purposes, the portfolio may shorten the average maturity of its investments and/or invest only in the highest quality debt instruments, including, for example, U.S. government or agency obligations.
WHO MANAGES THE FUND?
THE BOARD. The board of trustees oversees the management of the fund and the portfolio, and elects their officers. The officers are responsible for the fund and the portfolio's day-to-day operations. Information concerning the trustees and officers of the fund and the portfolio appears in the Statement of Additional Information.
INVESTMENT ADVISER. R. Meeder & Associates, Inc. ("RMA") manages the portfolio's assets and makes investment decisions for the portfolio. RMA has been an investment adviser to individuals, pension and profit sharing plans, trusts, charitable organizations, corporations and other institutions since 1974. As of December 31, 1998, RMA and its affiliates managed approximately $1.4 billion in assets. RMA has its principal offices at 6000 Memorial Drive, Dublin, OH 43017.
PORTFOLIO MANAGER
The portfolio manager responsible for the portfolio's investments is Philip
A. Voelker, Senior Vice President and Chief Investment Officer of RMA. Mr.
Voelker joined RMA in 1975 and has managed the portfolio since 1985.
MANAGEMENT FEES. During the calendar year ended December 31, 1998, the portfolio paid management fees totaling 0.27% of the portfolio's average daily net assets.
YEAR 2000. The common past practice in computer programming of using just two digits to identify a year has resulted in the Year 2000 challenge throughout the information technology industry. If unchanged, many computer applications and systems could misinterpret dates occurring after December 31, 1999, leading to errors or failure. This failure could adversely affect the fund's operations, including pricing, securities trading and the servicing of shareholder accounts.
RMA is dedicated to providing uninterrupted, high-quality performance from our computer systems before, during and after 2000. We are now renovating and testing our internal systems. RMA is diligently working with external partners, suppliers, vendors and other service providers to ensure that the systems with which we interact will remain operational at all times.
In addition to taking reasonable steps to secure our internal systems and external relationships, RMA is further developing contingency plans intended to ensure that unexpected systems failures will not adversely affect the fund's operations. RMA intends to monitor these processes through the rollover of 1999 into 2000 and to quickly implement alternative solutions if necessary.
Despite RMA's efforts and contingency plans, however, noncompliant computer systems would have an adverse material effect on the fund's business, operations or financial condition. Additionally, the fund's performance could be hurt if a computer system failure at a company or governmental unit affects the prices of securities the fund owns. Issuers in countries outside the U.S., particularly in emerging markets, may not be required to make the same level of disclosure about year 2000 readiness as required in the U.S. RMA, of course, cannot audit any company and its major suppliers to verify their year 2000 readiness. RMA understands that many foreign countries and companies are well behind their U.S. counterparts in preparing for 2000.
DISTRIBUTION FEES
Rule 12b-1 of the Investment Company Act permits mutual funds that adopt a written plan to pay out of fund assets certain expenses relating to the sale and distribution of their shares. The fund has a 12b-1 plan. Under the plan the fund pays an annual fee of 0.20% of fund assets for distribution services. Payments under the plan are made for distribution in the form of commissions and fees, advertising, sales literature, services of public relations consultants, direct solicitation and expenses of printing prospectuses and reports used for sales purposes. Persons who receive payments under the plan include securities brokers, attorneys, accountants, investment advisers, investment performance consultants, pension actuaries, banks, and service organizations.
HOW IS THE TRUST ORGANIZED?
The fund is a no-load, open-end management investment company that is a series of The Flex-funds trust (the "Trust").
The Trust is supervised by a board of trustees, an independent body that has ultimate responsibility for the fund's activities. The board retains various companies to carry out the fund's operations, including the investment adviser, custodian, transfer agent and others. The board has the right, and the
obligation, to terminate the fund's relationship with any of these companies and to retain a different company if the board believes it is in the shareholders' best interests. At a mutual fund's inception, the initial shareholder (typically the adviser) appoints the fund's board. Thereafter, the board and the shareholders determine the board's membership. The board of the Trust may include individuals who are affiliated with the investment adviser.
The fund does not hold annual shareholder meetings, but may hold special meetings for such purposes as electing or removing board members, changing fundamental policies, approving a management contract or approving a 12b-1 plan (12b-1 fees are explained in "Distribution Fees").
PORTFOLIO TRADES
As long as the advisers believe a brokerage firm can provide a combination of quality execution (i.e., timeliness and completeness) and favorable price, they may consider research and related services when choosing a brokerage firm. Brokerage firms may use a portion of the commissions paid by the portfolio to reduce it, or the fund's, expenses.
INVESTMENT GOALS
None of the fund's investment goals are fundamental and may be changed without shareholder approval.
DIVERSIFICATION
The fund is diversified, which means the fund may not invest more than 5% in the securities of one company.
HOW DOES TAXATION AFFECT THE FUNDS AND THEIR SHAREHOLDERS?
HOW DOES THE PORTFOLIO EARN INCOME AND GAINS?
The portfolio earns dividends and interest (the portfolio's "income") on its investments. When the portfolio sells a security for a price that is higher than it paid, it has a gain. When the portfolio sells a security for a price that is lower than it paid, it has a loss. If the portfolio has held the security for more than one year, the gain or loss will be a long-term capital gain or loss. If the portfolio has held the security for one year or less, the gain or loss will be a short-term capital gain or loss. The portfolio's gains and losses are netted together, and, if the portfolio has a net gain (the portfolio's "gain"), that gain will generally be distributed to you.
TAXATION OF THE PORTFOLIO'S INVESTMENTS
The portfolio invests your money in the securities that are described in the sections "Strategies" and "How Does the Fund Pursue Its Investment Goal?" Special tax rules may apply in determining the income and gains that the portfolio earns on its investments. These rules may, in turn, affect the amount of distributions that the fund pays to you. These special tax rules are discussed in the Statement of Additional Information.
TAXATION OF THE FUND. As a regulated investment company, the fund generally pays no federal income tax on the income and gains that it distributes to you.
TAXATION OF SHAREHOLDERS
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of the fund's income and gains on the portfolio's investments in money market securities. The fund's income and short-term capital gains are paid to you as ordinary dividends. The fund's long-term capital gains are paid to you as capital gain distributions. If the fund pays you an amount in excess of its income and gains, this excess will generally be treated as a non-taxable distribution. These amounts, taken together, are what we call the fund's distributions to you. The fund pays dividends from its net investment income on a monthly basis. The fund distributes capital gains, if any, annually.
DISTRIBUTIONS. Distributions from the fund, whether you receive them in cash or in additional shares, are generally subject to income tax. The fund will send you a statement in January of the current year that reflects the amount of ordinary dividends, capital gain distributions and non-taxable distributions you received from the fund in the prior year. This statement will include distributions declared in December and paid to you in January of the current year, but which are taxable as if paid on December 31 of the prior year. The Internal Revenue Service requires you to report these amounts on your income tax return for the prior year.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified retirement plan, such as a 401(k) plan or IRA, are generally tax-deferred; this means that you are not required to report fund distributions on your income tax return when paid to your plan, but, rather, when your plan makes payments to you. Special rules apply to payouts from Roth and Education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a dividends-received deduction on a portion of the ordinary dividends they receive from the fund.
BUYING A DIVIDEND. Purchasing fund shares in a taxable account shortly before a distribution is known as "buying a dividend." In taxable accounts, you must pay income taxes on the distribution whether you take the distribution in cash or reinvest it. In addition, you will have to pay taxes on the distribution whether the value of your investment decreased, increased or remained the same after you bought the fund shares. The risk in buying a dividend is that the portfolio may build up taxable gains throughout the period covered by a distribution, as securities are sold at a profit. We distribute those gains to you, after subtracting any losses, even if you did not own the shares when the gains occurred.
DIVIDEND REINVESTMENTS. Most investors have their dividends reinvested in additional shares of the fund. If you choose this option, or if you do not indicate any choice, your dividends will be reinvested on the dividend payable date. Alternatively, you can choose to have a check for your dividends mailed to you. However, if the check is not deliverable, your dividends will be reinvested.
REDEMPTIONS AND EXCHANGES
WHAT IS A REDEMPTION?
A redemption is a sale by you to the fund of some or all of your shares in the fund. The price per share you receive when you redeem fund shares may be more or less than the price at which you purchased those shares. An exchange of shares in the fund for shares of a Flex-funds' fund is treated as a redemption of fund shares and then a purchase of shares of the Flex-funds' fund. When you redeem or exchange your shares, you will generally have a gain or loss, depending upon whether the amount you receive for your shares is more or less than your cost or other basis in the shares, which the IRS requires you to report on your income tax return.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. Government, subject to certain restrictions. The fund will provide you with information at the end of each calendar year on the amount of any such dividends that may qualify for exemption from reporting on your individual income tax returns.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income tax withholding. Your home country may also tax ordinary dividends, capital gain distributions and gains arising from redemptions or exchanges of your fund shares. Fund shares held by the estate of a non-U.S. investor may be subject to U.S. estate tax. You may wish to contact your tax adviser to determine the U.S. and non-U.S. tax consequences of your investment in the fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive from the fund, and gains arising from redemptions or exchanges of your fund shares will generally by subject to state and local income tax. The holding of fund shares may also be subject to state and local intangibles taxes. You may wish to contact your tax adviser to determine the state and local tax consequences of your investment in the fund.
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE
The fund began calendar year 1998 with a net asset value (price) of $1.00 per share. During the year, the fund earned $0.052 per share from investment income (interest and dividends less operating expenses) and $0.00 per share from investments that had appreciated in value or that were sold for higher prices than the fund paid for them.
Shareholders received $0.052 per share in the form of dividend and capital gains distributions. A portion of each year's distributions may come from the prior year's income or capital gains.
The earnings ($0.052 per share) minus the distributions ($0.052 per share) resulted in a share price of $1.00 at the end of the year. This was an increase of $0.00 per share (from $1.00 at the beginning of the year to $1.00 at the end of the year). For a shareholder who reinvested the distributions in the purchase of more shares, the total return from the fund was 5.31% for the year.
As of December 31, 1998, the fund had $154,225,000 in net assets. For the year, its expense ratio was 0.40% ($4.00 per $1,000 of net assets); and its net investment income amounted to 5.00% of its average net assets.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by KMPG LLP, independent auditors, whose report, along with the fund's financial statements, is included in the annual report, which is available upon request.
THE MONEY MARKET FUND
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net Asset Value, Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME 0.052 0.053 0.05 0.06 0.04
--------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.052 0.053 0.05 0.06 0.04
--------------------------------------------------------------------------------
Less Dividends and Distributions
FROM NET INVESTMENT INCOME (0.052) (0.053) (0.05) (0.06) (0.04)
--------------------------------------------------------------------------------
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TOTAL DISTRIBUTIONS (0.052) (0.053) (0.05) (0.06) (0.04)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
TOTAL RETURN 5.31% 5.38% 5.27% 5.85% 4.10%
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period ($000) 154,225 169,335 119,947 141,087 164,838
Ratio of Expenses to Average Net
Assets 0.40% 0.40% 0.40% 0.40% 0.37%
Ratio of Net Investment Income to
Average Net Assets 5.19% 5.26% 5.15% 5.70% 4.02%
Ratio of Expenses to Average Net
Assets before waiver of fees(1) 0.59% 0.59% 0.58% 0.64% 0.57%
Ratio of Net Income to Average Net
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Assets, before waiver of fees(1) 5.00% 5.07% 4.97% 5.46% 3.82%
(1) See "Synopsis of Financial Information" for explanation of adviser's waiver of fees.
Financial Statements and Notes pertaining thereto appear in the Statement of Additional Information Dated April 30, 1999.
SHAREHOLDER MANUAL
HOW TO BUY SHARES
Shares of The Money Market Fund are offered continuously and sold without a sales charge. Shares are sold at the net asset value per share next determined after receipt of both a purchase order and payment in federal funds. Investments made by check are entered and credited at the net asset value determined on the next business day following receipt.
MINIMUM INVESTMENT. The minimum investment to open an account in the fund 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.
OPENING AN ACCOUNT. You may open an account by mail or bank wire as follows:
BY MAIL: To purchase shares, fill out the New Account Application accompanying this Prospectus. A check payable to The Money Market Fund must accompany the New Account Application. The fund does not accept third party checks. Payments may be made by check or Federal Reserve Draft payable to the fund and should be mailed to the following address: THE FLEX-FUNDS, C/O R. MEEDER & ASSOCIATES, INC., P.O. BOX 7177, DUBLIN, OHIO 43017.
BY BANK WIRE: If the wire order is for a new account, YOU MUST TELEPHONE
THE FUND PRIOR TO MAKING YOUR INITIAL INVESTMENT. Call 1-800-325-FLEX, or
(614) 760-2159. Advise the fund of the amount you wish to invest and obtain
an account number and instructions. Have your bank wire federal funds to:
STAR BANK, N.A. CINTI/TRUST
ABA #: 042-00001-3
ATTENTION: THE MONEY MARKET FUND
Credit Account Number 9305533
Account Name (your name)
Your Money Market Fund account number
On new accounts, a completed application must be sent to The Flex-funds c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH 43017 on the same day your wire is sent. The fund will not permit a redemption until it receives the New Account Application in good order.
SUBSEQUENT INVESTMENTS. Subsequent investments in an existing account in the fund may be made by mailing a check payable to The Money Market Fund. PLEASE INCLUDE YOUR ACCOUNT NUMBER ON THE CHECK AND MAIL AS FOLLOWS:
THE FLEX-FUNDS
LOCATION NUMBER: 00215
CINCINNATI, OH 45264-0215
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.
WHEN PURCHASES ARE EFFECTIVE. New Account Applications and subsequent purchase orders for The Money Market Fund which are received by or on behalf of the fund prior to 3:00 p.m., Eastern time on a business day, begin earning dividends that day, provided payment in federal funds (bank wire) is received by the bank that day. New Account Applications and subsequent purchase orders which are received after 3:00 p.m., or for which wire payment is not received, are accepted as a purchase the following day. Investments made by check are credited to shareholder accounts, and begin to earn dividends, on the next business day following receipt.
If your check is dishonored, the purchase and any dividends paid thereon will be reversed. If shares are purchased with federal funds, they may be redeemed at any time thereafter, and you may secure your funds as explained below. (See "How to Make Withdrawals (Redemptions).")
Financial Institutions: You may buy shares or sell shares of the fund through a broker or financial institution, which may charge you a fee for this service. If you are purchasing shares of the fund through a program of services offered or administered by a brokerage firm or financial institution, you should read the program materials in conjunction with this Prospectus.
Purchase orders for the fund which are received prior to 3:00 p.m., Eastern time, begin earning dividends that day, provided Star Bank, N.A., the Custodian for the fund, receives federal funds by 4:00 p.m., Eastern time, that same day. If payment for the purchase of shares is not received in a timely manner, the financial institution could be held liable for any loss incurred by the fund.
HOW TO MAKE WITHDRAWALS (REDEMPTIONS)
Shares are redeemed and funds withdrawn at net asset value per share, and there are no redemption fees. (See "How Net Asset Value Is Determined.")
BY MAIL: You may redeem shares by mailing a written signature guaranteed request to The Flex-funds, c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH 43017. Signature guaranteed means that the request must be signed by you and your signature must be guaranteed by an eligible guarantor institution (a bank, broker-dealer, credit union, securities exchange and association, clearing agency and savings association). We do not accept signatures guaranteed by a notary public. Additional documentation may be required as to the authority of the person requesting redemption of shares held of record in the name of corporations, executors, administrators, trustees, guardians or other fiduciaries. We may waive these requirements in certain instances.
Amounts withdrawn are mailed without charge to the address printed on your account statement.
BY TELEPHONE: You may redeem by telephone: 1-800-325-FLEX, or call (614) 760-2159. If you wish to use this procedure, you must select this feature on the New Account Application. Amounts withdrawn from an account by telephone are mailed without charge to the address printed on your account statement.
As a special service, you may arrange to have amounts in excess of $1,000 wired in federal funds to a designated commercial bank account. To use this procedure, please designate on the New Account Application a bank and bank account number to receive the proceeds of wire withdrawals. There is no charge for this service.
You may change the bank account designated to receive redemptions. This may be done at any time upon written request to the fund. In this case, your signature must be guaranteed. Additional documentation may be required from corporations, executors, administrators, trustees, guardians, or other fiduciaries.
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. Amounts withdrawn by telephone are normally mailed or wired on the next Columbus, Ohio bank business day following the date of the order for withdrawal. If a request for a wire redemption is received prior to 3:00 p.m., Eastern time, on a bank business day, funds will be wired on the same day. Amounts withdrawn by mail are normally sent by mail within one business day after the request is received, and must be mailed within seven days, with the following exception. If shares are purchased by check, the funds' transfer agent will not pay a redemption until reasonably satisfied the check used to purchase shares has been collected. The fund will forward proceeds promptly once the check has cleared. (See "How to Buy Shares.")
CHECK-WRITING REDEMPTION PROCEDURE: The fund will provide a supply of drafts to you when requested. Drafts are mailed to your address of record normally within two weeks following the date of the initial investment. These drafts may be used to draw against your Money Market Fund account. Drafts may be written in any amount greater than $100. To use this privilege you must complete the check-writing redemption feature on the New Account Application form and complete the signature card, or notify the fund after making an initial investment.
A commercial check package consisting of 300 drafts is available for a nominal charge. If you are interested in a commercial check package, you should contact the fund for additional information.
When a draft is presented to the Bank for payment, the Bank (as your agent) will cause the fund to redeem sufficient shares to cover the amount of the draft. Shares continue earning dividends until the day on which the draft is presented to the Bank for payment. Due to the delay caused by the
requirement that redemptions be priced at the next computed net asset value, the Bank will only accept drafts for payment which are presented through normal bank clearing channels. If shares are purchased by check, the fund's transfer agent will return drafts drawn on funds from purchases made by check(s), or any portion thereof, until the check(s) used to purchase shares has cleared. If you anticipate draft redemptions soon after you purchase shares, you are advised to wire funds to avoid the return of any draft(s). If the amount of the draft is greater than the value of the shares held in your account, the draft will be returned and your account will be charged a fee of $15. To avoid the possibility that a draft may not be accepted due to insufficient share balances, you should not attempt to withdraw the full amount of an account or to close out an account by using this procedure. The fund, the transfer agent and the Bank will not be liable for any loss or expenses associated with returned drafts. Use of this procedure will be subject to the Bank's rules and regulations governing checking accounts.
You may request a stop payment on any draft and the transfer agent will attempt to carry out your request. The transfer agent cannot guarantee that such efforts will be successful. As the Bank charges the fund for this service, your account will be charged a $27.50 fee for any such request that becomes effective. No fee, other than those specified above, will be charged to you for participation in the check-writing redemption procedure or for the clearance of any drafts.
ACCOUNTS WITH LOW BALANCES. The fund may redeem shares in your account for their then current net asset value and pay the proceeds to you if at any time your account has shares valued at less than $1,000 ($500 for an IRA) as a result of redemptions you have made. The fund may redeem the shares in your account if you have opened your account for less than the minimum purchase amount and you do not purchase additional shares to meet the minimum. Before any shares are redeemed for these purposes, you will be notified in writing 30 days before any such redemption to bring the value of shares in the account to $1,000 ($500 for an IRA).
EXCHANGE PRIVILEGE
You may exchange shares of the fund for shares of any other Flex-funds' fund that are available for sale in your state at their respective net asset values. Exchanges are subject to applicable minimum initial and subsequent investment requirements. It will be necessary to complete a separate New Account Application if:
o you wish to register a new account in a different name
o you wish to add telephone redemption to an account or
o you wish to have check-writing redemption privileges in an account.
Exchange requests may be directed to the fund by telephone or written request. If your request is in valid form, and is received prior to 3:00 p.m., Eastern time, shares will be exchanged that day. Otherwise, they will be exchanged the next business day.
BY MAIL: Exchange requests may also be made in writing and should be sent to The Flex-funds, c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017. The letter must be signed exactly as your name appears on the fund's account records.
BY TELEPHONE: Exchange requests may be made by telephone: call 1-800-325-FLEX, or call (614) 760-2159. You may make exchanges by telephone if you have telephone redemption privileges for your current account. The registration of additional accounts must be identical.
Any exchange involves a redemption of all or a portion of the shares in one fund and an investment of the redemption proceeds in shares of one of the other funds. The exchange will be based on the respective net asset values of the shares involved, ordinarily at the value next determined after the request is received. An exchange may be delayed briefly if redemption proceeds will not be available immediately for purchase of newly acquired shares. The exchange privilege may be modified or terminated at any time. In addition, the fund may reject any exchange request and limit your use of the exchange privilege.
The exchange of shares of one fund for shares of another fund is treated for federal income tax purposes as a sale of the shares given in exchange. You may realize a taxable gain or loss on an exchange, and you should consult your tax adviser for further information concerning the tax consequences of an exchange.
TRANSACTION POLICIES
VALUATION OF SHARES. The net asset value per share (NAV) for the fund is determined each business day that the Federal Reserve System is open. The NAV is calculated on each such business day at 4:00 p.m. Eastern Time by dividing the fund's net assets by the number of its shares outstanding. The assets of the portfolio are valued on the basis of amortized cost.
BUY AND SELL PRICES. When you buy shares, you pay the NAV. When you sell shares, you receive the NAV.
EXECUTION OF REQUESTS. The fund is open on those days when the Federal Reserve System is open, typically Monday through Friday. Buy and sell requests are executed at the next NAV to be calculated after your request is received by the transfer agent.
At times of peak activity, it may be difficult to place requests by phone. During these times, consider sending your request in writing.
In unusual circumstances, the fund may temporarily suspend the processing of sell requests, or may postpone payment of proceeds for up to seven business days, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded in order to verify their accuracy. In addition, the transfer agent will take measures to verify the identity of the caller, such as asking for name, account number, Social Security or other taxpayer ID number and other relevant information. If appropriate measures are taken, the transfer agent
is not responsible for any losses that may occur to any account due to an unauthorized telephone call. Proceeds from telephone transactions can only be mailed to the address of record.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares for which the purchase money has not yet been collected, the request will be executed in a timely fashion, but the fund will not release the proceeds to you until your purchase payment clears. This may take up to fifteen business days after the purchase.
OTHER SHAREHOLDER SERVICES
AUTOMATIC ACCOUNT BUILDER:
Regular investments in the fund of $100 or more will be deducted from your checking or savings account and invested in shares of the fund. Your bank must be a member of the Automated Clearing House (ACH). If you wish to add to your investment account, you must complete the Automatic Account Builder section of the New Account Application. There is no charge for this service.
DIRECT DEPOSIT:
Investments of $100 or more may be directly deposited into your account. If you wish to have a financial institution electronically transfer funds into your account, you should contact the fund for information on this service. There is no charge for this service.
SYSTEMATIC WITHDRAWAL PROGRAM:
A Systematic Withdrawal Program is offered if you wish to receive regular distributions from your account. You must either own or purchase shares having a value of at least $10,000 and advise the fund in writing of the amount to be distributed and the desired frequency, i.e., monthly, quarterly or annually. This option may be exercised by completing the appropriate section of the New Account Application. You should realize that if withdrawals exceed income dividends, the invested principal may be depleted. You may make additional investments and may change or stop the program at any time. There is no charge for this program.
RETIREMENT PLANS
The fund offers retirement plans, which include a prototype Profit Sharing Plan, a Money Purchase Pension Plan, a Salary Savings Plan - 401(k), an Individual Retirement Account (IRA), a Roth IRA, an Education IRA, a Simple IRA and a Simplified Employee Pension (SEP) Plan. Plan Adoption Agreements and other information required to establish a Flex-funds Retirement Plan are available from The Flex-funds, c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017; or call 1-800-325-FLEX, or call (614) 760-2159.
SUB-ACCOUNTING FOR INSTITUTIONAL INVESTORS:
The fund's optional sub-accounting system offers a separate shareholder account for each participant and a master account record for the institution. Share activity is thus recorded and statements prepared for both individual sub-accounts and for the master account. For more complete information concerning this program contact the fund.
DISTRIBUTOR:
Shares of the fund are sold in those states where its shares have been registered for sale or a valid exemption exists. States where registration or an exemption exists can be obtained by calling 1-800-325-FLEX or (614) 760-2159.
MORE ABOUT RISK
The fund's risk profile is largely defined by the fund's principal securities and investment practices. You may find the most concise description of the fund's risk profile in "Main Risk Factors."
The fund is permitted to use - within limits established by the trustees - certain other securities and investment practices that have higher risks and opportunities associated with them. To the extent that the portfolio utilizes these securities or practices, its overall performance may be affected, either positively or negatively. On the following pages are brief descriptions of these securities and investment practices, along with the risks associated with them. The fund follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or show a positive total return over any period of time - days, months or years.
INVESTMENT PRACTICES AND RELATED RISKS
BORROWING. A loan of money from a bank or other financial institution
undertaken by the portfolio. The portfolio may borrow up to 5% of its assets.
LEVERAGE AND CREDIT RISKS.
DEFENSIVE MEASURES. Shortening the average maturity of the portfolio's investments and/or investing only in the highest quality debt instruments. The adviser may invest 100% of its assets defensively if it believes market conditions warrant defensive measures. OPPORTUNITY RISK.
REPURCHASE AGREEMENTS. The purchase of a security that must later be sold back to the issuer at the same price plus interest. The portfolio may invest up to 100% of its assets in repurchase agreements. CREDIT RISK.
SHORT-TERM TRADING. Selling a security soon after purchase. If the portfolio engages in short-term trading will have higher turnover and transaction expenses. Short-term trading may also result in short-term capital gains. Upon the distribution to you of any net short-term capital gains from the fund, you will be taxed at ordinary tax rates. There is no limitation on the portfolio's ability to engage in short-term trading. MARKET RISK.
SECURITIES AND RELATED RISKS
INVESTMENT GRADE BONDS. Bonds rated BBB (Standard & Poor's) or Baa
(Moody's) or above. INTEREST RATE, PREPAYMENT, MARKET AND CREDIT RISKS.
ILLIQUID AND RESTRICTED SECURITIES. Securities which, by rules of their issue or by their nature, cannot be sold readily. These include illiquid Rule 144A securities. The portfolio is permitted to invest 10% of its assets in illiquid and restricted securities. MARKET, LIQUIDITY AND TRANSACTION RISKS.
RISK GLOSSARY
CREDIT RISK means that the issuer of a security or the counterparty to an investment contract may default or become unable to pay its obligations when due.
INTEREST RATE RISK is the risk that changes in interest rates will adversely affect the value of an investor's securities. When interest rates rise, the value of fixed-income securities will generally fall. Conversely, a drop in interest rates will generally cause an increase in the value of fixed-income securities. Longer-term securities are subject to greater interest rate risk.
LEVERAGE RISK occurs in some securities or techniques that tend to magnify the effect of small changes in an index or a market. This can result in a loss that exceeds the account that was invested in the contract.
LIQUIDITY RISK occurs when investments cannot be sold readily. The portfolio may have to accept a less-than-desirable price to complete the sale of an illiquid security or may not be able to sell it at all.
MARKET RISK exists in all mutual funds and means the risk that the prices of securities in a market, a sector, or an industry will fluctuate, and that such movements might reduce an investment's value.
OPPORTUNITY RISK means missing out on an investment opportunity because the assets necessary to take advantage of it are committed to less advantageous investments or strategies.
PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are more likely to refinance their debts. As a result, the principal on certain fixed income securities may be paid earlier than expected, which could cause investment losses and cause prepaid amounts to have to be reinvested at a relatively lower interest rate.
TRANSACTION RISK means that the portfolio may be delayed or unable to settle a transaction or that commissions and settlement expenses may be higher than usual.
FOR MORE INFORMATION:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the fund. The SAI has been filed with the Securities and Exchange Commission and is incorporated by reference in this Prospectus (is legally a part of this Prospectus).
ANNUAL AND SEMIANNUAL REPORTS
These reports include portfolio holdings, financial statements, performance information, the auditor's report (in the case of the annual report), and a discussion of the market conditions and investment strategies that significantly affected the fund's performance during their last fiscal year.
The SAI, the reports and other information about the fund may be viewed on the Commission's Internet website at HTTP://WWW.SEC.GOV and copies of this information may be obtained (upon payment of a copying fee) by writing the public reference section of the Commission, Washington, D.C. 20549-6009 (telephone 1-800-SEC-0330).
To request a free copy of the current annual/semi-annual report or SAI, request other information about the fund, or make shareholder inquiries, please write, call or E-mail us at:
The Flex-funds
6000 Memorial Drive
Dublin, OH 43017
Telephone: 1-800-325-3539 or 614-760-2159
WWW.FLEXFUNDS.COM
Investment Company Act File No. 811-3462
THE FLEX-FUNDS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE MUIRFIELD FUND, THE U.S. GOVERNMENT
BOND FUND AND THE MONEY MARKET FUND
PART B.
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
10(a) Front Cover Page
10(b) Table of Contents
11 Description of the Trust
12(a) Description of the Trust
12(b)(c)(d)(e) Investment Policies and Related Matters
13(a) Description of the Trust
Trustees and Officers
13(b)(c)(d) Trustees and Officers
13(e) Not applicable
14(a) Not applicable
14(b) Principal Holders of Outstanding Shares
14(c) Trustees and Officers
15(a) Investment Adviser and Manager
15(b) Not applicable
15(c) Investment Adviser and Manager
15(d) Other Services
15(e)(f) Not applicable
15(g) Distribution Plans
15(h) Other Services
16(a)(b)(c) Investment Policies and Related Matters
16(d) Not applicable
16(e) Not applicable
17(a) Investment Policies and Related Matters
17(b) Not applicable
18(a) Additional Purchases and Redemption Information
Flex-funds Retirement Plans
18(b) Not applicable
18(c) Additional Purchases and Redemption Information
18(d) Description of the Trust
19 Distributions and Taxes
20 Not applicable
21(a)(b) Investment Policies and Related Matters
22 Financial Statements
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THE FLEX-FUNDS
6000 Memorial Drive
Dublin, Ohio 43017
STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 30, 1999
This Statement of Additional Information pertains to the following Funds of The Flex-funds: The Muirfield Fund, The U.S. Government Bond Fund and The Money Market Fund. This Statement of Additional Information is not a prospectus. It should be read in conjunction with the Prospectus of the Trust dated April 30, 1999. A copy of the Prospectus may be obtained from The Flex-funds, at the above address, or by calling: 1-800-325-FLEX, or (614) 760-2159. Capitalized terms used and not otherwise defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS
PAGE
Description of the Trust
Investment Policies and Related Matters General
Defensive Investment Strategy
The Mutual Fund Portfolio
The Money Market Portfolio
Money Market Instruments and Bonds
The Money Market Portfolio - Funding Agreements
The Mutual Fund and Money Market Portfolios
The Bond Portfolio
Ratings
Hedging Strategies
Investment Restrictions
Portfolio Turnover
Purchase and Sale of Portfolio Securities
Valuation of Portfolio Securities
Calculation of Yield - The Money Market Fund
Calculation of Total Return
Calculation of Yield - The U.S. Government
Bond Fund Comparative Performance Information
Additional Purchase and Redemption Information
Investment Adviser and Manager
Officers and Trustees
Distribution Plans
Distributions and Taxes
Flex-funds Retirement Plans
Other Services
Principal Holders of Outstanding Shares
Financial Statements
INVESTMENT ADVISER TRANSFER AGENT
R. Meeder & Associates, Inc. Mutual Funds Service Co.
DESCRIPTION OF THE TRUST
BACKGROUND
The Trust was organized as a Massachusetts business trust on December 31, 1991 as the successor to a Pennsylvania business trust organized on April 30, 1982. Each of its five constituent funds is a diversified open-end management investment company. The business and affairs of the Trust are under the direction of its Board of Trustees.
Prior to April 17, 1996, The U.S. Government Bond Fund, a series of the Trust, was known as The Bond Fund.
The Trust has no investment adviser because the Trust seeks to achieve the investment objective of each Fund by investing each Fund's assets in the corresponding Portfolio. Each Portfolio has retained the services of R. Meeder & Associates, Inc. as investment adviser.
INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objectives by
investing all of its assets in a corresponding Portfolio, a separate registered
investment company with the same investment 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 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 a Fund should be aware that these differences
may result in differences in returns experienced by investors in the different
funds that invest in a Portfolio. Such differences in returns are also present
in other mutual fund structures. Information concerning other holders of
interests in a Portfolio is available by contacting the Trust by calling:
1-800-325-FLEX, or (614) 760-2159.
Each Portfolio, in which all the assets of a corresponding Fund will be invested, is organized as a trust under the laws of the State of New York. Each Portfolio's Declaration of Trust provides that a Fund and other entities investing in that Portfolio (e.g., other investment companies, insurance company separate accounts, and common and commingled trust funds) will each be liable for all obligations of that Portfolio. However, the risk of a Fund incurring financial loss on account of such liability is limited to circumstances in which both inadequate insurance existed and that Portfolio itself was unable to meet its obligations. Accordingly, the Trustees of the Trust believe that neither a Fund nor its shareholders will be adversely affected by reason of a Fund's investing in the corresponding Portfolio. In addition, whenever the Trust is requested to vote on matters pertaining to the fundamental policies of a Portfolio, the Trust will hold a meeting of the corresponding Fund's shareholders and will cast its vote as instructed by the Fund's shareholders.
Smaller funds investing in a 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 that have large or institutional investors.) Also, funds with a greater pro rata ownership in a Portfolio could have effective voting control of the operations of the Portfolio. Whenever the Trust is requested to vote on matters pertaining to a 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 a Fund's interest in a 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, a 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 a Fund.
The Trust may withdraw the investment of a Fund from its corresponding Portfolio at any time, if the Board of Trustees of the Trust determines that it is in the best interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees would consider what action might be taken, including the investment of all the assets of the Fund in another pooled investment entity having the same investment objectives as that Fund or the retaining of an investment adviser to manage the Fund's assets in accordance with the investment policies with respect to that Fund's corresponding Portfolio. The inability to find an adequate investment pool or investment adviser could have a significant impact on shareholders' investment in the Fund.
The assets of the Trust received for the issue or sale of the shares of the Funds and all income, earnings, profits, and proceeds thereof, subject only to the rights of creditors, are especially allocated to each Fund and constitute the underlying assets of the Funds. The underlying assets of each Fund are segregated on the books of account, and are to be charged with the liabilities with respect to each 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.
As stated in "Investment Policies and Other Matters," except as otherwise expressly provided herein, a Fund's investment objectives and policies are not fundamental and may be changed by Trustees without shareholder approval.
For descriptions of the investment objectives and policies of a Portfolio, see "Investment Policies and Other Matters." For descriptions of the management and expenses of the Portfolios, see "Investment Adviser and Manager" and "Officers and Trustees."
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 will issue its own series of shares of beneficial interest. The shares of each Fund represent an interest only in that 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 that Fund.
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 the other Funds.
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 a Fund by a specified number of shareholders) the right to communicate with other shareholders in connection with requesting a meeting of shareholders for the purpose of removing one or more Trustees.
Shares are fully paid and nonassessable. Shares have no preemptive or conversion rights. The Trust or any fund may be terminated upon the sale of its assets to another open-end management investment company, if approved by vote of the holders of a majority of the Trust or the fund, as determined by the current value of each shareholder's investment in the fund or Trust, or upon liquidation and distribution of its assets, if approved by a majority of the Trustees of the Trust. If not so terminated, the Trust and the funds will continue indefinitely.
TRUSTEE LIABILITY
The Declaration of Trust 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.
INVESTMENT POLICIES AND RELATED MATTERS
GENERAL
As described in the Prospectus and herein, the Trust seeks to achieve the investment objective of each Fund by investing all of its investable assets in a corresponding Portfolio having the same investment objective, policies and restrictions as that Fund. Since the investment characteristics of the Funds correspond directly to those of each Fund's respective Portfolio, the following is a discussion of the various investments of and techniques employed by the Portfolios.
The investment policies set forth below in this section represent the Portfolios' policies as of the date of this Statement of Additional Information. The investment policies are not fundamental and may be changed by the Trustees of the Portfolios without shareholder approval. The Manager of the Portfolios places a high degree of importance on protecting portfolio values from severe market declines. Consequently, a Portfolio's assets may at times be invested for defensive purposes in bonds and money market instruments (See "Defensive Investment Strategy" and "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 in any, or several, of the Portfolios. High transaction costs could result when compared with other funds.
DEFENSIVE INVESTMENT STRATEGY
The Muirfield Fund, The U.S. Government Bond Fund and The Money Market Fund are asset allocation mutual funds. The Manager has been involved in the application of tactical asset allocation, with over 20 years experience managing market risk, in all stock and bond market conditions.
Studies have reviewed the importance of the asset allocation decision. The Manager believes the choice of the correct asset class has often contributed more to investment performance than the selection of a sector or individual security. Yet the typical investor and mutual fund manager often focus instead on an individual security or sector.
Since 1974, 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. "Defensive Investing" is based on mathematical principles and historical precedent.
The Manager's tactical asset allocation discipline is based upon daily monitoring of over 50 technical and fundamental market indicators. Among the factors that the Manager monitors in an attempt to assess the current market environment are the following:
o INDEX EVALUATION. The trend of stock market indexes and comparative analysis of the various indexes to evaluate the market's relative strengths and weaknesses.
o DIVERGENT MARKET ACTIVITY. Comparison of internal measurements of the market to the trend of prices.
o MONETARY AND INTEREST RATE TRENDS. The trends of interest rates and monetary conditions.
o INVESTOR SENTIMENT. The effect of current opinion on the market environment.
o VOLUME RELATIONSHIP TO PRICE. Comparison of volume measurements to price trends.
o EXTREME MARKET ACTIVITY. Short-term overbought or oversold conditions.
The Manager maintains the flexibility to be fully invested in the stock or bond markets during favorable market conditions.
The stock market has historically offered returns that have exceeded those available from bonds or money market instruments. Through the Manager's asset allocation process, it strives to protect shareholders during unfavorable, high risk markets and participate in rising low risk markets.
Investors seeking a higher level of income than Treasury bills or money market instruments have often invested in intermediate to long-term bonds. Bond investors have historically been most vulnerable not to defaults on individual bonds, but to changes in interest rates that drive bond prices up or down.
The Manager believes the appropriate way to defend assets against shifts in interest rates is to be invested in long-term bonds only when the trend of interest rates is stable or declining. To determine the bond market environment, the Manager monitors the following indicators:
o MOMENTUM. The trend of bond prices versus various moving averages.
o REAL RATES. The 10-year treasury bond yield as compared to the inflation rate.
o YIELD SPREAD. The 10-year treasury bond yield as compared to the 90 day T-bill yield.
"Defensive Investing" examines and incorporates past market history in order to learn something about the markets of the future.
For example, the gains offered by the U.S. stock market during the 1980s and 1990s were surpassed only by the returns available during the 1950s. Therefore, the Manager believes that the stock market of the next decade will look less like the 1980s and 1990s and more like the historical average in terms of returns and volatility. Further, there has never been a time when investors in U.S. bonds have been rewarded as well as they were during the 1980s and 1990s. The Manager believes absolute returns for bond investors in the next decade will decrease from the 1980s and 1990s. In order for the next decade's returns to approach those of the 1980s and 1990s, long-term interest rates would have to fall below 3%.
DECADES OF THE PAST
STOCKS BONDS
DOWN DOWN
DECADE RETURN YEARS RETURN YEARS
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1980s 405.5% 1 220.8% 1
1970s 77.4% 3 70.8% 3
1960s 111.9% 3 14.9% 3
1950s 488.0% 2 (1.0%) 2
1940s 141.1% 3 37.0% 3
1930S (1.0%) 6 61.3% 6
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Source: DeMarche Associates
The Flex-funds will strive to reduce or eliminate downside risk during adverse stock, bond and foreign currency markets and to participate in positive risk reward market conditions, without excessive risk to principal.
THE MUTUAL FUND PORTFOLIO
The Manager will select mutual funds for inclusion in the Mutual Fund 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 Mutual Fund Portfolio.
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.
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 "How does the fund pursue its investment goal?" under "More Information about the Funds" in the Funds' Prospectus.)
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.
In purchasing shares of other mutual funds the Mutual Fund Portfolio will agree to vote the shares in the same proportion as the vote of all other holders of such shares.
The Mutual Fund Portfolio has adopted certain investment restrictions that cannot be changed except with the vote of a majority of the Mutual Fund Portfolio's outstanding shares. These restrictions are applicable to the Mutual Fund Portfolio and are described elsewhere in this Statement of Additional Information. Investment restrictions for the Mutual Fund Portfolio differ from the restrictions applicable to the other Portfolios, in that the Mutual Fund Portfolio is permitted to purchase the shares of other investment companies (mutual funds); is permitted to invest more than 5% of its assets in the securities of any one investment company; and may invest 25% or more of its assets in any one industry.
The Mutual Fund 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 Portfolios, 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 Mutual Fund 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 Mutual Fund 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 Mutual Fund 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 Mutual Fund 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 Mutual Fund Portfolio may hold securities distributed by an underlying mutual fund until the Manager determines that it is appropriate to dispose of such securities.
Portfolio investment decisions by an underlying mutual fund will be made independent of investment decisions by other underlying mutual funds. Therefore, an underlying mutual fund may be purchasing shares of a company whose shares are simultaneously being sold by some other underlying mutual fund. The result of this would be an indirect transaction expense (principally commissions) for the Mutual Fund Portfolio, without its having changed its investment position.
The Mutual Fund Portfolio may invest in common stocks based upon the criteria described in its investment objectives. Because the Mutual Fund 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 Mutual Fund 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 Mutual Fund Portfolio may engage in hedging transactions to the extent and for the purposes set forth in the Fund's Prospectus.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to maintain a constant net asset value of $1.00 per share, although there is no assurance it will be able to do so. To do so, the Portfolio utilizes the amortized cost method of valuing its portfolio securities pursuant to a rule adopted by the Securities and Exchange Commission. The rule also prescribes portfolio quality and maturity standards. The Portfolio will be managed in accordance with the requirements of this rule.
MONEY MARKET INSTRUMENTS AND BONDS
THE MONEY MARKET PORTFOLIO - FUNDING AGREEMENTS
The Money Market Portfolio may invest in funding agreements, also known as guaranteed investment contracts, issued by insurance companies. Pursuant to such agreements, the Portfolio invests an amount of cash with an insurance company, and the insurance company credits such investment on a monthly basis with guaranteed interest that is based on an index. Funding agreements provide that this guaranteed interest will not be less than a certain minimum rate. Funding agreements also provide for adjustment of the interest rate monthly and are considered variable rate instruments.
The Money Market Portfolio will only purchase a funding agreement (i) when the Manager has determined that the funding agreement presents minimal credit risks to the Portfolio and is of comparable quality to instruments that are rated high quality by a nationally recognized statistical rating organization that is not an affiliated person, as defined in the Investment Company Act of 1940, of the issuer, or any insurer, guarantor, or provider of credit support for the instrument, and (ii) if it may receive all principal of, and accrued interest on, a funding agreement upon written notice and within a period of time not to exceed 397 days. Because the Portfolio may not receive the principal amount of a funding agreement from the insurance company on seven days' notice or less, the funding agreement is considered an illiquid investment and, together with other investments in the Portfolio that are not readily marketable, may not exceed 10% of the Portfolio's assets. In determining average weighted portfolio maturity, a funding agreement will be deemed to have a maturity equal to the number of days remaining until the principal amount can be recovered through demand or the next interest reset date, whichever is earlier.
THE MUTUAL FUND AND MONEY MARKET PORTFOLIOS
When investing in money market instruments or bonds, the Mutual Fund and Money Market Portfolios will limit their purchases, denominated in U.S. dollars, to the following securities; provided however, the Money Market Portfolio may also invest in funding agreements (See "The Money Market Portfolio - Funding Agreements" above):
* 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 - Bank obligations and instruments secured thereby are 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. A 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. A Portfolio will not invest at time of purchase more than 25% of its assets in obligations of banks, nor will a Portfolio invest more than 10% of its assets in time deposits.
* High Quality Commercial Paper - The Mutual Fund 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.
* High Quality Commercial Paper - The Money Market Portfolio, which is subject to specific quality criteria and diversification requirements, may invest in commercial paper rated in either one of the two highest categories by at least two nationally recognized rating services, or, if not rated, guaranteed by a company having commercial paper rated in either one of the two highest categories by at least two nationally recognized rating services. See The Money Market Portfolio above.
* 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 Mutual Fund 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.
* High Grade Corporate Obligations - Each of these three Portfolios may invest in high grade corporate obligations. High grade corporate obligations are obligations rated at least A by Standard & Poor's or Moody's. See rating information below.
* Repurchase Agreements Pertaining to the Above - Each of these three 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.
A repurchase agreement is an instrument under which the purchaser (i.e., a Portfolio) acquires ownership of a debt security and the seller agrees, at the time of the sale, to purchase 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. A 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 each 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. A Portfolio may enter into repurchase agreements with its custodian (Star Bank, N.A., Cincinnati) when it is advantageous to do so. No Portfolio will invest more than 10% of its assets, at time of purchase, in repurchase agreements which mature in excess of seven days.
THE BOND PORTFOLIO
When investing in money market instruments, The Bond Portfolio will limit its purchases, denominated in U.S. dollars, to securities which are issued, or guaranteed as to payment of principal and interest, by the U.S. government or any of its agencies or instrumentalities, and repurchase agreements relating thereto. Unlike the other Portfolios, The Bond Portfolio (whether invested defensively or otherwise) may not invest in bank obligations and instruments secured thereby, high quality commercial paper, private placement commercial paper or corporate obligations. The provisions relating to repurchase agreements in the immediately preceding paragraph also apply to The Bond Portfolio's investment in repurchase agreements.
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 a 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 a particular 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 greeter amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA - Bonds rated AAA are highest grade obligations. They possess the ultimate degree of protection as to principal and interest. Marketwise they move with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree. Here, too, prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have considerable investment strength but are not entirely free from adverse effect of changes in economic and trade conditions. Interest and principal are regarded as safe. They predominantly reflect money rates in their market behavior but, to some extent, also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category.
3. A-1 and P-1 Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the following characteristics: Liquidity ratios are adequate to meet cash requirements. Long term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend. Typically, the issuer's industry is well established 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. A Portfolio could suffer a loss if the bank or securities broker with which the Portfolio had a repurchase agreement were to default.
Certificates of Deposit - are certificates issued against funds deposited in a bank, are for a definite period of time, earn a specified or variable rate of return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance the import, export, transfer or storage of goods. They are termed "accepted" when a bank guarantees their payment at maturity.
Corporate Obligations - include bonds and notes issued by corporations in order to finance longer term credit needs.
Funding Agreements - see "The Money Market Portfolio - Funding Agreements" above.
HEDGING STRATEGIES
Each Portfolio except the Money Market Portfolio may engage in hedging transactions in carrying out their investment policies. A hedging program may be implemented for the following reasons: (1) to keep cash on hand to meet shareholder redemptions or other needs while simulating full investment in stocks; (2) to reduce the Portfolio's transaction costs or add value when these instruments are favorably priced; (3) to forego taxes that would otherwise have to be paid on gains from the sale of the Portfolio's securities; and (4) to attempt to protect the value of certain securities owned or intended to be purchased by the Portfolio's while the manager is making a change in the Portfolio's investment position.
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.
Derivatives are financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security or index. Financial futures contracts or related options used by a Portfolio to implement its hedging strategies are considered derivatives. The value of derivatives can be affected significantly by even small market movements, sometimes in unpredictable ways. They do not necessarily increase risk, and may in fact reduce risk.
The objective of an option, futures or forward contract transaction could be to protect a profit or offset a loss in a Portfolio from future price erosion. Or, the objective could be to acquire the right to purchase a fixed amount of securities or currency at a future date for a definite price. In either case it would not be necessary for a Portfolio to actually buy or sell the securities or currency 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 or currency under consideration or similar securities. The value of shares of common stock, the face amount of currency 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 or currency, an option transaction could involve the purchase of a put option contract, which would give a Portfolio the right to sell a common stock, government bond, currency or futures contract on an index (see below), at a specified price until the expiration date of the option. A Portfolio will only purchase a put option contract on a stock, currency or bond when the number of shares of the issuer's stock, face amount of currency 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 or currency, a futures transaction could involve the sale of a futures contract which would require a 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 currency, security or securities involved in the futures contract.
Also, in lieu of the sale of a currency, a forward contract could involve the sale of a currency for future delivery. A forward contract will specify a specific price and a specific date for the transaction to occur. A forward contract will only be entered into for specific amounts of currency which match the amount of foreign currency which the Portfolio will possess on the delivery date. Entering into a forward contract will reduce the affect on net asset values of currency exchange rates on the portion of the currency that is sold.
The securities involved in an option or futures contract may be currency, 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 a Portfolio. The Investment Adviser 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 a Portfolio, and this may entail additional risk, as described below.
To the extent that a 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, a 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 Portfolio 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.
A Portfolio will only sell an index short when the Investment Adviser has decided to reduce a Portfolio's risk for defensive purposes. The Portfolio will close out the open liability as soon as the Investment Adviser decides that a defensive posture is no longer appropriate or the open liability represents an inappropriate risk in the circumstances. In shorting an index, a 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 or currency, 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 currency 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 currency 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 or currency, 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 or currency 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 currency, 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 Investment Adviser will select the contract (therefore the group of securities) which it believes is most similar to those desired to be purchased by the Portfolio.
Also, in lieu of the purchase of a currency, a forward contract could involve the purchase of a currency for future delivery. A forward contract will specify a specific price and a specific date for the transaction to occur. A forward contract will only be entered into for specific amounts of currency which match the amount of foreign currency which the Portfolio will need to possess on the delivery date. Entering into a forward contract for the purchase of a foreign currency will cause the fluctuations of currency exchange rates to affect the net asset value for the portion of the currency that is purchased.
A 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. A 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 that are cleared through the Options Clearing Corporation. Organized exchanges that 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).
Forward contracts for foreign currency will only be entered into with security brokers which are also primary dealers for U.S. Government securities as recognized by the U.S. Federal Reserve Banks or U.S. banks which are members of the Federal Reserve System.
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. Forward contracts are valued based upon currency dealer quotations for reversing the position. 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 Portfolios, the Investment Adviser 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 a 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.
For certain regulatory purposes, the Commodity Futures Trading Commission ("CFTC") limits the types of futures positions that can be taken in conjunction with the management of a securities portfolio for mutual funds, such as The Flex-funds. 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.
A Portfolio may not purchase or sell financial futures or purchase related options if immediately thereafter the sum of the amount of margin deposits on the Portfolio's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Portfolio's total assets.
Each 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 guarantee that a Portfolio will be able to realize this objective.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Trust with respect to each of the Funds and by the Portfolios as fundamental policies. Under the Investment Company Act of 1940 (the "Act"), a "fundamental" policy may not be changed without the vote of a majority of the outstanding voting securities of the Fund or Portfolio, respectively, to which it relates, which is defined in the Act as the lesser of (a) 67 percent or more of the shares present at a shareholder meeting if the holders of more than 50 percent of the outstanding shares are present or represented by proxy, or (b) more than 50 percent of the outstanding shares ("Majority Voters). The percentage limitations contained in the restrictions listed below apply at the time of the purchase of the securities. Whenever a Fund is requested to vote on a change in the investment restrictions of a Portfolio, the Trust will hold a meeting of Fund shareholders and will cast its votes as instructed by the shareholders.
Provided that nothing in the following investment restrictions shall prevent the Trust from investing all or part of a Fund's assets in an open-end management investment company with the same investment objective or objectives as such Fund, no Fund or 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 (except in the case of The Bond Portfolio which is not permitted to purchase corporate bonds, debentures or other corporate debt instruments; and certificates of deposit), provided repurchase agreements with fixed maturities in excess of 7 days do not exceed 10% of its total assets;
(g) Purchase more than 10% of any class of securities, including voting securities of any issuer, except that the purchase of U.S. Treasury debt instruments shall not be subject to this limitation;
(h) Invest more than 5% of its total assets (taken at value) in the securities of any one issuer, other than obligations of the U.S. Treasury; provided, however, that this restriction shall not be applicable to any separate investment series of the Trust or a Portfolio which is created specifically to invest in the shares of other investment companies;
(i) Purchase any securities on margin, or participate in any joint or joint and several trading account, provided, however, that it may open a margin account to the extent necessary to engage in hedging transactions which are not precluded by other particular restrictions;
(j) Make any so-called "short" sales of securities, except against an identical portfolio position (i.e., a "short sale against the box"), but this restriction shall not preclude a futures contract which sells short an index or group of securities;
(k) Invest 25% or more of its total assets at time of purchase (taken at value) in the securities of companies in any one industry provided, however, that this restriction shall not be applicable to any separate investment series of the Trust or a Portfolio which is created specifically to invest in the shares of other investment companies;
(l) Purchase the securities of another investment company except where such purchase is part of a plan of merger or consolidation; provided, however, that this restriction shall not be applicable to any separate investment series of the Trust or a Portfolio which is created specifically to invest in the shares of other investment companies;
(m) Purchase or retain any securities of an issuer, any of whose officers directors or security holders is an officer or director of the Trust or a Portfolio, if such officer or director owns beneficially more than 1/2 of 1% of the issuer's securities or together they own beneficially more than 5% of such securities;
(n) Invest in securities of companies that have a record of less than three years' continuous operation if, at the time of such purchase, more than 5% of its assets (taken at value) would be so invested;
(o) Purchase participations or other direct interests in oil, gas or other mineral exploration or development programs;
(p) Invest in warrants; and
(q) Invest more than 10% of its assets in restricted securities and securities for which market quotations are not readily available and repurchase agreements which mature in excess of seven days; however, this shall not prohibit the purchase of money market instruments or other securities which are not precluded by other particular restrictions.
Each of the Trust's and the Portfolios' 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.
PORTFOLIO TURNOVER
The portfolio turnover rate for the fiscal year ended December 31, 1998, in the Mutual Fund Portfolio was 128% (395% in 1997; 297% in 1996); and in the Bond Portfolio was 225% (376% in 1997; 779% in 1996). 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 Mutual Fund and Bond Portfolios to change their portfolios 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. The Mutual Fund Portfolio has an investment objective of long term growth of capital. Major changes in its portfolio have resulted in portfolio turnover rates of as much as 779%, which is greater than that of most other investment companies, including many which emphasize capital appreciation as a basic policy.
The Portfolio turnover rates for the Bond and Mutual Fund Portfolios decreased in 1998 because the Portfolios implemented defensive strategies less frequently than in 1997.
PURCHASE AND SALE OF PORTFOLIO SECURITIES
All orders for the purchase or sale of portfolio securities are placed on behalf of each Portfolio by the Manager pursuant to authority contained in the investment advisory agreement. The Manager 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 Manager 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 or Fund expenses.
Each Portfolio may execute portfolio transactions with broker-dealers that provide research and execution services to the Portfolio or other accounts over which the Manager 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 Manager (to the extent possible consistent with execution considerations) in accordance with a ranking of broker-dealers determined periodically by the Manager'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 a Portfolio may be useful to the Manager in rendering investment management services to the Portfolio or its other clients, and conversely, such research provided by broker-dealers that have executed transaction orders on behalf of the Manager's other clients may be useful to the Manager in carrying out its obligations to the Portfolio. The receipt of such research is not expected to reduce the Manager's normal independent research activities; however, it enables the Manager to avoid the additional expenses that could be incurred if the Manager 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 a Portfolio to pay such higher commissions, the Manager must determine in good faith that such commissions are reasonable in relation to the value of the brokerage and research services provided by such executing broker-dealers viewed in terms of a particular transaction or the Manager's overall responsibilities to the Portfolio and its other clients. In reaching this determination, the Manager will not attempt to place a specific dollar value on the brokerage and research services provided or to determine what portion of the compensation should be related to those services.
The Manager 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 Funds or shares of other Flex-funds funds or Flex-Partners funds to the extent permitted by law.
The Manager may allocate brokerage transactions to broker-dealers who have entered into arrangements with the Manager under which the broker-dealer allocates a portion of the commissions paid by a Portfolio toward payment of the Portfolio or the Fund's expenses, such as transfer agent fees of Mutual Funds Service Co. or custodian fees. The transaction quality must, however, be comparable to those of other qualified broker-dealers.
The Trustees of each Portfolio periodically review the Manager's performance of its responsibilities in connection with the placement of portfolio transactions on behalf of the Portfolios and review the commissions paid by each Portfolio over representative periods of time to determine if they are reasonable in relation to the benefits to each Portfolio.
From time to time, the Trustees of each Portfolio will review whether the recapture for the benefit of a Portfolio of some portion of the brokerage commissions or similar fees paid by the Portfolio on portfolio transactions is legally permissible and advisable.
Each 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 each 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 each Portfolio has substantially the same Trustees and officers, investment decisions for each 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 Portfolios or accounts. Simultaneous transactions are inevitable when several Portfolios are managed by the same investment adviser, particularly when the same security is suitable for the investment objective of more than one Portfolio.
When two or more Portfolios are simultaneously engaged in the purchase or sale of the same security, the prices and amounts are allocated in accordance with a policy considered by the Portfolio Trustees to be equitable to each portfolio. In some cases this system could have a detrimental effect on the price or value of the security as far as one of the Portfolios is concerned. In other cases, however, the ability of a Portfolio to participate in volume transactions will produce better executions and prices for the Portfolio. It is the current opinion of the Trustees of each Portfolio that the desirability of retaining the Manager as investment adviser to each Portfolio outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions.
During the year ending December 31, 1998, the Bond Portfolio paid total commissions of $2,445 ($7,910 in 1997; $4,766 in 1996); and the Mutual Fund Portfolio paid total commissions of $52,146 ($82,889 in 1997; $9,964 in 1996).
VALUATION OF PORTFOLIO SECURITIES
Except for securities owned by the Money Market Portfolio, 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 published 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. The Money Market Portfolio will value its securities by the amortized cost method as it maintains a dollar weighted average portfolio maturity of 90 days or less and a maximum maturity of 13 months. Money market instruments (certificates of deposit commercial paper, etc.) in the other Portfolios, having maturities of 60 days or less, are valued at amortized cost if not materially different from market value. Portfolio securities for which market quotations are not readily available are to be valued by the Manager in good faith, at its own expense, under the direction of the Trustees. In the Bond Portfolio, securities are valued each day at 3:00 p.m.
Other assets, which include cash, prepaid and accrued items, and amounts receivable as income on investments and from the sale of portfolio securities, are carried at book value, as are all liabilities. Liabilities include accrued expenses, sums owed for securities purchased, and dividends payable.
CALCULATION OF YIELD - THE MONEY MARKET FUND
The Money Market Fund will advertise its yield and effective yield. The Money Market Fund calculates its yield quotations based on the net change, exclusive of realized and unrealized gains or losses, in the value of a hypothetical account over a seven calendar day base period. The simple annualized yield represents the net income for a seven day period, expressed on an annualized basis. The effective yield will be higher than the yield because of the compounding effect of the assumed reinvestment of dividends over a period of one year.
The following is an example of the yield calculations for the seven days ended December 31, 1998.
Simple yield:
Value of hypothetical account at end of period $1.00094947
Value of hypothetical account at beginning of
period 1.00000000
----------
Base period return $ .00094947
============
Current seven day yield (.00100701 x (365/7) 4.95%
Effective yield:
Effective yield [(.00100701 + 1)365/7 ] - 1 5.07%
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Yields reflect the adviser's agreement to limit expenses to the extent necessary to achieve an effective yield for the Fund that will rank in the top 10% of yields for all general purpose money market funds in 1999. The adviser may terminate this limitation after December 31, 1999. There is no guarantee that waiver of fees alone will accomplish this objective. Investors should recognize that yields are not necessarily representative of future results, but will vary as a function of market conditions and expenses incurred.
CALCULATION OF TOTAL RETURN
From time to time The Muirfield and U.S. Government Bond Funds may advertise their 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; a ten-year period (or relevant portion thereof) and since inception. The calculation assumes the reinvestment of all dividends and distributions. Below is an example of the total return calculation for The Muirfield Fund assuming a hypothetical investment of $1,000 at the beginning of each period.
An annualized total return is a compounded total return which assumes that the period total return is generated over a one-year period, and that all dividends and capital gain distributions are reinvested. An annualized total return will be slightly higher than a period total return, if the period is shorter than one year, because of the assumed reinvestment.
Unlike some bank deposits or other investments which pay a fixed yield for a stated period of time, the total return of each Fund will vary depending upon interest rates, the current market value of the securities held by the Fund's corresponding Portfolio, and changes in the Fund's expenses.
When applicable, depending on the Fund, the periods of time shown will be for a one-year period, a five-year period, a ten-year period (or relevant portion thereof) and since inception. The calculation assumes the reinvestment of all dividends and distributions. Examples of the total return calculation for the Fund wills assume a hypothetical investment of $1,000 at the beginning of each period. It is computed by finding the average annual compounded rates of return over the length of the base periods that would equate the initial amount invested to the ending redeemable value, according to the following formula:
P (1+T)n = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
THE MUIRFIELD FUND:
Total Return
1 Year 5 Year 10 Year
Period Ended Period Ended Period Ended
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
Value of Account
At end of Period $1,293.30 $2,100.34 $3,674.83
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
---------- ---------- --------
Base Period Return $ 293.30 $1,100.34 $2,674.83
Average Total Return 29.33% 16.00% 13.90%
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Values were computed according to the following formulas:
1 Year: $1,000 (1 + .2933) = $1,293.30 5 Years: $1,000 (1 + .1600)5 = $2,100.34 10 Years: $1,000 (1 + .1390)10 = $3,674.83 |
The Total Return performance data in this hypothetical example represents past performance and the investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total Return quotations, when advertised for The U.S. Government Bond Fund, are calculated in the same manner as described above.
CALCULATION OF YIELD - THE U.S. GOVERNMENT BOND FUND
From time to time The U.S. Government Bond Fund may advertise its thirty-day yield quotation. It is computed by dividing the net investment income per accumulation unit earned during the period by the maximum offering price per unit on the last day of the period, according to the following formula:
a = income earned during the period
b = expense accrued for the period
c = average number of shares outstanding during the period
d = offering price per share on the last day of the period
Below is an example of calculation of The U.S. Government Bond Fund's yield for the thirty days ended December 31, 1998:
Quotations of yield for The U.S. Government Bond Fund will be accompanied by total return calculations current to the most recent calendar quarter. Total return will be calculated in the manner described above (See "Calculation of Total Return"). Below is an example of the total return calculation for The U.S. Government Bond Fund assuming a hypothetical investment of $1,000 at the beginning of each period.
THE U.S. GOVERNMENT BOND FUND:
TOTAL RETURN
1 Year 5 Year 10 Year
Period Ended Period Ended Period Ended
DEC. 31, 1998 DEC. 31, 1998 DEC. 31, 1998
------------- ------------- -------------
Value of Account
At end of Period $1,096.20 $1,385.59 $2,103.60
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
-------- -------- ---------
Base Period Return $ 96.20 $ 385.59 $1,103.60
Average Total Return 9.62% 6.74% 7.72%
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The Total Return performance data in this hypothetical example, represents past performance and the investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
COMPARATIVE PERFORMANCE INFORMATION
Comparative performance information may be used from time to time in advertising or marketing information relative to the Funds, including data from Lipper Analytical Services, Inc., IBC/Donoghue Money Fund Report, Morningstar Mutual Fund Report, other publications, various indices or results of the Consumer Price Index, other mutual funds or investment or savings vehicles.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Muirfield 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 for 1999: New Year's Day, Martin Luther King Day, Washington's Birthday (observed), Good Friday, Memorial Day (observed), Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day (observed). Although the Manager expects the same holiday schedule, with the addition of New Year's Day, to be observed in the future, the NYSE may modify its holiday schedule at any time.
The Muirfield Fund's NAV 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.
The U.S. Government Bond and Money Market Funds are open for business and their NAV are calculated each day that the Federal Reserve System is open. The NAV for the U.S. Government Bond and Money Market Funds are calculated on each such day at 3:00 p.m. and 4:00 p.m. Eastern time, respectively.
Shareholders of each Fund will be able to exchange their shares for shares of any mutual fund that is a series of The Flex-funds (each a "Flex-funds' Fund"). No fee or sales load will be imposed upon the exchange.
Additional details about the exchange privilege and prospectuses for each of the Flex-funds Funds are available from the Fund's Transfer Agent. The exchange privilege may be modified, terminated or suspended on 60 days' notice and the Fund 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.
Any redemptions in kind made by the Fund will be of readily marketable securities.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount of $100 or more automatically invested in shares of the Fund monthly by authorizing his or her bank account to be debited to invest specified dollar amounts in shares of the Fund. The investor's bank must be a member of the Automatic Clearing House System.
Further information about these programs and an application form can be obtained from the Fund's Transfer Agent.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available for shareholders having shares of the Fund with a minimum value of $10,000, based upon the offering price. The plan provides for monthly, quarterly or annual checks in any amount, but not less than $100 which amount is not necessarily recommended).
Dividends and/or distributions on shares held under this plan are invested in additional full and fractional shares at net asset value. 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. 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.
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. (the "Manager") is the investment adviser and manager for, and has a separate Investment Advisory Contract with, each Portfolio. Previously, the Manager managed the assets of the Funds pursuant to separate investment advisory contracts until May of 1992, at which time the investment by the Funds in the Portfolios was implemented.
Pursuant to the terms of each Investment Advisory Contract, the Manager has agreed to provide an investment program within the limitations of each 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 that are provided by each Portfolio's custodian, transfer agent, independent accountants, legal counsel, and investment advisory services provided by any subadviser.
The Investment Advisory Contract for each 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. Each of these contracts is to remain in force so long as renewal thereof is specifically approved at least annually by a majority of the Trustees or by vote of a majority of outstanding shares of each 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 renewals.
Each 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 that 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 2/10 of 1% limitation of each Fund's Distribution Plan, including the cost of printing and mailing of prospectuses and other materials incident to soliciting new accounts; and other miscellaneous expenses.
The respective expenses of each Portfolio include the compensation of its respective Trustees who are not affiliated with the Adviser; registration fees; membership dues allocable to the Portfolio; fees and expenses of independent accountants, of legal counsel and of any transfer agent, accountant, custodian of the Portfolio; insurance premiums and other miscellaneous expenses.
Expenses of each Portfolio also include all fees under its Administrative Service Agreement; the expenses connected with the execution, recording and settlement of security transactions; fees and expenses of the Portfolio's custodian for all services to the Portfolio, including safekeeping of funds and securities and maintaining required books and accounts; expenses of preparing and mailing reports to investors and to governmental offices and commissions; expenses of meetings of investors and Trustees; the advisory fees payable to the Adviser under the Advisory Contract and other miscellaneous expense.
The Board of Trustees of the Trust believes that the aggregate per share expenses of any Fund and its corresponding Portfolio will be less than or approximately equal to the expenses which a 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 Mutual Fund 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. Annual fees for the Bond Portfolio are at the rate of 0.40% of the first $100 million of average net assets and 0.20% in excess of $100 million. The annual fee for the Money Market Portfolio is at the rate of 0.40% of the first $100 million and 0.25% in excess of $100 million, of average net assets.
For the year ended December 31, 1998, the Mutual Fund Portfolio paid total fees to the Manager of $__________ ($1,130,843 in 1997; $1,083,553 in 1996); in the Bond Portfolio $__________ ($66,626 in 1997; $70,236 in 1996); in the Money Market Portfolio $__________ ($1,436,168 in 1997; $1,060,982 in 1996).
The Manager has agreed to reduce its fees and/or absorb expenses to limit the total annual operating expenses of the U.S. Government Bond to 1.00%. The Manager may terminate this agreement after December 31, 1999.
The Manager has agreed to limit expenses to the extent necessary to achieve an effective yield for the Money Market Fund that will rank in the top 10% of yields for all general purpose money market funds in 1999. The Manager may terminate this agreement after December 31, 1999. There is no guarantee that waiver of fees alone will accomplish this objective.
For the year ended December 31, 1998, the Manager waived fees totaling $20,584 ($23,523 in 1997; $10,890 in 1996) in the Bond Portfolio and $901,787 ($661,390 in 1997; $512,876 in 1996) in the Money Market Portfolio.
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"), a holding company which is controlled by Robert S. Meeder, Sr. through ownership of common stock. MII conducts business only through its six subsidiaries, which are the Manager; Mutual Funds Service Co., the Trust's transfer agent; Opportunities Management Co., a venture capital investor; Meeder Advisory Services, Inc., a registered investment adviser; OMCO, Inc., a registered commodity trading adviser and commodity pool operator; and Adviser Dealer Services, Inc., a broker-dealer.
The Manager's officers and directors are as set forth as follows: Robert S. Meeder, Sr., Chairman and Sole Director; Philip A. Voelker, Senior Vice President and Chief Investment Officer; Donald F. Meeder, Vice President and Secretary; Sherrie L. Acock, Vice President; Robert S. Meeder, Jr., President; Thomas E. Line, Chief Operating Officer; Michael J. Sullivan, Vice President of Sales and Marketing, and Wesley F. Hoag, Vice President and General Counsel. Mr. Robert S. Meeder, Sr. is President and a Trustee of the Trust and each Portfolio. Mr. Robert S. Meeder, Jr. and Philip A. Voelker each are a Trustee and officer of the Trust and each Portfolio. Each of Messrs. Donald F. Meeder and Wesley F. Hoag is an officer of the Trust and each Portfolio.
The Manager may use its resources to pay expenses associated with the sale of each Fund's shares. This may include payments to third parties such as banks or broker-dealers that provide shareholder support services or engage in the sale of each Fund's shares. However, the Funds do not pay the Manager any separate fees for this service.
OFFICERS AND TRUSTEES
The Board of Trustees oversees the management of the Trust and the Portfolios and elects their officers. The officers are responsible for the funds' day-to-day operations. The Trustees' and officers' 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, The Flex-Partners and the corresponding portfolios of the Flex-Partners and The Flex-funds (collectively, the "Fund Complex"). Unless otherwise noted, the business address of each Trustee and officer is 6000 Memorial Drive, Dublin, Ohio 43017, which is also the address of the Manager. Those Trustees who are "interested persons" (as defined in the Investment Company Act of 1940) by virtue of their affiliation with the Fund Complex are indicated by an asterisk (*).
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
ROBERT S. MEEDER, SR.*+, 70 Trustee/President Chairman of R. Meeder &
Associates, Inc., an
investment adviser;
Chairman and Director of
Mutual Funds Service Co.,
the Funds' transfer agent.
MILTON S. BARTHOLOMEW, 70 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
each Fund's Audit
Committee.
ROGER D. BLACKWELL, 58 Trustee Professor of Marketing and
Blackwell Associates, Inc. Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
ROBERT S. MEEDER, JR.*, 38 Trustee and President of R. Meeder &
Vice President Associates, Inc.
WALTER L. OGLE, 60 Trustee Executive Vice President
400 Interstate North Parkway of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
CHARLES A. DONABEDIAN, 56 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive provides a variety of
Suite 200 marketing and consulting
Milford, OH 45150 services to investment
management companies; CEO,
Winston Advisors, Inc., an
investment adviser.
JAMES W. DIDION, 68 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm
(1991-1997).
32
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JACK W. NICKLAUS II, 38 Trustee Designer, Nicklaus Design,
11780 U.S. Highway #1 a golf course design firm
North Palm Beach, FL 33408 and division of Golden
Bear International, Inc.
PHILIP A. VOELKER*+, 45 Trustee and Vice Senior Vice President and
President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 55 Assistant Secretary Assistant Secretary and
42 Miller Hill Road Assistant Treasurer of
Box 811 Adviser Dealer Services,
Dover, MA 02030 Inc.; Practicing Attorney;
Special Counsel to
Flex-Partners, Flex-funds
and their Portfolios;
Senior Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 60 Secretary/Treasurer Vice President of R.
Meeder & Associates, Inc.;
Secretary of Mutual Funds
Service Co., the Funds'
transfer agent.
WESLEY F. HOAG*+, 42 Vice President Vice President and General
Counsel of R. Meeder &
Associates, Inc. and
Mutual Funds Service Co.
(since July 1993);
Attorney, Porter, Wright,
Morris & Arthur, a law
firm (October 1984 to
June 1993).
RICHARD A. CLEMENS*+, 31 Assistant Treasurer Manager/Financial
Reporting, Mutual Funds
Service Co., the Funds'
transfer agent (since
March 1997); Manager,
Financial Administration,
BISYS Fund Services (May
1995 to February 1997);
Supervising Senior
Accountant, Ernst & Young
LLP (October 1990 to
May 1995)
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* Interested Person of the Trust (as defined in the Investment Company Act of 1940), The Flex-funds, Flex-Partners and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F. Meeder's uncle.
The following table shows the compensation paid by the Portfolios and the Fund Complex as a whole to the Trustees of the Portfolios and the Fund Complex during the fiscal year ended December 31, 1998.
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits from
Aggregate Accrued as Estimated Registrant and
Compensation Part of Annual Fund Complex
TRUSTEE from the (3) Portfolio Benefits Upon Paid TO
PORTFOLIOS(1) EXPENSE RETIREMENT TRUSTEE(1)(2)
----------- ------- ------------- -----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $ 9,447 None None $13,525
Robert S. Meeder, Jr. None None None None
John M. Emery $ 6,855 None None $ 9,867
Richard A. Farr $ 6,396 None None $ 9,367
Russel G. Means $ 5,646 None None $ 7,867(3)
Walter L. Ogle $10,374 None None $14,525(4)
Philip A. Voelker None None None None
Roger A. Blackwell $ 9,446 None None $13,525
Charles A. Donabedian $ 9,153 None None $12,525
James Didion None None None None
Jack W. Nicklaus II $ 4,242 None None $ 6,325
William L. Gurner None None None None
Lowell G. Miller None None None None
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1 Compensation figures include cash and amounts deferred at the election of certain non-interested Trustees. For the calendar year ended December 31, 1998, participating non-interested Trustees accrued deferred compensation from the funds as follows: Milton S. Bartholomew - $4,705.57, Roger A. Blackwell - $9,445.98, Charles A. Donabedian - $9,153.08, and Jack W. Nicklaus II - $4,242.46.
2 The Fund Complex consists of 15 investment companies.
3 The Trust had entered into an agreement with Russel G. Means whereby Mr. Means was paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. Mr. Means' compensation figure includes $_______ paid out by the Trust pursuant to this agreement.
4 The Trust has entered into an agreement with Walter L. Ogle whereby Mr. Ogle is paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. Mr. Ogle's compensation figure includes $_______ paid out by the Trust pursuant to this agreement.
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. Members of the Audit and Strategic Planning Committees for each of The Flex-Funds and The Flex-Partners Trusts, and the Portfolios are paid $500 for each Committee meeting. All other officers and Trustees serve without compensation from the Portfolios or the Trust. Trustee fees for the Bond, Mutual Fund and Money Market Portfolios totaled $7,526.89, $43,430.19 and $19,126.42, respectively, for the year ended December 31, 1998 ($6,184, $36,242 and $6,100, respectively, in 1997).
The Trustees and officers of the Trust and the Portfolios own, in the aggregate, less than 1% of the Trust's total outstanding shares.
DISTRIBUTION PLANS
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act") describes the circumstances under which an investment company such as the Trust may, directly or indirectly, bear the expenses of distributing its shares. The Rule defines such distribution expenses to include the cost of any activity that is primarily intended to result in the sale of Trust shares.
The Trust has adopted a Distribution Plan for each of the three Funds described herein. These Plans permit, among other things, payment for distribution in the form of commissions and fees, advertising, the services of public relations consultants, and direct solicitation. Possible recipients include securities brokers, attorneys, accountants, investment advisers,
investment performance consultants, pension actuaries, and service organizations. Another class of recipients is banks. Currently, The Glass Steagall Act and other applicable laws, among other things, prohibit banks from engaging in the business of underwriting, setting or distributing securities. Since the only function of banks who may be engaged as participating organizations is to perform administrative and shareholder servicing functions, the Trust believes that such laws should not preclude banks from acting as participating organizations; however, future changes in either federal or state statutes or regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as judicial or administrative decisions or interpretations of statutes or regulations, could prevent a bank from continuing to perform all or a part of its shareholder service activities. If a bank were prohibited from so acting, its shareholder customers would be permitted to remain Trust shareholders and alternative means for continuing the servicing of such shareholders would be sought. In such event, changes in the operation of the Trust might occur and a shareholder being serviced by such bank might no longer be able to avail himself, or itself, of any automatic investment or other services then being provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. In addition state securities laws on this issue may differ from the interpretations of federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law.
The Trust may expend in each of the three Funds as described herein as much as, but not more than 2/10 of 1% of the Fund's average net assets annually pursuant to the Plan. A report of the amounts so expended in each such Fund and the purpose of the expenditures must be made to and reviewed by the Board of Trustees at least quarterly. In addition, the Plan for each such Fund provides that it may not be amended to increase materially the costs which the Fund may bear for distribution pursuant to the Plan without shareholder approval of the Plan, and that other material amendments of the Plan must be approved by the Board of Trustees, and by the Trustees who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of the Plan or in the related service agreements, by vote cast in person at a meeting called for the purpose of voting on the Plan.
The Plan for each of the Trust's Funds is terminable at any time by vote of a majority of the Trustees who are not "interested persons" and who have no direct or indirect financial interest in the operation of the Plan or in any of the related service agreements or by vote of a majority of the Trust's shares. Any service agreement terminates upon assignment and is terminable without penalty at any time by a vote of a majority of the Trustees who are not "interested persons" and who have no direct or indirect financial interest in the operation of any of the Plans or in any of the related service agreements upon not more than 60 days' written notice to the service organization or by the vote of the holders of a majority of the Trust's shares, or, upon 15 days' notice, by a party to a service agreement.
Each Plan was approved by the Trust's Board of Trustees, which made a determination that there is a reasonable likelihood the Plans will benefit the Funds. The Plans were approved by shareholders, and they will continue in effect only if approved at least annually by the Board of Trustees. Although the
objective of the Trust is to pay Consultants for a portion of the expenses they incur, and to provide them with some incentive to be of assistance to the Trust and its shareholders, no effort has been made to determine the actual expenses incurred by Consultants. If any Consultant's expenses are in excess of what the Trust pays, such excess will not be paid by the Trust. Conversely, if the Consultant's expenses are less than what the Trust pays, the Consultant is not obligated to refund the excess, and this excess could represent a profit for the Consultant.
The Trust has entered into an agreement with Walter L. Ogle whereby Mr. Ogle is paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. See "Compensation Table" for further explanation.
The Trust had entered into an agreement with Russel G. Means whereby Mr. Means was paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. See "Compensation Table" for further explanation.
Total payments made by the Trust to parties with service agreements for the year ended December 31, 1998 amounted to $________ ($193,209 in 1997; $167,872 in 1996). In addition, the Board of Trustees approved expenditures for the printing and mailing of prospectuses, periodic reports and other sales materials to prospective investors; advertising; the services of public relations and marketing consultants; and the cost of special telephone service to encourage the sale of Fund shares. These expenditures amounted to $________ for the year ended December 31, 1998 ($177,376 in 1997; $190,244 in 1996).
The table below states the amounts paid under each current Fund's distribution plan for the year ended December 31, 1998.
DISTRIBUTION PLAN EXPENSES PAID BY THE FUNDS*
U.S .
Government Money
TYPE OF EXPENSE MUIRFIELD BOND MARKET
Payments to Consultants $ $ $
Public Relations $ $ $
Marketing/Advertising $ $ $
Wats Telephone Service $ $ $
Printing and Mailing $ $ $
-------- --------- ---------
Total $ $ $
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*Distribution expenses of the Trust attributable to a particular Fund are borne by that Fund. Distribution expenses that are not readily identifiable as attributable to a particular Fund are allocated among each of the five funds of the Trust based on the relative size of their average net assets.
In addition, any Agent or Consultant that contemplates entering into an agreement with the Trust for payment in connection with the distribution of Fund shares, under any Fund's distribution plan, shall be responsible for complying with any applicable securities or other laws which may be applicable to the rendering of any such services. It would appear that any Agent or Consultant would need to be registered as broker/dealer in the state of Texas if Texas residents are their clients.
DISTRIBUTIONS & TAXES
Dividends and capital gains distributions are ordinarily taxable to shareholders in the year distributed. However, under the Tax Act, the Trust is permitted to make distributions up to February 1 and have them apply to the previous tax year. The Trust expects to make such a distribution in The Muirfield Fund in future years.
A shareholder is taxed on capital gains and income realized by the Trust, regardless of the length of time he has been a shareholder. Thus a shareholder may receive capital gains distributions shortly after purchasing shares, and this will reduce the market value of the shares by the amount of the distribution. The shareholder will not be able to recognize the resultant loss in value for tax purposes until the shares are sold at a later date. In the case of some mutual funds this effect can be substantial. In the case of The Muirfield and U.S. Government Bond Funds, each of which frequently liquidates its portfolio for defensive purposes and therefore tends not to realize large capital gains accumulated over a long period of time, the effect is not expected to be substantial.
Dividends and capital gains distributions are taxable to the shareholder whether received in cash or reinvested in additional shares. Shareholders not otherwise subject to tax on their income will not be required to pay tax on amounts distributed to them. Each Shareholder will receive a statement annually informing him of the amount of the income and capital gains which have been distributed during the calendar year.
The Trust files federal income tax returns for each of the Funds. Each Fund is treated as a separate entity for federal income tax purposes. The Trust also intends to comply with Subchapter M of the Internal Revenue Code, which imposes such restrictions as (1) appropriate diversification of its portfolio of investments, and (2) realization of 90% of its annual gross income from dividends, interest, and gains from the sale of securities. A Fund might deviate from this policy, and incur a tax liability, if this were necessary to fully protect shareholder values. The Trust qualified as a "regulated investment company" for each of the last fifteen fiscal years.
[Discuss tax loss carry forwards here]
FLEX-FUNDS RETIREMENT PLANS
The Trust offers retirement plans, which are described in the Prospectus. Minimum purchase requirements for retirement plan accounts are subject to the same requirements as regular accounts, except for an IRA, which has a $500 minimum purchase requirement. Information concerning contribution limitations for IRA accounts and Roth IRA accounts are described below.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA):
DEDUCTIBLE CONTRIBUTIONS
All contributions (other than certain rollover contributions) must be made in cash and are subject to the following limitations:
REGULAR. Contributions to an IRA (except for rollovers or employer contributions under a simplified employee pension) may not exceed the amount of compensation includible in gross income for the tax year or $2,000, whichever is less. If neither you nor your spouse is an active participant in an employer plan, you may make a contribution up to this limit and take a deduction for the entire amount contributed. If you or your spouse is an active participant and your adjusted gross income (AGI) is below a certain level you may also make a contribution and take a deduction for the entire amount contributed. However, if you or your spouse is an active participant and your AGI is above the specified level, the dollar limit of the deductible contribution you make to your IRA may be reduced or eliminated.
Regular contributions are not allowed for the year in which you attain age 70-1/2 or for any year thereafter. You do not have to file an itemized federal tax return to take an IRA deduction. Deductions are not allowed for any contribution in excess of the deduction limit. Contributions for a year may be made during such year or by the tax return filing date for such year (not including extensions), if irrevocably designated for such year, in writing, when such contribution is made.
If you and your spouse each receive compensation during the year and are otherwise eligible, each of you may establish your own IRA. The contribution limits apply separately to the compensation of each of you, without regard to the community property laws of your state, if any.
SPOUSAL. You may make spousal IRA contributions for a year, if: 1) your spouse has "compensation" that is includible in gross income for such year; 2) you have less compensation than your spouse for such year; 3) you do not reach age 70-1/2 by the end of such year; and 4) you file a joint federal income tax return for such year.
If you are the compensated (or higher compensated) spouse, your contribution must be made in accordance with the regular contribution rules above. If you are the noncompensated (or lower compensated) spouse, your contribution may not exceed the lesser of $2,000 or 100% of the combined compensation of you and your spouse, reduced by the amount of your spouse's IRA contribution.
Contributions for your spouse must be made to a separate IRA established by your spouse as the depositor or grantor of his or her own IRA and your spouse becomes subject to all of the privileges, rules, and restrictions generally applicable to IRAs. This includes conditions of eligibility for distribution; penalties for premature distribution, excess accumulation (failure to take a required distribution) and prohibited transaction; designation of beneficiaries and distribution in the event of your spouse's death; income and estate tax treatment of withdrawals and distributions.
ADJUSTED GROSS INCOME (AGI). If you are an active participant or are considered an active participant, the amount of your AGI for the year (if you and your spouse file a joint tax return, your combined AGI) will be used to determine if you can make a deductible IRA contribution. The instructions for your tax return will show you how to calculate your AGI for this purpose. If you are at or below a certain AGI level, called the Threshold Level, you can make a deductible contribution under the same rules as a person who is not an active participant. This AGI level may change each year. The instructions for your tax return will show you the AGI level in effect for that year.
For example, if you are single, or treated as being single, your AGI Threshold Level is $30,000 for 1998. If you are married and file a joint tax return, your AGI Threshold Level is $50,000 for 1998. If you are not an active participant, but you file a joint tax return with your spouse who is an active participant, your AGI Threshold Level is $150,000. If you are married, file a separate tax return, and live with your spouse for any part of the year, your AGI Threshold Level is $0.
If your AGI is less than $10,000* above your AGI Threshold Level, you will still be able to make a deductible contribution, but it will be limited in amount. The amount by which your AGI exceeds your AGI Threshold Level (AGI minus AGI Threshold Level) is called your Excess AGI. The Maximum Allowable Deduction is $2,000 per individual. You may determine your Deduction Limit by using the following formula:
($10,000* - EXCESS AGI ) Maximum Allowable = Deduction
--------------------- X Deduction Limit
$10,000*
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Round the result up to the next higher multiple of $10 (the next higher whole dollar amount that ends in zero). If the final result is below $200, but above zero, your Deduction Limit is $200. Your Deduction Limit cannot exceed 100% of your compensation.
*For years after 2006, $20,000 if you are married, filing jointly.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may still contribute using the rules in the "Deductible Contributions" section above. The portion of your IRA contribution that is not deductible will be a nondeductible contribution. You may choose to make a nondeductible IRA contribution even if you could have deducted part or all of the contribution. Generally, interest or other earnings on your IRA contribution, whether from deductible or nondeductible contributions, will not be taxed until distributed from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum distributions from employer-sponsored retirement plans may make rollover contributions to an IRA and by doing so defer taxes on the distribution and shelter any investment earnings.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS (ROTH IRA):
CONTRIBUTIONS:
All contributions must be made in cash and are subject to the following limitations:
REGULAR. Contributions to a Roth IRA (except for rollovers) cannot exceed the amount of compensation includible in gross income for the tax year or $2,000, whichever is less. If our adjusted gross income (AGI) is below a certain level, you may contribute the maximum amount. However, if your AGI is above a specified level, the dollar limit of the contribution you make to your Roth IRA may be reduced or eliminated.
If you are single, and your adjusted gross income (AGI) is $95,000 or less ($150,000 or less if married and filing jointly, or $0 or less if married and filing separately) you are eligible to contribute the full amount to a Roth IRA.
Contributions to a Roth IRA are aggregated with Traditional IRA contributions for the purpose of the annual contribution limit. Therefore, you may contribute up to the lesser of $2,000 or 100% of earned income per year to a Traditional IRA and a Roth IRA combined.
SPOUSAL. You may make spousal Roth IRA contributions for a year, if: 1)
your spouse has "compensation" that is includible in gross income for such year;
2) you have less compensation than your spouse for such year; and 3) you file a
joint federal income tax return for such year.
If you are the higher compensated spouse, your contribution must be made in accordance with the regular contribution rules above. If you are the noncompensated (or lower compensated) spouse, your contribution may not exceed the lesser of $2,000 or 100% of the combined compensation of you and your spouse, reduced by the amount of your spouse's Roth IRA contribution.
Contributions for your spouse must be made to a separate Roth IRA established by your spouse as the depositor or grantor of his or her own Roth IRA and your spouse becomes subject to all of the privileges, rules, and restrictions generally applicable to Roth IRAs. This includes conditions of eligibility for distribution; designation of beneficiaries and distribution in the event of your spouse's death; tax treatment of withdrawals and distributions. This form may be used to establish such Roth IRA.
NO MAXIMUM AGE LIMIT. There is no maximum age limit for making a Roth IRA contribution. Attainment of age 70 1/2 does not prevent you from contributing to a Roth IRA.
APRIL 15 FUNDING DEADLINE. Contributions to a Roth IRA for the previous tax year must be made by the tax-filing deadline (not including extensions) for filing your federal income tax return. If you are a calendar-year taxpayer, your deadline is usually April 15. If April 15 falls on a Saturday, Sunday, or legal holiday, the deadline is the following business day.
LOWER CONTRIBUTION LIMITS. To determine the maximum contribution to a Roth IRA if your AGI is between $95,000 and $110,000 (between $150,000 and $160,000 if married, filing jointly or between $0 and $10,000 if married, filing separately), the following steps must be taken:
(a) Subtract your AGI from $110,000 ($160,000 if married, filing jointly; $10,000 if married, filing separately).
(b) Multiply the result in Step `a' by .1333 (.20 if married).
(c) If the result in Step `b' is not a multiple of $10, round up to the next multiple of $10.
(d) The result in Step `c' is your allowable contribution limit. If it is more than $0, but less that $200, your allowable contribution limit is $200.
INDIVIDUALS NOT ELIGIBLE TO MAKE CONTRIBUTIONS. If you are a single taxpayer and your AGI is $110,000 or above ($160,000 or above if married and filing jointly, or $10,000 or above if married and filing separately), you are not permitted to make a Roth IRA contribution for the year. For this purpose, a deductible Traditional IRA contribution is not allowed as a deduction in computing AGI, and any amount of a rollover-conversion from a Traditional IRA to a Roth IRA is not taken into account. Whether an individual, or his spouse, is an active participant in an employer retirement plan is irrelevant for determining whether he may make a Roth contribution.
EXCESS ROTH CONTRIBUTIONS. Excess contributions to a Roth IRA are subject to a 6% penalty tax unless removed (along with attributable earnings) by your tax-filing deadline (plus extensions). An excess contribution could occur for many reasons including, for example, if you contribute more than $2,000 or 100% of earned income, or if you are not permitted to make a Roth contribution because your AGI is too high.
CONVERSION OF TRADITIONAL CONTRIBUTIONS TO ROTH CONTRIBUTIONS. Generally, if you make a contribution to a Traditional IRA, you may transfer the contribution plus attributable earnings to a Roth IRA by your tax-filing deadline (not including extensions). The transferred contribution amount is not taxable if no deduction was allowed for the contribution. Such a contribution is treated as a Roth IRA contribution.
ROLLING OVER/CONVERTING TRADITIONAL IRAS TO ROTH IRAS
You are allowed to roll over, transfer, or "convert" your Traditional IRAs to Roth IRAs beginning in 1998. Regardless of whether a Traditional IRA is rolled over/converted to a Roth IRA in 1998 or afterwards, the rollover/conversion amount is subject to federal income taxation (but no 10% penalty tax).
$100,000 AGI LIMIT FOR ROLLOVER. If you are a single taxpayer, or a married individual who files jointly, you may roll over, transfer, or convert your Traditional IRAs to Roth IRAs if your AGI is $100,000 or less. If you are a single taxpayer (or a married individual who files jointly) with AGI of more than $100,000 you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs. Also, if you are a taxpayer who is married, but files separately, you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs regardless of AGI.
ROLLOVER/CONVERSION AFTER 1998. If you roll over a Traditional IRA distribution received after 1998 to a Roth IRA, the taxable portion of the Traditional IRA distribution is included in your income for the year in which the Traditional IRA distribution is received, but the amount is not subject to the IRS 10% early distribution penalty. No special tax treatments apply.
OTHER SERVICES
CUSTODIAN - Star Bank, N.A., Star Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202, is custodian of all of the Trust's assets.
AUDITORS - KPMG LLP, Two Nationwide Plaza, Columbus, Ohio, 43215, has been retained as independent auditors for the Trust. The auditors audit financial statements for the Fund Complex and provide other assurance, tax, and related services.
STOCK TRANSFER AGENT - Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio 43017, a wholly owned subsidiary of Muirfield Investors, Inc. and a sister company of R. Meeder & Associates, Inc., provides to each Fund and Portfolio accounting, administrative, stock transfer, dividend disbursing, and shareholder services. The minimum annual fee for accounting services for the Mutual Fund and Bond Portfolios is $7,500. The minimum annual fee for the Money Market Portfolio is $30,000. Subject to the applicable minimum fee, each 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 each Portfolio's average net assets.
Subject to a $4,000 annual minimum fee The Muirfield Fund incurs 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. In The U.S. Government Bond Fund, this annual fee is the greater of $15 per shareholder account or 0.06% of the Fund's average net assets. The fee for The Money Market Fund is the greater of $20 per shareholder account or 0.06% of the Fund's average net assets.
Mutual Funds Service Co. also serves as Administrator to the Trust. Services provided to the Trust include coordinating and monitoring any third party services to the Trust; providing the necessary personnel to perform administrative functions for the Trust, assisting in the preparation, filing and distribution of proxy materials, periodic reports to Trustees and shareholders, registration statements and other necessary documents. Each Fund incurs an annual fee, payable monthly, of 0.05% of each 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, 1998, total payments to Mutual Funds Service Co. amounted to $_______ for all of the Funds and Portfolios collectively.
REPORTS TO SHAREHOLDERS - The Trust provides shareholders with quarterly reports of investments and other information, semi-annual financial statements, and annual reports.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of January 31, 1999, the following persons owned 5% or more of a class of the Trust's outstanding shares of beneficial interest:
Number of
Name Name & Address Shares of Record Percent
OF FUND OF BENEFICIAL OWNER AND BENEFICIALLY OF CLASS
U.S. Government Ohio Local No. 1 Operative 61,906.630 11.9%
Bond Fund Plasters & Cement Masons
Pen Fd Rowley & Sobiech TTEES
c/o Qualified Benefits Mgmt Inc.
77 West Elmwood Drive
Suite 106
Centerville, OH 45459
Roofers Local No. 86 58,723.157 11.3%
Pension Fund Dtd 5-1-64
c/o Qualified Benefits Mgmt.
77 West Elmwood Drive
Centerville, OH 45459
44
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Sands Hill Coal Co., Inc. 34,020.286 6.5%
P.O. Box 650
38701 S.R. 160
Hamden, OH 45634
OAPSE Pension Trust 1260 33,054.279 6.3%
c/o R. Meeder & Associates
P. O. Box 7177
Dublin, OH 43017
Muirfield Fund IBEW Local 683 Pension Plan 1,554,880.884 8.7%
Attn: Ken Brotherton
23 W. 2nd Street
P.O. Box 8127 - Station A
Columbus, OH 43201
|
To the knowledge of the Trust, the shareholders listed above own shares for investment purposes and have no known intention of exercising any control of the Fund.
FINANCIAL STATEMENTS
Financial statements for all of the Trust's funds and for each Portfolio are presented on the following pages.
THE FLEX-FUNDS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE HIGHLANDS GROWTH FUND
PART B.
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION
10(a) Front Cover Page
10(b) Table of Contents
11 Description of the Trust
12(a) Description of the Trust
12(b)(c)(d)(e) Investment Policies and Limitations
13(a) Description of the Trust
Trustees and Officers
13(b)(c)(d) Trustees and Officers
13(e) Not applicable
14(a) Not applicable
14(b) Principal Holders of Outstanding Shares
14(c) Trustees and Officers
15(a) Investment Adviser and Manager
Investment Subadviser
Investment Sub-subadvisers
15(b) Not applicable
15(c) Investment Adviser and Manager
Investment Subadviser
Investment Sub-subadvisers
15(d) Contracts with Companies Affiliated With the Manager
15(e)(f) Not applicable
15(g) Distribution Plan
15(h) Contracts with Companies Affiliated With the Manager
Additional Information
16(a)(b)(c)(d) Portfolio Transactions
16(e) Not applicable
17(a) Description of the Trust
17(b) Not applicable
18(a) Additional Purchase and Redemption Information
Flex-funds Retirement Plans
18(b) Not applicable
18(c) Valuation of Portfolio Securities
18(d) Description of the Trust
19 Distributions and Taxes
20 Not applicable
21(a) Not applicable
21(b) Performance
22 Financial Statements
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THE HIGHLANDS GROWTH FUND
A FUND OF THE FLEX-FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999
This Statement is not a prospectus but should be read in conjunction with the Trust's current Prospectus (dated April 30, 1999). Please retain this document for future reference. To obtain an additional copy of the Prospectus, please call Mutual Funds Service Co. at 1-800-325-3539. Capitalized terms used and not otherwise defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS PAGE
Description of the Trust
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
Investment Adviser and Manager
Investment Subadviser
Investment Sub-subadvisers
Distribution Plan
Trustees and Officers
Flex-funds Retirement Plans
Contracts With Companies Affiliated With Manager
Additional Information
Principal Holders of Outstanding Shares
Financial Statements
INVESTMENT ADVISER TRANSFER AGENT R. Meeder & Associates, Inc. Mutual Funds Service Co. INVESTMENT SUBADVISER Sector Capital Management, L.L.C. |
DESCRIPTION OF THE TRUST
BACKGROUND. The Trust was organized as a Massachusetts business trust on December 31, 1991 as the successor to a Pennsylvania business trust organized on April 30, 1982. Each of its five constituent funds is a diversified open-end management company. The business and affairs of the Trust are under the direction of its Board of Trustees.
The Trust has no investment adviser because the Trust seeks to achieve the investment objective of each Fund by investing each Fund's assets in the corresponding Portfolio. Each Portfolio has retained the services of R. Meeder & Associates, Inc. as investment adviser.
INVESTMENT STRUCTURE. Unlike other mutual funds which directly acquire and
manage their own portfolio of securities, The Highlands Growth Fund seeks to
achieve its investment objectives by investing all of its assets in the Growth
Stock 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: 1-800-325-FLEX, or
(614) 760-2159.
The Growth Stock Portfolio 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's 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.
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 that 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 any Fund from its corresponding Portfolio at any time, if the Board of Trustees of the Trust determines that it is in the best interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees would consider what action might be taken, including the investment of all the assets of the Fund in another pooled investment entity having the same investment objectives as that Fund or the retaining of an investment adviser to manage the Fund's assets in accordance with the investment policies with respect to that Fund's corresponding Portfolio. The inability to find an adequate investment pool or investment adviser could have a significant impact on shareholders' investment in the Fund.
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.
As stated in "Investment Policies and Limitations," except as otherwise expressly provided herein, the Fund's investment objectives and policies are not fundamental and may be changed by Trustees without shareholder approval. (No such change would be made, however, without 30 days' written notice to shareholders.)
For descriptions of the investment objectives and policies of the Portfolio, see "Investment Policies and Limitations." For descriptions of the management and expenses of the Portfolios, see "Investment Adviser and Manager" and "Officers and Trustees."
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 will issue its own series of shares of beneficial interest. The shares of each fund represent an interest only in that 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 that fund.
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 the other Funds.
Shares are fully paid and nonassessable. The Trust or any fund may be terminated upon the sale of its assets to another open-end management investment company, if approved by vote of the holders of a majority of the Trust or the fund, as determined by the current value of each shareholder's investment in the fund or Trust, or upon liquidation and distribution of its assets, if approved by a majority of the Trustees of the Trust. If not so terminated, the Trust and the fund will continue indefinitely.
TRUSTEE LIABILITY. The Declaration of Trust 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. 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 a fund by a specified number of shareholders) the right to communicate with other shareholders in connection with requesting a meeting of shareholders for the purpose of removing one or more Trustees.
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the Prospectus. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of the Portfolio's assets that may be invested in any security or other asset, or sets forth a policy regarding quality standards, such standard or percentage limitation will be determined immediately after and as a result of the Portfolio's acquisition of such security or other asset. Accordingly, any subsequent change in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the Fund's investment policies and limitations.
The Fund's fundamental investment limitations cannot be changed without approval by a "majority of the outstanding voting securities" (as defined in the Investment Company Act of 1940) of the Fund. However, except for the fundamental investment limitations set forth below, the investment policies and limitations described in this Statement of Additional Information are not fundamental and may be changed by the Trustees without shareholder approval. THE FOLLOWING ARE THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY; PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS WILL PREVENT THE FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN OPEN-END MANAGEMENT INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND OR THE PORTFOLIO MAY NOT:
(1) with respect to 75% of the Portfolio's total assets, purchase the securities of any issuer (other than obligations issued or guaranteed by the government of the United States, or any of its agencies or instrumentalities) if, as a result thereof, (a) more than 5% of the Portfolio's total assets would be invested in the securities of such issuer, or (b) the Fund would hold more than 10% of the voting securities of such issuer;
(2) issue senior securities, except as permitted under the Investment Company Act of 1940;
(3) borrow money, except that the Portfolio may borrow money for temporary or emergency purposes (not for leveraging or investment) in an amount not exceeding 33-1/3% of its total assets including the amount borrowed) less liabilities (other than borrowings). Any borrowings that come to exceed this amount will be reduced within three days (not including Sundays and holidays) to the extent necessary to comply with the 33-1/3% limitation;
(4) underwrite securities issued by others (except to the extent that the Portfolio may be deemed to be an underwriter within the meaning of the Securities Act of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities) if, as a result, 25% or more of the Portfolio's total assets would be invested in the securities of companies whose principal business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Portfolio from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business); or
(7) purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Portfolio from purchasing or selling options and futures contracts or from investing in securities or other instruments backed by physical commodities).
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The Portfolio does not currently intend to engage in short sales, but may engage in short sales "against the box" to the extent that the Portfolio contemporaneously owns or has the right to obtain at no added cost securities identical to those sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling securities short.
(ii) The Portfolio does not currently intend to purchase securities on margin, except that the Fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin.
(iii) The Portfolio may borrow money only from a bank. The Portfolio will not purchase any security while borrowings representing more than 5% of its total assets are outstanding.
(iv) The Portfolio does not currently intend to purchase any security if, as a result, more than 10% of its net assets would be invested in securities that are deemed to be illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued, including repurchase agreements with remaining maturities in excess of seven days or securities without readily available market quotes.
(v) The Portfolio does not currently intend to invest in securities of real estate investment trusts that are not readily marketable, or to invest in securities of real estate limited partnerships that are not listed on the New York Stock Exchange or the American Stock Exchange or traded on the NASDAQ National Market System.
(vi) The Portfolio does not currently intend to purchase securities of other investment companies. This limitation does not apply to securities received as dividends, through offers of exchange, or as a result of reorganization, consolidation, or merger.
(vii) The Portfolio does not currently intend to purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or political subdivisions thereof) if, as a result, more than 5% of its total assets would be invested in the securities of business enterprises that, including predecessors, have a record of less than three years of continuous operation.
(viii) The Portfolio does not currently intend to purchase warrants, valued at the lower of cost or market, in excess of 5% of the Portfolio's net assets. Included in that amount, but not to exceed 2% of the Portfolio's net assets, may be warrants that are not listed on the New York Stock Exchange or the American Stock Exchange. Warrants acquired by the Portfolio in units or attached to securities are not subject to these restrictions.
(ix) The Portfolio does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases.
(x) The Portfolio does not currently intend to purchase the securities of any issuer if those officers and Trustees of the Trust and those officers and directors of the Manager, the Subadviser, or the Sector Advisers who individually own more than 1/2 of 1% of the securities of such issuer, together own more than 5% of such issuer's securities.
For the Portfolio's limitations on futures and options transactions, see the section entitled "Limitations on Futures and Options Transactions." For the Portfolio's limitations on short sales, see the section entitled "Short Sales."
MONEY MARKET INSTRUMENTS
When investing in money market instruments, the Portfolio will limit its purchases, denominated in U.S. dollars, to the following securities.
U.S. Government Securities and Securities of its Agencies and Instrumentalities - obligations issued or guaranteed as to principal or interest by the United States or its agencies (such as the Export Import Bank of the United States, Federal Housing Administration, and Government National Mortgage Association) or its instrumentalities (such as the Federal Home Loan Bank, Federal Intermediate Credit Banks and Federal Land Bank), including Treasury bills, notes and bonds.
Bank Obligations and Instruments Secured Thereby - obligations (including certificates of deposit, time deposits and bankers' acceptances) of domestic banks having total assets of $1,000,000,000 or more, instruments secured by such obligations and obligations of foreign branches of such banks, if the domestic parent bank is unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may also invest in obligations (including certificates of deposit and bankers' acceptances) of domestic branches of foreign banks having assets of $1,000,000,000 or more, if the domestic branch is subject to the same regulation as United States banks. The Portfolio will not invest at time of purchase more than 25% of its assets in obligations of banks, nor will the Portfolio invest more than 10% of its assets in time deposits.
High Quality Commercial Paper - The Portfolio may invest in commercial paper rated no lower than "A-2" by Standard & Poor's Corporation or "Prime-2" by Moody's Investors Services, Inc., or, if not rated, issued by a company having an outstanding debt issue rated at least A by Standard & Poor's or Moody's.
Private Placement Commercial Paper - Private placement commercial paper consists of unregistered securities which are traded in public markets to qualified institutional investors, such as the Portfolio. The Portfolio's risk is that the universe of potential buyers for the securities, should the Portfolio desire to liquidate a position, is limited to qualified dealers and institutions, and therefore such securities could have the effect of being illiquid.
High Grade Corporate Obligations - obligations rated at least A by Standard & Poor's or Moody's. See rating information below.
Repurchase Agreements - See "Repurchase Agreements" below.
The Manager exercises due care in the selection of money market instruments. However, there is a risk that the issuers of the securities may not be able to meet their obligations to pay interest or principal when due. There is also a risk that some of the Portfolio's securities might have to be liquidated prior to maturity at a price less than original amortized cost or value, face amount or maturity value to meet larger than expected redemptions. Any of these risks, if encountered, could cause a reduction in net income or in the net asset value of the Portfolio.
RATINGS
1. Moody's Investors Services, Inc.'s Corporate Bond Rating:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins or protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
2. Standard and Poor's Corporation's Corporate Bond Rating:
AAA - Bonds rated AAA are highest grade obligations. They possess the ultimate degree of protection as to principal and interest. Marketwise they move with interest rates, and hence provide the maximum safety on all counts.
AA - Bonds rated AA also qualify as high grade obligations, and in the majority of instances differ from AAA issues only in small degree. Here, too, prices move with the long-term money market.
A - Bonds rated A are regarded as upper medium grade. They have considerable investment strength but are not entirely free from the adverse effect of changes in economic and trade conditions. Interest and principal are regarded as safe. They predominantly reflect money rates in their market behavior but, to some extent, also economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category.
3. Commercial Paper Ratings:
Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the following characteristics: Liquidity ratios are adequate to meet cash requirements. Long term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. Relative strength or weakness of the above factors determines whether the issuer's commercial paper is A-1, A-2, or A-3.
The rating P-1 is the highest commercial paper rating assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations.
4. Description of Permitted Money Market Investments:
Commercial Paper - refers to promissory notes issued by corporations in order to finance their short term credit needs.
U.S. Government Obligations - are bills, certificates of indebtedness notes and bonds issued by the U.S. Treasury and agencies, authorities and instrumentalities of the U.S. Government established under the authority of an act of Congress. Some obligations of U.S. Government agencies, authorities and instrumentalities are supported by the full faith and credit of the U.S. Treasury, as for example, the Government National Mortgage Association; others by the right of the issuer to borrow from the Treasury, as in the case of Federal Farm Credit Banks and Federal National Mortgage Association; and others only by the credit of the agency, authority or instrumentality; as for example, Federal Home Loan Mortgage and Federal Home Loan Bank.
Repurchase Agreements - See "Repurchase Agreements" below.
Certificates of Deposit - are certificates issued against funds deposited in a bank, are for a definite period of time, earn a specified or variable rate of return and are normally negotiable.
Banker's Acceptances - are short-term credit instruments used to finance the import, export, transfer or storage of goods. They are termed "accepted" when a bank guarantees their payment at maturity.
Corporate Obligations - include bonds and notes issued by corporations in order to finance longer term credit needs.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the ordinary course of business at approximately the prices at which they are valued. Under the supervision of the Board of Trustees, the Manager, Subadviser and/or Sector Advisers determine the liquidity of the Portfolio's investments and, through reports from the Manager, Subadviser and/or Sector Advisers, the Board monitors investments in illiquid instruments. In determining the liquidity of the Portfolio's investments, the Manager, Subadviser and Sector Advisers may
consider various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, over-the-counter
options, and non-government stripped fixed-rate mortgage-backed securities.
Also, the Manager, Subadviser and/or Sector Advisers may determine some
restricted securities to be illiquid. However, with respect to over-the-counter
options the Portfolio writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the Portfolio may have to close out the
option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets, or other circumstances, the
Portfolio were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933, or in a registered public offering. Where registration is required, the Portfolio may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time the Portfolio may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Portfolio might obtain a less favorable price than prevailed when it decided to seek registration of the security.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases a security and simultaneously commits to resell that security to the seller at an agreed upon price on an agreed upon date within a number of days from the date of purchase. The resale price reflects the purchase price plus an agreed upon incremental amount which is unrelated to the coupon rate or maturity of the purchased security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value (at least equal to the amount of the agreed upon resale price and marked to market daily) of the underlying security. The Portfolio may engage in repurchase agreements with respect to any security in which it is authorized to invest.
While it does not presently appear possible to eliminate all risks from these transactions (particularly the possibility of a decline in the market value of the underlying securities, as well as delays and costs to the Portfolio in connection with bankruptcy proceedings), it is the Portfolio's current policy to limit repurchase agreement transactions to parties whose creditworthiness has been reviewed and found satisfactory by the Manager.
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 Investment Adviser is implementing a change in the Portfolio's 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.
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.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) write call options if, as a result, more than 25% of the Portfolio's total
assets would be hedged with options under normal conditions; or (b) purchase
futures contracts if, as a result, the Portfolio's total obligations upon
settlement or exercise of purchased futures contracts would exceed 25% of its
total assets. These limitations do not apply to options attached to or acquired
or traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options.
For certain regulatory purposes, the Commodity Futures Trading Commission ("CFTC") limits the types of futures positions that can be taken in conjunction with the management of a securities portfolio for mutual funds, such as The Flex-funds. 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.
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 above limitations on the Portfolio's investments in futures contracts and options, and the Portfolio's policies regarding futures contracts and options discussed elsewhere in this Statement of Additional Information, may be changed as regulatory agencies permit.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it agrees to purchase a specified underlying instrument at a specified future date. When the Portfolio sells a futures contract, it agrees to sell the underlying instrument at a specified future date. The price at which the purchase and sale will take place is fixed when the Portfolio enters into the contract.
Some currently available futures contracts are based on indices of securities-prices, such as the Standard & Poor's 500 Composite Stock Price Index (S&P 500). Futures can be held until their delivery dates, or can be closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem with the value of its underlying instrument. Therefore, purchasing futures contracts will tend to increase the Portfolio's exposure to positive and negative price fluctuations in the underlying instrument, much as if it had purchased the underlying instrument directly. When the Portfolio sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the market. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is not required to deliver or pay for the underlying instrument unless the contract is held until the delivery date. However, both the purchaser and seller are required to deposit "initial margin" with a futures broker, known as a futures commission merchant (FCM), when the contract is entered into. Initial margin deposits are typically equal to a percentage of the contract's value.
If the value of either party's position declines, that party will be required to make additional "variation margin" payments to settle the change in value on a daily basis. The party that has a gain may be entitled to receive all or a portion of this amount. Initial and variation margin payments do not constitute purchasing securities on margin for purposes of the Portfolio's investment limitations. In the event of the bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio may be entitled to return of margin owed to it only in proportion to the amount received by the FCM's other customers, potentially resulting in losses to the Portfolio.
WRITING CALL OPTIONS. Writing a call option obligates the Portfolio to sell or deliver the option's underlying instrument, in return for the strike price, upon exercise of the option. The characteristics of writing call options are similar to those of writing put options, except that writing calls generally is
a profitable strategy if prices remain the same or fall. Through receipt of the option premium, a call writer mitigates the effects of a price decline. At the same time, because a call writer must be prepared to deliver the underlying instrument in return for the strike price, even if its current value is greater, a call writer gives up some ability to participate in security price increases.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of exchange traded options and futures contracts, it is likely that the standardized contracts available will not match the Portfolio's current or anticipated investments exactly. The Portfolio may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the Portfolio's other investments.
Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match the Portfolio's investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts.
The Portfolio may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in the Portfolio's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid secondary market will exist for any particular options or futures contract at any particular time. Options may have relatively low trading volume and liquidity if their strike prices are not close to the underlying instrument's current price. In addition, exchanges may establish daily price fluctuation limits for options and futures contracts, and may halt trading if a contract's price moves upward or downward more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for the Portfolio to enter into new positions or close out existing positions. If the secondary market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and potentially could require the Portfolio to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, the Portfolio's access to other assets held to cover its options or futures positions could also be impaired.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Portfolio will comply with guidelines established by the SEC with respect to coverage of options and futures strategies by mutual funds, and if the guidelines so require, will set aside appropriate liquid assets in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures or option strategy is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of the Portfolio's assets could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations.
SHORT SALES. The Portfolio may enter into short sales "against the box" with respect to equity securities it holds. For example, if a Sector Adviser anticipates a decline in the price of a stock the Portfolio holds, it may sell the stock short "against the box." If the stock price subsequently declines, the proceeds of the short sale could be expected to offset all or a portion of the stock's decline. The Portfolio currently intends to hedge no more than 15% of its total assets with short sales "against the box" on equity securities under normal circumstances.
When the Portfolio enters into a short sale "against the box", it will be required to own or have the right to obtain at no added cost securities identical to those sold short "against the box" and will be required to continue to hold them while the short sale "against the box" is outstanding. The Portfolio will incur transaction costs, including interest expense, in connection with opening, maintaining, and closing short sales.
PORTFOLIO TURNOVER.
Decisions to buy and sell securities are made by the Sector Advisers for the assets assigned to them, and by the Manager and Sector Capital for assets not assigned to a Sector Adviser. Currently, each portfolio representing an industry sector has one Sector Adviser. The Manager invests the Growth Stock Portfolio's liquidity reserves and the Manager or Sector Capital may invest the Growth Stock Portfolio's assets in financial futures contracts and related options. Each Sector Adviser makes decisions to buy or sell securities independently from other Sector Advisers. In addition, when a Sector Adviser's services are terminated and another retained, the new Sector Adviser may significantly restructure the Growth Stock Portfolio's assets assigned to it. These practices may increase the Growth Stock Portfolio's portfolio turnover rates, realization of gains or losses, and brokerage commissions. The portfolio turnover rates for the Growth Stock Portfolio may vary greatly from year to year as well as within a year and may be affected by sales of investments necessary to meet cash requirements for redemptions of shares. A high rate of turnover involves correspondingly greater expenses, increased brokerage commissions and other transaction costs, which must be borne by the Growth Stock Portfolio and its investors. In addition, high portfolio turnover may result in increased short-term capital gains, which, when distributed to shareholders, are treated as ordinary income.
The Portfolio's portfolio turnover rate for the fiscal year ended December 31, 1998 was 80% (130% in 1997). The portfolio turnover rate for fiscal year 1997 was higher than in 1998 due to the adoption by the Portfolio and the Trust of a new investment objective effective January 1, 1997 and the resulting change in the portfolio of the Portfolio. By 1998, changes to the portfolio of the Portfolio had already been completed.
Major changes in the portfolio have resulted in portfolio turnover rates of as much as 338%, which is greater than that of most other investment companies, including many which emphasize capital appreciation as a basic policy. The policies of the Growth Stock Portfolio may be expected to result in correspondingly heavier brokerage commissions and taxes, which ultimately must be borne by the Trust's shareholders.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on behalf of the Portfolio by the Manager, Subadviser or Sector Advisers pursuant to authority contained in the investment advisory agreement, investment subadvisory agreement and investment sub-subadvisory agreements. The Manager, Subadviser and Sector Advisers are also responsible for the placement of transaction orders for accounts for which they or their affiliates act as investment adviser. In selecting broker-dealers, subject to applicable limitations of the federal securities laws, the Manager, Subadviser and Sector Advisers consider various relevant factors, including, but not limited to, the size and type of the transaction; the nature and character of the markets for the security to be purchased or sold; the execution efficiency, settlement capability, and financial condition of the broker-dealer firm; the broker-dealer's execution services rendered on a continuing basis; the reasonableness of any commissions, and arrangements for payment of Portfolio expenses.
The Portfolio may execute portfolio transactions with broker-dealers who provide research and execution services to the Portfolio or other accounts over which the Manager, Subadviser or Sector Advisers or their affiliates exercise investment discretion. Such services may include advice concerning the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or the purchasers or sellers of securities; furnishing analyses and reports concerning issuers industries, securities, economic factors and trends, portfolio strategy, and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The selection of such broker-dealers generally is made by the Manager, Subadviser and Sector Advisers (to the extent possible consistent with execution considerations) in accordance with a ranking of broker-dealers determined periodically by the Manager, Subadviser and Sector Advisers' investment staffs based upon the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on behalf of the Portfolio may be useful to the Manager, Subadviser and Sector Advisers in rendering investment management services to the Portfolio or their other clients, and conversely, such research provided by broker-dealers who have executed transaction orders on behalf of other Manager, Subadviser and Sector Advisers' clients may be useful to the Manger, Subadviser and Sector Advisers in carrying out their obligations to the Portfolio. The receipt of such research is not expected to reduce the Manager, Subadviser and Sector Advisers' normal
independent research activities; however, it enables the Manager, Subadviser and Sector Advisers to avoid the additional expenses that could be incurred if the Manager, Subadviser and Sector Advisers tried to develop comparable information through their own efforts.
Subject to applicable limitations of the federal securities laws, broker-dealers may receive commissions for agency transactions that are in excess of the amount of commissions charged by other broker-dealers in recognition of their research and execution services. In order to cause the Portfolio to pay such higher commissions, the Manager, Subadviser and/or Sector Advisers must determine in good faith that such commissions are reasonable in relation to the value of the brokerage and research services provided by such executing broker-dealers viewed in terms of a particular transaction or the Manager, Subadviser and/or Sector Advisers' overall responsibilities to the Portfolio and their other clients. In reaching this determination, the Manager, Subadviser and/or Sector Advisers will not attempt to place a specific dollar value on the brokerage and research services provided or to determine what portion of the compensation should be related to those services.
The Manager, Subadviser and Sector Advisers are authorized to use research services provided by and to place portfolio transactions with brokerage firms that have provided assistance in the distribution of shares of the Fund or shares of other Flex-funds funds or Flex-Partners funds to the extent permitted by law.
The Manager, Subadviser and Sector Advisers may allocate brokerage transactions to broker-dealers who have entered into arrangements with the Manager, Subadviser and Sector Advisers under which the broker-dealer allocates a portion of the commissions paid by the Portfolio toward payment of the Portfolio or the Fund's expenses, such as transfer agent fees of Mutual Funds Service Co. or custodian fees. The transaction quality must, however, be comparable to those of other qualified broker-dealers.
The Trustees of the Portfolio periodically review the Manager, Subadviser and Sector Advisers' performance of their responsibilities in connection with the placement of portfolio transactions on behalf of the Portfolio and review the commissions paid by the Portfolio over representative periods of time to determine if they are reasonable in relation to the benefits to the Portfolio.
From time to time, the Trustees of the Portfolio will review whether the recapture for the benefit of the Portfolio of some portion of the brokerage commissions or similar fees paid by the Portfolio on portfolio transactions is legally permissible and advisable.
The Portfolio seeks to recapture soliciting broker-dealer fees on the tender of portfolio securities, but at present no other recapture arrangements are in effect. The Trustees of the Portfolio intend to continue to review whether recapture opportunities are available and are legally permissible and, if so, to determine in the exercise of their business judgment, whether it would be advisable for the Portfolio to seek such recapture.
Although the Trustees and officers of the Portfolio are substantially the same as those of other portfolios managed by the Manager, investment decisions for the Portfolio are made independently from those of other portfolios managed by the Manager or accounts managed by affiliates of the Manager. It sometimes 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. During the period from January 1, 1998 to December 31, 1998, the Growth Stock Portfolio paid total commissions of $__________ ($100,888 in 1997; $5,137 in 1996) on the purchase and sale of securities, of which $________ in commissions were paid on the purchase and sale of futures and options contracts.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities are valued by various methods depending on the primary market or exchange on which they trade. Equity securities for which the primary market is the U.S. are valued at last sale price or, if no sale has occurred, at the closing bid price. Short-term securities less than 60 days to maturity are valued either at amortized cost or at original cost plus accrued interest, both of which approximate current value. Fixed-income securities are valued primarily by a pricing service that uses a vendor security valuation matrix which incorporates both dealer-supplied valuations and electronic data processing techniques.
This twofold approach is believed to more accurately reflect fair value because it takes into account appropriate factors such as institutional trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data without exclusive reliance upon quoted, exchange, or over-the-counter prices.
Securities and other assets for which there is no readily available market are valued in good faith by the Board of Trustees. The procedures set forth above need not be used to determine the value of the securities owned by the Portfolio if, in the opinion of the Board of Trustees, some other method (e.g., closing over-the-counter bid prices in the case of debt instruments traded on an exchange) would more accurately reflect the fair market value of such securities.
Generally, the valuation of equity securities, as well as corporate bonds, U.S. government securities, money market instruments, and repurchase agreements, is substantially completed each day at the close of the New York Stock Exchange (NYSE).
The values of any such securities held by the Portfolio are determined as of such time for the purpose of computing the Portfolio's net asset value. If an extraordinary event that is expected to materially affect the value of a portfolio security occurs after the close of an exchange on which that security is traded, then the security will be valued as determined in good faith by the Board of Trustees.
PERFORMANCE
The Fund may quote its performance in various ways. All performance information supplied by the Fund in advertising is historical and is not intended to indicate future returns. The Fund's share price and total returns fluctuate in response to market conditions and other factors, and the value of Fund shares when redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all aspects of the Fund's return, including the effect of reinvesting dividends and capital gain distributions, and any change in the Fund's net asset value over the period. Average annual returns will be calculated by determining the growth or decline in value of a hypothetical historical investment in the Fund over a stated period, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period while average annual returns are a convenient means of comparing investment alternatives, investors should realize that the Fund's performance is not constant over time, but changes from year to year, and that average annual returns represent averaged figures as opposed to the actual year-to-year performance of the Fund.
Total return is computed by finding the average annual compounded rates of return over the length of the base periods that would equate the initial amount invested to the ending redeemable value, according to the following formula:
P (1+T)n = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the end of the base period
THE HIGHLANDS GROWTH FUND:
Period and Average Annual Total Returns
1 Year 5 Years 10 Years
Period Ended Period Ended Period Ended
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
Value of Account
At end of Period $1,236.70 $2,158.00 $3,433,82
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
---------- --------- ---------
Base Period Return $ 236.70 $1,158.00 $2,433.82
Average Total Return 23.67% 16.63% 13.13%
|
Values were computed according to the following formulas:
1 Year: $1,000 (1 + .2367) = $1,236.70 5 Years: $1,000 (1 + .1663)5 = $2,158.00 10 Years: $1,000 (1 + .1313)10 = $3,433.82 |
The Total Return performance data in this hypothetical example represents past performance and the investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
In addition to average annual returns, the Fund may quote unaveraged or cumulative total returns reflecting the simple change in value of an investment over a stated period. Average annual and cumulative total returns may be quoted as a percentage or as a dollar amount, and may be calculated for a single investment, a series of investments, or series of redemptions over any time period. Total returns may be broken down into their components of income and capital (including capital gains and changes in share price) in order to illustrate the relationship of these factors and their contributions to total return. Total returns may be quoted on a before-tax or after-tax basis. Total returns, yields, and other performance information may be quoted numerically, or in a table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using the Fund's net asset values, adjusted net asset values, and benchmark indices may be used to exhibit performance. An adjusted net asset value includes any distributions paid by the Fund and reflects all elements of its return. Unless otherwise indicated, the Fund's adjusted net asset values are not adjusted for sales charges, if any.
MOVING AVERAGES. The Fund may illustrate performance using moving averages. A long-term moving average is the average of each week's adjusted closing net asset value for a specified period. A short-term moving average is the average of each day's adjusted closing net asset value for a specified period. Moving Average Activity Indicators combine adjusted closing net asset values from the last business day of each week with moving averages for a specified period to produce indicators showing when a net asset value has crossed, stayed above, or stayed below its moving average.
HISTORICAL FUND RESULTS. The Fund's performance may be compared to the performance of other mutual funds in general, or to the performance of particular types of mutual funds. These comparisons may be expressed as mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an independent service located in Summit, New Jersey that monitors the performance of mutual funds. Lipper generally ranks funds on the basis of total return, assuming reinvestment of distributions, but does not take sales charges or redemption fees into consideration, and total return is prepared without regard to tax consequences. In addition to the mutual fund rankings, the Fund's performance may be compared to mutual fund performance indices prepared by Lipper.
From time to time, the Fund's performance may also be compared to other mutual funds tracked by financial or business publications and periodicals. For example, the Fund may quote Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the basis of risk-adjusted performance. Rankings that compare the performance of Flex-Partners or Flex-funds funds to one another in appropriate categories over specific periods of time may also be quoted in advertising.
In advertising materials, the Trust may reference or discuss its products and services, which may include: other Flex-Partners or Flex-funds funds; retirement investing; the effects of periodic investment plans and dollar; cost averaging; saving for college; and charitable giving. In addition, the Fund may quote financial or business publications and periodicals, including model portfolios or allocations, as they relate to Fund management, investment philosophy, and investment techniques. The Fund may also reprint, and use as advertising and sales literature, articles from Reflexions, a quarterly magazine provided free of charge to Flex-Partners and Flex-funds shareholders.
VOLATILITY. The Fund may quote various measures of volatility and benchmark correlation in advertising. In addition, the Fund may compare these measures to those of other funds. Measures of volatility seek to compare the Fund's historical share price fluctuations or total returns to those of a benchmark. Measures of benchmark correlation indicate how valid a comparative benchmark may be. All measures of volatility and correlation are calculated using averages of historical data.
MOMENTUM INDICATORS indicate the Fund's price movements over specific periods of time. Each point on the momentum indicator represents the Fund's percentage change in price movements over that period.
The Fund may advertise examples of the effects of periodic investment plans, including the principle of dollar cost averaging. In such a program, an investor invests a fixed dollar amount in a Fund at periodic intervals, thereby purchasing fewer shares when prices are high and more shares when prices are low. While such a strategy does not assure a profit or guard against loss in a declining market, the investor's average cost per share can be lower than if fixed numbers of shares are purchased at the same intervals. In evaluating such a plan, investors should consider their ability to continue purchasing shares during periods of low price levels.
The Fund may be available for purchase through retirement plans or other programs offering deferral of, or exemption from, income taxes, which may produce superior after-tax returns over time. For example, a $1,000 investment earning a taxable return of 10% annually would have an after-tax value of $1,949 after ten years, assuming tax was deducted from the return each year at a 31% rate. An equivalent tax deferred investment would have an after tax value of $2,100 after ten years, assuming tax was deducted at a 31% rate from the tax-deferred earnings at the end of the ten-year period.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is calculated each day the NYSE is open for trading. The NYSE has designated the following holiday closings for 1998: New Year's Day, Martin Luther King Day (observed), Washington's Birthday (observed), Good Friday, Memorial Day (observed), Independence Day (observed), Labor Day, Thanksgiving Day, and Christmas Day (observed). Although the Manager expects the same holiday schedule, with the addition of New Year's Day, to be observed in the future, 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 shares for shares of any mutual fund that is a series of The Flex-funds (each a "Flex-funds' Fund"). No fee or sales load will be imposed upon the exchange.
Additional details about the exchange privilege and prospectuses for each of The Flex-funds' funds are available from the Fund's Transfer Agent. The exchange privilege may be modified, terminated or suspended on 60 days' notice and the Fund 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.
Any redemptions in kind made by the Fund will be of readily marketable securities.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount of $100 or more automatically invested in shares of the Fund monthly by authorizing his or her bank account to be debited to invest specified dollar amounts in shares of the Fund. The investor's bank must be a member of the Automatic Clearing House System.
Further information about these programs and an application form can be obtained from the Fund's Transfer Agent.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available for shareholders having shares of the Fund with a minimum value of $10,000, based upon the offering price. The plan provides for monthly, quarterly or annual checks in any amount, but not less than $100 (which amount is not necessarily recommended).
Dividends and/or distributions on shares held under this plan are invested in additional full and fractional shares at net asset value. 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. 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 Manger, Subadviser and Sector Advisers 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 Trust files federal income tax returns for the Fund. The Fund is treated as a separate entity from the other funds of The Flex-funds Trust for federal income tax purposes.
The Fund intends to qualify each year as a "regulated investment company" for tax purposes so that it will not be liable for federal tax on income and capital gains distributed to shareholders. In order to qualify as a "regulated investment company" and avoid being subject to federal income or excise taxes at the Fund level, the Fund intends to distribute substantially all of its net investment income (consisting of the income it earns from its investment in the Portfolio, less expenses) and net realized capital gains within each calendar year, as well as on a fiscal year basis. The Fund intends to comply with other tax rules applicable to regulated investment companies. The Fund might deviate from this policy, and incur a tax liability, if this were necessary to fully protect shareholder values. The Trust qualified as a "regulated investment company" for each of the last fifteen fiscal years.
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 Portfolio, has general oversight responsibility for the investment operations of the Portfolio. In connection therewith, the Manager is obligated to keep certain books and records of the Portfolio. The Manager also administers the Fund's corporate affairs, and in connection therewith, furnishes the Fund with office facilities, together with those ordinary clerical and bookkeeping services which are not being furnished by Star Bank, N.A., the Portfolio's custodian and Mutual Funds Service Co., the Fund's transfer and disbursing agent. The management services of the Manager are not exclusive under the terms of the Investment Advisory Contract and the Manager is free to, and does, render management services for others.
The Manager invests the Portfolio's liquidity reserves and may invest the Portfolio's assets in financial futures contracts and related options.
The Investment Advisory Contract for the Portfolio was separately approved by a vote of a majority of the Trustees, including a majority of those Trustees who are not "interested persons" (as defined in the Investment Company Act of 1940) of the Portfolio. The Investment Advisory Contract is to remain in force so long as renewal thereof is specifically approved at least annually by a majority of the Trustees or by vote of a majority of the interests in the Portfolio, and in either case by vote of a majority of the Trustees who are not "interested persons" (as defined in the Investment Company Act of 1940) at a meeting called for the purpose of voting on such renewal.
The Investment Advisory Contract provides that the Manager will not be liable for any error of judgment or mistake of law or for any loss suffered by the Portfolio in connection with the matters to which the Investment Advisory Contract relates except for a loss resulting from willful misfeasance, bad faith, gross negligence or reckless disregard of duty. The Investment Advisory Contract will terminate automatically if assigned and may be terminated without penalty at any time upon 60 days prior written notice by Majority Vote of the Portfolio, by the Trustees of the Portfolio, or by the Manager.
Costs, expenses and liabilities of the Trust attributable to a particular fund are allocated to that fund. Costs, expenses and liabilities that are not readily attributable to a particular fund are allocated among all of the Trust's funds. Thus, each fund pays its proportionate share of: the fees of the Trust's independent auditors, legal counsel, custodian, transfer agent and accountants; insurance premiums; the fees and expenses of Trustees who do not receive compensation from R. Meeder & Associates, Sector Capital Management, L.L.C or any of the Sector Advisers; association dues; the cost of printing and mailing confirmations, prospectuses proxies, proxy statements, notices and reports to existing shareholders; state registration fees; distribution expenses within the percentage limitations of the Fund's 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, Subadviser or Sector Advisers; registration fees; membership dues allocable to the Portfolio; fees and expenses of independent accountants, and any transfer agent or accountant of the Portfolio; insurance premiums and other miscellaneous expenses.
Expenses of the Portfolio also include all fees under its Accounting and Administrative Service Agreement; the expenses connected with the execution, recording and settlement of security transactions, fees and expenses of the Portfolio's custodian for all services to the Portfolio, including safekeeping of funds and securities and maintaining required books and accounts; expenses of preparing and mailing reports to investors and to governmental offices and commissions; expenses of meetings of investors and Trustees; the advisory fees payable to the Manager, Subadviser and Sector Advisers under the investment advisory contracts 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, at the rate of 1% of the first $50 million, 0.75% of the next $50 million, and 0.60% in excess of $100 million, of the Portfolio's average net assets. The Manager will receive 70% and the Subadviser 30% of the fee payable with respect to the net assets of the Portfolio upon effectiveness of the subadvisory arrangement; then the Manager will receive 30% and the Subadviser 70% of the fee attributable to any additional net assets of the Portfolio up to an amount of net assets equal to the net assets upon effectiveness of the subadvisory arrangement, then the Manager and the Subadviser will share equally the fee attributable to any additional net assets of the Portfolio up to $50 million of the net assets. With respect to net assets of more than $50 million and less than $100 million, the applicable fees of 0.75% will be shared such that the Manager would receive 0.35% and the Subadviser 0.40%. For net assets of $100 million and more, the applicable 0.60% fee will be shared such that the Manager will receive 0.25% and the Subadviser 0.35%. For the year ending December 31, 1998, the Growth Stock Portfolio paid fees to the Manager totaling $________ ($317,772 in 1997; $258,239 in 1996).
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"), a holding company which is controlled by Robert S. Meeder, Sr. through ownership of common stock. MII conducts business only through its six subsidiaries, which are the Manager; Mutual Funds Service Co., the Trust's transfer agent; Opportunities Management Co., a venture capital investor; Meeder Advisory Services, Inc., a registered investment adviser; OMCO, Inc., a registered commodity trading adviser and commodity pool operator; and Adviser Dealer Services, Inc., a broker-dealer.
The Manager's officers and directors are as set forth as follows: Robert S. Meeder, Sr., Chairman and Sole Director; Philip A. Voelker, Senior Vice President and Chief Investment Officer; Donald F. Meeder, Vice President and Secretary; Sherrie L. Acock, Vice President; Robert S. Meeder, Jr., President; Thomas E. Line, Chief Operating Officer; Michael J. Sullivan, Vice President of Sales and Marketing, and Wesley F. Hoag, Vice President and General Counsel. Mr. Robert S. Meeder, Sr. is President and a Trustee of the Trust and each Portfolio. Mr. Robert S. Meeder, Jr. and Philip A. Voelker each are a Trustee and officer of the Trust and each Portfolio. Each of Messrs. Donald F. Meeder and Wesley F. Hoag is an officer of the Trust and each Portfolio.
INVESTMENT SUBADVISER
Sector Capital Management L.L.C. serves as the Portfolio's subadviser. The Subadviser is a Georgia limited liability company. William L. Gurner and John K. Donaldson control the Subadviser. Messrs. Gurner and Donaldson are Managers and Members of the Subadviser. The Subadviser's officers are as set forth as follows: William L. Gurner, President and Administrator; George S. Kirk, Director, Sales and Marketing; and Kenneth L. Riffle, Director, Client Relations. Mr. Gurner 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. The Portfolio and the Manager have entered into an Investment Subadvisory Agreement with the Subadviser which, in turn, has entered into a investment sub-subadvisory agreement with each of the Sector Advisers selected for the Portfolio. Under the Investment Subadvisory Agreement, the Subadviser is required to (i) supervise the general management and investment of the assets and securities portfolio of the Portfolio; (ii) provide overall investment programs and strategies for the Portfolio and (iii) select Sector Advisers for the Portfolio, except as otherwise provided, and allocate the Portfolio's assets among such Sector Advisers. The Subadviser is obligated to keep certain books and records of the Portfolio. The Manager continues to have responsibility for all investment advisory services pursuant to the Investment Advisory Agreement and supervises the Subadviser's performance of such services. Under the Investment Subadvisory Agreement, the Manager pays the Subadviser an investment advisory fee in an amount described above under "Investment Adviser and Manager."
The Subadviser may invest the Portfolio's assets in financial futures contracts and related options.
The Investment Subadvisory Agreement provides that the Subadviser will not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of portfolio transactions for the Portfolio, except a loss resulting from misfeasance, bad faith, gross negligence or reckless disregard of duty. The Investment Subadvisory Agreement provides that it will terminate automatically if assigned, and that it may be terminated 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 Portfolio.
INVESTMENT SUB-SUBADVISERS
Except as otherwise described above under "Investment Adviser and Manager" and "Investment Subadviser", the assets of the Portfolio are managed by asset managers (each a "Sector Manager" and collectively, the "Sector Managers") selected by the Subadviser, subject to the review and approval of the Trustees of the Portfolio. The Subadviser recommends, to the Trustees of the Portfolio, Sector Advisers for each industry sector based upon its continuing quantitative and qualitative evaluation of the Sector Advisers' skills in managing assets pursuant to specific investment styles and strategies. The Portfolio has received an exemptive order from the SEC permitting the Subadviser, subject to certain conditions, to enter into sub-subadvisory agreements with Sector Advisers approved by the Trustees of the Portfolio, but without the requirement of shareholder approval. At a meeting held on December 20, 1996, the shareholders of the Portfolio approved the operation of the Portfolio in this manner. Pursuant to the terms of the SEC's exemptive order, the Subadviser is able, subject to the approval of the Trustees of the Portfolio, but without shareholder approval, to employ new Sector Advisers for the Portfolio. Although shareholder approval is not required for the termination of sub-subadvisory agreements, shareholders of the Portfolio will continue to have the right to terminate such agreements for the Portfolio at any time by a vote of a majority of outstanding voting securities of the Portfolio.
Except as otherwise provided above under "Investment Adviser and Manager" and "Investment Subadviser," the assets of the Portfolio are allocated by the Subadviser among the Sector Advisers selected for the Portfolio. Each Sector Adviser has discretion, subject to oversight by the Trustees and the Subadviser, to purchase and sell portfolio assets, consistent with the Portfolio's investment objectives, policies and restrictions. For its services, the Subadviser receives a management fee from the Manager. A part of the fee paid to the Subadviser is used by the Subadviser to pay the advisory fees of the Sector Advisers. Each Sector Adviser is paid a fee for its investment advisory services that is computed daily and paid monthly based on the value of the average net assets of the Portfolio assigned by the Subadviser to the Sector Adviser at an annual rate equal to .25%.
Investors should be aware that the Subadviser may be subject to a conflict of interest when making decisions regarding the retention and compensation of particular Sector Advisers. However, the Subadviser's decisions regarding the selection of Sector Advisers and specific amount of the compensation to be paid to Sector Advisers, are subject to review and approval by a majority of the Board of Trustees of the Growth Stock Portfolio.
Although the Subadviser and the Sector Advisers' activities are subject to general oversight by the Board of Trustees and the officers of the Growth Stock Portfolio, neither the Board nor the officers evaluate the investment merits of any Sector Adviser's individual security selections. The Board of Trustees will review regularly the Growth Stock Portfolio's performance compared to the applicable indices and also will review the Growth Stock Portfolio's compliance with its investment objectives and policies.
The Investment Sub-subadvisory Agreements provide that the Sector Advisers will not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of portfolio transactions for the Portfolio, except a loss resulting from misfeasance, bad faith, gross negligence or reckless disregard of duty. The Investment Sub-subadvisory Agreements provide that they will terminate automatically if assigned, and that they may be terminated without penalty to the Fund or the Portfolio by the Subadviser, the Trustees of the Portfolio or by the vote of a majority of the outstanding voting securities of the Portfolio upon not less than 15 days written notice. The Investment Sub-subadvisory Agreements will continue in effect for a period of more than two years from the date of execution only so long as such continuance is specifically approved at least annually in conformity with the 1940 Act. The Investment Sub-subadvisory Agreements were approved by the Board of Trustees of the Portfolio, including all of the Trustees who are not parties to the contract or "interested persons" of any such party, and by the shareholders of the Portfolio.
A Sector Adviser may also serve as a discretionary or non-discretionary investment adviser to management or advisory accounts unrelated in any manner to the Portfolio or its affiliates. The investment subadvisory agreements among the Sector Advisers, the Portfolio and the Subadviser require fair and equitable treatment to the Portfolio in the selection of the Portfolio investments and the allocation of investment opportunities, but does not obligate the Sector Advisers to give the Portfolio exclusive or preferential treatment.
Although the Sector Advisers make investment decisions for the Portfolio independent of those for their other clients, it is likely that similar investment decisions will be made from time to time. When the Portfolio and another client of a Sector Adviser are simultaneously engaged in the purchase or sale of the same security, the transactions are, to the extent feasible and practicable, averaged as to price and allocated as to amount between the Portfolio and the other client(s). In specific cases, this system could have detrimental effect on the price or volume of the security to be purchased or sold, as far as the Portfolio is concerned. However, the Trustees of the Portfolio believe, over time, that coordination and the ability to participate in volume transactions should be to the benefit of the Portfolio.
Listed below are the Sector Advisers selected by the Subadviser to invest certain of the Portfolio's assets:
MILLER/HOWARD INVESTMENTS, INC. serves as sector adviser to the utilities and transportation sectors of the Growth Stock Portfolio. Miller/Howard is a registered investment adviser that has been providing investment services to broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of December 31, 1998, Miller/Howard managed approximately $165 million in assets. Lowell G. Miller, President and Secretary of Miller/Howard, controls Miller\Howard through stock ownership. Mr. Miller is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Miller/Howard. Mr. Miller has been associated with Miller/Howard since 1984. Miller/Howard is also the subadviser to the Utilities Stock Portfolio, a corresponding portfolio to The Flex-funds' Total Return Utilities Fund and The Flex-Partners' Utility Growth Fund. Miller/Howard's principal executive offices are located at 141 Upper Byrdcliffe Road, Post Office Box 549, Woodstock, New York 12498.
HALLMARK CAPITAL MANAGEMENT, INC. serves as sector adviser to the capital goods sector of the Growth Stock Portfolio. Hallmark is a registered investment adviser that has been providing investment services to individuals; banks; pension, profit sharing, and other retirement plans; trusts; endowments; foundations; and other charitable organizations since 1986. As of December 31, 1998, Hallmark managed approximately $180 million in assets. Peter S. Hagerman, Chairman of the Board, President, and Chief Executive Officer; Katherine A. Swieralski, Senior Vice President, Treasurer, Chief Financial and Administrative Officer; and Jeffrey P. Braff each owns more than 10% of the outstanding voting securities of Hallmark, as would Thomas S. Moore, Senior Vice President and Chief Investment Officer, if his options were exercised. Mr. Hagerman is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Hallmark. Mr. Hagerman has been associated with Hallmark since 1986. Hallmark's principal executive offices are located at One Greenbrook Corporate Center, 100 Passaic Avenue, Fairfield, New Jersey 07004.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as sector adviser to the consumer durable and non-durable sectors of the Growth Stock Portfolio. Barrow is a registered investment adviser that has been providing investment services to banks; investment companies; pension and profit sharing plans; charitable organizations and corporations since 1979. As of December 31, 1998, Barrow managed approximately $36.3 billion in assets. Barrow is a wholly owned subsidiary of United Asset Management. Michael C. Mewhinney is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Barrow. Mr. Mewhinney has been associated with Barrow since 1979. Barrow's principal executive offices are located at 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204-2429.
THE MITCHELL GROUP, INC. serves as sector adviser to the energy sector of the Growth Stock Portfolio. The Mitchell Group is a registered investment adviser that has been providing investment services to individuals; banks; investment companies; pension and profit sharing plans; charitable organizations, corporations and other institutions since 1989. As of December 31, 1998, The Mitchell Group managed approximately $269 million in assets. Rodney Mitchell, President, Chief Executive Officer, and Chief Financial Officer of The Mitchell Group, owns more than 10% of the outstanding voting securities of The Mitchell Group. Mr. Mitchell is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to The Mitchell Group. Mr. Mitchell has been associated with The Mitchell Group since 1989. The Mitchell Group's principal executive offices are located at 1100 Louisiana, #4810, Houston, Texas 77002.
ASHLAND MANAGEMENT INCORPORATED serves as sector adviser to the materials and services sector of the Growth Stock Portfolio. Ashland is a registered investment adviser that has been providing investment services to individuals, pension and profit sharing plans, charitable organizations, corporations and other institutions since 1975. As of December 31, 1998, Ashland managed approximately $1.5 billion in assets. Charles C. Hickox, Chairman of the Board and Chief Executive Officer, and Parry v.S. Jones, President and Chief Operating Officer, each owns more than 10% of the outstanding voting securities of Ashland. Terence J. McLaughlin, Managing Director of Ashland, and Deborah C. Ohl, a Portfolio Manager, are the portfolio managers primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Ashland. Mr. McLaughlin has been associated with Ashland since 1984. Ms. Ohl has been employed by Ashland since August 1992 and has served as a Portfolio Manager for Ashland since 1993. Ashland's principal executive offices are located at 26 Broadway, New York, New York 10004.
DELTA CAPITAL MANAGEMENT INC. serves as sector adviser to the finance sector of the Portfolio. Delta Capital is a registered investment adviser that has been providing investment services to individuals, endowments, corporations and other institutions since 1992. As of December 31, 1998, Delta Capital managed approximately $700 million in assets. Delta Capital is controlled by Francis L. Fraenkel, Chairman of Delta Capital. Jonathan Kay is the portfolio manager primarily responsible for the day-to-day management of those assets of the Portfolio allocated to Delta Capital. Mr. Kay has been associated with Delta Capital since April 1998. From 1993 to March 1998, Mr. Kay was a portfolio manager for Scudder Kemper Investments, Inc., a registered investment adviser. Delta Capital's principal executive offices are located at 745 Fifth Avenue, Suite 816, New York, New York 10151.
DRESDNER RCM GLOBAL INVESTORS, L.L.C. (formerly RCM Capital Management, L.L.C.) serves as sector adviser to the technology sector of the Growth Stock Portfolio. Dresdner RCM is a registered investment adviser that provides investment services to institutional and individual clients and registered investment companies. Dresdner RCM was established in April 1996 as the successor to the business and operations of RCM Capital Management, a California Limited Partnership that, with its predecessors, has been in operation since 1970. As of December 31, 1998, Dresdner RCM managed approximately $___ billion in assets. Walter C. Price and Huachen Chen, each Principals of Dresdner RCM, are the portfolio managers primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Dresdner RCM. Messrs. Price and Chen have managed equity portfolios on behalf of Dresdner RCM since 1985. Dresdner RCM's principal executive offices are located at Four Embarcadero Center, San Francisco, CA 94111.
ALLIANCE CAPITAL MANAGEMENT L.P. serves as sector adviser to the health sector of the Growth Stock Portfolio. Alliance, a registered investment adviser, is an international investment manager supervising client accounts with assets as of December 31, 1998 totaling approximately $286.7 billion. Alliance provides investment services primarily to corporate employee benefit funds, public employee retirement systems, investment companies, foundations, and endowment funds. The general partner of Alliance, Alliance Capital Management Corporation, is an indirect subsidiary of, and is controlled by, AXA, a French insurance holding company. Alliance Capital conducts no other business. Raphael L. Edelman, Vice President of Alliance, is the portfolio manager primarily responsible for the day-to-day management of those assets of the Growth Stock Portfolio allocated to Alliance. Mr. Edelman, who has sixteen years of investment experience, joined Alliance's research department in 1986 as an analyst after working two years as a manager in Alliance's mutual fund division. Alliance's principal executive offices are located at 1345 Avenue of the Americas, New York, NY 10105.
DISTRIBUTION PLAN
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act") describes the circumstances under which an investment company such as the Fund may, directly or indirectly, bear the expenses of distributing its shares. The Rule defines such distribution expenses to include the cost of any activity which is primarily intended to result in the sale of Fund shares.
The Distribution Plan permits, among other things, payment for distribution in the form of commissions and fees, advertising the services of public relations consultants, and direct solicitation. Possible recipients include securities brokers, attorneys, accountants, investment advisers, investment performance consultants, pension actuaries, and service organizations. Another class of recipients is banks. Currently, The Glass-Steagall Act and other applicable laws, among other things, prohibit banks from engaging in the business of underwriting, selling or distributing securities. Since the only function of banks who may be engaged as participating organizations, is to perform administrative and shareholder servicing functions, the Fund believes that such laws should not preclude banks from acting as participating organizations; however, future changes in either federal or state statutes or regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as judicial or administrative decisions or interpretations of statutes or regulations, could prevent a bank from continuing to perform all or a part of its shareholder service activities. If a bank were prohibited from so acting, its shareholder customers would be permitted to remain Fund shareholders and alternative means for continuing the servicing of such shareholders would be sought. In such event, changes in the operation of the Fund might occur and a shareholder being serviced by such bank might no longer be able to avail himself, or itself, of any automatic investment or other services then being provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law.
The Fund may expend as much as, but not more than, .20% of its average net assets annually pursuant to the Plan. A report of the amounts so expended by the Fund and the purpose of the expenditures must be made to and reviewed by the Board of Trustees at least quarterly. In addition, the Plan provides that it may not be amended to increase materially the costs which the Fund may bear for distribution pursuant to the Plan without shareholder approval of the Plan, and that other material amendments of the Plan must be approved by the Board of Trustees, and by the Trustees who are not "interested persons" of the Trust (as defined in the Act) and who have no direct or indirect financial interest in the operation of the Plan or in the related service agreements, by vote cast in person at a meeting called for the purpose of voting on the Plan.
The Plan is terminable at any time by vote of a majority of the Trustees who are not "interested persons" and who have no direct or indirect financial interest in the operation of the Plan or in any of the related service agreements or by vote of a majority of the Fund's shares. Any service agreement terminates upon assignment and is terminable without penalty at any time by a vote of a majority of the Trustees who are not "interested persons" and who have no direct or indirect financial interest in the operation of the Plan or in the related service agreements, upon not more than 60 days written notice to the service organization, or by the vote of the holders of a majority of the Fund's shares, or, upon 15 days notice, by a party to a service agreement.
The Plan was approved by the Trust's Board of Trustees who made a determination that there is a reasonable likelihood that the Plan will benefit the Fund. The Plan was approved by shareholders and it will continue in effect only if approved at least annually by the Board of Trustees. Although the objective of the Trust is to pay Consultants for a portion of the expenses they incur, and to provide them with some incentive to be of assistance to the Trust and its shareholders, no effort has been made to determine the actual expenses incurred by Consultants. If any Consultant's expenses are in excess of what the Trust pays, such excess will not be paid by the Trust. Conversely, if the Consultant's expenses are less than what the Trust pays, the Consultant is not obligated to refund the excess, and this excess could represent a profit for the Consultant.
The Trust has entered into an agreement with Walter L. Ogle whereby Mr. Ogle is paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. See "Compensation Table" for more information.
The Trust had entered into an agreement with Russel G. Means whereby Mr. Means was paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. See "Compensation Table" for more information.
Total payments made by the Fund to parties with service agreements for the year ended December 31, 1998 amounted to $________. In addition, expenditures were approved by the Board of Trustees in the amount of $________ for the printing and mailing of prospectuses, periodic reports and other sales materials to prospective investors; $_______ for advertising, $________ for the services of public relations and marketing consultants; and $______ for the cost of special telephone service to encourage 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, The Flex-Partners and the corresponding portfolios of the Flex-Partners and The Flex-funds (collectively, the "Fund Complex"). Unless otherwise noted, the business address of each Trustee and officer is 6000 Memorial Drive, Dublin, Ohio 43017, which is also the address of the Manager. Those Trustees who are "interested persons" (as defined in the Investment Company Act of 1940) by virtue of their affiliation with the Fund Complex, or the Fund Manager, are indicated by an asterisk (*).
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION
ROBERT S. MEEDER, SR.*+, 70 Trustee/President Chairman of R. Meeder &
Associates, Inc., an
investment adviser;
Chairman and Director of
Mutual Funds Service Co.,
the Funds' transfer agent.
MILTON S. BARTHOLOMEW, 70 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
each Fund's Audit
Committee.
ROGER D. BLACKWELL, 58 Trustee Professor of Marketing and
Blackwell Associates, Inc. Consumer Behavior, The
3380 Tremont Road Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.
ROBERT S. MEEDER, JR.*, 38 Trustee and President of R. Meeder &
Vice President Associates, Inc.
WALTER L. OGLE, 60 Trustee Executive Vice President
400 Interstate North Parkway of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.
34
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CHARLES A. DONABEDIAN, 56 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive provides a variety of
Suite 200 marketing and consulting
Milford, OH 45150 services to investment
management companies; CEO,
Winston Advisors, Inc., an
investment adviser.
JAMES W. DIDION, 68 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm
(1991-1997).
JACK W. NICKLAUS II, 38 Trustee Designer, Nicklaus Design,
11780 U.S. Highway #1 a golf course design firm
North Palm Beach, FL 33408 and division of Golden
Bear International, Inc.
PHILIP A. VOELKER*+, 45 Trustee and Vice Senior Vice President and
President Chief Investment Officer
of R. Meeder & Associates,
Inc.
JAMES B. CRAVER*, 55 Assistant Secretary Assistant Secretary and
42 Miller Hill Road Assistant Treasurer of
Box 811 Adviser Dealer Services,
Dover, MA 02030 Inc.; Practicing Attorney;
Special Counsel to
Flex-Partners, Flex-funds
and their Portfolios;
Senior Vice President of
Signature Financial Group,
Inc. (January 1991 to
August 1995).
DONALD F. MEEDER*+, 60 Secretary/Treasurer Vice President of R.
Meeder & Associates, Inc.;
Secretary of Mutual Funds
Service Co., the Funds'
transfer agent.
35
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WESLEY F. HOAG*+, 42 Vice President Vice President and General
Counsel of R. Meeder &
Associates, Inc. and
Mutual Funds Service Co.
(since July 1993);
Attorney, Porter, Wright,
Morris & Arthur, a law
firm (October 1984 to
June 1993).
RICHARD A. CLEMENS*+, 31 Assistant Treasurer Manager/Financial
Reporting, Mutual Funds
Service Co., the Funds'
transfer agent (since
March 1997); Manager,
Financial Administration,
BISYS Fund Services (May
1995 to February 1997);
Supervising Senior
Accountant, Ernst & Young
LLP (October 1990 to
May 1995)
|
* Interested Person of the Trust (as defined in the Investment Company Act of 1940), The Flex-funds, Flex-Partners and each Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F. Meeder's uncle.
The following table shows the compensation paid by the Portfolios and the Fund Complex as a whole to the Trustees of the Portfolios and the Fund Complex during the fiscal year ended December 31, 1998.
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Benefits from
Aggregate Accrued as Estimated Registrant and
Compensation Part of Annual Fund Complex
TRUSTEE from the Portfolio Benefits Upon Paid TO
PORTFOLIO(1) EXPENSE RETIREMENT TRUSTEE(1)(2)
----------- ------- ------------- -----------
Robert S. Meeder, Sr. None None None None
Milton S. Bartholomew $2,013 None None $13,525
Robert S. Meeder, Jr. None None None None
36
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John M. Emery $1,481 None None $9,867 Richard A. Farr $1,457 None None $9,367 Russel G. Means $1,207 None None $7,867(3) Walter L. Ogle $2,059 None None $14,525(4) Philip A. Voelker None None None None Roger A. Blackwell $2,016 None None $13,525 Charles A. Donabedian $1,791 None None $12,525 James Didion None None None None Jack W. Nicklaus II $1,050 None None $6,325 William L. Gurner None None None None Lowell G. Miller None None None None |
1 Compensation figures include cash and amounts deferred at the election of certain non-interested Trustees. For the calendar year ended December 31, 1998, participating non-interested Trustees accrued deferred compensation from the Portfolio as follows: Milton S. Bartholomew - $1,071, Roger A. Blackwell - $2,016, Charles A. Donabedian - $1,791, and Jack W. Nicklaus II - $1,050.
2 The Fund Complex consists of 15 investment companies.
3 The Trust had entered into an agreement with Russel G. Means whereby Mr. Means was paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. Mr. Means' compensation figure includes $_______ paid out by the Trust pursuant to this agreement.
4 The Trust has entered into an agreement with Walter L. Ogle whereby Mr. Ogle is paid for his assistance in explaining and interpreting the Funds, their investment objectives and policies, and the Trust's retirement plans to clients. Mr. Ogle's compensation figure includes $_______ paid out by the Trust pursuant to this agreement.
Each Trustee who is not an "interested person" is paid a meeting fee of $250 per meeting for each of the five Portfolios. In addition, each such Trustee earns an annual fee, payable quarterly, based on the average net assets in each Portfolio based on the following schedule: Money Market Portfolio, 0.0005% of the amount of average net assets between $500 million and $1 billion; 0.00025% of the amount of average net assets exceeding $1 billion. For the other four Portfolios, including the Portfolio, each Trustee is paid a fee of 0.00375% of the amount of each Portfolio's average net assets exceeding $15 million. Members of the Audit and Strategic Planning Committees for each of The Flex-Partners and The Flex-funds Trusts, and the Portfolios are paid $500 for each Committee meeting attended. Trustees fees for the Portfolio totaled $15,042 for the year ended December 31, 1998 ($9,598 in 1997). 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-FUNDS RETIREMENT PLANS
The Trust offers retirement plans which are described in the Prospectus. Minimum purchase requirements for retirement plan accounts are subject to the same requirements as regular accounts, except for an IRA, which has a $500 minimum purchase requirement. Information concerning contribution limitations for IRA accounts and Roth IRA accounts are described below.
INDIVIDUAL RETIREMENT ACCOUNTS (IRA):
DEDUCTIBLE CONTRIBUTIONS
All contributions (other than certain rollover contributions) must be made in cash and are subject to the following limitations:
REGULAR. Contributions to an IRA (except for rollovers or employer contributions under a simplified employee pension) may not exceed the amount of compensation includible in gross income for the tax year or $2,000, whichever is less. If neither you nor your spouse is an active participant in an employer plan, you may make a contribution up to this limit and take a deduction for the entire amount contributed. If you or your spouse is an active participant and your adjusted gross income (AGI) is below a certain level you may also make a contribution and take a deduction for the entire amount contributed. However, if you or your spouse is an active participant and your AGI is above the specified level, the dollar limit of the deductible contribution you make to your IRA may be reduced or eliminated.
Regular contributions are not allowed for the year in which you attain age 70-1/2 or for any year thereafter. You do not have to file an itemized federal tax return to take an IRA deduction. Deductions are not allowed for any contribution in excess of the deduction limit. Contributions for a year may be made during such year or by the tax return filing date for such year (not including extensions), if irrevocably designated for such year, in writing, when such contribution is made.
If you and your spouse each receive compensation during the year and are otherwise eligible, each of you may establish your own IRA. The contribution limits apply separately to the compensation of each of you, without regard to the community property laws of your state, if any.
SPOUSAL. You may make spousal IRA contributions for a year, if: 1) your spouse has "compensation" that is includible in gross income for such year; 2) you have less compensation than your spouse for such year; 3) you do not reach age 70-1/2 by the end of such year; and 4) you file a joint federal income tax return for such year.
If you are the compensated (or higher compensated) spouse, your contribution must be made in accordance with the regular contribution rules above. If you are the noncompensated (or lower compensated) spouse, your contribution may not exceed the lesser of $2,000 or 100% of the combined compensation of you and your spouse, reduced by the amount of your spouse's IRA contribution.
Contributions for your spouse must be made to a separate IRA established by your spouse as the depositor or grantor of his or her own IRA and your spouse becomes subject to all of the privileges, rules, and restrictions generally applicable to IRAs. This includes conditions of eligibility for distribution; penalties for premature distribution, excess accumulation (failure to take a required distribution) and prohibited transaction; designation of beneficiaries and distribution in the event of your spouse's death; income and estate tax treatment of withdrawals and distributions.
ADJUSTED GROSS INCOME (AGI). If you are an active participant or are considered an active participant, the amount of your AGI for the year (if you and your spouse file a joint tax return, your combined AGI) will be used to determine if you can make a deductible IRA contribution. The instructions for your tax return will show you how to calculate your AGI for this purpose. If you are at or below a certain AGI level, called the Threshold Level, you can make a deductible contribution under the same rules as a person who is not an active participant. This AGI level may change each year. The instructions for your tax return will show you the AGI level in effect for that year.
For example, if you are single, or treated as being single, your AGI Threshold Level is $30,000 for 1998. If you are married and file a joint tax return, your AGI Threshold Level is $50,000 for 1998. If you are not an active participant, but you file a joint tax return with your spouse who is an active participant, your AGI Threshold Level is $150,000. If you are married, file a separate tax return, and live with your spouse for any part of the year, your AGI Threshold Level is $0.
If your AGI is less than $10,000* above your AGI Threshold Level, you will still be able to make a deductible contribution, but it will be limited in amount. The amount by which your AGI exceeds your AGI Threshold Level (AGI minus AGI Threshold Level) is called your Excess AGI. The Maximum Allowable Deduction is $2,000 per individual. You may determine your Deduction Limit by using the following formula:
($10,000* - EXCESS AGI ) Maximum Allowable = Deduction
--------------------- X Deduction Limit
$10,000*
|
Round the result up to the next higher multiple of $10 (the next higher whole dollar amount that ends in zero). If the final result is below $200, but above zero, your Deduction Limit is $200. Your Deduction Limit cannot exceed 100% of your compensation.
*For years after 2006, $20,000 if you are married, filing jointly.
NONDEDUCTIBLE CONTRIBUTIONS
Eligibility - Even if your deduction limit is less than $2,000, you may still contribute using the rules in the "Deductible Contributions" section above. The portion of your IRA contribution that is not deductible will be a nondeductible contribution. You may choose to make a nondeductible IRA contribution even if you could have deducted part or all of the contribution. Generally, interest or other earnings on your IRA contribution, whether from deductible or nondeductible contributions, will not be taxed until distributed from your IRA.
Rollover Contributions - Individuals who receive certain lump-sum distributions from employer-sponsored retirement plans may make rollover contributions to an IRA and by doing so defer taxes on the distribution and shelter any investment earnings.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS (ROTH IRA):
CONTRIBUTIONS:
All contributions must be made in cash and are subject to the following limitations:
REGULAR. Contributions to a Roth IRA (except for rollovers) cannot exceed the amount of compensation includible in gross income for the tax year or $2,000, whichever is less. If our adjusted gross income (AGI) is below a certain level, you may contribute the maximum amount. However, if your AGI is above a specified level, the dollar limit of the contribution you make to your Roth IRA may be reduced or eliminated.
If you are single, and your adjusted gross income (AGI) is $95,000 or less ($150,000 or less if married and filing jointly, or $0 or less if married and filing separately) you are eligible to contribute the full amount to a Roth IRA.
Contributions to a Roth IRA are aggregated with Traditional IRA contributions for the purpose of the annual contribution limit. Therefore, you may contribute up to the lesser of $2,000 or 100% of earned income per year to a Traditional IRA and a Roth IRA combined.
SPOUSAL. You may make spousal Roth IRA contributions for a year, if: 1)
your spouse has "compensation" that is includible in gross income for such year;
2) you have less compensation than your spouse for such year; and 3) you file a
joint federal income tax return for such year.
If you are the higher compensated spouse, your contribution must be made in accordance with the regular contribution rules above. If you are the noncompensated (or lower compensated) spouse, your contribution may not exceed the lesser of $2,000 or 100% of the combined compensation of you and your spouse, reduced by the amount of your spouse's Roth IRA contribution.
Contributions for your spouse must be made to a separate Roth IRA established by your spouse as the depositor or grantor of his or her own Roth IRA and your spouse becomes subject to all of the privileges, rules, and restrictions generally applicable to Roth IRAs. This includes conditions of eligibility for distribution; designation of beneficiaries and distribution in the event of your spouse's death; tax treatment of withdrawals and distributions. This form may be used to establish such Roth IRA.
NO MAXIMUM AGE LIMIT. There is no maximum age limit for making a Roth IRA contribution. Attainment of age 70 1/2 does not prevent you from contributing to a Roth IRA.
APRIL 15 FUNDING DEADLINE. Contributions to a Roth IRA for the previous tax year must be made by the tax-filing deadline (not including extensions) for filing your federal income tax return. If you are a calendar-year taxpayer, your deadline is usually April 15. If April 15 falls on a Saturday, Sunday, or legal holiday, the deadline is the following business day.
LOWER CONTRIBUTION LIMITS. To determine the maximum contribution to a Roth IRA if your AGI is between $95,000 and $110,000 (between $150,000 and $160,000 if married, filing jointly or between $0 and $10,000 if married, filing separately), the following steps must be taken:
(a) Subtract your AGI from $110,000 ($160,000 if married, filing jointly; $10,000 if married, filing separately).
(b) Multiply the result in Step `a' by .1333 (.20 if married).
(c) If the result in Step `b' is not a multiple of $10, round up to the next multiple of $10.
(d) The result in Step `c' is your allowable contribution limit. If it is more than $0, but less that $200, your allowable contribution limit is $200.
INDIVIDUALS NOT ELIGIBLE TO MAKE CONTRIBUTIONS. If you are a single taxpayer and your AGI is $110,000 or above ($160,000 or above if married and filing jointly, or $10,000 or above if married and filing separately), you are
not permitted to make a Roth IRA contribution for the year. For this purpose, a deductible Traditional IRA contribution is not allowed as a deduction in computing AGI, and any amount of a rollover-conversion from a Traditional IRA to a Roth IRA is not taken into account. Whether an individual, or his spouse, is an active participant in an employer retirement plan is irrelevant for determining whether he may make a Roth contribution.
EXCESS ROTH CONTRIBUTIONS. Excess contributions to a Roth IRA are subject to a 6% penalty tax unless removed (along with attributable earnings) by your tax-filing deadline (plus extensions). An excess contribution could occur for many reasons including, for example, if you contribute more than $2,000 or 100% of earned income, or if you are not permitted to make a Roth contribution because your AGI is too high.
CONVERSION OF TRADITIONAL CONTRIBUTIONS TO ROTH CONTRIBUTIONS. Generally, if you make a contribution to a Traditional IRA, you may transfer the contribution plus attributable earnings to a Roth IRA by your tax-filing deadline (not including extensions). The transferred contribution amount is not taxable if no deduction was allowed for the contribution. Such a contribution is treated as a Roth IRA contribution.
ROLLING OVER/CONVERTING TRADITIONAL IRAS TO ROTH IRAS
You are allowed to roll over, transfer, or "convert" your Traditional IRAs to Roth IRAs beginning in 1998. Regardless of whether a Traditional IRA is rolled over/converted to a Roth IRA in 1998 or afterwards, the rollover/conversion amount is subject to federal income taxation (but no 10% penalty tax).
$100,000 AGI LIMIT FOR ROLLOVER. If you are a single taxpayer, or a married individual who files jointly, you may roll over, transfer, or convert your Traditional IRAs to Roth IRAs if your AGI is $100,000 or less. If you are a single taxpayer (or a married individual who files jointly) with AGI of more than $100,000 you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs. Also, if you are a taxpayer who is married, but files separately, you may not roll over, transfer, or convert your Traditional IRAs to Roth IRAs regardless of AGI.
ROLLOVER/CONVERSION AFTER 1998. If you roll over a Traditional IRA distribution received after 1998 to a Roth IRA, the taxable portion of the Traditional IRA distribution is included in your income for the year in which the Traditional IRA distribution is received, but the amount is not subject to the IRS 10% early distribution penalty. No special tax treatments apply.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio 43017, a wholly owned subsidiary of Muirfield Investors, Inc. and a sister company of R. Meeder & Associates, Inc., provides accounting, administrative, 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, 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, 1998, total payments to Mutual Funds Service Co. by the Fund and the Portfolio amounted to $________ and $________, respectively.
ADDITIONAL INFORMATION
CUSTODIAN. Star Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is custodian of the assets of the Portfolio. The custodian is responsible for the safekeeping of the Portfolio's assets and the appointment of subcustodian banks and clearing agencies. The custodian takes no part in determining the investment policies of the Portfolio or in deciding which securities are purchased or sold by the Portfolio. The Portfolio may, however, invest in obligations of the custodian and may purchase or sell securities from or to the custodian.
AUDITORS. KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215, serves as the trust's independent auditors. The auditors audit financial statements for the Fund and provide other assurance, tax, and related services.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of January 31, 1999, no persons owned 5% or more of the Fund's outstanding shares of beneficial interest.
FINANCIAL STATEMENTS
The audited Financial Statements and the Notes thereto for the Fund and the Portfolio, and the auditor's reports of KPMG LLP, independent auditors, are presented on the following pages.
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust (effective December 30, 1991) -- filed as an exhibit to Registrant's Post-Effective Amendment No. 18 on January 16, 1992, which exhibit is incorporated herein by reference.
(b) By-laws of the Trust -- filed as an exhibit to Registrant's Post-Effective Amendment No. 18 on January 16, 1992, which exhibit is incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Deferred Compensation Plan for Independent Trustees is filed herewith.
(g) Custodian Agreement -- filed as an exhibit to Registrant's Post-Effective Amendment No. 16 on April 9, 1991, which exhibit is incorporated herein by reference.
(h) Administrative Services Agreement between The Flex-funds and Mutual Funds Service Co.--filed as an Exhibit to Registrant's Post-Effective Amendment No. 31 on or about February 28, 1995, which exhibit is incorporated by reference herein.
(i) Opinion and Consent of Counsel - filed as an exhibit to Registrant's First Pre-effective Amendment to the Registration Statement on Form N-1A filed with the Commission on July 20, 1982, which exhibit is incorporated herein by reference.
(j) Consent of KPMG LLP, Independent Auditors, to be filed by amendment.
(k) Not applicable.
(l) Agreements etc. for initial capital, etc. -- reference is made to Part II, Item 1(b)(13) of Registrant's First Pre-effective Amendment to the Registration Statement on Form N-1 filed with the Commission on or about July 20, 1982, and is incorporated herein by reference.
(m) 12b-1 Plans for The Highland Growth Fund, The U.S. Government Bond Fund and The Money Market Fund -- reference is made to the exhibits referred to in Part C, Item 24(b)(15) of Registrant's Third Post-Effective Amendment to the Registration Statement on Form N-1A filed with the Commission on or about March 1, 1985, and is incorporated herein by reference. The 12b-1 Plan for The Muirfield Fund was filed as an exhibit to Registrant's 10th Post-Effective Amendment to Form N-1A filed with the Commission on August 5, 1988, and is incorporated herein by reference.
(n) Financial Data Schedules for the Highland Growth Fund, The U.S. Government Bond Fund, The Money Market Fund and The Muirfield Fund to be filed by amendment.
(o) Not applicable.
(p) Powers of Attorney of Trustees of Registrant and each Portfolio are incorporated by reference herein; however, Powers of Attorney of new Trustees of Registrant and each Portfolio are filed herewith.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
Item 25. INDEMNIFICATION
Reference is made to Section 5.3 of the Declaration of Trust filed as an original exhibit to Registrant's Post-Effective Amendment No. 18 on January 16, 1992. As provided therein, the Trust is required to indemnify its officers and trustees against claims and liability arising in connection with the affairs of the Trust, except liability arising from breach of trust, bad faith, willful misfeasance, gross negligence or reckless disregard of duties. The Trust is obligated to undertake the defense of any action brought against any officer, trustee or shareholder, and to pay the expenses thereof if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Trust, and with respect to any criminal action had no reasonable cause to believe his conduct was unlawful. Other conditions are applicable to the right of indemnification as set forth in the Declaration of Trust. In applying these provisions, the Trust will comply with the provisions of the Investment Company Act.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not applicable.
Item 27. PRINCIPAL UNDERWRITERS.
Not applicable.
Item 28. LOCATION OF ACCOUNTS AND RECORDS.
Registrant's Declaration of Trust, By-laws, and Minutes of Trustees' and Shareholders' Meetings, and contracts and like documents are in the physical possession of Mutual Funds Service Co., or R. Meeder & Associates, Inc., at 6000 Memorial Drive, Dublin, Ohio 43017. Certain custodial records are in the custody of Star Bank, N.A., the Trust's custodian, at 425 Walnut Street, Cincinnati, Ohio 45202. All other records are kept in the custody of R. Meeder & Associates, Inc. and Mutual Funds Service Co., 6000 Memorial Drive, Dublin, OH 43017.
Item 29. MANAGEMENT SERVICES.
None
Item 30. UNDERTAKINGS.
Registrant undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of one or more
directors, if requested to do so by the holders of at least 10% of the Registrant's outstanding shares, and will assist communications among shareholders as set forth within Section 16(c) of the 1940 Act.
Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Dublin, and the State of Ohio on the 28th day of February, 1999.
THE FLEX-FUNDS
BY: /s/ Donald F. Meeder ---------------------------- Donald F. Meeder, Secretary/Treasurer |
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Donald F. Meeder
Date Signed: February 28, 1999 -------------------------------------
Donald F. Meeder, Secretary/Treasurer
|
As Attorney-in-Fact pursuant to Special Powers of Attorney, for Robert S. Meeder, Sr., Milton S. Bartholomew, Roger D. Blackwell, Charles A. Donabedian, James W. Didion, Robert S. Meeder, Jr., Jack W. Nicklaus II, Walter L. Ogle and Philip A. Voelker Trustees of The Flex-funds
/s/ Donald F. Meeder
---------------------------------
Date Signed: February 28, 1999 Donald F. Meeder, Attorney-in-Fact
|
SIGNATURES
Mutual Fund Portfolio (the "Portfolio") has duly caused this Post-Effective Amendment to the Registration on Form N-1A of The Flex-funds (File No. 2-85378) to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dublin and State of Ohio on the 28th day of February, 1999.
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-funds (File No. 2-85378) has been signed below by the following persons in the capacities with respect to the Portfolio indicated on February 28, 1999.
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. BLACKWELL
James W Didion* Trustee
--------------------------
JAMES W. DIDION
Charles A. Donabedian* Trustee
--------------------------
CHARLES A. DONABEDIAN
Thomas E. Line* Principal Financial Officer and
-------------------------- Principal Accounting Officer
THOMAS E. LINE
/S/ Donald F. Meeder Secretary/Treasurer
--------------------------
DONALD F. MEEDER
Robert S. Meeder, Jr.* Vice President and Trustee
--------------------------
ROBERT S. MEEDER, JR.
Jack W. Nicklaus II* Trustee
--------------------------
JACK W. NICKLAUS II
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
SIGNATURES
Growth Stock Portfolio (the "Portfolio") has duly caused this Post-Effective Amendment to the Registration on Form N-1A of The Flex-funds (File No. 2-85378) to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dublin and State of Ohio on the 28th day of February, 1999.
GROWTH STOCK PORTFOLIO
By: /S/DONALD F. MEEDER
--------------------------
Donald F. Meeder
|
This Post-Effective Amendment to the Registration Statement on Form N-1A of The Flex-funds (File No. 2-85378) has been signed below by the following persons in the capacities with respect to the Portfolio indicated on February 28, 1999.
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. BLACKWELL
James W Didion* Trustee
--------------------------
JAMES W. DIDION
Charles A. Donabedian* Trustee
--------------------------
CHARLES A. DONABEDIAN
Thomas E. Line* Principal Financial Officer and
-------------------------- Principal Accounting Officer
THOMAS E. LINE
/S/ Donald F. Meeder Secretary/Treasurer
--------------------------
DONALD F. MEEDER
Robert S. Meeder, Jr.* Vice President and Trustee
--------------------------
ROBERT S. MEEDER, JR.
Jack W. Nicklaus II* Trustee
--------------------------
JACK W. NICKLAUS II
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
SIGNATURES
Money Market Portfolio (the "Portfolio") has duly caused this Post-Effective Amendment to the Registration on Form N-1A of The Flex-funds (File No. 2-85378) to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dublin and State of Ohio on the 28th day of February, 1999.
MONEY MARKET PORTFOLIO
By: /S/DONALD F. MEEDER
-------------------------
Donald F. Meeder
|
This Post-Effective Amendment to the Registration Statement on Form N-1A of The Flex-funds (File No. 2-85378) has been signed below by the following persons in the capacities with respect to the Portfolio indicated on February 28, 1999.
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. BLACKWELL
James W Didion* Trustee
--------------------------
JAMES W. DIDION
Charles A. Donabedian* Trustee
--------------------------
CHARLES A. DONABEDIAN
Thomas E. Line* Principal Financial Officer and
-------------------------- Principal Accounting Officer
THOMAS E. LINE
/S/ Donald F. Meeder Secretary/Treasurer
--------------------------
DONALD F. MEEDER
Robert S. Meeder, Jr.* Vice President and Trustee
--------------------------
ROBERT S. MEEDER, JR.
Jack W. Nicklaus II* Trustee
--------------------------
JACK W. NICKLAUS II
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
SIGNATURES
Bond Portfolio (the "Portfolio") has duly caused this Post-Effective Amendment to the Registration on Form N-1A of The Flex-funds (File No. 2-85378) to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dublin and State of Ohio on the 28th day of February, 1999.
BOND PORTFOLIO
By: /S/ DONALD F. MEEDER
-------------------------
Donald F. Meeder
|
This Post-Effective Amendment to the Registration Statement on Form N-1A of The Flex-funds (File No. 2-85378) has been signed below by the following persons in the capacities with respect to the Portfolio indicated on February 28, 1999.
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. BLACKWELL
James W Didion* Trustee
--------------------------
JAMES W. DIDION
Charles A. Donabedian* Trustee
--------------------------
CHARLES A. DONABEDIAN
Thomas E. Line* Principal Financial Officer and
-------------------------- Principal Accounting Officer
THOMAS E. LINE
/S/ Donald F. Meeder Secretary/Treasurer
--------------------------
DONALD F. MEEDER
Robert S. Meeder, Jr.* Vice President and Trustee
--------------------------
ROBERT S. MEEDER, JR.
Jack W. Nicklaus II* Trustee
--------------------------
JACK W. NICKLAUS II
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 23(F)
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
SECTION 1. PURPOSE OF PLAN. The purpose of this Deferred Compensation Plan
(the "Plan") is to permit each Eligible Trustee (as that term is defined below)
of the Funds (as that term is defined below) to defer receipt of all or a
portion of the trustee fees payable by any of the Funds until the time set forth
herein.
SECTION 2. DEFINITIONS OF TERMS AND CONSTRUCTION
2.1 DEFINITIONS. The following terms as used in this Plan shall have the following meanings:
(a) "Administrator" shall mean the Treasurer of the Funds.
(b) "Beneficiary" shall mean such person or persons designated pursuant to Section 5.3 hereof to receive benefits after the death of an Eligible Trustee.
(c) "Boards of Trustees" shall mean the respective Boards of Trustees of the Funds.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.
(e) "Compensation" shall mean the amount of trustees' fees (including fees earned by an Eligible Trustee for serving as a member of any committee of any of the Boards of Trustees) paid by each of the Funds to an Eligible Trustee for a Deferral Year prior to reduction for Deferrals made under this Plan.
(f) "Deferral" shall mean the amount or amounts of an Eligible Trustee's Compensation deferred under the provisions of Section 4 of this Plan.
(g) "Deferral Account" shall mean the account maintained to reflect an Eligible Trustee's Deferrals made pursuant to Section 4 hereof and any other credits or debits thereto.
(h) "Deferral Election" shall mean the Eligible Trustee's annual election to defer his Compensation under Plan Section 4.1(a).
(i) "Deferral Year" shall mean each calendar year (or the period beginning on the effective date of the Plan and ending on
December 31 of the calendar year in which the Plan becomes effective) during which an Eligible Trustee makes, or is entitled to make, Deferrals under Section 4 hereof.
(j) "Eligible Trustee" shall mean a member of the Board of Trustees who is not an "interested person" of the Funds, as such term is defined under Section 2(a)(19) of the Investment Company Act of 1940, as amended.
(k) "Funds" shall mean the following open-end registered investment companies: the Money Market Portfolio, Bond Portfolio, Growth Stock Portfolio, Utility Stock Portfolio and Mutual Fund Portfolio; The Flex-funds' Money Market Fund, U.S. Government Bond Fund, Highlands Growth Fund, Muirfield Fund, and Total Return Utilities Fund; The Flex-Partners' International Equity Fund; and such other open-end registered investment companies (i) for which R. Meeder & Associates, Inc. (the "Adviser") may in the future serve as investment adviser or (ii) which invest all of their investable assets in an investment company so served by the Adviser, and whose Board of Trustees shall adopt this Plan.
(l) "Hardship and Unforeseeable Emergency" shall mean a severe financial hardship to an Eligible Trustee resulting from a sudden and unexpected illness or accident of the Eligible Trustee or a dependent (within the meaning of Section 152(a) of the Code), of the Eligible Trustee, loss of the Eligible Trustee's property due to casualty, or other similar extraordinary and unforeseeable circumstances, arising from events beyond the Eligible Trustee's control. Whether circumstances constitute a Hardship and Unforeseeable Emergency depends on the facts of each case, as determined by the Administrator, but in any case does not include a hardship that may be relieved:
(i) through reimbursement or compensation by insurance of otherwise;
(ii) by liquidation of the Eligible Trustee's assets to the extent that liquidation itself would not cause such a severe financial hardship; or
(iii) by ceasing to defer receipt of any compensation not yet earned.
(m) "Separation from Service" shall mean the date on which an Eligible Trustee ceases to be a member of any of the Boards of Trustees.
(n) "Valuation Date" shall mean the last business day of each calendar year and any other day upon which the Funds make a valuation of the Deferral Account.
2.2 PLURALS AND GENDER. Where appearing in this Plan the singular shall include the plural and the masculine shall include the feminine, and vice versa, unless the context clearly indicates a different meaning.
2.3 HEADINGS. The headings and subheadings in this Plan are inserted for the convenience of reference only and are to be ignored in any construction of the provisions hereof.
SECTION 3. PERIOD DURING WHICH DEFERRALS ARE PERMITTED
3.1 COMMENCEMENT OF VOLUNTARY DEFERRALS. An Eligible Trustee may elect, on a form provided by, and submitted to, the Administrator, to commence voluntary Deferrals under Section 4.1(a) hereof for the period beginning on the date such form is submitted to the Administrator.
3.2 TERMINATION OF DEFERRALS. An Eligible Trustee shall not be eligible for Deferrals after the earlier of the following dates:
(a) his Separation from Service; or
(b) The effective date of the termination of this Plan.
SECTION 4. DEFERRALS
4.1 VOLUNTARY DEFERRAL ELECTIONS.
(a) Prior to the effective date of this Plan or the day the Eligible Trustee first becomes eligible under this Plan and, for subsequent Deferral Years, prior to the first day of the Deferral Year, an Eligible Trustee may elect to defer the receipt of all or a portion of his Compensation. Such election shall be made on the form described in Section 3.1 hereof and shall set forth the amount of such deferral (in whole percentage amounts). Such election shall continue in effect for all subsequent Deferral Years unless it is canceled or modified as provided below.
(b) Deferrals described in Section 4.1(a) above shall be withheld, based upon the percentage amount elected, from each payment of Compensation which the Eligible Trustee would otherwise have been entitled but for his election in Section 4.1(a).
(c) The Eligible Trustee may cancel or modify the amount of his deferral elected under Section 4.1(a) on a prospective basis by submitting to the Administrator a revised Deferral election form. Such change will be effective as of the first day of the Deferral Year following the date such revision is submitted to the Administrator.
(d) The Eligible Trustee's Deferral Account shall be a bookkeeping entry only, and each Fund paying Compensation shall fund the Deferral Account.
4.2 VALUATION OF DEFERRAL ACCOUNT
(a) Each Fund paying Compensation shall establish a bookkeeping Deferral Account to which will be credited an amount equal to the Eligible Trustee's Deferrals under this Plan. Deferrals shall be allocated to the Deferral Account on the first business day following the date such Deferrals are withheld from the Eligible Trustee's Compensation. The Deferral Account shall be debited to reflect any distributions from such Deferral Account. Such debits shall be allocated to the Deferral Account as of the date such distributions are made.
(b) As of each Valuation Date, income, gain and loss equivalents (resulting from the Deferral Account being invested in the manner set forth under Section 4.3 below) attributable to the period following the next preceding Valuation Date shall be credited to and/or deducted from the Eligible Trustee's Deferral Account.
4.3 RETURN ON DEFERRAL ACCOUNT BALANCE
(a) (i) For purposes of measuring the investment return on an Eligible Trustee's Deferrals, a dollar amount equivalent to the Eligible Trustee's Deferrals shall be invested and reinvested in one or more of the Funds, effected at such Fund or Funds' current net asset value on the date the Eligible Trustee's Deferrals are credited to the Deferral Account. The Funds used as a basis for determining the investment return shall be designated by the Eligible Trustee on a form provided by the Administrator. The Eligible Trustee's Deferrals shall be credited with a return (positive or negative) equal to the rate of return on shares of the Funds selected, assuming reinvestment of dividends and distributions from the Funds.
(ii) The Eligible Trustee shall make a designation of one or more of the Funds on a form provided by the Administrator which shall remain effective until another valid direction has been made by the Eligible Trustee as herein provided. The Eligible Trustee may amend his designation of investment return as of the end of any calendar quarter by giving written direction to the Administrator at least 15 days prior to the end of such quarter. A timely change to an Eligible Trustee's designation of investment return shall become effective on the first day of the calendar quarter following receipt by the Administrator.
(iii) The investment alternatives made available to the Eligible Trustee shall be the same as from time to time are communicated to the Eligible Trustee by the Administrator.
(b) Except as provided below, the Eligible Trustee's Deferral Account shall receive a return in accordance with his investment designations, provided such designations conform to the provisions of this Section. If
(i) the Eligible Trustee does not furnish the Administrator with a written designation,
(ii) the written designation from the Eligible Trustee is unclear, or
(iii) less than all of the Eligible Trustee's Deferral Account is covered by such written designation,
then the entire amount of the Eligible Trustee's Deferral Account shall be invested in The Money Market Fund until such time as the Eligible Trustee shall provide the Administrator with instructions.
The Fund shall provide a statement to the Eligible Trustee quarterly showing such information as is appropriate, including the aggregate amount in the Deferral Account, as of a reasonably current date.
SECTION 5. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
5.1 ELIGIBLE TRUSTEE'S ELECTION. An Eligible Trustee shall elect at the time of his Deferral Election to have the total amount in the Deferral Account, if any, and the amount of Deferrals for the Deferral Year, plus applicable investment return, deferred for any number of whole years, greater than two, specified by the Eligible Trustee in such Deferral Election; provided, however, that the distribution may in no event be deferred beyond the Eligible Trustee's Separation from Service. He shall also elect the form of distribution:
(a) Lump sum; or
(b) Generally equal annual installments over a period of up to ten
(10) years.
Such distributions shall commence within ninety (90) days subsequent to the Valuation Date of the last year of the deferral period elected by the Eligible Trustee above.
The time period for deferrals and/or the form of distribution may be amended annually based on mutual agreement between the Eligible Trustee and the Funds. Any such amendment shall become effective one year following the date the amendment is submitted to the Administrator and the amendment shall apply to the entire amount in the Deferral Account on the effective date. Any such agreement shall be attached to the amendment.
5.2 ACCELERATION OF DISTRIBUTION. Notwithstanding the foregoing, in the event of the liquidation, dissolution or winding up of a Fund or the distribution of all or substantially all of a Fund's assets and property to its shareholders, or in the event of a merger or reorganization of a Fund (unless prior to such merger or reorganization, the Board of Trustees determines that the Plan shall survive the merger or reorganization), all unpaid amounts in the Deferral Accounts maintained by a Fund as of the effective date thereof shall be paid in a lump sum to the Eligible Trustees on the effective date of such liquidation, dissolution, winding up, distribution, merger, or reorganization. For purposes of this Section 5.2, the Valuation Date will be the effective date of the liquidation, dissolution, winding up, distribution, merger, or reorganization.
5.3 DEATH PRIOR TO COMPLETE DISTRIBUTION OF DEFERRAL ACCOUNT. Upon the death of the Eligible Trustee prior to the commencement of the distribution of the amounts credited to his Deferral Account, the balance of such Account shall be distributed to his Beneficiary in a lump sum as soon as practicable after the Eligible Trustee's death. In the event of the death of the Eligible Trustee after the commencement of such distribution, but prior to the complete distribution of his Deferral Account, the balance of the amounts credited to his Deferral Account shall be distributed to his Beneficiary over the remaining period during which such amounts were distributable to the Eligible Trustee under Section 5.1 hereof. Notwithstanding the above, the Board of Trustees, in its sole discretion, may accelerate the distribution of the Deferral Account.
5.4 HARDSHIP AND UNFORESEEABLE EMERGENCY. An Eligible Trustee may request at any time a withdrawal of part or all of the amount then credited to his Deferral Account on account of Hardship and Unforeseeable Emergency by submitting a written request to the Administrator accompanied by evidence that his financial condition constitutes a Hardship and Unforeseeable Emergency. The Administrator shall review the Eligible Trustee's request and determine the extent, if any, to which such request is justified. Any such withdrawal shall be limited to an amount reasonably necessary to meet the Hardship and Unforeseeable Emergency, but not more than the amount of benefit to which the Eligible Trustee would be entitled if his service as trustee were terminated. The Eligible Trustee shall make any such request on a form provided by, and submitted to, the Administrator.
5.5 CHANGE IN CONTROL
(a) Notwithstanding anything herein to the contrary, in the event of a "Change in Control" of a Fund's investment adviser, the Board of Trustees may accelerate or extend the payment of all amounts credited to the Deferral Accounts of the Eligible Trustees.
(b) The term "Change in Control" shall mean a change in "control" as defined in section 2(a)(9) of the Investment Company Act of 1940.
5.6 DESIGNATION OF BENEFICIARY. For the purposes of Section 5.3 hereof, the Eligible Trustee's Beneficiary shall be the person or persons so designated by the Eligible Trustee in a written instrument submitted to the Administrator. The Beneficiary may be changed at any time by the Eligible Trustee's submission of such a written instrument to the Administrator. In the event the Eligible Trustee fails to properly designate a Beneficiary or if his Beneficiary predeceases him, then his beneficiary shall be his surviving spouse or, if none, his estate.
SECTION 6. AMENDMENTS AND TERMINATION
6.1 AMENDMENTS. The Funds reserve the right to amend, in whole or in part, and in any manner, any or all of the provisions of this Plan by action of their Boards of Trustees, except that if any amendment adversely affects the accrued rights of an Eligible Trustee, such amendment shall not be effective without the consent of the Trustee.
6.2 TERMINATION. The Funds may terminate this Plan at any time. The Eligible Trustees' Deferral Accounts shall become payable as of the Valuation Date next following the effective date of the termination of this Plan.
SECTION 7. MISCELLANEOUS
7.1 RIGHTS OF CREDITORS
(a) This Plan is unfunded. Neither an Eligible Trustee nor any other persons shall have any interest in any specific asset or assets of the Funds by reason of any Deferral Account hereunder, nor any rights to receive distribution of his Deferral Account except and to the extent expressly provided hereunder. In order to cover their obligations hereunder, the Funds will purchase investments. These investments shall continue for all purposes to be a part of the general assets and property of the Funds, subject to the claims of its general creditors and no persons other than the Funds shall by virtue of the provisions of this Plan have any interest in such assets other than an interest as a general creditor of the Funds.
(b) The rights of an Eligible Trustee and the Beneficiaries to the amounts held in the Deferral Account are unsecured and such amounts shall be subject to the claims of the creditors of the Funds. With respect to the payment of amounts held under the Deferral Account, the Eligible Trustee and his Beneficiaries have the status of unsecured creditors of the Funds. This Plan is executed on behalf of the Funds by an officer of the Funds as such and not individually. Any obligation of the Funds hereunder shall be an unsecured obligation of the Funds and not of any other person.
7.2 AGENTS. The Funds may employ agents and provide for such clerical, legal, actuarial, accounting, advisory or other services as it deems necessary to perform its duties under this Plan. The Funds shall bear the cost of such services and all other expenses it incurs in connection with the administration of this Plan.
7.3 LIABILITY AND INDEMNIFICATION. Except for their own negligence, willful misconduct or willful breach of the terms of this Plan, the Funds shall be indemnified and held harmless by the Eligible Trustees against liability or losses occurring by reason of any act or omission of the Funds or any other person, relating to this Plan.
7.4 INCAPACITY. If the Funds shall receive evidence satisfactory to them that an Eligible Trustee or any Beneficiary entitled to receive any benefit under the Plan is, at the time when such benefit becomes payable, a minor, or is physically or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of the Eligible Trustee or Beneficiary and that no guardian, committee or other representative of the estate of the Eligible Trustee or Beneficiary shall have been duly appointed, the Funds may make payment of such benefit otherwise payable to the Eligible Trustee or Beneficiary to such other person or institution, including a custodian under a Uniform Gifts to Minors Act, or corresponding legislation (who shall be an adult, a guardian of the minor or a trust company), and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit.
7.5 GOVERNING LAW. This Plan is made and entered into in the State of Ohio and all matters concerning its validity, construction and administration shall be governed by the laws of the State of Ohio.
7.6 NON-GUARANTEE OF TRUSTEESHIP. Nothing contained in this Plan shall be construed as a contract or guarantee of the right of an Eligible Trustee to be, or remain as, a trustee of any of the Funds or to receive any, or any particular rate of, Compensation.
7.7 COUNSEL. The Funds may consult with legal counsel with respect to the meaning or construction of this Plan, its obligations or duties hereunder or with respect to any action or proceeding or any question of law, and it shall be fully protected with respect to any action taken or omitted by it in good faith pursuant to the advice of legal counsel.
7.8 INTERESTS NOT TRANSFERABLE. An Eligible Trustee's and Beneficiaries' interests in the Deferral Account may not be anticipated, sold, encumbered, pledged, mortgaged, charged, transferred, alienated, assigned nor become subject to execution, garnishment or attachment and any attempt to do so by any person shall be deemed null and void. The Funds shall not recognize the rights of any party under this Plan except those of the Eligible Trustee or his Beneficiary.
7.9 ENTIRE AGREEMENT. This Plan contains the entire understanding between the Funds and the Eligible Trustees with respect to the payment of non-qualified deferred compensation by the Funds to the Eligible Trustees.
7.10 INTERPRETATION OF PLAN. Interpretations of, and determinations related to, this Plan made by the Funds in good faith, including any determinations of the amounts of the Deferral Account, shall be conclusive and binding upon all parties; and the Funds shall not incur any liability to an Eligible Trustee for any such interpretation or determination so made or for any other action taken by it in connection with this Plan in good faith.
7.11 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon, and shall inure to the benefit of, the Funds and their successors and assigns and to the Eligible Trustees and their heirs, executors, administrators and personal representatives.
7.12 SEVERABILITY. In the event any one or more provisions of this Plan are held to be invalid or unenforceable, such illegality or unenforceability shall not affect the validity or enforceability of the other provisions hereof and such other provisions shall remain in full force and effect unaffected by such invalidity or unenforceability.
IN WITNESS WHEREOF, the Funds have caused this Plan to be executed by one of their duly authorized officers, this ________ day of _____________________,
1997.
[FUNDS]
By:
-------------------------------- ----------------------------------
Witness
Name:
----------------------------------
Title:
----------------------------------
|
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
Under the Deferred Compensation Plan for Independent Trustees (the "Plan"), I hereby make the following elections:
I. DEFERRAL OF COMPENSATION
You may elect to defer up to 100 percent of your Compensation (as defined under the Plan), in whole percentage amounts.
Starting August 6, 1998 and for each year thereafter (unless subsequently amended by completion of a new election form), you may elect any percentage portion of your Compensation to be credited to your Deferral Account under the Plan. The Deferral Account shall be further credited with a return on the Deferral Account balance as provided under the Plan.
II. ELECTION OF DEFERRAL PERIOD
You are required under the Plan to elect the time period for which Deferrals
(plus applicable investment return) are to be deferred. Such election shall
specify either (a) a number of years for the deferral, to be not less than two
(2) years, or (b) that the deferral continue until your Separation from Service.
I hereby make the following elections regarding my Deferrals under the Plan:
III. FORM OF DISTRIBUTION
You are required to elect the form of distribution, which may be either (a) a lump sum or (b) generally equal annual installments over a period of up to ten years.
|_| a lump sum; or
|_| generally equal annual installments over ___ years (not to exceed 10 years)
The time period for deferrals under II above and/or the form of distribution under III above may be amended annually based on mutual agreement between the Eligible Trustee and the Funds. Any such amendment shall become effective one year following the date the amendment is submitted to the Administrator and the amendment shall apply to the entire amount in the Deferral Account on the effective date. Any such agreement shall be attached to this Form.
I understand that the amounts held in the Deferral Account shall remain the general assets of the Funds and that, with respect to the payment of such amounts, I am merely a general creditor of the Funds. I may not sell, encumber, pledge, assign or otherwise alienate the amounts held under the Deferral Account.
I hereby agree that the terms of the Plan are incorporated herein and are made a part hereof.
------------------------------- --------------------------------- Witness ELIGIBLE TRUSTEE ------------------------------- --------------------------------- Witness Date Accepted by Administrator: ------------------------------- --------------------------------- Administrator Date |
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
Under the Deferred Compensation Plan for Independent Trustees (the "Plan") I hereby elect that the return on my Deferral Account under the Plan be computed as if the Deferral Account was invested in the following Funds:
--------------------------------------------------------------------------------
Percentage of Current Percentage of Future
Name of Fund Deferral Account to be Deferral Account Earnings
Attributed to Fund to be Attributed to Fund
--------------------------------------------------------------------------------
-------------------------- -------% -------%
-------------------------- -------% -------%
-------------------------- -------% -------%
-------------------------- -------% -------%
-------------------------- -------% -------%
|
Please include an attachment to this form if you need space to select additional portfolios.
I realize that the designation included on this Form shall be effective until I have filed another valid Return Designation Form with the Administrator. If (a) I make no written designation, (b) the written designation is unclear or (c) less than 100% of my Deferral Account is covered by this election, then my Deferral Account shall be credited with the returns of the Money Market Fund until I provide the Administrator with appropriate instructions. This form must be delivered to the Administrator on or before 15 days prior to the end of the calendar quarter to be effective the following quarter.
--------------------------------- --------------------------------- Witness ELIGIBLE TRUSTEE --------------------------------- --------------------------------- Witness Date |
Accepted by Administrator:
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
Under the Deferred Compensation Plan for Independent Trustees (the "Plan"), I hereby make the following beneficiary designations:
I. PRIMARY BENEFICIARY
I hereby select the following as my primary Beneficiary(ies) to receive at my death in the form of a lump sum (or as otherwise provided in Section 5.3 of the Plan) the amounts held in my Deferral Account under the Plan. In the event I am survived by more than one primary Beneficiary, such primary Beneficiaries shall share equally in the distribution of my Deferral Account unless I indicate otherwise on an attachment to this form:
-------------------------------------------------------------------------------- Name (Relationship) -------------------------------------------------------------------------------- Address -------------------------------------------------------------------------------- City State Zip SSN -------------------------------------------------------------------------------- Name (Relationship) -------------------------------------------------------------------------------- Address -------------------------------------------------------------------------------- City State Zip SSN |
Please include an attachment to this form if you wish to select additional primary Beneficiaries.
II. SECONDARY BENEFICIARY
In the event I am not survived by any primary Beneficiary, I hereby appoint the following as secondary Beneficiary(ies) to receive death benefits in the form of a lump sum (or as otherwise provided in Section 5.3 of the Plan) under the Plan. In the event I am survived by more than one secondary Beneficiary, such secondary Beneficiaries shall share equally in the distribution of my Deferral Account unless I indicate otherwise on an attachment to this form:
-------------------------------------------------------------------------------- Name (Relationship) -------------------------------------------------------------------------------- Address -------------------------------------------------------------------------------- City State Zip SSN -------------------------------------------------------------------------------- Name (Relationship) -------------------------------------------------------------------------------- Address -------------------------------------------------------------------------------- City State Zip SSN |
Please include an attachment to this form if you wish to select additional secondary Beneficiaries.
I understand that if I am not survived by any primary or secondary Beneficiary, my Beneficiary shall be as set forth under the Plan.
------------------------------- ---------------------------------- Witness ELIGIBLE TRUSTEE ------------------------------- ---------------------------------- Witness Date Accepted by Administrator: ------------------------------- ---------------------------------- Administrator Date |
DEFERRED COMPENSATION PLAN
FOR INDEPENDENT TRUSTEES
Under the Deferred Compensation Plan for Independent Trustees (the "Plan"), I may request at any time a Hardship and Unforeseeable Emergency withdrawal (an "Emergency withdrawal") of part or all of the amount then credited to my Deferral Account. The amount of the Emergency withdrawal shall be limited to the amount necessary to meet the Emergency.
|_| My own or a dependent's sudden and unexpected illness.
|_| The loss of my property due to casualty.
|_| Other (explain):
In addition, I certify that the Emergency may not be relieved through (a)
reimbursement or compensation by insurance or otherwise; (b) liquidation of my
assets to the extent that liquidation itself would not cause an Emergency, or
(c) ceasing to defer receipt of any compensation that I have not yet earned. In
addition, I realize that the Administrator may require additional information
from me before deciding whether to grant this request for an Emergency
withdrawal.
----------------------------- --------------------------------- Witness ELIGIBLE TRUSTEE ----------------------------- --------------------------------- Witness Date |
----------------------------- --------------------------------- Administrator Date ------------------------------------------------------------------------------- |
THE FLEX-FUNDS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A. Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers of substitution as his true and lawful attorneys and agents to execute in his name and on his behalf in any and all capacities the Registration Statements on Form N-1A, and any and all amendments thereto, filed by The Flex-funds (the "Trust") with the Securities and Exchange Commission under the Investment Company Act of 1940 and the Securities Act of 1933 and any and all instruments which such attorneys and agents, or any of them, deem necessary or advisable to enable the Trust to comply with such Acts, the rules, regulations and requirements of the Securities and Exchange Commission, and the securities or Blue Sky laws of any state or other jurisdiction and the undersigned hereby ratifies and confirms as his own act and deed any and all that such attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Any one of such attorneys and agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of August, 1998.
/s/ Jack Nicklaus II --------------------------------- Jack Nicklaus II |
THE PORTFOLIOS
The undersigned hereby constitutes and appoints Donald F. Meeder, Philip A. Voelker, Wesley F. Hoag and James B. Craver, and each of them, with full powers of substitution as his true and lawful attorneys and agents to execute in his name and on his behalf in any and all capacities the Registration Statements on Form N-1A, and any and all amendments thereto, filed by the Money Market, Mutual Fund, Growth Stock, Bond and Utilities Stock Portfolios (the "Portfolios") The Flex-Partners or The Flex-funds (each a "Trust") with the Securities and Exchange Commission under the Investment Company Act of 1940 and the Securities Act of 1933 and any and all instruments which such attorneys and agents, or any of them, deem necessary or advisable to enable the Portfolios or the Trusts to comply with such Acts, the rules, regulations and requirements of the Securities and Exchange Commission, and the securities or Blue Sky laws of any state or other jurisdiction and the undersigned hereby ratifies and confirms as his own act and deed any and all that such attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Any one of such attorneys and agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 6th day of August, 1998.
/s/ Jack Nicklaus II --------------------------------- Jack Nicklaus II |