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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-3462
---------------------------
The Flex-funds Trust
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
6125 Memorial Drive Dublin, OH 43017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Bruce McKibben
c/o The Flex-funds Trust
6125 Memorial Drive
Dublin, OH 43017
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(Name and address of agent for service)
Registrant's telephone number, including area code: 800-325-3539
----------------------------
Date of fiscal year end: December 31, 2003
------------------------------------------------------
Date of reporting period: December 31, 2003
------------------------------------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. (S) 3507.
Item 1. Reports to Stockholders.
Include a copy of the report transmitted to stockholders pursuant to Rule
30e-1 under the Act (17 CFR 270.30e-1).
The Flex-funds
The Muirfield Fund(R)
The Dynamic Growth Fund
The Aggressive Growth Fund
The Total Return Utilities Fund
The Highlands Growth Fund(R)
The U.S. Government Bond Fund
The Money Market Fund
2003 Annual Report
December 31, 2003
[PICTURE]
The Flex-funds
Managed by Meeder Asset Management, Inc.
6125 Memorial Drive, Dublin Ohio, 43017
Call Toll Free 800-325-3539 | 614-760-2159
Fax: 614-766-6669 | www.flexfunds.com
Email: flexfunds@meederfinancial.com
The Flex-funds
2003 Annual Report
Table of Contents
Letter to Shareholders ........................................... 2
The Aggressive Growth Fund ....................................... 4
The Dynamic Growth Fund .......................................... 6
The Muirfield Fund ............................................... 8
The Highlands Growth Fund ........................................ 10
The Total Return Utilities Fund .................................. 12
The U.S. Government Bond Fund .................................... 14
The Money Market Fund ............................................ 16
Portfolio Holdings & Financial Statements ........................ 19
2003 Annual Report | December 31, 2003 1
The Flex-funds
[PHOTO OF Robert S. Meeder, President]
Letter to Shareholders
The 4th Quarter of 2003 wrapped up a good year for the stock market, with the
major equity indices finishing the year in positive territory for the first time
in four years. The S&P 500 climbed over 12% in the 4th Quarter, for a total
annual return of 28% for 2003. The favorable environment for stocks spread
overseas as well, as the MSCI EAFE Index (excluding U.S. stocks) also
experienced a double-digit return last year.
Conditions in the bond market throughout 2003 were quite volatile. The rate on
the benchmark 10-year Treasury note began the year at 3.83%, fell to 3.13% by
June, then began a precipitous rise through the summer months that culminated at
4.61% by September 2nd. 10-year rates came down somewhat from their peak in the
final months of 2003 but still finished the year at 4.25%, which was higher than
they were on January 1st. The rise in long-term interest rates took their toll
on annual bond returns. For the year, the Lehman Brothers Intermediate-Term U.S.
Treasury Index had a total return of just 2%.
The Federal Reserve lowered the Fed funds target rate to 1.0% in June, where it
stayed through the remainder of the year. More importantly, the Fed gave
indications that it intends to keep short-term rates low for a "considerable
period." Due to the continued low short-term interest rate environment, the
average money market fund posted a remarkably low 12-month yield of just under
0.5% in 2003.
4th Quarter Investment Overview
Positive economic news bolstered investor confidence during the 4th Quarter, as
many indicators pointed toward further improvement in the U.S. economy. The
economy grew at a pace of 8.2% in the 3rd Quarter, which was the fastest rate of
growth since 1984. The tandem forces of highly stimulative fiscal policies
(increased government spending, lower taxes) and monetary policies (continued
low interest rates) had a significant impact on this surge in growth. Consumer
attitudes improved as well, as the Conference Board's Consumer Confidence Index
reached its highest point of the year this past quarter. Productivity gains also
broke a 20-year record, clocking in at a quarterly rate of 8.6% in the 3rd
Quarter. The jobless rate fell slightly and the number of new jobs created rose
to some extent over the course of the quarter. But improvement in employment
remained the one piece that has been missing to complete the economic recovery
picture. It is important to note that unemployment is typically a lagging
indicator -- companies often wait to add workers until demand for their goods
and services is growing. But with significant strides in productivity being
made, an upturn in employment may lag improvement in the overall economy more
than usual this time.
The decline of the U.S. dollar has also impacted investors, as the greenback has
fallen dramatically in value relative to other currencies over the last two
years. A falling dollar has both positive and negative consequences for the
economy and the investment markets. A weaker dollar would stimulate demand for
U.S.-manufactured goods both at home and abroad in the short-term, and go a long
way toward correcting the widening U.S. trade deficit in the long run. Both
results should aid U.S. companies, the economy, and the financial markets as a
whole. However, a falling dollar could also lead to a higher inflationary
environment as raw material prices climb higher. Also, foreign investors may
shun U.S. financial markets and reduce demand for U.S.-denominated assets such
as Treasury securities. Both instances may lead to higher interest rates and a
weaker stock
2 2003 Annual Report | December 31, 2003
The Flex-funds
market. Meanwhile, as the dollar has weakened, gold has appreciated in value,
breaking through the $400 per ounce barrier for the first time since early 1996.
Inflation fears, war anxiety, a reduction in central bank selling, and increased
investor demand have all contributed to the rally in precious metals.
Looking Ahead to 2004
Investors are optimistic at the beginning of 2004 for a continuation of the
strong returns they have seen in the stock market over the last nine months. One
only has to make note of the upbeat mood of many on Wall Street as the Dow Jones
Industrial Average crossed the 10,000 mark in December, a feat last accomplished
way back when in 2002. In addition, many indices in the mid- and small-cap arena
have surpassed their prior peaks of 2002 and are at or near all-time highs.
However, after such a sustained uptrend in the stock market - the longest
uptrend we have seen in a number of years - it would not be surprising if the
stock market pauses in the near future to absorb some of its recent gains.
This optimism may be a sign that investors have once again let their emotions
get ahead of prudent and sound decision making. But as the market rallies
strongly from periodic lows, investors are well-advised to keep in mind that
investor sentiment is often a contrarian indicator: investors tend to feel most
bullish at market peaks and most bearish at market lows. This current cyclical
bull market represents one of those periods where investors can achieve above
average returns within the longer-term market cycle. We will continue to
evaluate the changing conditions in the financial markets, and seek to position
shareholder assets to garner the best possible return within the investment
strategies of the various funds.
Sincerely,
/s/ Robert S. Meeder
Robert S. Meeder
President
January 31, 2004
2003 Annual Report | December 31, 2003 3
The Flex-funds
The Aggressive Growth Fund
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Performance Perspective
Average Annual Total Returns 1 5 Since
as of December 31, 2003 year years Inception
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The Aggressive Growth Fund 38.83% -- -10.04%/1/
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Meeder Asset Management, Inc.
Aggressive Growth Accounts Composite/4/ 39.15% 8.39% 13.81%/2/
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Average Aggressive Growth Fund/5/ 35.90% 2.36% -12.30%/3/
- --------------------------------------------------------------------------------------------------
Nasdaq Composite Index/6/ 50.01% -1.79% -19.61%/3/
- --------------------------------------------------------------------------------------------------
/1/ Inception Date: 2/29/00.
/2/ Inception Date: 12/31/94.
/3/ Average annual total return from 2/29/00 to 12/31/03.
Source for index and average fund data: Morningstar, Inc.
- --------------------------------------------------------------------------------
Annual Market Perspective
[PHOTO OF Robert M. Wagner]
Robert M. Wagner,
CFA
Portfolio Manager
For the year ended December 31, 2003, The Flex-funds Aggressive Growth Fund
returned 38.83%. The Fund outperformed the average aggressive growth fund, which
returned 35.90% for the year, according to Morningstar, Inc.
To begin 2003, The Fund targeted large-cap value funds and funds closely
correlated to the Nasdaq 100 Index. Early in the year, evidence began to emerge
that large-cap value was losing ground while small- and mid-cap growth stocks
were gaining relative strength. We adjusted the Fund's portfolio in the 1st
Quarter to reduce exposure to large-cap value and eliminated our large-cap blend
holdings. At that time, we added funds targeting small- and mid-cap growth. We
also added a small position in precious metals in the 1st Quarter.
The rally that began from the March lows was led by small-cap, mid-cap and
technology stocks - three areas of the market that we targeted from the 2nd
Quarter through the end of the year. Our overweighted positions in these areas
helped our performance for the year. Meanwhile, as large-cap value began to lose
relative strength, we gradually decreased our exposure until completely
eliminating it in August, and added to our small-cap position. In addition, we
increased our precious metals exposure, as this sector gained relative strength
in the wake of the declining U.S. dollar.
In the closing weeks of 2003, signs of a possible change in market leadership
began to emerge: from small-cap to large and from growth to value. We will
monitor the development of this potential change, and adjust the Fund as
dictated by our investment discipline.
Past performance does not guarantee future results. All performance figures
represent period and average annual total returns for the periods ended December
31, 2003, and assume reinvestment of all dividend and capital gain
distributions. 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. Expenses were waived and/or reimbursed in order to
reduce the operating expenses of The Aggressive Growth Fund during the periods
shown above.
/4/ The returns for the Meeder Asset Management, Inc. Aggressive Growth
Accounts represent a composite of the private accounts managed by Meeder
Asset Management, Inc., manager of The Flex-funds, which employ a similar
investment strategy to The Aggressive Growth Fund. We have included the
returns of these privately-managed accounts to present the long-term
performance of the investment strategies employed by The Aggressive Growth
Fund. Please refer to the disclosure on page 18 for a description of what
these returns represent and what they do not represent.
/5/ An index of funds such as Morningstar's Average Aggressive 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.
/6/ The Nasdaq Composite Index is a broad-based capitalization-weighted index
of all Nasdaq National Market and Small Cap stocks. The Nasdaq Composite
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.
4 2003 Annual Report | December 31, 2003
The Flex-funds
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Portfolio Holdings as of December 31, 2003
[PIECHART]
% of Total
Net Assets
1) Federated Kaufmann Small Cap Fund - Class A 15%
2) Fidelity Advisor Value Strategies Fund 15%
3) Federated Kaufmann Fund - Class A 14%
4) Rydex Series Precious Metals Fund 13%
5) PBHG Technology & Communications Fund 12%
6) PBHG Emerging Growth Fund 4%
7) Nasdaq 100 Futures 24%
8) U.S. Government Obligations 3%
Portfolio holdings are subject to change.
- --------------------------------------------------------------------------------
Results of a $10,000 Investment
Date Aggressive Growth Fund Avg Aggressive Growth Nasdaq Composite Index
02/29/2000 $10,000 $ 10,000 $ 10,000
03/31/2000 $ 9,140 $ 9,737 $ 9,782
04/30/2000 $ 8,030 $ 8,228 $ 8,856
05/31/2000 $ 7,720 $ 7,249 $ 8,181
06/30/2000 $ 7,960 $ 8,453 $ 9,172
07/31/2000 $ 7,900 $ 8,028 $ 8,854
08/31/2000 $ 8,610 $ 8,964 $ 9,818
09/30/2000 $ 8,320 $ 7,835 $ 9,354
10/31/2000 $ 8,000 $ 7,189 $ 8,733
11/30/2000 $ 7,350 $ 5,542 $ 7,318
12/31/2000 $ 7,876 $ 5,271 $ 7,648
01/31/2001 $ 7,996 $ 5,915 $ 7,874
02/28/2001 $ 7,355 $ 4,596 $ 6,778
03/31/2001 $ 6,834 $ 3,934 $ 6,102
04/30/2001 $ 7,415 $ 4,524 $ 6,800
05/31/2001 $ 7,465 $ 4,512 $ 6,829
06/30/2001 $ 7,145 $ 4,619 $ 6,764
07/31/2001 $ 6,954 $ 4,334 $ 6,429
08/31/2001 $ 6,553 $ 3,862 $ 5,978
09/30/2001 $ 5,792 $ 3,209 $ 5,190
10/31/2001 $ 6,002 $ 3,619 $ 5,506
11/30/2001 $ 6,483 $ 4,133 $ 5,956
12/31/2001 $ 6,534 $ 4,176 $ 6,135
01/31/2002 $ 6,303 $ 4,141 $ 5,977
02/28/2002 $ 5,953 $ 3,710 $ 5,671
03/31/2002 $ 6,303 $ 3,954 $ 5,999
04/30/2002 $ 6,243 $ 3,618 $ 5,749
05/31/2002 $ 6,223 $ 3,463 $ 5,593
06/30/2002 $ 5,752 $ 3,136 $ 5,128
07/31/2002 $ 5,081 $ 2,847 $ 4,609
08/31/2002 $ 5,171 $ 2,818 $ 4,589
09/30/2002 $ 4,850 $ 2,514 $ 4,253
10/31/2002 $ 4,870 $ 2,852 $ 4,494
11/30/2002 $ 5,241 $ 3,172 $ 4,750
12/31/2002 $ 4,800 $ 2,865 $ 4,448
01/31/2003 $ 4,710 $ 2,833 $ 4,373
02/28/2003 $ 4,580 $ 2,869 $ 4,296
03/31/2003 $ 4,590 $ 2,877 $ 4,364
04/30/2003 $ 4,930 $ 3,141 $ 4,690
05/31/2003 $ 5,291 $ 3,423 $ 5,050
06/30/2003 $ 5,421 $ 3,481 $ 5,146
07/31/2003 $ 5,612 $ 3,722 $ 5,338
08/31/2003 $ 5,973 $ 3,883 $ 5,542
09/30/2003 $ 5,882 $ 3,833 $ 5,431
10/31/2003 $ 6,373 $ 4,145 $ 5,824
11/30/2003 $ 6,594 $ 4,205 $ 5,940
12/31/2003 $ 6,664 $ 4,298 $ 6,047
The graph compares The Aggressive Growth Fund's shares to its broad-based index,
the Nasdaq Composite Index, and to the average aggressive growth fund. It is
intended to give you a general idea of how the Fund performed compared to these
benchmarks over the period from February 29, 2000 to December 31, 2003.
It is important to understand the differences between your Fund and these
indices. An index measures performance of a hypothetical portfolio. A market
index such as the Nasdaq Composite 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 Average Aggressive Growth 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 the indices
referred to on this page, please refer to Page 4. Past performance does not
guarantee future results. The graph and the table on the preceding page do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
2003 Annual Report | December 31, 2003 5
The Flex-funds
The Dynamic Growth Fund
- ---------------------------------------------------------------------------------------------
Performance Perspective
Average Annual Total Returns 1 5 Since
as of December 31, 2003 year years Inception
- ---------------------------------------------------------------------------------------------
The Dynamic Growth Fund 37.46% -- -6.32%/1/
- ---------------------------------------------------------------------------------------------
Meeder Asset Management, Inc. Growth Accounts Composite/4/ 38.60% 6.80% 13.34%/2/
- ---------------------------------------------------------------------------------------------
Average Growth Fund/5/ 31.05% 1.41% -4.52%/3/
- ---------------------------------------------------------------------------------------------
S&P 500 Index/6/ 28.67% -0.57% -3.77%/3/
- ---------------------------------------------------------------------------------------------
/1/ Inception Date: 2/29/00.
/2/ Inception Date: 12/31/94.
/3/ Average annual total return from 2/29/00 to 12/31/03.
Source for index and average fund data: Morningstar, Inc.
- --------------------------------------------------------------------------------
Annual Market Perspective
[PHOTO OF Robert M. Wagner]
Robert M. Wagner,
CFA
Portfolio Manager
The Flex-funds Dynamic Growth Fund outperformed its peer group in 2003 with an
annual return of 37.46%, compared with the 31.05% annual return of the average
growth fund, according to Morningstar, Inc.
As the year began, the Fund targeted large-cap funds with an emphasis on value
and funds closely correlated to the Nasdaq 100 Index. These areas of the stock
market had shown relative strength from the October 2002 bottom, but this
strength began to shift early in the year. Meanwhile small- and mid-cap stocks
and growth stocks began to develop strength relative to the broad-based S&P 500
Index.
As evidence gathered that a change in market leadership was in fact occurring,
we reduced our large-cap value exposure and eliminated our large-cap blend
positions. We then began to emphasize small- and mid-cap funds and
growth-oriented funds targeting the Nasdaq 100 Index. This change aided the
performance of the Fund in the rally that commenced following the market lows of
March 2003.
We continued to decrease our exposure to large-cap value throughout the 2nd and
3rd Quarters until completely eliminating our holdings in August. At that time,
we increased our weighting to small-cap funds and added small exposure to the
precious metals sector, which was gaining relative strength due to the decline
of the U.S. dollar.
As the year came to a close, large-cap stocks began to come on strong,
outperforming their small-cap brethren in the month of December. Despite these
early signs of a possible change in market leadership, there was not enough
evidence in our discipline to mandate a change in portfolio exposure. We will be
watching the development of this transition in the early months of 2004, and
make any changes to the Fund as dictated by our discipline.
Past performance does not guarantee future results. All performance figures
represent average annual total returns for the periods ended December 31, 2003,
and assume reinvestment of all dividend and capital gain distributions. 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. Expenses were waived and/or reimbursed in order to reduce the operating
expenses of The Dynamic Growth Fund during the periods shown above.
/4/ The returns for the Meeder Asset Management, Inc. Growth Accounts represent
a composite of the private accounts managed by Meeder Asset Management,
Inc., manager of The Flex-funds, which employ a similar investment strategy
to The Dynamic Growth Fund, and are net of investment advisory fees. We
have included the returns of these privately-managed accounts to present
the long-term performance of the investment strategies employed by The
Dynamic Growth Fund. Please refer to the disclosure on page 18 for a
description of what these returns represent and what they do not represent.
/5/ An index of funds such as 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.
/6/ The S&P 500 Index is a widely recognized unmanaged index of common stock
prices. The S&P 500 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.
6 2003 Annual Report | December 31, 2003
The Flex-funds
Portfolio Holdings as of December 31, 2003
% of Total
Net Assets
1) Fidelity Advisor Value Strategies Fund 21%
2) Federated Kaufmann Fund - Class A 20%
3) AIM Opportunities Fund - Class A 18%
[PIE CHART] 4) Federated Kaufmann Small Cap Fund - Class A 11%
5) Rydex Series Precious Metals Fund 9%
6) PBHG Emerging Growth Fund 5%
7) Nasdaq 100 Futures 14%
8) U.S. Government Obligations 2%
Portfolio holdings are subject to change.
Results of a $10,000 Investment
Date Dynamic Growth
Fund S&P 500 Index Avg Growth Fund
02/29/00 $ 10,000 $ 10,000 $ 10,000
03/31/00 $ 9,740 $ 10,978 $ 10,512
04/30/00 $ 8,610 $ 10,648 $ 10,045
05/31/00 $ 8,310 $ 10,430 $ 9,692
06/30/00 $ 8,580 $ 10,687 $ 10,201
07/31/00 $ 8,590 $ 10,520 $ 10,043
08/31/00 $ 9,340 $ 11,173 $ 10,880
09/30/00 $ 9,100 $ 10,585 $ 10,462
10/31/00 $ 8,779 $ 10,540 $ 10,181
11/30/00 $ 8,018 $ 9,711 $ 9,157
12/31/00 $ 8,646 $ 9,758 $ 9,504
01/31/01 $ 8,656 $ 10,104 $ 9,755
02/28/01 $ 8,179 $ 9,184 $ 8,831
03/31/01 $ 7,723 $ 8,602 $ 8,176
04/30/01 $ 8,220 $ 9,270 $ 8,896
05/31/01 $ 8,342 $ 9,332 $ 8,954
06/30/01 $ 8,017 $ 9,106 $ 8,814
07/31/01 $ 7,905 $ 9,016 $ 8,587
08/31/01 $ 7,510 $ 8,453 $ 8,097
09/30/01 $ 6,799 $ 7,771 $ 7,249
10/31/01 $ 6,901 $ 7,919 $ 7,522
11/30/01 $ 7,368 $ 8,526 $ 8,108
12/31/01 $ 7,481 $ 8,601 $ 8,296
01/31/02 $ 7,288 $ 8,476 $ 8,142
02/28/02 $ 7,014 $ 8,313 $ 7,910
03/31/02 $ 7,400 $ 8,626 $ 8,294
04/30/02 $ 7,309 $ 8,103 $ 7,956
05/31/02 $ 7,278 $ 8,044 $ 7,822
06/30/02 $ 6,700 $ 7,471 $ 7,242
07/31/02 $ 5,979 $ 6,889 $ 6,609
08/31/02 $ 6,141 $ 6,935 $ 6,629
09/30/02 $ 5,796 $ 6,186 $ 6,045
10/31/02 $ 5,745 $ 6,729 $ 6,426
11/30/02 $ 6,162 $ 7,125 $ 6,794
12/31/02 $ 5,664 $ 6,707 $ 6,409
01/31/03 $ 5,563 $ 6,532 $ 6,274
02/28/03 $ 5,451 $ 6,434 $ 6,168
03/31/03 $ 5,492 $ 6,496 $ 6,225
04/30/03 $ 5,918 $ 7,031 $ 6,689
05/31/03 $ 6,283 $ 7,401 $ 7,131
06/30/03 $ 6,415 $ 7,495 $ 7,221
07/31/03 $ 6,659 $ 7,628 $ 7,413
08/31/03 $ 7,014 $ 7,776 $ 7,639
09/30/03 $ 6,913 $ 7,694 $ 7,516
10/31/03 $ 7,451 $ 8,129 $ 7,988
11/30/03 $ 7,704 $ 8,201 $ 8,118
12/31/03 $ 7,786 $ 8,631 $ 8,375
The graph compares The Dynamic Growth Fund's shares to its broad-based index,
the S&P 500 Index, and to the average growth fund. It is intended to give you a
general idea of how the Fund performed compared to these benchmarks over the
period from February 29, 2000 to December 31, 2003.
It is important to understand the differences between your Fund and these
indices. An index measures performance of a hypothetical portfolio. A market
index such as the S&P 500 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. For
a description of the indices referred to on this page, please refer to Page 6.
Past performance does not guarantee future results. The graph and the table on
the preceding page do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
2003 Annual Report | December 31, 2003 7
The Flex-funds
The Muirfield Fund
Performance Perspective
Average Annual Total Returns 1 5 10 Since
as of December 31, 2003 year years years Inception
- -------------------------------------------------------------------------------
The Muirfield Fund 27.39% -0.60% 7.38% 9.04%/1/
- -------------------------------------------------------------------------------
S&P 500 Index/3/ 28.67% -0.57% 11.06% 12.11%/2/
- -------------------------------------------------------------------------------
Average Asset Allocation Fund/4/ 21.10% 2.93% 7.98% 9.26%/2/
- -------------------------------------------------------------------------------
/1/ Inception Date: 8/10/88.
/2/ Average annual total return from 8/1/88 to 12/31/03.
Source for index and average fund data: Morningstar, Inc.
- --------------------------------------------------------------------------------
Annual Market Perspective
[PHOTO OF ROBERT S. MEEDER, Sr]
Robert S. Meeder, Sr.
Portfolio Manager
[PHOTO OF KEVIN J. KRANZ]
Kevin J. Kranz
Asst. Portfolio Manager
According to Morningstar, The Muirfield Fund outperformed its peer group for the
year with a total annual return of 27.39%, compared with a 21.10% annual return
for the Average Asset Allocation Fund.
In the 1st Quarter, we adopted a defensive position as market trends weakened in
advance of the build-up to the war in Iraq. Once the war commenced and the
uncertainty regarding its outcome began to decrease, market trends improved
dramatically and we adopted a fully invested equity position, which we
maintained for the rest of the year. The Fund's overweighted position in mid-
and small-cap stocks performed well throughout the rally, as did our emphasis on
technology and stocks closely correlated to the Nasdaq 100 Index. Value-oriented
stocks in the basic materials and energy sectors have led the recent strength in
large-cap stocks. We are watching for further strength in these areas early in
2004 for possible inclusion in the Fund's portfolio.
In the first two weeks of 2003, the market advanced until January 14th, which
proved to be an intermediate top in the market. Breadth deteriorated, and in
March the major indices retested their July and October 2002 lows. At the end of
the 1st Quarter, our Defensive Investing discipline was indicating a low risk
market entry. The rising zigzag market that followed has continued for nine
months. In our 2nd Quarter commentary, after a three-month return of 14.33% for
The Muirfield Fund, we addressed the continuation of the "bull market phase" in
the equity market. The market paused in July amid overbought indicators and
profit taking, but breadth held strong. From early August through the end of
November, all major indices advanced to greater recovery highs, once again led
by strong internal breadth. In December, the market leaders (the Nasdaq
Composite and Russell 2000 indices) traded in a sideways pattern, while the Dow
Jones Industrial Average and S&P 500 Index played catch up. Again breadth among
the large cap indices led the way.
The market continues to advance with broad participation, and many stocks are
hitting new 52-week highs on strong volume. Markets do not go in the same
direction forever. Each day that the market advances without pausing or
correcting increases the probability of a larger correction. This probability
continues to grow as more internal indicators of the market advance to higher
levels. Investors chase the good returns, which attracts more investors. At some
point, this too will cease. The next logical direction for the equity market is
down, but until breadth and other internal indicators weaken our Defensive
Investing discipline should continue to signal a positive risk/reward
relationship in the equity market as compared to the bond or money markets.
Market cross currents such as these are difficult to steer through, but it also
creates an environment that is ideally suited for our Defensive Investing
discipline. Make the most of the new year, and rest assured that we will
continue to monitor the health of the market and adhere to our discipline as
market conditions dictate.
Past performance does not guarantee future results. All performance figures
represent average annual total returns for the periods ended December 31, 2003,
and assume reinvestment of all dividend and capital gain distributions. 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. Expenses were waived and/or reimbursed in order to reduce the operating
expenses of The Muirfield Fund during the periods shown above.
/3/ The S&P 500 Index is a widely recognized unmanaged index of common stock
prices. The S&P 500 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.
/4/ An index of funds such as Morningstar's Average Asset Allocation 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.
8 2003 Annual Report | December 31, 2003
The Flex-funds
- --------------------------------------------------------------------------------
Portfolio Holdings as of December 31, 2003
[PIE CHART]
% of Total
Net Assets
1) Federated Kaufmann Fund - Class A 33%
2) Fidelity Capital Appreciation Fund 31%
3) PBHG Mid-Cap Fund 13%
4) Heartland Value Fund 12%
5) AIM Mid Cap Core Equity Fund 10%
6) S&P 500 Futures 1%
Portfolio holdings are subject to change.
- --------------------------------------------------------------------------------
Results of a $10,000 Investment
Date The Muirfield Fund Avg Asset Allocation Fund
08/10/1988 $ 10,000 $ 10,000
08/31/1988 $ 10,080 $ 9,875
09/30/1988 $ 10,420 $ 10,149
10/31/1988 $ 10,620 $ 10,245
11/30/1988 $ 10,600 $ 10,118
12/31/1988 $ 10,620 $ 10,265
01/31/1989 $ 10,672 $ 10,597
02/28/1989 $ 10,486 $ 10,511
03/31/1989 $ 10,693 $ 10,647
04/30/1989 $ 11,149 $ 10,887
05/31/1989 $ 11,542 $ 11,164
06/30/1989 $ 11,377 $ 11,257
07/31/1989 $ 12,143 $ 11,685
08/31/1989 $ 12,475 $ 11,761
09/30/1989 $ 12,475 $ 11,816
10/31/1989 $ 11,998 $ 11,709
11/30/1989 $ 12,081 $ 11,769
12/31/1989 $ 12,102 $ 11,930
01/31/1990 $ 11,980 $ 11,559
02/28/1990 $ 12,075 $ 11,657
03/31/1990 $ 12,170 $ 11,818
04/30/1990 $ 12,217 $ 11,654
05/31/1990 $ 12,526 $ 12,201
06/30/1990 $ 12,644 $ 12,345
07/31/1990 $ 12,265 $ 12,284
08/31/1990 $ 11,814 $ 11,720
09/30/1990 $ 11,862 $ 11,427
10/31/1990 $ 11,933 $ 11,345
11/30/1990 $ 12,099 $ 11,737
12/31/1990 $ 12,383 $ 12,016
01/31/1991 $ 12,785 $ 12,378
02/28/1991 $ 13,751 $ 12,842
03/31/1991 $ 14,395 $ 13,116
04/30/1991 $ 14,319 $ 13,205
05/31/1991 $ 14,867 $ 13,489
06/30/1991 $ 14,418 $ 13,188
07/31/1991 $ 14,593 $ 13,532
08/31/1991 $ 14,818 $ 13,868
09/30/1991 $ 14,768 $ 13,944
10/31/1991 $ 14,977 $ 14,139
11/30/1991 $ 14,427 $ 13,909
12/31/1991 $ 16,077 $ 14,885
01/31/1992 $ 16,002 $ 14,937
02/29/1992 $ 16,084 $ 15,115
03/31/1992 $ 15,920 $ 14,929
04/30/1992 $ 15,784 $ 14,992
05/31/1992 $ 15,811 $ 15,196
06/30/1992 $ 15,866 $ 15,081
07/31/1992 $ 16,363 $ 15,525
08/31/1992 $ 15,923 $ 15,443
09/30/1992 $ 16,088 $ 15,641
10/31/1992 $ 16,115 $ 15,643
11/30/1992 $ 16,858 $ 15,998
12/31/1992 $ 17,188 $ 16,244
01/31/1993 $ 17,323 $ 16,489
02/28/1993 $ 16,951 $ 16,636
03/31/1993 $ 17,416 $ 16,976
04/30/1993 $ 17,106 $ 16,849
05/31/1993 $ 17,447 $ 17,156
06/30/1993 $ 17,663 $ 17,342
07/31/1993 $ 17,663 $ 17,427
08/31/1993 $ 18,500 $ 17,956
09/30/1993 $ 18,593 $ 18,038
10/31/1993 $ 18,841 $ 18,242
11/30/1993 $ 18,500 $ 18,014
12/31/1993 $ 18,581 $ 18,302
01/31/1994 $ 19,205 $ 18,740
02/28/1994 $ 18,859 $ 18,418
03/31/1994 $ 18,581 $ 17,828
04/30/1994 $ 18,616 $ 17,836
05/31/1994 $ 18,651 $ 17,910
06/30/1994 $ 18,705 $ 17,628
07/31/1994 $ 18,775 $ 17,988
08/31/1994 $ 18,810 $ 18,392
09/30/1994 $ 18,871 $ 18,114
10/31/1994 $ 19,012 $ 18,244
11/30/1994 $ 19,012 $ 17,849
12/31/1994 $ 19,083 $ 17,979
01/31/1995 $ 19,154 $ 18,201
02/28/1995 $ 19,798 $ 18,733
03/31/1995 $ 20,012 $ 19,078
04/30/1995 $ 20,300 $ 19,443
05/31/1995 $ 20,768 $ 20,065
06/30/1995 $ 21,740 $ 20,456
07/31/1995 $ 23,038 $ 20,952
08/31/1995 $ 23,362 $ 21,115
09/30/1995 $ 24,047 $ 21,535
10/31/1995 $ 23,687 $ 21,429
11/30/1995 $ 23,975 $ 22,010
12/31/1995 $ 24,010 $ 22,369
01/31/1996 $ 24,304 $ 22,784
02/29/1996 $ 24,681 $ 22,837
03/31/1996 $ 24,597 $ 22,938
04/30/1996 $ 25,309 $ 23,241
05/31/1996 $ 25,980 $ 23,541
06/30/1996 $ 25,603 $ 23,525
07/31/1996 $ 24,010 $ 22,910
08/31/1996 $ 23,968 $ 23,309
09/30/1996 $ 24,639 $ 24,079
10/31/1996 $ 24,932 $ 24,473
11/30/1996 $ 26,063 $ 25,472
12/31/1996 $ 25,449 $ 25,308
01/31/1997 $ 26,892 $ 25,947
02/28/1997 $ 26,892 $ 25,934
03/31/1997 $ 25,868 $ 25,323
04/30/1997 $ 26,520 $ 25,884
05/31/1997 $ 28,148 $ 26,996
06/30/1997 $ 29,125 $ 27,809
07/31/1997 $ 31,333 $ 29,197
08/31/1997 $ 30,065 $ 28,473
09/30/1997 $ 31,615 $ 29,610
10/31/1997 $ 29,535 $ 29,038
11/30/1997 $ 29,913 $ 29,409
12/31/1997 $ 30,180 $ 29,740
01/31/1998 $ 29,574 $ 29,928
02/28/1998 $ 30,511 $ 31,134
03/31/1998 $ 31,449 $ 32,077
04/30/1998 $ 31,837 $ 32,313
05/31/1998 $ 31,449 $ 31,954
06/30/1998 $ 32,114 $ 32,424
07/31/1998 $ 32,837 $ 31,995
08/31/1998 $ 31,001 $ 29,263
09/30/1998 $ 31,112 $ 30,253
10/31/1998 $ 32,397 $ 31,306
11/30/1998 $ 34,854 $ 32,349
12/31/1998 $ 39,031 $ 33,372
01/31/1999 $ 41,357 $ 33,854
02/28/1999 $ 40,279 $ 32,928
03/31/1999 $ 41,300 $ 33,697
04/30/1999 $ 42,380 $ 34,661
05/31/1999 $ 41,698 $ 34,142
06/30/1999 $ 43,630 $ 35,109
07/31/1999 $ 42,263 $ 34,664
08/31/1999 $ 41,864 $ 34,425
09/30/1999 $ 41,663 $ 34,147
10/31/1999 $ 41,308 $ 34,995
11/30/1999 $ 42,515 $ 35,723
12/31/1999 $ 45,443 $ 37,409
01/31/2000 $ 43,861 $ 36,529
02/29/2000 $ 46,162 $ 37,473
03/31/2000 $ 46,881 $ 38,833
04/30/2000 $ 40,741 $ 38,010
05/31/2000 $ 39,657 $ 37,437
06/30/2000 $ 40,242 $ 38,383
07/31/2000 $ 40,022 $ 38,113
08/31/2000 $ 40,975 $ 39,836
09/30/2000 $ 39,656 $ 39,037
10/31/2000 $ 38,548 $ 38,722
11/30/2000 $ 37,219 $ 37,165
12/31/2000 $ 37,944 $ 38,163
01/31/2001 $ 37,944 $ 38,808
02/28/2001 $ 36,027 $ 37,130
03/31/2001 $ 33,958 $ 35,728
04/30/2001 $ 35,338 $ 37,248
05/31/2001 $ 36,181 $ 37,479
06/30/2001 $ 35,261 $ 37,083
07/31/2001 $ 35,108 $ 36,951
08/31/2001 $ 33,804 $ 35,993
09/30/2001 $ 31,888 $ 34,033
10/31/2001 $ 31,582 $ 34,784
11/30/2001 $ 33,038 $ 36,146
12/31/2001 $ 33,572 $ 36,506
01/31/2002 $ 33,335 $ 36,159
02/28/2002 $ 32,466 $ 35,787
03/31/2002 $ 34,520 $ 36,646
04/30/2002 $ 34,599 $ 35,982
05/31/2002 $ 33,651 $ 35,810
06/30/2002 $ 32,466 $ 34,352
07/31/2002 $ 31,913 $ 32,564
08/31/2002 $ 31,597 $ 32,782
09/30/2002 $ 30,965 $ 30,995
10/31/2002 $ 30,649 $ 32,136
11/30/2002 $ 31,913 $ 33,255
12/31/2002 $ 29,737 $ 32,464
01/31/2003 $ 29,104 $ 32,002
02/28/2003 $ 28,551 $ 31,736
03/31/2003 $ 28,155 $ 31,839
04/30/2003 $ 29,579 $ 33,483
05/31/2003 $ 31,635 $ 34,997
06/30/2003 $ 32,189 $ 35,331
07/31/2003 $ 33,375 $ 35,491
08/31/2003 $ 34,482 $ 36,158
09/30/2003 $ 34,403 $ 36,257
10/31/2003 $ 36,301 $ 37,508
11/30/2003 $ 36,697 $ 37,937
12/31/2003 $ 37,883 $ 39,171
The graph compares The Muirfield Fund's value to its broad-based index, the
Morningstar Average Asset Allocation Fund Index. It is intended to give you a
general idea of how the Fund performed compared to this benchmark over the
period from August 10, 1988 to December 31, 2003.
It is important to understand the differences between your Fund and this index.
An index of funds such as the Morningstar 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. Past performance does not guarantee
future results. The graph and the table on the preceding page do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
2003 Annual Report | December 31, 2003 9
The Flex-funds
The Highlands Growth Fund
- --------------------------------------------------------------------------------
Performance Perspective
Average Annual Total Returns 1 5 10 Since
as of December 31, 2003 year years years Inception
- --------------------------------------------------------------------------------
The Highlands Growth Fund 27.21% -1.91% 6.96% 7.34%/1/
- --------------------------------------------------------------------------------
S&P 500 Index/3/ 28.67% -0.57% 11.06% 12.98%/2/
================================================================================
/1/ Inception Date: 3/20/85
/2/ Average annual total return from 3/29/85 to 12/31/03.
Source for index data: Morningstar, Inc.
- --------------------------------------------------------------------------------
Annual Market Perspective
[PHOTO of William L. Gurner]
William L. Gurner
Portfolio Manager
In the first positive year for stocks since 1999, The Highlands Growth Fund
gained 27.21% in 2003. In comparison, the S&P 500 Index returned 28.67% for the
year. The Fund performed very well through the end of November, but small-cap
and mid-cap stocks, which accounted for about 20% of the Fund's holdings, had
lower returns relative to large-cap stocks during December. Moreover, the best
returns for large-cap stocks were achieved by the lower-quality stocks, which
are not owned by the Fund.
An appreciable part of the rebound in the S&P 500 Index during 2003 was
attributable to the market "turning turtle," as lower-quality issues were
snatched up by bargain hunters and speculators. Many of the stocks with the
greatest gains during 2003 have low or no earnings, and these stocks were
severely beaten up during the bear market. Unless these stocks can actually
generate profits, their prices are likely to go into reverse in the face of the
strong profit growth from higher-quality companies.
What's more, there are several signs that point to a continuation of the current
bull market well in to 2004, albeit at a more modest pace than in 2003.
Prospects for the economy look positive as well, with job prospects improving,
low interest rates and inflation, and business spending finally poised to go
higher. After a disappointing start due to weather, a late surge in spending by
consumers raised retail sales by 4% to the highest level since 1999. The biggest
concerns now are what will happen with the war on terrorism, and when will the
Fed raise interest rates. However, it would be unusual for an incumbent
President, looking to get reelected, to allow the economy to stall in an
election year.
During the bear market of the past few years, small-and mid-cap stocks fared
better than the large-cap stocks of the S&P 500 Index. There are signs that
large-cap stocks may outperform small- and mid-cap stocks in 2004. As the stock
market reminds us, no investment style, cap size, industry, sector or stock will
lead the market forever, and the market tends to correct excesses and revert
back to the norm. If the patterns of past bull markets hold true, large-cap
stocks may lead the way during the second year of the bull market, and many
pundits are predicting this.
We anticipate continued improvement in performance as the changes we implemented
in the Fund during 2003 bear fruit, as they did through the end of November. The
Fund remains well diversified, and we have designed the portfolio to take
advantage of our stock-picking skills to add more value over time while
maintaining a moderate level of risk in the portfolio.
Past performance does not guarantee future results. All performance figures
represent average annual total returns for the periods ended December 31, 2003,
and assume reinvestment of all dividend and capital gain distributions. 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. Expenses were waived and/or reimbursed in order to reduce the operating
expenses of The Highlands Growth Fund during the periods shown above.
/3/ The S&P 500 Index is a widely recognized unmanaged index of common stock
prices. The S&P 500 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.
10 2003 Annual Report | December 31, 2003
The Flex-funds
- -------------------------------------------------------------------------
Sector Weightings as of December 31, 2003
[PIE CHART]
Sector % of Net
Sector Manager Assets
----------------------------------------------------
1) Finance Clover 23%
2) Technology RCM 18%
3) Consumer Non-Durable Barrow Hanley 14%
4) Healthcare Matrix 13%
5) Consumer Durable Barrow Hanley 8%
6) Materials & Services Sector Capital 8%
7) Utilities Sector Capital 6%
8) Energy Mitchell Group 6%
9) Transportation Miller Howard 2%
10) Cash Equivalents 2%
Sector weightings are subject to change.
- -------------------------------------------------------------------------
Results of a $10,000 Investment
Total Return Utilities
Date The Highlands Growth Fund S&P 500 Index
12/31/1993 $10,000 $10,000
01/31/1994 $10,461 $10,340
02/28/1994 $10,335 $10,059
03/31/1994 $ 9,939 $ 9,622
04/30/1994 $ 9,843 $ 9,745
05/31/1994 $ 9,716 $ 9,904
06/30/1994 $ 9,738 $ 9,662
07/31/1994 $ 9,768 $ 9,979
08/31/1994 $ 9,805 $10,387
09/30/1994 $ 9,825 $10,133
10/31/1994 $ 9,886 $10,361
11/30/1994 $ 9,893 $ 9,984
12/31/1994 $ 9,931 $10,131
01/31/1995 $10,052 $10,394
02/28/1995 $10,394 $10,799
03/31/1995 $10,508 $11,117
04/30/1995 $10,692 $11,444
05/31/1995 $10,983 $11,901
06/30/1995 $11,213 $12,177
07/31/1995 $11,562 $12,581
08/31/1995 $11,500 $12,612
09/30/1995 $11,979 $13,144
10/31/1995 $11,948 $13,097
11/30/1995 $12,252 $13,671
12/31/1995 $12,375 $13,935
01/31/1996 $12,722 $14,409
02/29/1996 $12,827 $14,543
03/31/1996 $12,835 $14,682
04/30/1996 $12,778 $14,899
05/31/1996 $13,037 $15,282
06/30/1996 $13,102 $15,341
07/31/1996 $12,573 $14,663
08/31/1996 $12,475 $14,973
09/30/1996 $12,785 $15,815
10/31/1996 $12,973 $16,251
11/30/1996 $13,701 $17,478
12/31/1996 $13,499 $17,132
01/31/1997 $14,198 $18,202
02/28/1997 $14,182 $18,345
03/31/1997 $13,523 $17,592
04/30/1997 $14,274 $18,642
05/31/1997 $15,107 $19,776
06/30/1997 $15,692 $20,661
07/31/1997 $17,020 $22,304
08/31/1997 $16,270 $21,056
09/30/1997 $17,062 $22,208
10/31/1997 $16,484 $21,467
11/30/1997 $17,128 $22,460
12/31/1997 $17,451 $22,846
01/31/1998 $17,527 $23,098
02/28/1998 $18,759 $24,763
03/31/1998 $19,756 $26,030
04/30/1998 $20,038 $26,292
05/31/1998 $19,559 $25,841
06/30/1998 $20,236 $26,889
07/31/1998 $20,010 $26,604
08/31/1998 $16,929 $22,761
09/30/1998 $18,013 $24,219
10/31/1998 $19,286 $26,188
11/30/1998 $20,304 $27,774
12/31/1998 $21,583 $29,374
01/31/1999 $22,528 $30,602
02/28/1999 $21,735 $29,651
03/31/1999 $22,782 $30,837
04/30/1999 $23,687 $32,031
05/31/1999 $23,575 $31,275
06/30/1999 $24,755 $33,010
07/31/1999 $23,840 $31,980
08/31/1999 $23,555 $31,822
09/30/1999 $23,047 $30,951
10/31/1999 $24,287 $32,908
11/30/1999 $24,877 $33,577
12/31/1999 $26,150 $35,554
01/31/2000 $25,027 $33,768
02/29/2000 $24,817 $33,129
03/31/2000 $27,132 $36,368
04/30/2000 $26,033 $35,274
05/31/2000 $25,331 $34,549
06/30/2000 $25,927 $35,401
07/31/2000 $25,670 $34,849
08/31/2000 $27,330 $37,012
09/30/2000 $26,103 $35,058
10/31/2000 $25,670 $34,910
11/30/2000 $23,519 $32,160
12/31/2000 $23,598 $32,318
01/31/2001 $24,458 $33,464
02/28/2001 $22,207 $30,414
03/31/2001 $20,702 $28,488
04/30/2001 $22,397 $30,700
05/31/2001 $22,523 $30,906
06/30/2001 $21,979 $30,154
07/31/2001 $21,638 $29,857
08/31/2001 $20,272 $27,990
09/30/2001 $18,552 $25,730
10/31/2001 $18,982 $26,221
11/30/2001 $20,373 $28,231
12/31/2001 $20,454 $28,479
01/31/2002 $20,110 $28,064
02/28/2002 $19,621 $27,522
03/31/2002 $20,388 $28,557
04/30/2002 $19,052 $26,827
05/31/2002 $18,894 $26,630
06/30/2002 $17,637 $24,734
07/31/2002 $16,249 $22,806
08/31/2002 $16,342 $22,955
09/30/2002 $14,583 $20,463
10/31/2002 $15,667 $22,262
11/30/2002 $16,355 $23,571
12/31/2002 $15,403 $22,187
01/31/2003 $14,980 $21,608
02/28/2003 $14,742 $21,284
03/31/2003 $14,795 $21,489
04/30/2003 $16,038 $23,259
05/31/2003 $16,884 $24,483
06/30/2003 $17,214 $24,795
07/31/2003 $17,492 $25,232
08/31/2003 $17,889 $25,724
09/30/2003 $17,624 $25,454
10/31/2003 $18,642 $26,893
11/30/2003 $18,841 $27,129
12/31/2003 $19,594 $28,551
The results achieved by The Highlands Growth Fund since 1997, as denoted in the
red outlined area of the above chart, were achieved with the "Sector Plus"
investment strategy as implemented by Sector Capital Management, LLC, the Fund's
subadvisor, and William L. Gurner, the Fund's Portfolio Manager and President of
Sector Capital Management, LLC.
The graph compares The Highlands Growth Fund's shares to its broad-based index,
the S&P 500 Index. It is intended to give you a general idea of how the Fund
performed compared to this benchmark over the period from December 31, 1993 to
December 31, 2003.
It is important to understand the differences between your Fund and these
indices. An index measures performance of a hypothetical portfolio. A market
index such as the S&P 500 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. For
a description of the index referred to on this page, please refer to Page 10.
Past performance does not guarantee future results. The graph and the table on
the preceding page do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
2003 Annual Report | December 31, 2003 11
The Flex-funds
The Total Return Utilities Fund
- --------------------------------------------------------------------------------
Performance Perspective
Average Annual Total Returns 1 5 Since
as of December 31, 2003 year years Inception
- --------------------------------------------------------------------------------
The Total Return Utilities Fund 15.46% -0.21% 7.17%/1/
- --------------------------------------------------------------------------------
New York Stock Exchange Utility Index/3/ 18.29% -7.27% 5.73%/2/
- --------------------------------------------------------------------------------
Average Utility Fund/4/ 24.38% -1.25% 7.58%/2/
================================================================================
/1/ Inception Date: 6/21/95.
/2/ Average annual total return from 6/30/95 to 12/31/03.
Source for index data: Bloomberg. Source for average fund data: Morningstar,
Inc.
- --------------------------------------------------------------------------------
Annual Market Perspective
[PHOTO of Lowell G. Miller]
Lowell G. Miller
Portfolio Manager
The year ended on a positive note for the utilities sector, with positive
economic news and "normal" weather pointing toward increased demand for
utilities' basic services. Fund performance for the year was aided primarily by
our natural gas positions and by our investment in companies who have delivered
on their "back-to-basics" promises.
We have been suggesting for two years that natural gas prices would climb to a
new plateau, and any one who heats with gas is probably becoming a believer.
Some may question whether these prices are fundamentally justified or
sustainable going forward. We think a combination of factors will support prices
into the foreseeable future, including high oil prices, cold winter weather,
production difficulties, and increasing demand as the global economic recovery
accelerates. Perhaps most importantly, companies with natural gas production are
being valued as if gas will return to yesterday's prices. In response to the
reality of current high gas prices, companies have seized the opportunity to
lock-in highly profitable sales of future production.
Our concerns regarding the fundamental outlook for the Baby Bells - despite
their present financial strength, attractive yields and history of steady
returns - reached the breaking point in the 4th Quarter. Ramped-up investment in
telephone service over the internet (known by the acronym VOIP) foreshadows a
decidedly commoditized era of telecom pricing, and broad adoption of VOIP by
consumers is only a matter of time.
Moreover, legislation allowing customers to take their traditional land-line
telephone number to their wireless cellular service raises questions about the
value of the Baby Bells' legacy assets. We decided to swap our remaining
positions in these telecom stalwarts for more conservative opportunities in
other utility sectors.
At the start of 2004, record cold temperatures grip the nation and forecasts
call for abnormally cold weather for the rest of January in the heavily
populated Midwest and Eastern seaboard. With the weather doing its part, and
further evidence suggesting continued economic growth (for now, at least), we
expect moderate earnings expansion across our portfolio next year, coupled with
dividend increases and additional strengthening of balance sheets. With exposure
to high natural gas prices and possible takeover activity in the future, 2004
emerges as a year we are looking forward to.
Past performance does not guarantee future results. All performance figures
represent average annual total returns for the periods ended December 31, 2003,
and assume reinvestment of all dividend and capital gain distributions. 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. Expenses were waived and/or reimbursed in order to reduce the operating
expenses of The Total Return Utilities Fund during the periods shown above.
Because The Total Return Utilities Fund concentrates its investments in public
utility companies, the value of the Fund's shares may fluctuate more than if
invested in a greater number of industries. Changes in interest rates may also
affect the value of utility stocks, and rising interest rates can be expected to
reduce the Fund's net asset value.
/3/ The New York Stock Exchange Utility Index is an unmanaged index of 256
utility sector stocks. This 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.
/4/ An index of funds such as Morningstar's Average Utility 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.
12 2003 Annual Report | December 31, 2003
The Flex-funds
- --------------------------------------------------------------------------------
Sector Weightings as of December 31, 2003
[PIEGRAPH]
% of Total
Net Assets
1) Oil & Natural Gas 29%
2) Electric Utility 25%
3) Electric/Gas Utility 16%
4) Natural Gas (Distributor) 16%
5) Telecommunications 8%
6) Water Utility 6%
Sector weightings are subject to change.
- --------------------------------------------------------------------------------
Results of a $10,000 Investment
Date Total Return Utilities Avg Fund Utility Fund NYSE Utility Index
06/21/95 $ 10,000 $ 10,000 $ 10,000
06/30/95 $ 9,880 $ 10,000 $ 10,000
07/31/95 $ 9,897 $ 10,175 $ 10,183
08/31/95 $ 10,046 $ 10,292 $ 10,357
09/30/95 $ 10,427 $ 10,723 $ 10,828
10/31/95 $ 10,587 $ 10,758 $ 10,949
11/30/95 $ 10,962 $ 11,012 $ 11,106
12/31/95 $ 11,500 $ 11,466 $ 11,658
01/31/96 $ 11,637 $ 11,662 $ 11,849
02/29/96 $ 11,526 $ 11,511 $ 11,464
03/31/96 $ 11,415 $ 11,464 $ 11,324
04/30/96 $ 11,598 $ 11,533 $ 11,446
05/31/96 $ 11,805 $ 11,617 $ 11,466
06/30/96 $ 12,103 $ 11,936 $ 11,733
07/31/96 $ 11,577 $ 11,385 $ 11,096
08/31/96 $ 12,012 $ 11,620 $ 11,082
09/30/96 $ 12,085 $ 11,742 $ 11,260
10/31/96 $ 12,466 $ 12,148 $ 11,618
11/30/96 $ 12,997 $ 12,644 $ 12,062
12/31/96 $ 13,032 $ 12,749 $ 11,981
01/31/97 $ 13,415 $ 13,010 $ 12,352
02/28/97 $ 13,301 $ 13,003 $ 12,450
03/31/97 $ 12,729 $ 12,627 $ 11,856
04/30/97 $ 12,857 $ 12,742 $ 12,031
05/31/97 $ 13,528 $ 13,359 $ 12,620
06/30/97 $ 13,749 $ 13,761 $ 13,116
07/31/97 $ 14,108 $ 14,133 $ 13,489
08/31/97 $ 14,050 $ 13,703 $ 12,914
09/30/97 $ 14,898 $ 14,553 $ 13,707
10/31/97 $ 14,825 $ 14,379 $ 13,636
11/30/97 $ 16,012 $ 15,302 $ 14,788
12/31/97 $ 16,770 $ 16,088 $ 15,453
01/31/98 $ 16,684 $ 16,103 $ 15,543
02/28/98 $ 17,410 $ 16,665 $ 16,096
03/31/98 $ 18,465 $ 17,897 $ 17,658
04/30/98 $ 18,258 $ 17,578 $ 17,444
05/31/98 $ 17,690 $ 17,326 $ 16,963
06/30/98 $ 17,910 $ 17,636 $ 17,565
07/31/98 $ 17,654 $ 17,473 $ 17,653
08/31/98 $ 15,148 $ 16,209 $ 16,421
09/30/98 $ 16,067 $ 17,402 $ 17,726
10/31/98 $ 16,684 $ 17,806 $ 18,465
11/30/98 $ 16,865 $ 18,311 $ 19,122
12/31/98 $ 18,241 $ 19,403 $ 20,557
01/31/99 $ 18,778 $ 19,433 $ 20,758
02/28/99 $ 18,298 $ 18,831 $ 20,030
03/31/99 $ 18,356 $ 18,899 $ 19,737
04/30/99 $ 19,862 $ 20,130 $ 21,626
05/31/99 $ 20,233 $ 20,639 $ 21,615
06/30/99 $ 20,556 $ 20,957 $ 22,996
07/31/99 $ 20,997 $ 20,885 $ 22,651
08/31/99 $ 20,151 $ 20,232 $ 21,584
09/30/99 $ 20,709 $ 20,207 $ 22,215
10/31/99 $ 22,053 $ 21,291 $ 22,770
11/30/99 $ 21,884 $ 21,524 $ 22,977
12/31/99 $ 21,891 $ 22,533 $ 23,559
01/31/00 $ 22,746 $ 23,100 $ 22,809
02/29/00 $ 21,394 $ 23,083 $ 21,918
03/31/00 $ 23,395 $ 24,204 $ 23,261
04/30/00 $ 22,879 $ 23,349 $ 23,287
05/31/00 $ 23,000 $ 23,092 $ 22,495
06/30/00 $ 23,000 $ 23,126 $ 22,099
07/31/00 $ 23,152 $ 23,044 $ 20,842
08/31/00 $ 24,160 $ 24,672 $ 21,544
09/30/00 $ 25,571 $ 25,554 $ 21,533
10/31/00 $ 25,289 $ 24,925 $ 21,968
11/30/00 $ 24,595 $ 23,604 $ 20,042
12/31/00 $ 26,275 $ 24,890 $ 20,300
01/31/01 $ 25,888 $ 24,274 $ 20,392
02/28/01 $ 25,523 $ 23,826 $ 18,709
03/31/01 $ 25,670 $ 23,356 $ 18,187
04/30/01 $ 27,005 $ 24,733 $ 19,418
05/31/01 $ 26,473 $ 24,291 $ 18,731
06/30/01 $ 24,755 $ 22,662 $ 17,354
07/31/01 $ 24,490 $ 21,924 $ 17,092
08/31/01 $ 23,902 $ 21,068 $ 15,986
09/30/01 $ 22,723 $ 19,601 $ 15,702
10/31/01 $ 22,380 $ 19,398 $ 14,906
11/30/01 $ 22,000 $ 19,245 $ 14,857
12/31/01 $ 22,446 $ 19,711 $ 15,200
01/31/02 $ 20,753 $ 18,575 $ 14,447
02/28/02 $ 20,180 $ 18,133 $ 14,024
03/31/02 $ 21,918 $ 19,383 $ 14,457
04/30/02 $ 20,269 $ 18,653 $ 13,288
05/31/02 $ 19,491 $ 18,001 $ 13,107
06/30/02 $ 17,442 $ 16,791 $ 11,871
07/31/02 $ 15,486 $ 14,916 $ 10,423
08/31/02 $ 15,282 $ 15,246 $ 10,383
09/30/02 $ 13,806 $ 13,770 $ 9,014
10/31/02 $ 15,093 $ 14,373 $ 10,262
11/30/02 $ 15,703 $ 14,889 $ 11,020
12/31/02 $ 15,632 $ 14,992 $ 10,742
01/31/03 $ 15,011 $ 14,617 $ 10,339
02/28/03 $ 14,302 $ 14,151 $ 9,707
03/31/03 $ 14,596 $ 14,438 $ 9,901
04/30/03 $ 15,582 $ 15,414 $ 10,853
05/31/03 $ 16,657 $ 16,737 $ 11,668
06/30/03 $ 16,797 $ 16,896 $ 11,831
07/31/03 $ 16,362 $ 16,269 $ 11,221
08/31/03 $ 16,414 $ 16,576 $ 11,330
09/30/03 $ 16,618 $ 16,867 $ 11,369
10/31/03 $ 16,884 $ 17,349 $ 11,925
11/30/03 $ 17,193 $ 17,533 $ 11,962
12/31/03 $ 18,049 $ 18,612 $ 12,707
The graph compares The Total Return Utilities Fund's shares to its broad-based
index, the New York Stock Exchange Utility Index, and to the average utility
fund. It is intended to give you a general idea of how the Fund performed
compared to these benchmarks over the period from June 21, 1995 to December 31,
2003. (Please note that performance figures for the indices are from June 30,
1995 to December 31, 2003.)
It is important to understand the differences between your Fund and these
indices. An index measures performance of a hypothetical portfolio. A market
index such as the New York Stock Exchange Utility 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
Average Utility 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 the indices referred to on this page, please refer to Page 12.
Past performance does not guarantee future results. The graph and the table on
the preceding page do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
2003 Annual Report | December 31, 2003 13
The Flex-funds
The U.S. Government Bond Fund
- -------------------------------------------------------------------------------------------------------
Performance Perspective
Average Annual Total Returns 1 5 10 Since
as of December 31, 2003 year years years Inception
- -------------------------------------------------------------------------------------------------------
The U.S. Government Bond Fund -4.43% 2.99% 4.85% 6.20%/1/
- -------------------------------------------------------------------------------------------------------
Lehman Bros. Intermediate Government/Credit Index/3/ 4.30% 6.65% 6.62% n/a
- -------------------------------------------------------------------------------------------------------
Average General U.S. Government Bond Fund/4/ 1.58% 5.13% 5.49% 7.33%/2/
=======================================================================================================
1 Inception Date: 5/9/85.
2 Average annual total return from 5/1/85 to 12/31/03.
Source for index and average fund data: Morningstar, Inc.
- --------------------------------------------------------------------------------
Annual Market Perspective
[PHOTO OF Joseph A. Zarr]
Joseph A. Zarr
Co-Portfolio Manager
[PHOTO OF Christopher M. O'Daniel]
Christopher M. O'Daniel
Co-Portfolio Manager
It was a volatile year for long-and intermediate-term bonds, a circumstance
which contributed to the relative underperformance of the Fund for 2003.
Ten-year yields started the year at 3.83%, fell off a cliff and reached 3.13% by
June, then made a u-turn to finish the year higher at 4.27%. Because the Fund
follows the trend in rates, a high degree of volatility can rapidly alter the
trend and ultimately impair our ability to properly position the portfolio,
resulting in lower relative returns. Such was the case this year.
Equity values also came into play in 2003, as equity prices and yields were
highly correlated for an extended portion of the year. For the better part of
the 1st Quarter, equity values were under pressure due to continued investor
uneasiness from 2002. Bond prices, on the other hand, continued to move higher
as yields declined along with stock prices.
Adding to the drama was the fact that investors' hunger for a "safe return,"
aided and abetted by Fed jawboning, were not satiated until yields reached
45-year lows in mid-June. The subsequent turn in yields was dramatic as bond
investors unwound their positions and bought equities on their race to the
exits. The 2-year-plus bull move in bonds had come to a screeching halt. Once it
became evident the Federal Reserve was not going to lower the Fed target rate to
0.50%, as some had argued, the market slowly but surely built a base and moved
higher into the close of the year.
Longer-term, we see signs that a bear market for bonds may continue to develop
for both technical and fundamental reasons. However, there may be times when a
fully-exposed position in long-term bonds is warranted, and at that time we will
initiate the necessary changes to the portfolio. Certainly, the consensus view
is not whether the Fed will raise rates, but when. We happen to share that view
for now, but are quite respectful of the opportunity a weakening equity market
might provide, especially in light of last year's impressive gains. Any serious
equity decline would most likely re-ignite the longer-term fixed income markets.
Past performance does not guarantee future results. All performance figures
represent average annual total returns for the periods ended December 31, 2003,
and assume reinvestment of all dividend and capital gain distributions. 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. Expenses were waived and/or reimbursed in order to reduce the operating
expenses of The U.S. Government Bond Fund during the periods shown above.
/3/ The Lehman Brothers Intermediate Government/Credit 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, have one to ten years remaining
until maturity, and at least $100 million outstanding. The Lehman Brothers
Intermediate Government/ Credit 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.
/4/ An index of funds such as Morningstar's Average General U.S. 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.
14 2003 Annual Report | December 31, 2003
The Flex-funds
- --------------------------------------------------------------------------------
Portfolio Holdings as of December 31, 2003
% of Total
Net Assets
1) U.S. Treasury Note, 4.25%, 8/15/13 43%
2) U.S. Treasury Note, 4.25%, 11/15/13 37%
3) U.S. Treasury Note, 3.375%, 11/15/08 17%
4) Cash Equivalents 3%
Portfolio holdings are subject to change.
- --------------------------------------------------------------------------------
Results of a $10,000 Investment
Lehamn Bros.
Date US Govt Bond Fund Intermediate-Term Avge General Govt Bond Fund
12/31/1993 $ 10,000 $ 10,000 $ 10,000
01/31/1994 $ 10,018 $ 10,111 $ 10,105
02/28/1994 $ 9,886 $ 9,961 $ 9,949
03/31/1994 $ 9,734 $ 9,797 $ 9,751
04/30/1994 $ 9,718 $ 9,730 $ 9,668
05/31/1994 $ 9,686 $ 9,737 $ 9,651
06/30/1994 $ 9,707 $ 9,738 $ 9,630
07/31/1994 $ 9,746 $ 9,878 $ 9,764
08/31/1994 $ 9,776 $ 9,909 $ 9,772
09/30/1994 $ 9,803 $ 9,818 $ 9,661
10/31/1994 $ 9,843 $ 9,817 $ 9,646
11/30/1994 $ 9,863 $ 9,773 $ 9,616
12/31/1994 $ 9,901 $ 9,807 $ 9,669
01/31/1995 $ 9,987 $ 9,972 $ 9,821
02/28/1995 $ 10,211 $ 10,178 $ 10,017
03/31/1995 $ 10,261 $ 10,236 $ 10,068
04/30/1995 $ 10,387 $ 10,363 $ 10,179
05/31/1995 $ 10,916 $ 10,676 $ 10,498
06/30/1995 $ 11,041 $ 10,747 $ 10,558
07/31/1995 $ 10,934 $ 10,749 $ 10,534
08/31/1995 $ 11,035 $ 10,846 $ 10,639
09/30/1995 $ 11,158 $ 10,924 $ 10,726
10/31/1995 $ 11,307 $ 11,046 $ 10,849
11/30/1995 $ 11,515 $ 11,190 $ 10,985
12/31/1995 $ 11,715 $ 11,308 $ 11,113
01/31/1996 $ 11,752 $ 11,405 $ 11,174
02/29/1996 $ 11,388 $ 11,272 $ 11,003
03/31/1996 $ 11,441 $ 11,214 $ 10,933
04/30/1996 $ 11,482 $ 11,175 $ 10,877
05/31/1996 $ 11,526 $ 11,166 $ 10,850
06/30/1996 $ 11,582 $ 11,284 $ 10,962
07/31/1996 $ 11,609 $ 11,318 $ 10,988
08/31/1996 $ 11,519 $ 11,327 $ 10,972
09/30/1996 $ 11,541 $ 11,485 $ 11,131
10/31/1996 $ 11,710 $ 11,688 $ 11,336
11/30/1996 $ 11,962 $ 11,842 $ 11,501
12/31/1996 $ 11,733 $ 11,767 $ 11,412
01/31/1997 $ 11,716 $ 11,812 $ 11,440
02/28/1997 $ 11,628 $ 11,835 $ 11,462
03/31/1997 $ 11,597 $ 11,753 $ 11,358
04/30/1997 $ 11,639 $ 11,892 $ 11,500
05/31/1997 $ 11,688 $ 11,991 $ 11,586
06/30/1997 $ 11,803 $ 12,100 $ 11,700
07/31/1997 $ 12,156 $ 12,345 $ 11,959
08/31/1997 $ 11,975 $ 12,284 $ 11,876
09/30/1997 $ 12,161 $ 12,426 $ 12,025
10/31/1997 $ 12,452 $ 12,564 $ 12,177
11/30/1997 $ 12,481 $ 12,592 $ 12,216
12/31/1997 $ 12,640 $ 12,692 $ 12,325
01/31/1998 $ 12,878 $ 12,859 $ 12,468
02/28/1998 $ 12,776 $ 12,848 $ 12,452
03/31/1998 $ 12,804 $ 12,890 $ 12,483
04/30/1998 $ 12,807 $ 12,954 $ 12,533
05/31/1998 $ 12,884 $ 13,049 $ 12,639
06/30/1998 $ 13,020 $ 13,132 $ 12,733
07/31/1998 $ 13,058 $ 13,178 $ 12,760
08/31/1998 $ 13,536 $ 13,385 $ 12,986
09/30/1998 $ 13,995 $ 13,721 $ 13,250
10/31/1998 $ 14,017 $ 13,707 $ 13,189
11/30/1998 $ 13,841 $ 13,706 $ 13,204
12/31/1998 $ 13,856 $ 13,761 $ 13,249
01/31/1999 $ 13,873 $ 13,836 $ 13,308
02/28/1999 $ 13,534 $ 13,633 $ 13,096
03/31/1999 $ 13,578 $ 13,735 $ 13,167
04/30/1999 $ 13,624 $ 13,778 $ 13,201
05/31/1999 $ 13,666 $ 13,672 $ 13,098
06/30/1999 $ 13,706 $ 13,681 $ 13,048
07/31/1999 $ 13,705 $ 13,669 $ 13,009
08/31/1999 $ 13,701 $ 13,680 $ 12,993
09/30/1999 $ 13,757 $ 13,807 $ 13,126
10/31/1999 $ 13,808 $ 13,843 $ 13,154
11/30/1999 $ 13,852 $ 13,860 $ 13,155
12/31/1999 $ 13,905 $ 13,814 $ 13,100
01/31/2000 $ 13,960 $ 13,763 $ 13,057
02/29/2000 $ 13,988 $ 13,876 $ 13,193
03/31/2000 $ 14,348 $ 14,020 $ 13,358
04/30/2000 $ 14,205 $ 13,988 $ 13,337
05/31/2000 $ 14,101 $ 14,010 $ 13,334
06/30/2000 $ 14,256 $ 14,257 $ 13,557
07/31/2000 $ 14,312 $ 14,365 $ 13,649
08/31/2000 $ 14,379 $ 14,534 $ 13,822
09/30/2000 $ 14,489 $ 14,667 $ 13,906
10/31/2000 $ 14,584 $ 14,734 $ 13,999
11/30/2000 $ 14,797 $ 14,935 $ 14,218
12/31/2000 $ 15,039 $ 15,209 $ 14,457
01/31/2001 $ 15,115 $ 15,459 $ 14,612
02/28/2001 $ 15,278 $ 15,606 $ 14,742
03/31/2001 $ 15,314 $ 15,726 $ 14,802
04/30/2001 $ 15,168 $ 15,685 $ 14,732
05/31/2001 $ 15,131 $ 15,773 $ 14,791
06/30/2001 $ 15,170 $ 15,831 $ 14,831
07/31/2001 $ 15,205 $ 16,160 $ 15,119
08/31/2001 $ 15,431 $ 16,322 $ 15,258
09/30/2001 $ 15,763 $ 16,560 $ 15,490
10/31/2001 $ 16,231 $ 16,835 $ 15,772
11/30/2001 $ 15,643 $ 16,667 $ 15,531
12/31/2001 $ 15,224 $ 16,575 $ 15,423
01/31/2002 $ 15,226 $ 16,661 $ 15,519
02/28/2002 $ 15,290 $ 16,793 $ 15,661
03/31/2002 $ 15,170 $ 16,538 $ 15,414
04/30/2002 $ 15,329 $ 16,811 $ 15,708
05/31/2002 $ 15,375 $ 16,979 $ 15,807
06/30/2002 $ 15,709 $ 17,125 $ 15,962
07/31/2002 $ 16,075 $ 17,327 $ 16,200
08/31/2002 $ 16,625 $ 17,585 $ 16,402
09/30/2002 $ 17,265 $ 17,900 $ 16,634
10/31/2002 $ 16,973 $ 17,830 $ 16,576
11/30/2002 $ 16,642 $ 17,814 $ 16,487
12/31/2002 $ 16,799 $ 18,202 $ 16,762
01/31/2003 $ 16,797 $ 18,200 $ 16,742
02/28/2003 $ 17,152 $ 18,457 $ 16,928
03/31/2003 $ 16,888 $ 18,476 $ 16,888
04/30/2003 $ 16,628 $ 18,616 $ 16,950
05/31/2003 $ 16,671 $ 18,990 $ 17,182
06/30/2003 $ 16,570 $ 18,977 $ 17,128
07/31/2003 $ 15,932 $ 18,461 $ 16,639
08/31/2003 $ 15,884 $ 18,505 $ 16,707
09/30/2003 $ 16,133 $ 18,973 $ 17,051
10/31/2003 $ 16,006 $ 18,795 $ 16,904
11/30/2003 $ 15,945 $ 18,821 $ 16,923
12/31/2003 $ 16,055 $ 18,985 $ 17,033
The graph compares The U.S. Government Bond Fund's shares to its broad-based
index, the Lehman Brothers Intermediate Government/Credit Index, and to the
Average General U.S. Government Bond Fund. It is intended to give you a general
idea of how the Fund performed compared to these benchmarks over the period from
December 31, 1993 to December 31, 2003.
It is important to understand the differences between your Fund and these
indices. An index measures performance of a hypothetical portfolio. A market
index such as The Lehman Brothers Intermediate Government/Credit 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
Average General U.S. 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 the indices referred to on this page,
please refer to Page 14. Past performance does not guarantee future results. The
graph and the table on the preceding page do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares.
2003 Annual Report | December 31, 2003 15
The Money Market Fund
- -----------------------------------------------------------------------------------------------------------------
Performance Perspective
Average Annual Total Returns 1 5 10 Since
as of December 31, 2003 year years years Inception
- -----------------------------------------------------------------------------------------------------------------
The Money Market Fund 0.92% 3.53% 4.35% 5.38%/1/
- -----------------------------------------------------------------------------------------------------------------
Average General Purpose Money Market Fund/3/ 0.44% 3.01% 3.94% 4.96%/2/
- -----------------------------------------------------------------------------------------------------------------
Current & Effective Yields* 7-day simple yield: 0.87% 7-day compound yield: 0.87%
- -----------------------------------------------------------------------------------------------------------------
/1/ Inception Date: 3/27/85
/2/ Average Annual total return from 3/31/85 to 12/31/03.
* As of December 31, 2003, yield quotations more closely reflect the earnings
of The Money Market Fund than total return quotations.
Source for average money market fund data: Lipper, Inc.
- --------------------------------------------------------------------------------
Annual Market Perspective
[PHOTO OF Joseph A. Zarr]
Joseph A. Zarr
Co-Portfolio Manager
[PHOTO OF Christopher M. O'Daniel]
Christopher M. O'Daniel
Co-Portfolio Manager
The Flex-funds Money Market Fund ranked #3 among all retail money market funds
for highest 7-day yield as of December 31, 2003, according to iMoneyNet, Inc. In
addition, the Fund ranked among the top 10 retail money market funds for highest
12-month yield as of December 31, 2003, according to iMoneyNet, Inc.
The year began and ended on two entirely different themes. Most markets began
the year more concerned about foreign policy than Fed policy. Deflationary fears
outweighed inflationary expectations, and a number of money funds were on their
way towards annualized yields of 0.10% or less. Yields continued to erode
through the 2nd Quarter as the Federal Reserve lowered short-term rates in June
and talked rates lower at the long end. The Fed was quite concerned about a
Japanese-style deflationary recession enveloping the economy, and openly talked
of further stimulus should conditions continue to worsen.
By the 3rd Quarter, the Bush tax cuts were taking hold on the consumer side of
the ledger, and capital spending began to inch upward on the corporate side as
well. A perception began to emerge of an expanding economy with little standing
in its way (i.e., The Federal Reserve). Inflation remained low, job losses
subsided, and other economic numbers began to improve one by one. By the end of
the year, GDP growth had exploded and, on a seasonally adjusted basis, the job
growth began to accelerate. We had come full circle, from wondering at the start
of the year how low rates would go, to contemplating by the end of the year when
the Fed would begin to raise rates.
As always, we will be monitoring the situation closely and trying to take
advantage of any market anomalies. The key may well reside in the extent to
which the market anticipates inflation, and we will follow its lead accordingly.
Past performance does not guarantee future results. Except for the current and
effective yields, all performance figures represent average annual total returns
for the periods ended December 31, 2003, and assume reinvestment of all
dividend and capital gain distributions. 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. Expenses were
waived and/or reimbursed in order to reduce the operating expenses of The Money
Market Fund during the periods shown above. Investments in The Money Market Fund
are neither insured nor guaranteed by the Federal Deposit Insurance Corporation
or any other governmental agency. Although the Fund seeks to preserve the value
of your invesment at $1.00 per share, it is possible to lose money by investing
in The Money Market Fund.
/3/ An index of funds such as Lipper's Average General Purpose Money Market
Fund index includes a number of mutual funds grouped by investment
objective.
16 2003 Annual Report | December 31, 2003
The Flex-funds
- --------------------------------------------------------------------------------
Portfolio Holdings as of December 31, 2003
[PIECHART]
% of Total
Net Assets
1) Variable Rate Notes 36%
2) Corporate Notes 26%
3) Repurchase Agreements 14%
4) U.S. Gov't Agency Notes 14%
5) Time Deposits 4%
6) Commercial Paper 6%
Portfolio holdings are subject to change.
- --------------------------------------------------------------------------------
Annual Returns
[GRAPH]
Annual The Money Avg. Money
Returns Market Fund Market Fund**
1994 4.10% 3.75%
1995 5.85% 5.49%
1996 5.27% 4.95%
1997 5.38% 5.10%
1998 5.31% 5.04%
1999 4.96% 4.65%
2000 6.20% 5.70%
2001 4.10% 3.44%
2002 1.59% 1.00%
2003 0.92% 0.44%
** Source for average money market fund data: Lipper, Inc.
Source for average money market fund performance: Lipper, Inc.
2003 Annual Report | December 31, 2003 17
PAST PERFORMANCE OF MEEDER ASSET MANAGEMENT, INC. GROWTH AND AGGRESSIVE GROWTH
ACCOUNTS COMPOSITES
Purpose of Past Performance. The performance information on Pages 4 & 6 is
provided to show the past performance of the advisor in managing substantially
similar accounts to The Dynamic Growth Fund and The Aggressive Growth Fund.
What Past Performance Does Not Represent. The past performance shown on Pages 4
& 6 does not represent the performance of The Dynamic Growth Fund or The
Aggressive Growth Fund. You should not consider the past performance for account
composites shown on Pages 4 & 6 as an indication of the future performance of
The Dynamic Growth Fund or The Aggressive Growth Fund.
Similar Accounts. Robert M. Wagner, CFA serves as the advisor's portfolio
manager for privately managed accounts having investment goals, policies,
strategies and risks substantially similar to those of The Dynamic Growth Fund
and The Aggressive Growth Fund. Substantially all of the assets of these
privately managed accounts have invested in mutual funds.
Calculation of Past Performance. 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
private accounts without providing for federal or state income taxes. Custodial
fees, if any, were not used to reduce performance returns. The advisor's
composite includes all actual, fee paying, discretionary, private accounts
managed by the advisor that have investment objectives, policies, strategies and
risks substantially similar to those of The Dynamic Growth Fund and The
Aggressive Growth Fund. Cash and equivalents are included in performance
returns. The returns of the advisor'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 private accounts that are included in the
advisor's composite are not subject to the same types of expenses to which The
Dynamic Growth Fund or The Aggressive Growth Fund are subject nor to the
diversification requirements, specific tax restrictions and investment
limitations imposed on The Dynamic Growth Fund or The Aggressive Growth Fund by
federal securities laws.
18 2003 Annual Report | December 31, 2003
The Flex-funds
2003 Annual Report
Portfolio Holdings & Financial Statements
2003 Annual Report | December 31, 2003 19
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
The Muirfield Fund
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Registered Investment Companies -- 99.0%
AIM Mid Cap Core Equity Fund # 218,003 5,868,635
Federated Kaufman Fund -- Class A # 3,871,253 19,201,417
Fidelity Capital Appreciation Fund 740,698 18,154,516
Heartland Value Fund # 137,859 7,050,132
PBHG Mid-Cap Fund # 446,097 7,663,950
----------
Total Registered Investment Companies
(Cost $48,694,294) 57,938,650
----------
U.S. Government Obligations -- 0.2%
U.S. Treasury Bills
1.00%, due 04/15/04 * 100,000 99,738
----------
Total U.S. Government Obligations
(Cost $99,709) 99,738
----------
Repurchase Agreements -- 1.0%
Salomon Smith Barney, Inc., 1.05%,
01/02/04, (Collateralized by
$575,077 Eureka Securities
Commercial Paper, at 1.06%, due
02/18/04, value -- $574,263) 563,000 563,000
----------
Total Repurchase Agreements
(Cost $563,000) 563,000
----------
Total Investments -- 100.2%
(Cost $49,357,003) (a) 58,601,388
----------
Liabilities less Other Assets -- (0.2%) (77,190)
----------
Total Net Assets -- 100.0% 58,524,198
----------
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ------------
Trustee Deferred Compensation**
The Flex-funds Dynamic Growth Fund 2,629 20,164
The Flex-funds Highlands Growth Fund 2,684 39,777
The Flex-funds Muirfield Fund 8,955 42,894
The Flex-funds Total Return Utilities
Fund 1,944 27,780
-------
Total Trustee Deferred Compensation
(Cost $142,919) 130,615
-------
Futures Contracts
Long Unrealized
Contracts Appreciation
---------- ------------
Standard & Poor's 500 expiring
March 2004, notional value $555,300 2 20,050
-------
Total Futures Contracts 20,050
-------
(a) Represents cost for financial reporting purposes and may differ for federal
income tax purposes by the amount of losses recognized in excess of federal
income tax reporting. Cost for federal income tax purposes differs from
value by net unrealized appreciation (depreciation) of securities as
follows:
Unrealized appreciation $9,250,647
Unrealized depreciation (6,262)
----------
Net unrealized appreciation (depreciation) $9,244,385
==========
# Represents non-income producing securities.
* Pledged as collateral on futures contracts.
** Assets of affiliates to The Muirfield Fund held for the benefit of the
Fund's Trustees in connection with the Trustee Deferred Compensation Plan.
See accompanying notes to financial statements.
The Flex-funds
20
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
The Total Return Utilities Fund
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Common Stocks -- 99.4%
Electric/Gas Utility -- 15.7%
AGL Resources, Inc. 28,035 815,818
ATMOS Energy Corp. 20,890 507,627
MDU Resources Group, Inc. 35,790 852,160
NiSource, Inc. 51,580 1,131,665
----------
3,307,270
----------
Electric Utility -- 25.2%
Cinergy Corp. 27,270 1,058,349
Consolidated Edison, Inc. 19,915 856,544
DPL, Inc. 20,640 430,963
Energy East Corp. 27,270 610,848
Keyspan Corp. 28,245 1,039,416
IDACORP, Inc. 29,405 879,798
Pepco Holdings, Inc. 21,950 428,903
----------
5,304,821
----------
Natural Gas (Distributor) -- 16.4%
National Fuel Gas Co. 13,125 320,775
Nicor, Inc. 29,580 1,006,903
ONEOK, Inc. 29,640 654,451
Southern Union Co. # 23,630 434,792
Vectren Corp. 29,380 724,217
WGL Holdings, Inc. 11,340 315,139
----------
3,456,277
----------
Oil & Natural Gas -- 28.7%
Anadarko Petroleum Corp. 8,900 453,989
Burlington Resources, Inc. 8,070 446,917
Devon Energy Corp. 7,760 444,338
EOG Resources, Inc. 9,360 432,151
Equitable Resources, Inc. 19,980 857,542
Kinder Morgan Energy Partners, L.P. 28,353 1,396,884
Peoples Energy Corp. 16,885 709,845
Questar Corp. 37,025 1,301,429
----------
6,043,095
----------
Telecommunication Services -- 7.5%
Alltel Corp. 17,200 801,176
Cellular Telecom 20,000 186,800
CenturyTel, Inc. 18,080 589,770
Verizon Communications, Inc. 244 8,559
----------
1,586,305
----------
Water Utility -- 5.8%
Philadelphia Suburban Corp. 40,237 889,238
United Utilities PLC 18,350 331,217
----------
1,220,455
----------
Total Common Stocks
(Cost $18,940,526) 20,918,223
----------
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Repurchase Agreements -- 0.7%
Salomon Smith Barney, Inc., 1.05%,
01/02/04, (Collateralized by $139,939
Eureka Securities Commercial Paper,
at 1.06%, due 02/18/04,
value -- $139,741) 137,000 137,000
----------
Total Repurchase Agreements
(Cost $137,000) 137,000
----------
Total Investments -- 100.1%
(Cost $19,077,526) (a) 21,055,223
----------
Liabilities less Other Assets -- (0.1%) (16,896)
----------
Total Net Assets -- 100.0% 21,038,327
----------
Trustee Deferred Compensation*
The Flex-funds Dynamic Growth Fund 889 6,819
The Flex-funds Highlands Growth Fund 741 10,982
The Flex-funds Muirfield Fund 2,801 13,417
The Flex-funds Total Return Utilities Fund 598 8,545
----------
Total Trustee Deferred Compensation
(Cost $39,860) 39,763
----------
(a) Represents cost for financial reporting purposes and may differ for federal
income tax purposes by the amount of losses recognized in excess of federal
income tax reporting. Cost for federal income tax purposes differs from
value by net unrealized appreciation (depreciation) of securities as
follows:
Unrealized appreciation $2,616,978
Unrealized depreciation (639,281)
----------
Net unrealized appreciation (depreciation) $1,977,697
==========
# Represents non-income producing securities.
* Assets of affiliates to The Total Return Utilities Fund held for the benefit
of the Fund's Trustees in connection with the Trustees Deferred Compensation
Plan.
See accompanying notes to financial statements.
The Flex-funds
21
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
The Highlands Growth Fund
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Common Stocks -- 97.8%
Capital Goods, Materials & Services -- 8.4%
(Subadvised by Sector Capital Management, L.L.C.)
Agilent Technologies, Inc. # 2,450 71,638
Alcoa, Inc. 2,200 83,600
Allegheny Technologies, Inc. 1,350 17,847
Cintas Corp. 1,400 70,140
Deere & Co. 950 61,797
Dow Chemical 2,100 87,297
Eaton Corp. 550 59,389
Freeport McMoran Copper -- Class B 1,100 46,343
Goldcorp, Inc. 3,600 57,420
Illinois Tool Works, Inc. 900 75,519
Inco, Ltd. # 2,350 93,577
Ingersoll-Rand Co. -- Class A 900 61,092
Johnson Controls, Inc. 492 57,131
Lennar Corp. -- Class A 600 57,600
Manpower, Inc. 1,300 61,204
Monsanto Co. 2,100 60,438
Navistar International Corp. # 1,300 62,257
Nextel Communication, Inc. -- Class A # 4,400 123,464
Omnicom Group, Inc. 775 67,681
PPG Industries, Inc. 1 64
Paccar, Inc. 900 76,608
Paychex, Inc. 1,300 48,360
Phelps Dodge Corp. # 900 68,481
Praxair, Inc. 1,480 56,536
Toll Brothers, Inc. # 1,750 69,580
United States Steel Corp. 2,200 77,044
----------
1,672,107
----------
Consumer Durable Goods -- 8.0%
(Subadvised by Barrow, Hanley, Mewhinney & Strauss, Inc.)
Aeropostale, Inc. # 3,850 105,567
Best Buy Co., Inc. 1,460 76,270
Circuit City Stores, Inc. 1,940 19,652
Costco Wholesale Corp. # 2,040 75,847
General Motors Corp. 1,260 67,284
Home Depot, Inc. 5,730 203,357
Lowe's Companies, Inc. 2,910 161,185
Target Corp. 4,560 175,104
Wal-Mart Stores, Inc. 10,610 562,861
Walgreen Co. 4,270 155,343
----------
1,602,470
----------
Consumer Non-durable Goods -- 13.7%
(Subadvised by Barrow, Hanley, Mewhinney & Strauss, Inc.)
Action Performance Companies, Inc. 4,003 78,459
Altria Group, Inc. 5,580 303,664
Anheuser-Busch Companies, Inc. 1,770 93,244
Bunge Ltd. 3,310 108,965
Carnival Corp. 1,810 71,911
Clear Channel Communications, Inc. 1,970 92,255
Coca-Cola Co., The 4,970 252,227
Comcast Corp. -- Special -- Class A # 7,050 220,594
ConAgra Foods, Inc. 4,440 117,172
Fortune Brands, Inc. 1,110 79,354
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Common Stocks -- continued
Gannett Co. 1,010 90,052
Haggar Corp. 1,160 22,632
Hain Celestial Group, Inc. # 4,310 100,035
JAKKS Pacific, Inc. # 5,880 77,322
PepsiCo, Inc. 3,740 174,359
Procter & Gamble Co. 2,240 223,731
Starwood Hotels & Resorts Worldwide,
Inc. 1,770 63,667
Time Warner, Inc. # 8,050 144,819
VF Corp. 1,160 50,158
Viacom, Inc. -- Class B 3,263 144,812
Walt Disney Co., The 3,670 85,621
Wendy's International, Inc. 3,780 148,327
----------
2,743,380
----------
Energy -- 5.9%
(Subadvised by The Mitchell Group, Inc.)
Amerada Hess Corp. 1,000 53,170
BP PLC Sponsored ADR 1,548 76,393
Chevron Texaco Corp. 2,056 177,618
ConocoPhillips 1,600 104,912
Devon Energy Corp. 1,000 57,260
Exxon Mobil Corp. 12,424 509,384
FMC Technologies, Inc. # 2,600 60,580
Pioneer Natural Resources Co. # 2,000 63,860
Schlumberger, Ltd. 1,400 76,608
----------
1,179,785
----------
Finance -- 23.0%
(Subadvised by Clover Partners LP)
American Express Co. 4,205 202,807
American International Group, Inc. 3,295 218,393
Charter One Financial, Inc. 5,900 203,845
Citigroup, Inc. 9,195 446,325
Fifth Third Bancorp 6,760 399,516
FleetBoston Financial Corp. 11,150 486,698
General Electric Co. 24,085 746,153
Goldman Sachs Group, Inc. 3,010 297,177
Intercept, Inc. # 8,740 98,412
Janus Capital Group, Inc. 15,660 256,981
M & T Bank Corp. 1,480 145,484
Mellon Financial Corp. 5,900 189,449
Mercantile Bankshares Corp. 2,580 117,596
Merrill Lynch & Co., Inc. 2,290 134,308
National Commerce Financial Corp. 3,240 88,387
PMI Group, Inc. 6,950 258,749
Suntrust Banks, Inc. 1,870 133,705
Texas Regional Bancshares -- Class A 4,400 162,800
Wachovia Corp. -- Preferred Dividend
Equalization 1,700 0
----------
4,586,785
----------
Health -- 13.3%
(Subadvised by Matrix Asset Advisors, Inc.)
Abbott Laboratories 3,050 142,130
AMGEN, Inc. # 3,850 237,892
Baxter International, Inc. 7,525 229,663
The Flex-funds
22
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
The Highlands Growth Fund
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Common Stocks -- continued
Boston Scientific Corp. # 2,750 101,090
Bristol-Myers Squibb Co. 6,900 197,340
Guidant Corp. 2,750 165,550
Johnson & Johnson 3,925 202,766
Lilly, Eli & Co. 775 54,506
Medimmune, Inc. # 4,275 108,499
Merck & Co., Inc. 6,650 307,230
Pfizer, Inc. 19,575 691,584
Wyeth 4,900 208,005
----------
2,646,255
----------
Technology -- 18.5%
(Subadvised by Dresdner RCM Global Investors, L.L.C.)
3 M Co. 700 59,521
ASML Holding NV NY Registered
Shares # 2,780 55,739
Agere Systems, Inc. -- Class A 32,510 99,156
Alcatel SA -- Sponsored ADR # 4,220 54,227
CDW Corp. 1,070 61,803
Cisco Systems, Inc. # 10,210 247,388
Citrix Systems, Inc. 6,900 146,004
Comverse Technology, Inc. # 6,780 119,260
Cypress Semiconductor Corp. 2,620 55,963
Dell, Inc. # 2,855 97,013
Fairchild Semiconductor International,
Inc. # 1,060 26,468
Hewlett-Packard Co. 7,640 175,491
Intel Corp. 15,360 492,288
Intersil Corp. -- Class A 2,610 64,859
Jabil Circuit, Inc. # 1,690 47,827
Macromedia, Inc. # 5,470 97,092
Marvell Technology Group, Ltd. # 1,440 54,619
Mercury Interactive Corp. # 3,030 147,379
Microchip Technology, Inc. 1,380 46,051
Microsoft Corp. 10,900 298,333
National Semiconductor Corp. # 1,200 47,292
Northrop Grumman Corp. 600 57,360
Novell, Inc. # 15,680 165,110
Oracle Corp. # 21,760 287,885
SAP AG Sponsored ADR 2,500 103,900
SOHU.com, Inc. # 1,640 49,052
United Technologies Corp. 635 60,179
Veritas Software Corp. # 2,730 101,065
Western Digital Corp. # 7,290 85,949
Yahoo! # 4,490 202,185
eBay, Inc. # 1,330 85,931
----------
3,692,389
----------
Transportation -- 1.4%
(Subadvised by Miller/Howard Investments, Inc.)
Burlington Northern Santa Fe Corp. 640 20,704
CSX Corp. 352 12,651
Delta Air Lines, Inc. 205 2,421
FedEx Corp. 505 34,087
Norfolk Southern Corp. 650 15,372
Ryder System, Inc. 100 3,415
Sabre Holdings Corp. 245 5,290
Southwest Airlines Co. 1,443 23,290
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Common Stocks -- continued
Union Pacific Corp. 415 28,834
United Parcel Service, Inc. -- Class B 1,915 142,763
----------
288,827
----------
Utilities -- 5.6%
(Subadvised by Sector Capital Management, L.L.C.)
BCE, Inc. 4,800 107,328
BellSouth Corp. 4,000 113,200
Calpine Corp. # 18,000 86,580
Constellation Energy Group 4,000 156,640
Duke Energy Corp. 6,000 122,700
Exelon Corp. 1,700 112,812
FPL Group, Inc. 1,330 87,008
FirstEnergy Corp. 2,400 84,480
Oneok, Inc. 8,000 176,640
Public SVC Enterprise Group, Inc. 1,700 74,460
1,121,848
----------
Total Common Stocks
(Cost $17,381,200) 19,533,850
----------
U.S. Government Obligations -- 0.3%
U.S. Treasury Bills
0.92%, due 01/02/2004 50,000 49,999
----------
Total U.S. Government Obligations (Cost
$49,999) 49,999
----------
Repurchase Agreements -- 1.9%
Salomon Smith Barney, Inc., 1.05%,
01/02/04, (Collateralized by
$397,345 Eureka Securities
Commercial Paper, at 1.06%, due
02/18/04, value -- $396,783) 389,000 389,000
----------
Total Repurchase Agreements
(Cost $389,000) 389,000
----------
Total Investments -- 100.0%
(Cost $17,820,199) (a) 19,972,849
----------
Liabilities less Other Assets -- (0.0%) (4,351)
----------
Total Net Assets -- 100.0% 19,968,498
----------
Trustee Deferred Compensation *
The Flex-funds Dynamic Growth Fund 1,389 10,654
The Flex-funds Highlands Growth Fund 1,239 18,362
The Flex-funds Muirfield Fund 4,519 21,646
The Flex-funds Total Return Utilities Fund 985 14,076
----------
Total Trustee Deferred Compensation
(Cost $68,004) 64,738
----------
(a) Represents cost for financial reporting purposes and differs for federal
income tax purposes by the amount of losses recognized in excess of federal
income tax reporting of approximately $288,686. Cost for federal income tax
purposes differs from value by net unrealized appreciation (depreciation)
of securities as follows:
Unrealized appreciation $2,707,185
Unrealized depreciation (843,221)
----------
Net unrealized appreciation (depreciation) $1,863,964
==========
ADR: American Depository Receipt
# Represents non-income producing securities.
* Assets of affiliates to The Highlands Growth Fund held for the benefit of
the Fund's Trustees in connection with the Trustee Deferred Compensation
Plan.
See accompanying notes to financial statements.
The Flex-funds
23
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
The Dynamic Growth Fund
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ----------
Registered Investment Companies -- 84.7%
AIM Opportunities Fund -- Class A # 268,987 3,808,861
Federated Kaufmann Fund -- Class A # 865,908 4,294,903
Federated Kaufmann Small Cap Fund --
Class A # 128,175 2,282,802
Fidelity Advisor Value Strategies Fund # 141,046 4,505,014
PBHG Emerging Growth Fund # 80,565 1,058,621
Rydex Series Precious Metals Fund # 41,568 1,846,463
----------
Total Registered Investment Companies
(Cost $14,907,381) 17,796,664
----------
U.S. Government Obligations -- 1.9%
U.S. Treasury Bill, 0.92%,
due 01/02/04 * 400,000 399,990
----------
Total U.S. Government Obligations
(Cost $399,990) 399,990
----------
Repurchase Agreements -- 13.5%
Salomon Smith Barney, Inc., 1.05%,
01/02/04, (Collateralized by
$2,908,073 Eureka Securities
Commercial Paper, at 1.06%, due
02/18/04, value -- $2,903,956) 2,847,000 2,847,000
----------
Total Repurchase Agreements
(Cost $2,847,000) 2,847,000
----------
Total Investments -- 100.1%
(Cost $18,154,371) (a) 21,043,654
----------
Liabilities less Other Assets -- (0.1%) (19,889)
----------
Total Net Assets -- 100.0% 21,023,765
----------
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ------------
Trustee Deferred Compensation **
The Flex-funds Dynamic Growth Fund 558 4,280
The Flex-funds Highlands Growth Fund 358 5,306
The Flex-funds Muirfield Fund 1,659 7,947
The Flex-funds Total Return Utilities Fund 355 5,073
-------
Total Trustee Deferred Compensation
(Cost $20,624) 22,606
-------
Futures Contracts
Long Unrealized
Contracts Appreciation
---------- ------------
Nasdaq 100 expiring March 2004,
notional value $3,089,100 21 142,905
-------
Total Futures Contracts 142,905
-------
(a) Represents cost for financial reporting purposes and may differ for federal
income tax purposes by the amount of losses recognized in excess of federal
income tax reporting. Cost for federal income tax purposes differs from
value by net unrealized appreciation (depreciation) of securities as
follows:
Unrealized appreciation $2,890,032
Unrealized depreciation (749)
----------
Net unrealized appreciation (depreciation) $2,889,283
==========
# Represents non-income producing security.
* Pledged as collateral on futures contracts.
** Assets of affiliates to The Dynamic Growth Fund held for the benefit of the
Fund's Trustees in connection with the Trustee Deferred Compensation Plan.
See accompanying notes to financial statements.
The Flex-funds
24
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
The Aggressive Growth Fund
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ---------
Registered Investment Companies -- 73.8%
Federated Kaufmann Fund -- Class A # 259,053 1,284,904
Federated Kaufmann Small Cap
Fund -- Class A # 77,272 1,376,207
Fidelity Advisor Value Strategies Fund # 41,991 1,341,178
PBHG Emerging Growth Fund # 32,967 433,187
PBHG Technology & Communications
Fund # 99,182 1,072,157
Rydex Series Precious Metals Fund # 27,607 1,226,306
---------
Total Registered Investment Companies
(Cost $5,630,514) 6,733,939
---------
U.S. Government Obligations -- 3.3%
U.S. Treasury Bill, 1.01%, due 05/13/04 * 100,000 99,665
U.S. Treasury Bill, 0.92%, due 01/02/04 * 200,000 199,994
---------
Total U.S. Government Obligations
(Cost $299,630) 299,659
---------
Repurchase Agreements -- 22.6%
Salomon Smith Barney, Inc.,
1.05%, 01/02/04, (Collateralized by
$2,109,298 Eureka Securities
Commercial Paper, at 1.06%,
due 02/18/04, value -- $2,106,312) 2,065,000 2,065,000
---------
Total Repurchase Agreements
(Cost $2,065,000) 2,065,000
---------
Total Investments -- 99.7%
(Cost $7,995,144) (a) 9,098,598
---------
Other Assets less Liabilities -- 0.3% 23,817
---------
Total Net Assets -- 100.0% 9,122,415
---------
Shares or
Principal
Security Description Amount ($) Value ($)
-------------------- ---------- ---------
Trustee Deferred Compensation **
The Flex-funds Dynamic Growth Fund 485 3,720
The Flex-funds Highlands Growth Fund 308 4,565
The Flex-funds Muirfield Fund 1,438 6,888
The Flex-funds Total Return Utilities Fund 307 4,387
------
Total Trustee Deferred Compensation
(Cost $17,816) 19,560
------
Futures Contracts
Long Unrealized
Contracts Appreciation
--------- ------------
Nasdaq 100 expiring March 2004,
notional value $2,206,500 15 88,465
------
Total Futures Contracts 88,465
------
(a) Represents cost for financial reporting purposes and may differ for federal
income tax purposes by the amount of losses recognized in excess of federal
income tax reporting. Cost for federal income tax purposes differs from
value by net unrealized appreciation (depreciation) of securities as
follows:
Unrealized appreciation $1,104,090
Unrealized depreciation (636)
----------
Net unrealized appreciation (depreciation) $1,103,454
==========
# Represents non-income producing securities.
* Pledged as collateral on futures contracts.
** Assets of affiliates to The Aggressive Growth Fund held for the benefit of
the Fund's Trustees in connection with the Trustee Deferred Compensation
Plan.
See accompanying notes to financial statements.
The Flex-funds
25
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
The U.S. Government Bond Fund
Principal
Amount ($)
Security Description or Shares Value ($)
-------------------- ---------- ----------
U.S. Government Obligations -- 97.1%
U.S. Treasury Note
3.38%, due 11/15/08 1,800,000 1,814,062
U.S. Treasury Note
4.25%, due 08/15/13 4,700,000 4,708,086
U.S. Treasury Note
4.25%, due 11/15/13 4,000,000 3,998,750
----------
Total U.S. Government Obligations
(Cost $10,522,523) 10,520,898
----------
Repurchase Agreements -- 2.1%
Salomon Smith Barney, Inc., 1.05%,
01/02/04, (Collateralized by $237,998
Eureka Securities Commercial Paper,
at 1.06%, due 02/18/04,
value -- $237,661) 233,000 233,000
----------
Total Repurchase Agreements
(Cost $233,000) 233,000
----------
Total Investments -- 99.2%
(Cost $10,755,523) (a) 10,753,898
----------
Other Assets less Liabilities -- 0.8% 85,872
----------
Total Net Assets -- 100.0% 10,839,770
----------
Principal
Amount ($) Value
Security Description or Shares ($)
-------------------- ---------- ------
Trustee Deferred Compensation *
The Flex-funds Dynamic Growth Fund 662 5,078
The Flex-funds Highlands Growth Fund 586 8,685
The Flex-funds Muirfield Fund 2,116 10,136
The Flex-funds Total Return Utilities Fund 453 6,473
------
Total Trustee Deferred Compensation
(Cost $30,852) 30,372
------
(a) Represents cost for financial reporting purposes and differs for federal
income tax purposes by the amount of losses recognized in excess of federal
income tax reporting of approximately $7,765. Cost for federal income tax
purposes differs from value by net unrealized appreciation (depreciation)
of securities as follows:
Unrealized appreciation $ 19,502
Unrealized depreciation (28,892)
--------
Net unrealized appreciation (depreciation) $ (9,390)
========
* Assets of affiliates to The U.S. Government Bond Fund held for the benefit
of the Fund's Trustees in connection with the Trustee Deferred Compensation
Plan.
See accompanying notes to financial statements.
The Flex-funds
26
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
Money Market Portfolio
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- -----------
Commercial Paper -- 6.2%
CIT Group, Inc. 1.12% 01/06/04 2,719,000 2,718,577
Duff & Phelps Utility &
Corporate Bond Trust,
Inc.** 1.14% 02/06/04 5,905,000 5,898,268
General Electric Capital
Services, Inc. 1.08% 02/09/04 1,500,000 1,498,245
Northern Illinois Gas 1.11% 03/02/04 2,000,000 1,996,239
-----------
Total Commercial Paper
(Cost $12,111,329) 12,111,329
-----------
Corporate Obligations -- 58.3%
Abbott Laboratories 5.13% 07/01/04 1,000,000 1,019,575
American Express Co. 6.75% 06/23/04 2,000,000 2,052,614
Aquarium Holdings, KY** 1.25%* 01/02/04 108,000 108,000
Associates Corp. 5.50% 02/15/04 700,000 703,738
Austin Printing Co., Inc.** 1.21%* 01/02/04 1,815,000 1,815,000
Bath Technologies, Inc.** 1.21%* 01/02/04 1,310,000 1,310,000
Bank Of America Corp. 7.75% 08/15/04 651,000 676,686
Bear Stearns Co., Inc. 6.63% 01/15/04 500,000 501,037
Bear Stearns Co., Inc. 6.15% 03/02/04 965,000 972,930
Bear Stearns Co., Inc.** 1.70%* 06/01/04 2,870,000 2,875,287
Bear Stearns Co., Inc. 6.63% 10/01/04 750,000 778,691
Beaver Creek
Enterprise** 1.21%* 01/02/04 1,590,000 1,590,000
Cascade Plaza Project** 1.21%* 01/02/04 8,395,000 8,395,000
Citigroup, Inc. 5.50% 02/15/04 1,500,000 1,507,878
Citigroup, Inc. 5.63% 05/17/04 3,618,000 3,677,154
Clark Grave Vault Co.** 1.25%* 01/02/04 1,200,000 1,200,000
Commercial Credit Co. 7.88% 07/15/04 1,430,000 1,480,385
Coughlin Family Property,
Inc.** 1.25%* 01/02/04 1,605,000 1,605,000
CVS Corp.** 5.50% 02/15/04 5,000,000 5,026,642
DuPont, E.I.,De Nemours
& Co. 8.13% 03/15/04 543,000 550,635
Espanola/Nambe** 1.21%* 01/02/04 915,000 915,000
FleetBoston Financial
Corp. 8.13% 07/01/04 3,000,000 3,101,820
FPL Group Capital, Inc. 6.88% 06/01/04 4,000,000 4,091,247
General Electric Capital
Corp. 5.38% 04/23/04 1,220,000 1,234,874
Gordon Flesch Co.
Project** 1.21%* 01/02/04 900,000 900,000
Heller Financial, Inc. 6.00% 03/19/04 610,000 616,289
Isaac Tire, Inc.** 1.25%* 01/02/04 870,000 870,000
J.P. Morgan & Co., Inc. 5.69% 02/10/04 3,000,000 3,013,911
J.P. Morgan & Co., Inc. 7.63% 09/15/04 365,000 380,920
K.L. Morris, Inc.** 1.25%* 01/02/04 2,095,000 2,095,000
Kiser Street, Inc.** 1.21%* 01/02/04 1,785,000 1,785,000
Leggett & Platt, Inc.** 6.90% 06/29/04 2,000,000 2,055,281
Martin Wheel Co, Inc.** 1.44%* 01/02/04 2,420,000 2,420,000
Merrill Lynch & Co., Inc. 5.70% 02/06/04 1,500,000 1,506,251
Merrill Lynch & Co., Inc. 6.55% 08/01/04 5,336,000 5,495,757
MetLife Insurance Co.*** 1.25%* 01/02/04 12,000,000 12,000,000
Morgan Stanley Dean
Witter & Co. 5.63% 01/20/04 2,785,000 2,791,405
Mubea, Inc.** 1.21%* 01/02/04 5,825,000 5,825,000
Osco Industries, Inc.** 1.21%* 01/02/04 1,200,000 1,200,000
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- -----------
Corporate Obligations -- continued
O.K.I. Supply Co.** 1.25%* 01/02/04 1,460,000 1,460,000
Paine Webber Group, Inc. 6.38% 05/15/04 200,000 203,671
Presrite Corp.** 1.21%* 01/02/04 170,000 170,000
Pro Tire, Inc.** 1.25%* 01/02/04 1,045,000 1,045,000
R.I. Lampus Co.** 1.21%* 01/02/04 625,000 625,000
Salomon, Inc. 7.20% 02/01/04 2,101,000 2,111,142
Seariver Maritime, Inc.** 1.13%* 01/02/04 4,400,000 4,400,000
SGS Tool Co.** 1.21%* 01/02/04 600,000 600,000
Wachovia Corp. 8.38% 04/15/04 4,185,000 4,270,779
Wachovia Corp. 7.20% 08/15/04 788,000 816,061
Wells Fargo & Co. 9.13% 02/01/04 1,000,000 1,006,402
White Castle Project** 1.21%* 01/02/04 6,500,000 6,500,000
-----------
Total Corporate Obligations
(Cost $113,352,062) 113,352,062
-----------
U.S. Government Agency Obligations -- 14.3%
Federal Home Loan Bank 5.17% 01/08/04 515,000 515,363
Federal Home Loan Bank 5.22% 01/12/04 500,000 500,587
Federal Home Loan Bank 3.25% 02/13/04 510,000 511,137
Federal Home Loan Bank 6.75% 04/05/04 300,000 304,217
Federal Home Loan Bank 3.40% 07/19/04 500,000 505,645
Federal Home Loan Bank 1.20% 08/20/04 3,000,000 3,000,000
Federal Home Loan Bank 1.40% 09/01/04 3,000,000 3,000,000
Federal Home Loan Bank 1.50% 12/24/04 1,000,000 1,000,000
Federal Home Loan
Mortgage Corp. 3.33% 01/30/04 500,000 500,842
Federal Home Loan
Mortgage Corp. 6.25% 07/15/04 5,017,000 5,150,277
Federal Home Loan
Mortgage Corp. 1.50% 11/16/04 2,000,000 2,000,000
Federal National
Mortgage Association 8.63% 06/30/04 200,000 207,151
Federal National
Mortgage Association 7.40% 07/01/04 500,000 514,749
Federal National
Mortgage Association 1.25% 08/27/04 3,000,000 3,000,000
Federal National
Mortgage Association 1.50% 12/03/04 2,000,000 2,000,000
Federal National
Mortgage Association 1.50% 12/21/04 3,000,000 3,000,000
Federal National
Mortgage Association 1.65% 12/30/04 2,000,000 2,000,000
-----------
Total U.S. Government Agency Obligations
(Cost $27,709,968) 27,709,968
-----------
Variable Rate Demand Notes -- 5.2%
Caterpillar Financial, Inc. 2.25%* 01/05/04 10,064,934 10,064,934
-----------
Total Variable Rate Demand Notes
(Cost $10,064,934) 10,064,934
-----------
The Flex-funds
27
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
Money Market Portfolio
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- -----------
Demand Deposits -- 3.6%
Bank One Corp. 1.24%* 01/02/04 4,021,783 4,021,783
National City Corp. 1.98%* 01/02/04 3,010,779 3,010,779
-----------
Total Demand Deposits
(Cost $7,032,562) 7,032,562
-----------
Repurchase Agreements -- 13.6%
Salomon Smith Barney,
Inc., 1.05%, 01/02/04,
(Collateralized by
$26,916,270 Eureka
Securities Commercial
Paper, at 1.06%,
due 02/18/04,
value -- $26,878,167) 26,351,000 26,351,000
-----------
Total Repurchase Agreements
(Cost $26,351,000) 26,351,000
-----------
Total Investments -- 101.2%
(Cost $196,621,855) (a) 196,621,855
-----------
Liabilities less Other Assets -- (1.2%) (2,275,888)
-----------
Total Net Assets -- 100.0% 194,345,967
-----------
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- ---------
Trustee Deferred Compensation ****
The Flex-funds Dynamic
Growth Fund 1,196 9,173
The Flex-funds Highlands
Growth Fund 1,178 17,458
The Flex-funds Muirfield Fund 4,158 19,917
The Flex-funds Total Return
Utilities Fund 967 13,818
------
Total Trustee Deferred Compensation
(Cost $60,366) 60,366
------
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate security. Interest rate is as of December 31, 2003. Maturity
date reflects the next rate change date.
** Represents a restricted security purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended. Security is
restricted as to resale to institutional investors, but has been deemed
liquid in accordance with guidelines approved by the Board of Trustees. As
of December 31, 2003, securities restricted as to resale to institutional
investors represented 31.9% of Total Investments.
*** Illiquid security. The sale or disposition of such security would not be
possible in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the security. As of
December 31, 2003, illiquid securities represented 6.1% of Total
Investments.
**** Assets of affiliates to the Money Market Portfolio held for the benefit of
the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.
See accompanying notes to financial statements.
The Flex-funds
28
29
[THIS PAGE INTENTIONALLY LEFT BLANK]
Statements of Assets & Liabilities
December 31, 2003
- --------------------------------------------------------------------------------
The The Total
Muirfield Return
Fund Utilities Fund
------------ --------------
Assets
Investments, at value* $ 58,038,388 $ 20,918,223
Repurchase agreements, at value* 563,000 137,000
Trustee deferred compensation investments, at value 130,615 39,763
Cash 770 82
Receivable for securities sold -- --
Receivable for net variation margin on futures contracts 1,900 --
Investments in corresponding portfolio, at value
Receivable for capital stock issued 7,179 4,426
Receivable from investment advisor -- --
Interest and dividend receivable 16 49,030
Prepaid expenses/other assets 41,060 20,334
- ---------------------------------------------------------------------------------------------------------
Total Assets 58,782,928 21,168,858
- ---------------------------------------------------------------------------------------------------------
Liabilities
Payable for Trustee Deferred Compensation Plan 130,615 39,763
Payable for net variation margin on futures contracts -- --
Payable for capital stock redeemed 36,093 39,995
Dividends payable -- 893
Payable to investment advisor 47,426 17,591
Accrued distribution plan (12b-1) fees 7,217 6,485
Accrued transfer agent, fund accounting, and administrative fees 10,264 5,275
Accrued trustee fees 2,111 1,733
Other accrued liabilities 25,004 18,796
- ---------------------------------------------------------------------------------------------------------
Total Liabilities 258,730 130,531
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Assets $ 58,524,198 $ 21,038,327
- ---------------------------------------------------------------------------------------------------------
Net Assets
Capital $ 74,364,715 $ 30,615,791
Accumulated undistributed (distributions in excess of) net investment income -- (893)
Accumulated undistributed net realized gain (loss) from investments and
futures contracts (25,104,952) (11,554,268)
Net unrealized appreciation (depreciation) of investments and futures
contracts 9,264,435 1,977,697
- ---------------------------------------------------------------------------------------------------------
Total Net Assets $ 58,524,198 $ 21,038,327
- ---------------------------------------------------------------------------------------------------------
Capital Stock Outstanding (indefinite number of shares authorized,
$0.10 par value) 12,216,167 1,472,547
Net Asset Value, Offering and Redemption Price Per Share $ 4.79 $ 14.29
- ---------------------------------------------------------------------------------------------------------
* Investments, at cost $ 49,357,003 $ 19,077,526
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
30
- --------------------------------------------------------------------------------
The U.S. The Money
The Highlands The Dynamic The Aggressive Government Market
Growth Fund Growth Fund Growth Fund Bond Fund Fund
------------- ----------- -------------- ----------- ------------
$19,583,849 $18,196,654 $ 7,033,598 $10,520,898
389,000 2,847,000 2,065,000 233,000
64,738 22,606 19,560 30,372
12 323 550 866
3,814 -- -- --
-- -- -- --
$165,650,714
6,209 25,672 52,709 2,639 --
-- -- -- 1,204 8,157
33,839 83 60 105,251
9,125 12,313 7,450 5,576 35,400
-------------------------------------------------------------------
20,090,586 21,104,651 9,178,927 10,899,806 165,694,271
-------------------------------------------------------------------
64,738 22,606 19,560 30,372
-- 7,350 5,250
2,403 10,087 2,779 1,110 --
-- -- -- 1,289 13,594
16,609 13,123 5,661 3,750
10,321 3,160 2,447 3,469 29,579
5,341 4,930 2,059 2,483 23,392
3,163 1,710 1,299 1,225
19,513 17,920 17,457 16,338 21,103
-------------------------------------------------------------------
122,088 80,886 56,512 60,036 87,668
-------------------------------------------------------------------
-------------------------------------------------------------------
$19,968,498 $21,023,765 $ 9,122,415 $10,839,770 $165,606,603
-------------------------------------------------------------------
$25,448,474 $26,170,209 $16,259,155 $11,466,741 $165,606,603
-- -- -- 155,537 --
(7,632,626) (8,178,632) (8,328,659) (780,883) --
2,152,650 3,032,188 1,191,919 (1,625) --
-------------------------------------------------------------------
$19,968,498 $21,023,765 $ 9,122,415 $10,839,770 $165,606,603
-------------------------------------------------------------------
1,347,856 2,740,327 1,372,222 516,197 165,606,603
$ 14.82 $ 7.67 $ 6.65 $ 21.00 $ 1.00
-------------------------------------------------------------------
$17,820,199 $18,154,371 $ 7,995,144 $10,755,523
-------------------------------------------------------------------
The Flex-funds
31
Statements of Operations
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
The The Total
Muirfield Return Utilities
Fund Fund
----------- ----------------
Net Investment Income (Loss) from Corresponding Portfolio *
Interest $ 90,852 $ 362
Dividends -- 248,468
Expenses net of reductions (155,787) (66,014)
- -----------------------------------------------------------------------------------------------------
Total Net Investment Income (Loss) from Corresponding Portfolio (64,935) 182,816
- -----------------------------------------------------------------------------------------------------
Investment Income **
Interest 27,540 6,324
Dividends 55,618 545,811
- -----------------------------------------------------------------------------------------------------
Total Investment Income 83,158 552,135
- -----------------------------------------------------------------------------------------------------
Fund Expenses
Investment advisor ** 378,262 142,357
Transfer agent 62,080 23,038
Fund accounting ** 28,530 17,825
Administrative 25,867 9,599
Trustee ** 10,884 7,826
Audit 8,682 10,505
Legal 3,051 5,592
Custody ** 4,340 2,311
Printing 7,126 3,708
Distribution plan (12b-1) 103,472 47,499
Postage 11,437 8,393
Registration and filing 8,993 12,722
Insurance 3,470 1,330
Other 14,770 13,668
- -----------------------------------------------------------------------------------------------------
Total Expenses Before Reductions 670,964 306,373
- -----------------------------------------------------------------------------------------------------
Expenses reimbursed by investment advisor -- --
Expenses paid indirectly ** (39,062) (2,956)
Distribution plan (12b-1) expenses waived (67,258) --
Transfer agent expenses waived -- --
- -----------------------------------------------------------------------------------------------------
Net Expenses 564,644 303,417
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (546,421) 431,534
- -----------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) from Investments from
Corresponding Portfolio *
Net realized gains (losses) from futures contracts (81,542) --
Net realized gains (losses) from investments (2,826,968) (1,311,837)
Net change in unrealized appreciation (depreciation) of investments and
futures contracts 771,086 133,519
- -----------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) from Investments from
Corresponding Portfolio (2,137,424) (1,178,318)
- -----------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments **
Net realized gains (losses) from futures contracts 52,765 --
Net realized gains (losses) from investments 7,278,438 (1,068,775)
Net change in unrealized appreciation (depreciation) of investments and
futures contracts 8,298,845 4,547,369
- -----------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss) from Investments 15,630,048 3,478,594
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Net Change in Net Assets Resulting from Operations $12,946,203 $ 2,731,810
- -----------------------------------------------------------------------------------------------------
* This information represents activity for each fund, except The Money Market
Fund, for the period January 1, 2003 through April 13, 2003. See the second
paragraph of footnote 1 on page 43 for more information.
** This information represents activity for each fund, except The Money Market
Fund, for the period April 14, 2003 through December 31, 2003. See the
second paragraph of footnote 1 on page 43 for more information.
See accompanying notes to financial statements.
The Flex-funds
32
- --------------------------------------------------------------------------------
The U.S. The Money
The Highlands The Dynamic The Aggressive Government Market
Growth Fund Growth Fund Growth Fund Bond Fund Fund
----------- ----------- -------------- ---------- ----------
$ 1,714 $ 13,036 $ 6,952 $ -- $2,516,659
93,407 -- -- 141,678 --
(67,516) (53,675) (26,200) (30,443) (343,380)
----------------------------------------------------------------
27,605 (40,639) (19,248) 111,235 2,173,279
----------------------------------------------------------------
7,052 25,375 14,636 221,744
222,210 31,763 19,174 --
----------------------------------------------------------------
229,262 57,138 33,810 221,744
----------------------------------------------------------------
137,795 103,542 42,281 37,542
22,452 22,318 9,054 10,830 149,280
17,369 17,395 8,456 12,975
9,355 9,299 3,772 6,769 93,301
5,952 6,342 6,418 6,572
10,322 10,906 10,932 10,866 9,853
6,218 5,374 5,111 4,373 5,350
6,890 3,368 2,309 2,067
5,593 1,464 1,501 2,103 53,193
37,463 46,417 18,833 27,032 373,815
8,221 2,516 2,022 3,389 65,133
13,475 3,913 3,907 5,549 26,200
1,335 1,251 540 1,037 11,531
7,358 9,511 8,748 6,676 60,028
----------------------------------------------------------------
289,798 243,616 123,884 137,780 847,684
----------------------------------------------------------------
(146) (21,082) (26,017) (4,551) (106,944)
(532) (9,026) (3,499) -- --
(12,536) (37,197) (13,883) (12,183) (264,972)
-- (3,721) (1,510) (2,708) (13,353)
----------------------------------------------------------------
276,584 172,590 78,975 118,338 462,415
----------------------------------------------------------------
----------------------------------------------------------------
(19,717) (156,091) (64,413) 214,641 1,710,864
----------------------------------------------------------------
2,039 124,550 (8,451) (2,648) --
(1,542,265) (1,045,793) (379,422) (155,670) --
1,268,083 800,078 177,746 (153,159) --
----------------------------------------------------------------
(272,143) (121,165) (210,127) (311,477) --
----------------------------------------------------------------
124,467 892,315 504,365 (23,953)
738,739 2,775,589 1,099,151 (581,737)
3,906,322 2,561,446 1,170,579 35,281
----------------------------------------------------------------
4,769,528 6,229,350 2,774,095 (570,409)
----------------------------------------------------------------
----------------------------------------------------------------
$ 4,477,668 $ 5,952,094 $2,499,555 $(667,245) $1,710,864
----------------------------------------------------------------
The Flex-funds
33
Statements of Changes in Net Assets
For the Years Ended December 31,
- --------------------------------------------------------------------------------
The Total Return The Highlands
The Muirfield Fund Utilities Fund Growth Fund
-------------------------- ------------------------- -------------------------
2003 2002 2003 2002 2003 2002
------------ ------------ ----------- ------------ ----------- ------------
Operations
Net investment income (loss) $ (546,421) $ (232,622) $ 431,534 $ 557,173 $ (19,717) $ (51,058)
Net realized gain (loss) from
investments and futures
contracts 4,422,693 (3,689,880) (2,380,612) (7,125,558) (677,020) (4,865,896)
Net change in unrealized
appreciation (depreciation) of
investments and futures
contracts 9,069,931 (2,492,162) 4,680,888 (2,972,730) 5,174,405 (2,729,883)
- --------------------------------------------------------------------------------------------------------------------
Net change in net assets
resulting from operations 12,946,203 (6,414,664) 2,731,810 (9,541,115) 4,477,668 (7,646,837)
- --------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From net investment income -- (57,484) (431,534) (557,165) -- --
From net realized gain from
investments and futures
contracts -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net change in net assets
resulting from distributions -- (57,484) (431,534) (557,165) -- --
- --------------------------------------------------------------------------------------------------------------------
Capital Transactions
Issued 11,289,989 13,711,061 5,942,962 8,997,088 6,366,212 22,555,197
Reinvested -- 56,679 423,057 542,534 -- --
Redeemed (13,355,585) (21,228,768) (6,761,373) (11,575,027) (9,235,138) (28,796,756)
- --------------------------------------------------------------------------------------------------------------------
Net change in net assets
resulting from capital
transactions (2,065,596) (7,461,028) (395,354) (2,035,405) (2,868,926) (6,241,559)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total Change in Net Assets 10,880,607 (13,933,176) 1,904,922 (12,133,685) 1,608,742 (13,888,396)
- --------------------------------------------------------------------------------------------------------------------
Net Assets -- Beginning of
Period 47,643,591 61,576,767 19,133,405 31,267,090 18,359,756 32,248,152
- --------------------------------------------------------------------------------------------------------------------
Net Assets -- End of Period $ 58,524,198 $ 47,643,591 $21,038,327 $ 19,133,405 $19,968,498 $ 18,359,756
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net
investment income $ -- $ -- $ (893) $ (926) $ -- $ --
- --------------------------------------------------------------------------------------------------------------------
Share Transactions
Issued 2,845,877 3,323,158 462,165 595,226 528,012 1,710,021
Reinvested -- 15,074 32,816 38,578 -- --
Redeemed (3,305,185) (5,148,173) (533,173) (801,364) (756,753) (2,218,167)
- --------------------------------------------------------------------------------------------------------------------
Net change in shares (459,308) (1,809,941) (38,192) (167,560) (228,741) (508,146)
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
34
- --------------------------------------------------------------------------------
The Dynamic The Aggressive The U.S. Government The Money
Growth Fund Growth Fund Bond Fund Market Fund
- -------------------------- ------------------------ -------------------------- ----------------------------
2003 2002 2003 2002 2003 2002 2003 2002
- ------------ ------------ ----------- ----------- ------------ ------------ ------------- -------------
$ (156,091) $ (136,087) $ (64,413) $ (90,795) $ 214,641 $ 314,412 $ 1,710,864 $ 3,551,609
2,746,661 (5,901,026) 1,215,643 (3,435,659) (764,008) 835,522 -- --
3,361,524 574,259 1,348,325 516,860 (117,878) 127,891 -- --
- ---------------------------------------------------------------------------------------------------------------
5,952,094 (5,462,854) 2,499,555 (3,009,594) (667,245) 1,277,825 1,710,864 3,551,609
- ---------------------------------------------------------------------------------------------------------------
-- -- -- -- (214,641) (314,412) (1,710,864) (3,551,609)
-- -- -- -- (224,673) (165,565) -- --
- ---------------------------------------------------------------------------------------------------------------
-- -- -- -- (439,314) (479,977) (1,710,864) (3,551,609)
- ---------------------------------------------------------------------------------------------------------------
14,439,731 15,800,899 1,266,436 2,321,604 20,270,426 24,045,883 201,399,826 279,654,157
-- -- -- -- 424,054 456,776 1,688,792 3,508,939
(16,462,013) (16,370,079) (1,689,087) (4,645,062) (22,974,430) (24,154,363) (223,761,740) (318,477,532)
- ---------------------------------------------------------------------------------------------------------------
(2,022,282) (569,180) (422,651) (2,323,458) (2,279,950) 348,296 (20,673,122) (35,314,436)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
3,929,812 (6,032,034) 2,076,904 (5,333,052) (3,386,509) 1,146,144 (20,673,122) (35,314,436)
- ---------------------------------------------------------------------------------------------------------------
17,093,953 23,125,987 7,045,511 12,378,563 14,226,279 13,080,135 186,279,725 221,594,161
- ---------------------------------------------------------------------------------------------------------------
$ 21,023,765 $ 17,093,953 $ 9,122,415 $ 7,045,511 $ 10,839,770 $ 14,226,279 $ 165,606,603 $ 186,279,725
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ -- $ 155,537 $ 155,537 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------
2,460,619 2,625,849 229,909 415,706 900,181 1,056,785 201,399,826 279,654,157
-- -- -- -- 19,667 20,334 1,688,792 3,508,939
(2,781,195) (2,701,879) (329,306) (842,790) (1,027,835) (1,063,983) (223,761,740) (318,477,532)
- ---------------------------------------------------------------------------------------------------------------
(320,576) (76,030) (99,397) (427,084) (107,987) 13,136 (20,673,122) (35,314,436)
- ---------------------------------------------------------------------------------------------------------------
The Flex-funds
35
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The Muirfield Fund
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 3.76 $ 4.25 $ 4.95 $ 6.32 $ 6.88
- -----------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income (loss) (0.04) (0.02) 0.01 0.20 0.09
Net gains (losses) on securities and futures (both
realized and unrealized) 1.07 (0.47) (0.58) (1.23) 0.89
- -----------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.03 (0.49) (0.57) (1.03) 0.98
- -----------------------------------------------------------------------------------------------------------
Less Distributions
From net investment income -- -- (0.13) (0.19) (0.09)
From net capital gains -- -- -- (0.15) (1.45)
- -----------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.13) (0.34) (1.54)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 4.79 $ 3.76 $ 4.25 $ 4.95 $ 6.32
- -----------------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions) 27.39% (11.42%) (11.52%) (16.50%) 16.43%
Ratios/Supplemental Data
Net assets, end of period ($000) $ 58,524 $ 47,644 $ 61,577 $ 97,912 $155,827
Ratio of net expenses to average net assets(1)(2) 1.39% 1.41% 1.31% 1.20% 1.21%
Ratio of net investment income (loss) to average net
assets(1)(2) (1.06%) (0.43%) 0.11% 2.97% 1.33%
Ratio of expenses to average net assets after reductions,
excluding expenses paid indirectly(1)(2) 1.47% 1.46% 1.37% 1.20% 1.21%
Ratio of expenses to average net assets before
reductions(1)(2) 1.60% 1.46% 1.37% 1.20% 1.21%
Portfolio turnover rate(3) 252.02% 277.99% 297.81% 405.88% 787.66%
(1) Ratio reflects reductions in corresponding portfolio, if applicable.
(2) These ratios exclude the impact of expenses of the underlying security
holdings as represented in the schedule of investments.
(3) Prior to the year ended December 31, 2003, the portfolio turnover rate
represented the turnover rate of the corresponding portfolio. During 2003,
the funds portfolio turnover rate for the period January 1 through April 13
is equivalent to the portfolio into which the fund invested. Beginning
April 14 the fund commenced calculating the portfolio turnover rate based
on its own activities. Hence, the portfolio turnover rate represented for
2003 is a combination of these two periods.
See accompanying notes to financial statements.
The Flex-funds
36
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The Total Return Utilities Fund
2003 2002 2001 2000 1999
------- -------- -------- ------- -------
Net Asset Value, Beginning of Period $ 12.66 $ 18.63 $ 22.17 $ 20.34 $ 19.01
- ---------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income 0.29 0.34 0.35 0.26 0.30
Net gains (losses) on securities (both realized and
unrealized) 1.63 (5.97) (3.56) 3.73 3.45
- ---------------------------------------------------------------------------------------------------
Total from Investment Operations 1.92 (5.63) (3.21) 3.99 3.75
- ---------------------------------------------------------------------------------------------------
Less Distributions
From net investment income (0.29) (0.34) (0.33) (0.28) (0.30)
From net capital gains -- -- -- (1.79) (2.12)
Tax return of capital -- -- -- (0.09) --
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.29) (0.34) (0.33) (2.16) (2.42)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 14.29 $ 12.66 $ 18.63 $ 22.17 $ 20.34
- ---------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions) 15.46% (30.36%) (14.57%) 20.03% 20.01%
Ratios/Supplemental Data
Net assets, end of period ($000) $21,038 $ 19,133 $ 31,267 $24,740 $13,893
Ratio of net expenses to average net assets(1) 1.92% 1.81% 1.72% 1.78% 1.80%
Ratio of net investment income to average net
assets(1) 2.25% 2.32% 1.66% 1.22% 1.48%
Ratio of expenses to average net assets after
reductions, excluding expenses paid indirectly(1) 1.94% 1.88% 1.80% 1.79% 1.80%
Ratio of expenses to average net assets before
reductions(1) 1.94% 1.88% 1.80% 1.85% 1.99%
Portfolio turnover rate(2) 41.12% 31.61% 22.74% 37.07% 69.20%
(1) Ratio reflects reductions in corresponding portfolio, if applicable.
(2) Prior to the year ended December 31, 2003, the portfolio turnover rate
represented the turnover rate of the corresponding portfolio. During 2003,
the funds portfolio turnover rate for the period January 1 through April 13
is equivalent to the portfolio into which the fund invested. Beginning
April 14 the fund commenced calculating the portfolio turnover rate based
on its own activities. Hence, the portfolio turnover rate represented for
2003 is a combination of these two periods.
See accompanying notes to financial statements.
The Flex-funds
37
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The Highlands Growth Fund
2003 2002 2001 2000 1999
-------- -------- -------- ------- -------
Net Asset Value, Beginning of Period $ 11.65 $ 15.47 $ 18.66 $ 22.37 $ 21.23
- -----------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income (loss) (0.01) (0.03) -- (0.01) (0.01)
Net gains (losses) on securities and futures (both realized
and unrealized) 3.18 (3.79) (2.49) (2.17) 4.37
- -----------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.17 (3.82) (2.49) (2.18) 4.36
- -----------------------------------------------------------------------------------------------------------
Less Distributions
From net capital gains -- -- (0.70) (1.53) (3.22)
- -----------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.70) (1.53) (3.22)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 14.82 $ 11.65 $ 15.47 $ 18.66 $ 22.37
- -----------------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions) 27.21% (24.69%) (13.33%) (9.76%) 21.16%
Ratios/Supplemental Data
Net assets, end of period ($000) $ 19,968 $ 18,360 $ 32,248 $44,049 $53,087
Ratio of net expenses to average net assets(1) 1.84% 1.76% 1.64% 1.43% 1.56%
Ratio of net investment income (loss) to average net
assets(1) (0.11%) (0.20%) (0.23%) (0.04%) (0.04%)
Ratio of expenses to average net assets after reductions,
excluding expenses paid indirectly(1) 1.84% 1.78% 1.66% 1.45% 1.57%
Ratio of expenses to average net assets before
reductions(1) 1.91% 1.79% 1.66% 1.45% 1.57%
Portfolio turnover rate(2) 139.74% 53.61% 36.99% 58.03% 51.22%
(1) Ratio reflects reductions in corresponding portfolio, if applicable.
(2) Prior to the year ended December 31, 2003, the portfolio turnover rate
represented the turnover rate of the corresponding portfolio. During 2003,
the funds portfolio turnover rate for the period January 1 through April 13
is equivalent to the portfolio into which the fund invested. Beginning
April 14 the fund commenced calculating the portfolio turnover rate based
on its own activities. Hence, the portfolio turnover rate represented for
2003 is a combination of these two periods.
See accompanying notes to financial statements.
The Flex-funds
38
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The Dynamic Growth Fund
2003 2002 2001 2000*
-------- -------- -------- --------
Net Asset Value, Beginning of Period $ 5.58 $ 7.37 $ 8.52 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income (loss) (0.06) (0.04) -- 0.04
Net gains (losses) on securities and futures (both realized and
unrealized) 2.15 (1.75) (1.15) (1.39)
- ------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.09 (1.79) (1.15) (1.35)
- ------------------------------------------------------------------------------------------------------------
Less Distributions
From net investment income -- -- -- (0.13)
- ------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.13)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.67 $ 5.58 $ 7.37 $ 8.52
- ------------------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions)(1) 37.46% (24.29%) (13.47%) (13.54%)
Ratios/Supplemental Data
Net assets, end of period ($000) $ 21,024 $ 17,094 $ 23,126 $ 20,399
Ratio of net expenses to average net assets(2)(3)(4) 1.22% 1.18% 1.03% 1.10%
Ratio of net investment income (loss) to average net assets(2)(3)(4) (0.84%) (0.69%) (0.62%) 0.53%
Ratio of expenses to average net assets after reductions, excluding
expenses paid indirectly(2)(3)(4) 1.27% 1.29% 1.19% 1.10%
Ratio of expenses to average net assets before reductions(2)(3)(4) 1.60% 1.35% 1.34% 1.30%
Portfolio turnover rate(1)(5) 249.65% 391.64% 131.21% 257.72%
(1) Not annualized for periods of less than one full year.
(2) Annualized for periods of less than one full year.
(3) Ratio reflects reductions in corresponding portfolio, if applicable.
(4) These ratios exclude the impact of expenses of the underlying security
holdings as represented in the schedule of investments.
(5) Prior to the year ended December 31, 2003, the portfolio turnover rate
represented the turnover rate of the corresponding portfolio. During 2003,
the funds portfolio turnover rate for the period January 1 through April 13
is equivalent to the portfolio into which the fund invested. Beginning
April 14 the fund commenced calculating the portfolio turnover rate based
on its own activities. Hence, the portfolio turnover rate represented for
2003 is a combination of these two periods.
* Commenced operations on February 29, 2000.
See accompanying notes to financial statements.
The Flex-funds
39
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The Aggressive Growth Fund
2003 2002 2001 2000*
-------- -------- -------- --------
Net Asset Value, Beginning of Period $ 4.79 $ 6.52 $ 7.86 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income (loss) (0.05) (0.06) -- (0.01)
Net gains (losses) on securities and futures (both realized and
unrealized) 1.91 (1.67) (1.34) (2.11)
- ------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.86 (1.73) (1.34) (2.12)
- ------------------------------------------------------------------------------------------------------------
Less Distributions
From net investment income -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 6.65 $ 4.79 $ 6.52 $ 7.86
- ------------------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions)(1) 38.83% (26.53%) (17.04%) (21.24%)
Ratios/Supplemental Data
Net assets, end of period ($000) $ 9,122 $ 7,046 $ 12,379 $ 12,079
Ratio of net expenses to average net assets(2)(3)(4) 1.39% 1.22% 1.03% 1.10%
Ratio of net investment income (loss) to average net assets(2)(3)(4) (0.85%) (0.95%) (0.69%) (0.11%)
Ratio of expenses to average net assets after reductions, excluding
expenses paid indirectly(2)(3)(4) 1.44% 1.32% 1.19% 1.10%
Ratio of expenses to average net assets before reductions(2)(3)(4) 1.99% 1.67% 1.52% 1.32%
Portfolio turnover rate(1)(5) 255.32% 349.42% 126.69% 302.02%
(1) Not annualized for periods of less than one full year.
(2) Annualized for periods of less than one full year.
(3) Ratio reflects reductions in corresponding portfolio, if applicable.
(4) These ratios exclude the impact of expenses of the underlying security
holdings as represented in the schedule of investments.
(5) Prior to the year ended December 31, 2003, the portfolio turnover rate
represented the turnover rate of the corresponding portfolio. During 2003,
the funds portfolio turnover rate for the period January 1 through April 13
is equivalent to the portfolio into which the fund invested. Beginning
April 14 the fund commenced calculating the portfolio turnover rate based
on its own activities. Hence, the portfolio turnover rate represented for
2003 is a combination of these two periods.
* Commenced operations on February 29, 2000.
See accompanying notes to financial statements.
The Flex-funds
40
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The U.S. Government Bond Fund
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 22.79 $ 21.41 $ 21.92 $ 21.33 $ 22.14
- ---------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income 0.35 0.54 0.79 1.10 0.88
Net gains (losses) on securities and futures (both
realized and unrealized) (1.35) 1.65 (0.51) 0.59 (0.81)
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations (1.00) 2.19 0.28 1.69 0.07
- ---------------------------------------------------------------------------------------------------------
Less Distributions
From net investment income (0.35) (0.54) (0.79) (1.10) (0.88)
From net capital gains (0.44) (0.27) -- -- --
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.79) (0.81) (0.79) (1.10) (0.88)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 21.00 $ 22.79 $ 21.41 $ 21.92 $ 21.33
- ---------------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions) (4.43%) 10.34% 1.23% 8.15% 0.35%
Ratios/Supplemental Data
Net assets, end of period ($000) $ 10,840 $ 14,226 $ 13,080 $ 13,340 $ 12,422
Ratio of net expenses to average net assets(1) 1.10% 1.10% 1.07% 1.00% 1.00%
Ratio of net investment income to average net assets(1) 1.59% 2.43% 3.58% 5.12% 4.10%
Ratio of expenses to average net assets before
reductions(1) 1.24% 1.13% 1.13% 1.30% 1.18%
Portfolio turnover rate(2) 567.68% 407.99% 503.20% 375.47% 352.23%
(1) Ratio reflects reductions in corresponding portfolio, if applicable.
(2) Prior to the year ended December 31, 2003, the portfolio turnover rate
represented the turnover rate of the corresponding portfolio. During 2003,
the funds portfolio turnover rate for the period January 1 through April 13
is equivalent to the portfolio into which the fund invested. Beginning
April 14 the fund commenced calculating the portfolio turnover rate based
on its own activities. Hence, the portfolio turnover rate represented for
2003 is a melding of these two periods.
See accompanying notes to financial statements.
The Flex-funds
41
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The Money Market Fund
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income 0.009 0.016 0.040 0.060 0.049
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.009 0.016 0.040 0.060 0.049
- ---------------------------------------------------------------------------------------------------------
Less Distributions
From net investment income (0.009) (0.016) (0.040) (0.060) (0.049)
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.009) (0.016) (0.040) (0.060) (0.049)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions) 0.92% 1.59% 4.10% 6.20% 4.96%
Ratios/Supplemental Data
Net assets, end of period ($000) $165,607 $186,280 $221,594 $233,227 $232,023
Ratio of net expenses to average net assets(1) 0.43% 0.44% 0.44% 0.41% 0.41%
Ratio of net investment income to average net assets(1) 0.92% 1.58% 4.00% 6.01% 4.88%
Ratio of expenses to average net assets before
reductions(1) 0.82% 0.66% 0.62% 0.60% 0.54%
(1) Ratio reflects reductions in corresponding portfolio.
See accompanying notes to financial statements.
The Flex-funds
42
Notes to Financial Statements
December 31, 2003
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Flex-funds Trust (the "Trust") was organized in 1982 and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
diversified, open-end management investment company. The Trust offers seven
separate series and is presently comprised of seven separate funds as follows:
The Muirfield Fund(R) ("Muirfield"), The Total Return Utilities Fund ("TRUF"),
The Highlands Growth Fund(R) ("Highlands"), The Dynamic Growth Fund
("Dynamic"), The Aggressive Growth Fund ("Aggressive"), The U.S. Government
Bond Fund ("Bond"), and The Money Market Fund ("Money Market") (each a "Fund"
and collectively the "Funds"). Money Market invests all of its investable
assets in a corresponding open-end management investment company, the Money
Market Portfolio ("Portfolio"). As of December 31, 2003, Money Market owns 85%
of the Portfolio. There is a partner in this Portfolio that owns a de minimis
position.
Prior to April 14, 2003, all the Funds were organized in the master-feeder
structure. Under that structure each Fund invested its investable assets in a
corresponding open-end management company (each a "Portfolio" and collectively
the "Portfolios") having the same investment objective as the Fund. The Board
of Trustees ("Trustees") approved the termination of the master portfolios for
Muirfield (Asset Allocation Portfolio), TRUF (Utilities Portfolio), Highlands
(Growth Stock Portfolio), Dynamic (Growth Portfolio), Aggressive (Aggressive
Growth Portfolio), and Bond (Bond Portfolio) on April 13, 2003. Therefore,
beginning April 14 these Funds no longer invested in a master portfolio but
operated as a stand-alone fund while continuing to be managed by Meeder Asset
Management, Inc.
The financial statements of the Money Market Portfolio, including the Schedule
of Portfolio Investments, are included elsewhere in this report and should be
read in conjunction with the financial statements of Money Market.
Use of estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Security valuation. Securities that are traded on stock exchanges are valued
at the last sales price as of the close of business of the New York Stock
Exchange on the day of valuation or, lacking any sales, at the closing bid
prices. Securities traded over-the-counter are valued at the most recent bid
price or yield equivalent as obtained from one or more dealers that make
markets in such securities. Mutual funds are valued at the daily redemption
value as reported by the underlying fund. Bond values the securities held at
4:00 P.M. Eastern Time. The Funds obtain prices from independent pricing
services, which use valuation techniques approved by the Trustees.
Money market securities held in the Funds, except Money Market, maturing more
than sixty days after the valuation date are valued at the last sales price as
of the close of business on the day of valuation, or, lacking any sales, at the
most recent bid price or yield equivalent as obtained from dealers that make
markets in such securities. When such securities are valued within sixty days
or less to maturity, the difference between the valuation existing on the
sixty-first day before maturity and maturity value is amortized on a
straight-line basis to maturity. Securities maturing within sixty days from
their date of acquisition are valued at amortized cost.
Repurchase agreements. Each Fund, except Money Market, may engage in
repurchase agreement transactions whereby the Fund takes possession of an
underlying debt instrument subject to an obligation of the seller to repurchase
the instrument from the Fund and an obligation of the Fund to resell the
instrument at an agreed upon price and term. At all times, the Fund maintains
the value of collateral, including accrued interest, of at least 100% the
amount of the repurchase agreement, plus accrued interest. If the seller
defaults or the fair value of the collateral declines, realization of the
collateral by the Funds may be delayed or limited.
Futures & options. Each Fund, except Money Market, may engage in transactions
in financial futures contracts and options contracts in order to manage the
risk of unanticipated changes in market values of securities held in the fund,
or which it intends to purchase. The futures and options contracts are adjusted
by the daily exchange rate of the underlying currency, or index, and any gains
or losses are recorded for financial statement purposes as unrealized gains or
losses in the statement of assets and liabilities and the statement of
operations until the contract settlement date, at which time realized gains and
losses are included in the statement of operations.
The Flex-funds
43
To the extent that the Fund enters into futures contracts on an index or group
of securities, the Fund exposes itself to an indeterminate liability and will
be required to pay or receive a sum of money measured by the change in the
value of the index. Upon entering into a futures contract, the Fund is required
to deposit an initial margin, which is either cash or securities in an amount
equal to a certain percentage of the contract value. Subsequently, the
variation margin, which is equal to changes in the daily settlement price or
last sale price on the exchanges where they trade, is received or paid and are
recorded as unrealized gains or losses until the contracts are closed. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract.
Call and put option contracts involve the payment of a premium for the right to
purchase or sell an individual security or index aggregate at a specified price
until the expiration of the contract. Such transactions expose the Fund to the
loss of the premium paid if the Fund does not sell or exercise the contract
prior to the expiration date. In the case of a call option, sufficient cash or
money market instruments will be segregated to complete the purchase. Options
are valued on the basis of the daily settlement price or last sale on the
exchanges where they trade and the changes in value are recorded as unrealized
appreciation or depreciation until closed, exercised or expired.
The Funds may write covered call or put options for which premiums received are
recorded as liabilities and are subsequently adjusted to the current value of
the options written. When written options are closed or exercised, premiums
received are offset against the proceeds paid, and the Fund records realized
gains or losses for the difference. When written options expire, the liability
is eliminated, and the Fund records realized gains for the entire amount of
premiums received.
Transactions in options during the year ended December 31, 2003, were as
follows:
Number Premiums
U.S. Government Bond Fund of Contracts Received/(Paid)
- ------------------------- ------------ ---------------
Options outstanding at December 31, 2002 -- $ --
Options written 50 37,175
Options bought 50 (37,825)
Options terminated in closing purchase transactions (100) 650
Options outstanding at December 31, 2003 -- $ --
Valuation of investments. Money Market records its investment in the
corresponding Portfolio at value. Valuation of securities held by the Portfolio
is discussed in the Portfolio's notes to financial statements included
elsewhere in this report.
Federal income taxes. It is each Fund's policy to continue to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable income and net capital gains to its shareholders. Therefore, no federal
income tax provision is required.
Distributions to shareholders. Distributions to shareholders are recorded on
the ex-dividend date. Muirfield, Highlands, Dynamic, and Aggressive declare and
pay dividends from net investment income, if any, on a quarterly basis. TRUF
declares and pays dividends from net investment income on a monthly basis. Bond
and Money Market declare dividends from net investment income on a daily basis
and pay such dividends on a monthly basis. Each Fund distributes net capital
gains, if any, on an annual basis.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ from
GAAP. These differences are primarily due to deferrals of certain losses,
expiring capital loss carryforwards, and differing treatments of unrealized
gains and losses of futures contracts held by each Fund. Accordingly, timing
differences relating to shareholder distributions are reflected in the
components of net assets and permanent book and tax differences relating to
shareholder distributions have been reclassified within the components of net
assets. Differences identified and reclasses made for the period ended December
31, 2003 were as follows:
Undistributed Net
Capital Investment Income
--------- -----------------
The Muirfield Fund(R) $(546,421) $546,421
The Total Return Utilities Fund (33) 33
The Highlands Growth Fund(R) (19,717) 19,717
The Dynamic Growth Fund (156,091) 156,091
The Aggressive Growth Fund (64,413) 64,413
The Flex-funds
44
Investment income & expenses. Money Market records daily its proportionate
share of the corresponding Portfolio's income, expenses, and realized and
unrealized gains and losses. In addition, Money Market accrues its own
expenses. Expenses incurred by the Trust that do not specifically relate to an
individual Fund of the Trust are allocated to the Funds based on each Fund's
relative net assets or other appropriate basis.
Other. The Funds, except Money Market, record security transactions on the
trade date. Gains and losses realized from the sale of securities are
determined on the specific identification basis. Dividend income is recognized
on the ex-dividend date and interest income (including amortization of premium
and accretion of discount) is recognized as earned.
Under a Deferred Compensation Plan (the "Plan"), non-interested Trustees may
elect to defer receipt of a portion of their annual compensation. Under the
Plan, deferred amounts are invested in shares of The Flex-funds. Deferred
amounts remain in the Funds, except Money Market, until distributed in
accordance with the Plan.
2. Investment Transactions
Prior to the year ended December 31, 2003, the portfolio turnover rate
represented the turnover rate of the corresponding portfolio of each Fund.
During 2003, the Funds portfolio turnover rate for the period January 1 through
April 13 is equivalent to the Portfolio into which the Fund invested. Beginning
April 14 the Fund commenced calculating the portfolio turnover rate based on
its own purchases and sales or maturities of long-term investments. Therefore,
for the period January 1 through April 13, 2003, the cost of purchases and
proceeds from sales or maturities of long-term investments for the
corresponding Portfolio into which the Fund invested were as follows:
Purchases Sales
----------- -----------
The Muirfield Fund(R) $45,281,736 $90,761,249
The Total Return Utilities Fund 1,399,019 25,094,667
The Highlands Growth Fund(R) 2,949,129 25,850,842
The Dynamic Growth Fund 9,262,787 23,042,942
The Aggressive Growth Fund 3,395,311 8,747,369
The U.S. Government Bond Fund 28,023,156 41,563,203
For the period April 14 through December 31, 2003, the cost of purchases and
proceeds from sales or maturities of long-term investments for the Funds were
as follows:
Purchases Sales
----------- -----------
The Muirfield Fund(R) $60,875,844 $40,182,881
The Total Return Utilities Fund 6,448,335 5,289,573
The Highlands Growth Fund(R) 23,176,231 24,820,874
The Dynamic Growth Fund 26,672,763 25,266,086
The Aggressive Growth Fund 10,509,443 9,985,866
The U.S. Government Bond Fund 45,189,032 47,898,653
3. Investment Advisory Fees and Other Transactions with Affiliates
Meeder Asset Management, Inc. ("MAM"), a wholly-owned subsidiary of Meeder
Financial, Inc. ("Meeder"), provides each Fund, except Money Market, with
investment management, research, statistical and advisory services. Under
separate Investment Subadvisory Agreements with MAM, Miller/Howard Investments,
Inc. ("Miller/Howard") and Sector Capital Management, L.L.C. ("Sector Capital")
serve as subadvisors of TRUF and Highlands, respectively. Sub-subadvisors,
selected by Sector Capital, subject to the review and approval of the Trustees
of Highlands, are responsible for the selection of individual portfolio
securities for the assets of the Fund assigned to them by Sector Capital.
For such services the Funds, except Money Market, pay a fee at the following
annual rates: Muirfield, TRUF, and Highlands, 1.00% of average daily net assets
up to $50 million, 0.75% of average daily net assets exceeding $50 million up
to $100 million and 0.60% of average daily net assets exceeding $100 million.
As subadvisor to TRUF, Miller/Howard is paid 0.00% of the 1.00% of average
daily net assets up to $10 million, 0.40% of the 1.00% of average daily net
assets exceeding $10 million up to $50 million, 0.40% of the 0.75% of average
daily net assets exceeding $50 million up to $60 million, 0.30% of the 0.75% of
average daily net assets exceeding $60 million up to $100 million and 0.25% of
the 0.60% of average daily net assets exceeding $100 million. As subadvisor to
Highlands, Sector Capital is paid 0.30% of the 1.00% of average daily net
assets up to $25 million, 0.70% of the 1.00% of average daily net assets
exceeding $25 million up to $50 million, 0.40% of the 0.75% of average daily
net assets exceeding $50 million up to
The Flex-funds
45
$100 million and 0.35% of the 0.60% of average daily net assets exceeding $100
million. Sector Capital pays all sub-subadvisors 0.25% on all average net
assets; Dynamic and Aggressive, 0.75% of average daily net assets up to $200
million and 0.60% of average daily net assets exceeding $200 million; Bond,
0.40% of average daily net assets up to $100 million and 0.20% of average daily
net assets exceeding $100 million. During the year ended December 31, 2003,
Sector Capital voluntarily waived $146 of investment advisory fees in Highlands.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of Meeder, serves
as stock transfer, dividend disbursing and shareholder services agent for each
Fund. In compensation for such services, each Fund pays MFSCo an annual fee
calculated as follows: For Muirfield, TRUF, Highlands, Dynamic, and Aggressive,
such fee is equal to the greater of $15 per active shareholder account or 0.12%
of each Fund's average daily net assets. For Bond, such fee is equal to the
greater of $15 per active shareholder account or 0.08% of the Fund's average
daily net assets. For Money Market, such fee is equal to the greater of $20 per
active shareholder account or 0.08% of the Fund's average daily net assets.
MFSCo is entitled to receive an annual minimum fee of $4,000 for each Fund. For
Fund's which are subject to an expense cap and which are above the expense cap,
the basis point fee will be reduced by 0.02%.
MFSCo provides the Trust with certain administrative services. In compensation
for such services, each Fund pays MFSCo an annual fee equal to 0.05% of each
Fund's average daily net assets.
MFSCo serves as accounting services agent for each Fund, except Money Market.
In compensation for such services, each Fund pays MFSCo an annual fee equal to
the greater of:
a. 0.15% of the first $10 million of average daily net assets, 0.10% of the
next $20 million of average daily net assets, 0.02% of the next $50
million of average daily net assets, and 0.01% in excess of $80 million
of average daily net assets, or
b. $7,500.
MAM has voluntarily agreed to reduce its fees and/or reimburse expenses
(excluding brokerage fees and commissions, taxes, interest, and extraordinary
or non-recurring expenses), to limit Bond's total annual operating expenses to
1.10% of average daily net assets. The expense limitations for Dynamic and
Aggressive were eliminated on November 1, 2003. Prior to that date, the expense
limitation was 1.25% and 1.60% of average daily net assets for Dynamic and
Aggressive, respectively. MAM has also agreed to reduce its fees and/or
reimburse expenses to the extent necessary to achieve an effective yield for
Money Market that will rank in the top 10% of yields for all general purpose
money market funds in 2003. Such reduction and/or reimbursement is limited to
the total of fees charged to each Fund by MAM and MFSCo. For the year ended
December 31, 2003, MAM and/or MFSCo reimbursed $21,082, $26,017, $4,551, and
$106,944 to Dynamic, Aggressive, Bond, and Money Market, respectively.
Adviser Dealer Services, Inc. ("ADS"), an affiliated broker-dealer of MAM, has
an arrangement with TRUF and Highlands whereby a portion of the commissions
received from security trades directed through it will be used to help pay
expenses of the aforementioned Funds. For the year ended December 31, 2003, ADS
received $4,267 and $765 in commissions in connection with the purchase and
sale of investments for TRUF and Highlands, respectively. For the same time
period, ADS paid $2,956 and $532 of expenses under this arrangement for TRUF
and Highlands, respectively.
Muirfield, Dynamic, and Aggressive have entered into an agreement with the
Trust's custodian, The Huntington National Bank ("HNB"), acting as a
broker-dealer. HNB receives distribution, service, and administration fees
(collectively the "fees") from the underlying security holdings of the
aforementioned Funds. HNB retains 0.03% of the fees collected and forwards the
remainder to the appropriate Fund. The Funds use their portion of the fees
received to reduce the gross expenses of each Fund. For the year ended December
31, 2003, $39,062, $9,026, and $3,499 of fees received were used by Muirfield,
Dynamic, and Aggressive, respectively, to reduce gross expenses of each Fund.
It is possible that the Funds may invest in security holdings in which fees are
not paid. As such, the gross expenses of a Fund would not be decreased. Also,
without this agreement it is likely that the Funds would not collect any fees
from underlying security holdings.
Pursuant to Rule 12b-1 of the 1940 Act, a mutual fund can adopt a written plan
to pay certain expenses out of fund assets relating to the sale and
distribution of its shares. Muirfield, Highlands, Bond, and Money Market have
adopted a distribution plan with an annual limitation of 0.20% of average daily
net assets. TRUF, Dynamic, and Aggressive have adopted a distribution plan with
an annual limitation of 0.25% of average daily net assets.
The Flex-funds
46
4. Federal Tax Information
The tax characteristics of dividends paid by the Funds during the year ended
December 31, 2003 were as follows:
Net Short-Term Total Dividends
Ordinary Income Capital Gains Paid/1/
--------------- -------------- ---------------
The Total Return Utilities Fund $ 431,501 $ -- $ 431,501
The U.S. Government Bond Fund 214,166 224,673 438,839
The Money Market Fund 1,711,417 -- 1,711,417
The tax characteristics of dividends paid by the Funds during the year ended
December 31, 2002 were as follows:
Net Short-Term Total Dividends
Ordinary Income Capital Gains Paid/1/
--------------- -------------- ---------------
The Muirfield Fund(R) $ 78,095 $ -- $ 78,095
The Total Return Utilities Fund 557,378 -- 557,378
The U.S. Government Bond Fund 314,826 165,565 480,391
The Money Market Fund 3,571,277 -- 3,571,277
As of December 31, 2003, the components of accumulated earnings/(deficit) on a
tax basis for the Funds were as follows:
Accumulated
Undistributed Capital and Unrealized Total
Ordinary Dividends Other Gains Appreciation/ Accumulated
Income Payable and (Losses) (Depreciation)/2/ Earnings/(Deficit)
------------- --------- ------------ ---------------- ------------------
The Muirfield Fund(R) $ -- $ -- $(25,084,902) $9,244,385 $(15,840,517)
The Total Return Utilities Fund -- (893) (11,554,268) 1,977,697 (9,577,464)
The Highlands Growth Fund(R) -- -- (7,343,940) 1,863,964 (5,479,976)
The Dynamic Growth Fund -- -- (8,035,727) 2,889,283 (5,146,444)
The Aggressive Growth Fund -- -- (8,240,194) 1,103,454 (7,136,740)
The U.S. Government Bond
Fund 156,826 (1,289) (773,118) (9,390) (626,971)
The Money Market Fund 13,594 (13,594) -- -- --
For federal income tax purposes, the following Funds have capital loss
carryforwards as of December 31, 2003, which are available to offset future
capital gains, if any. To the extent that these carryforwards are used to
offset future capital gains, it is probable that the gains that are offset will
not be distributed to shareholders:
Amount Expires
----------- -------
The Muirfield Fund(R) $10,358,014 2008
The Muirfield Fund(R) 11,066,871 2009
The Muirfield Fund(R) 3,660,017 2010
The Total Return Utilities Fund 612,252 2009
The Total Return Utilities Fund 8,516,444 2010
The Total Return Utilities Fund 2,043,487 2011
The Highlands Growth Fund(R) 869,379 2009
The Highlands Growth Fund(R) 5,224,895 2010
The Highlands Growth Fund(R) 1,249,666 2011
The Dynamic Growth Fund 300,295 2008
The Dynamic Growth Fund 726,971 2009
The Dynamic Growth Fund 7,008,461 2010
The Aggressive Growth Fund 3,583,752 2008
The Aggressive Growth Fund 618,687 2009
The Aggressive Growth Fund 4,037,755 2010
The U.S. Government Bond Fund 735,915 2011
The Flex-funds
47
Under current tax laws, net capital losses incurred after October 31, within a
Fund's fiscal year, are deemed to arise on the first business day of the
following fiscal year for tax purposes. For the year ended December 31, 2003,
the Funds deferred post October capital losses of:
Post-October
Capital Losses
--------------
The Total Return Utilities Fund $382,085
The U.S. Government Bond Fund 37,203
/1/ Total dividends paid may differ from the amount reported in the Statement
of Changes in Net Assets because for tax purposes dividends are recognized when
actually paid.
/2/ The differences between book- and tax-basis unrealized
appreciation/(depreciation) are attributable primarily to: deferral of losses
on wash sales, the realization for tax purposes of unrealized gains/(losses) on
certain derivative instruments, and the difference between book and tax
amortization methods for premium and market discount.
5. Write-Off of Receivables
During December 2001, receivables which had been deemed uncollectible were
written off in the following amounts: Highlands Growth Fund--$34,816; Muirfield
Fund--$204,223; and Total Return Utilities Fund--$59,290. An in-process
examination of the receivables has preliminarily concluded that most of the
receivables should not have been written off. As a consequence, Meeder Asset
Management and Mutual Funds Service Co. have determined to pay directly to
record shareholders of the affected Funds as of the days of the write-off in
December 2001 their pro rata share amount of the receivables improperly written
off, plus the amount, if any, the receivable would have earned had it been
invested in the Funds between 2001 and the date of the reimbursement. The
impact to the record shareholders will approximate .1%, .3% and .2% of their
December 2001 investment in Highlands Growth Fund, Muirfield Fund and Total
Return Utilities Fund, respectively. Because these remedial actions by Meeder
Asset Management and Mutual Funds Service Co. involve payments of amounts
directly to the affected shareholders, these future remedial payments are not
reflected as assets on the financial statements of the Funds as of December 31,
2003.
6. Subsequent Event
The Flex-funds Money Market Fund and the Institutional Fund of the Meeder
Advisor Funds Trust, which are managed by Meeder Asset Management, Inc., are
organized in the master-feeder structure. Under this structure both funds,
having the same investment objective, invest in the same master portfolio, the
Money Market Portfolio. The Board of Trustees has approved the liquidation, on
or about April 30, 2004, of the Institutional Fund. In conjunction with this
liquidation, the Board of Trustees has also approved the termination, on or
about April 30, 2004, of the Money Market Portfolio. The shareholders of the
Institutional Fund will have the opportunity to invest their liquidation
proceeds in a new class of shares of The Money Market Fund, which will have a
virtually identical investment objective as the Institutional Fund.
Consequently, on or about April 30, 2004, The Flex-funds Money Market Fund will
be a stand-alone fund offering two classes of shares and will continue to be
managed by Meeder Asset Management, Inc.
The Flex-funds
48
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of The Flex-funds:
We have audited the accompanying statements of assets and liabilities of The
Flex-funds comprised of The Muirfield Fund, The Total Return Utilities Fund,
The Highlands Growth Fund, The Dynamic Growth Fund, The Aggressive Growth Fund,
The U.S. Government Bond Fund and The Money Market Fund (collectively, the
Funds), including the schedules of investments as of December 31, 2003, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the years in the two year period then ended,
and the financial highlights for each of the periods presented in the five year
period then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2003, by
correspondence with the custodian, brokers, and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
aforementioned funds as of December 31, 2003, the results of their operations
for the year then ended, the changes in their net assets for each of the years
in the two year period then ended, and the financial highlights for each of the
periods presented in the five year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Columbus, Ohio
March 15, 2004
The Flex-funds
49
Statement of Assets & Liabilities
December 31, 2003
- --------------------------------------------------------------------------------
Money
Market
Portfolio
------------
Assets
Investments, at value* $170,270,855
Repurchase agreements, at value* 26,351,000
Trustee deferred compensation investments, at value 60,366
Cash 748
Interest and dividend receivable 1,467,815
Prepaid expenses/other assets 778
----------------------------------------------------------------
Total Assets 198,151,562
----------------------------------------------------------------
Liabilities
Payable for securities purchased 3,704,289
Payable for Trustee Deferred Compensation Plan 60,366
Payable to investment advisor 24,754
Accrued fund accounting fees 5,261
Other accrued liabilities 10,925
----------------------------------------------------------------
Total Liabilities 3,805,595
----------------------------------------------------------------
----------------------------------------------------------------
Total Net Assets $194,345,967
----------------------------------------------------------------
* Investments, at cost $196,621,855
----------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
50
Statement of Operations
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
Money
Market
Portfolio
----------
Investment Income
Interest $2,800,152
--------------------------------------------------------------
Total Investment Income 2,800,152
--------------------------------------------------------------
Expenses
Investment advisor 668,771
Fund accounting 57,751
Trustee 8,583
Audit 6,168
Custodian 8,322
Legal 4,081
Insurance 1,824
Other 1,482
--------------------------------------------------------------
Total Expenses Before Reductions 756,982
--------------------------------------------------------------
Investment advisor fees waived (374,508)
--------------------------------------------------------------
Total Net Expenses 382,474
--------------------------------------------------------------
--------------------------------------------------------------
Net Investment Income 2,417,678
--------------------------------------------------------------
--------------------------------------------------------------
Net Change in Net Assets Resulting from Operations $2,417,678
--------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
51
Statements of Changes in Net Assets
For the Years Ended December 31, 2003
- --------------------------------------------------------------------------------
Money Market Portfolio
----------------------------
2003 2002
------------- -------------
Operations
Net investment income $ 2,417,678 $ 4,658,599
- ---------------------------------------------------------------------------------------------------------------------
Net change in net assets resulting from operations 2,417,678 4,658,599
- ---------------------------------------------------------------------------------------------------------------------
Transactions of Investors' Beneficial Interests
Contributions 245,964,298 325,392,543
Withdrawals (264,913,444) (389,503,659)
- ---------------------------------------------------------------------------------------------------------------------
Net change in net assets resulting from transactions of investors' beneficial interests (18,949,146) (64,111,116)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total Change in Net Assets (16,531,468) (59,452,517)
- ---------------------------------------------------------------------------------------------------------------------
Net Assets -- Beginning of Period 210,877,435 270,329,952
- ---------------------------------------------------------------------------------------------------------------------
Net Assets -- End of Period $ 194,345,967 $ 210,877,435
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
52
Financial Highlights
Ratios/Supplementary Data For Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
Money Market Portfolio
2003 2002 2001 2000 1999
-------- -------- -------- -------- ----------
Total Return 1.17% 1.83% 4.54% 6.61% 5.37%
Net assets, end of period ($000) $194,346 $210,877 $270,330 $297,206 $1,104,197
Ratio of net expenses to average net assets 0.18% 0.20% 0.21% 0.19% 0.18%
Ratio of net investment income to average net assets 1.16% 1.83% 4.26% 6.05% 5.07%
Ratio of expenses to average net assets before reductions 0.36% 0.36% 0.35% 0.30% 0.30%
See accompanying notes to financial statements.
The Flex-funds
53
Notes to Financial Statements
December 31, 2003
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Money Market Fund (the "Fund") invests all of its investable assets in a
corresponding open-end management investment company (a "Portfolio") having the
same investment objective as the Fund. The Portfolio is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a no-load,
open-ended management investment company, which was organized as a trust under
the laws of the State of New York. For federal income tax purposes, the
Portfolio qualifies as a partnership, and each investor in the Portfolio is
treated as the owner of its proportionate share of the net assets, income,
expenses, and realized and unrealized gains and losses of the Portfolio.
Accordingly, as a "pass-through" entity, the Portfolio pays no income dividend
or capital gain distribution.
Use of estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Security valuation. Money market securities held in the Portfolio are valued
at amortized cost, which approximates value. In compliance with Rule 2a-7 of
the 1940 Act, the amortized values are compared to prices obtained from
independent pricing services that use valuation techniques approved by the
Board of Trustees ("Trustees").
Repurchase agreements. The Portfolio may engage in repurchase agreement
transactions whereby the Portfolio takes possession of an underlying debt
instrument subject to an obligation of the seller to repurchase the instrument
from the Portfolio and an obligation of the Portfolio to resell the instrument
at an agreed upon price and term. At all times, the Portfolio maintains the
value of collateral, including accrued interest, at least 100% of the amount of
the repurchase agreement, plus accrued interest. If the seller defaults or the
fair value of the collateral declines, realization of the collateral by the
Portfolio may be delayed or limited.
Federal income taxes. The Portfolio will be treated as a partnership for
federal income tax purposes. As such, each investor in the Portfolio will be
subject to taxation on its share of the Portfolio's ordinary income and capital
gains. It is the Portfolio's policy to continue to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to it. Therefore, no
federal income tax provision is required.
Other. The Portfolio records security transactions on the trade date. Gains
and losses realized from the sale of securities are determined on the specific
identification basis. Interest income (including amortization of premium and
accretion of discount) is recognized as earned.
Under a Deferred Compensation Plan (the "Plan"), non-interested Trustees may
elect to defer receipt of a portion of their annual compensation. Under the
Plan, deferred amounts are invested in shares of The Flex-funds. Deferred
amounts remain in the Portfolio until distributed in accordance with the Plan.
2. Investment Transactions
As of December 31, 2003, the aggregate cost basis of investments for federal
income tax purposes was $196,621,855.
The Flex-funds
54
3. Investment Advisory Fees and Other Transactions with Affiliates
Meeder Asset Management, Inc. ("MAM"), a wholly-owned subsidiary of Meeder
Financial, Inc. ("Meeder"), provides the Portfolio with investment management,
research, statistical and advisory services. For such services the Portfolio
pays a fee at the following annual rates: 0.40% of average daily net assets up
to $100 million and 0.25% of average daily net assets exceeding $100 million.
During the year ended December 31, 2003, MAM agreed to reduce $374,508 of
investment advisory fees in the Portfolio.
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of Meeder, serves
as accounting services agent for the Portfolio. In compensation for such
services, the Portfolio pays MFSCo an annual fee equal to the greater of:
a. 0.15% of the first $10 million of average daily net assets, 0.10% of the
next $20 million of average daily net assets, 0.02% of the next $50
million of average daily net assets, and 0.01% in excess of $80 million
of average daily net assets, or
b. $30,000.
The Flex-funds
55
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the
Money Market Portfolio:
We have audited the accompanying statement of assets and liabilities of the
Money Market Portfolio (the Portfolio), including the schedule of investments,
as of December 31, 2003, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the periods
presented in the two year period then ended, and the financial highlights for
each of the periods presented in the five year period then ended. These
financial statements and financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2003, by
correspondence with the custodian, brokers, and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of December 31, 2003, the results of its operations for the year
then ended, the changes in its net assets for each of the periods presented in
the two year period then ended, and the financial highlights for each of the
periods presented in the five year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Columbus, Ohio
March 15, 2004
The Flex-funds
56
Trustees and Officers
- --------------------------------------------------------------------------------
Certain trustees and officers of the Funds and Portfolio are also officers or
directors of Meeder, MAM and MFSCo. The Trustees oversee the management of the
Trust and the Portfolio and elect their officers. The officers are responsible
for the Funds' and Portfolio's day-to-day operations. The Trustees' and
officers' names, addresses, years of birth, positions held with the Trust, and
length of service as a Flex-funds Trustee are listed below. Also included is
each Board member's principal occupation during, at least, the past five years.
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 MAM, including The Flex-funds, Meeder Advisor Funds, and the
corresponding portfolios of The Flex-funds and Meeder Advisor Funds
(collectively, the "Fund Complex"). Those Trustees who are "interested
persons", as defined in the 1940 Act, by virtue of their affiliation with the
Fund Complex are indicated by an asterisk (*).
Name, Address/1/, and Year of Birth Position and Length of Service/2/ Principal Occupation During Past Five Years
- ----------------------------------- -------------------------------- -------------------------------------------
Robert S. Meeder, Sr.* Trustee and President Chairman of Meeder Asset Management, Inc.,
Year of Birth: 1929 an investment advisor; Chairman and Director
of Mutual Funds Service Co., the Fund
Complex's transfer agent; Director of Adviser
Dealer Services, Inc., the Fund Complex's
Distributor.
Milton S. Bartholomew Trustee Retired; formerly a practicing attorney in
Year of Birth: 1929 Columbus, Ohio; member of the Fund
Complex's Audit Committee.
Roger D. Blackwell Trustee Professor of Marketing and Consumer
Year of Birth: 1940 Behavior, The Ohio State University; President
of Blackwell Associates, Inc., a strategic
consulting firm.
Robert S. Meeder, Jr.* Trustee and Vice
Year of Birth: 1961 President President of Meeder Asset Management, Inc.
Walter L. Ogle Trustee Retired; formerly Executive Vice President of
Year of Birth: 1937 Aon Consulting, an employee benefits
consulting group; member of the Fund
Complex's Audit Committee.
Charles A. Donabedian Trustee President, Winston Financial, Inc., which
Year of Birth: 1943 provides a variety of marketing consulting
services to investment management
companies; CEO, Winston Advisors, Inc., an
investment advisor; member of the Fund
Complex's Audit Committee.
James W. Didion Trustee Retired; formerly Executive Vice President of
Year of Birth: 1930 Core Source, Inc., an employee benefit and
Workers' Compensation administration and
consulting firm (1991 - 1997).
Jack W. Nicklaus Trustee Designer, Nicklaus Design, a golf course
Year of Birth: 1961 design firm and division of The Nicklaus
Companies.
/1/ The address of each Trustee is 6125 Memorial Drive, Dublin, OH 43017.
/2/ Each Trustee serves for an indefinite term, until his or her resignation,
death, or removal.
* Robert S. Meeder, Sr. is deemed an "interested person" of the Trust by
virtue of his position as Chairman of Meeder Asset Management, Inc., the
Advisor of the Portfolio. Robert S. Meeder, Jr. is deemed an "interested
person" of the Trust by virtue of his position as President of Meeder Asset
Management, Inc., the Advisor of the Portfolio.
The Flex-funds
57
Manager and Investment Advisor:
Meeder Asset Management
6125 Memorial Drive
P.O. Box 7177
Dublin, Ohio 43017
Subadvisor/The Total Return Utilities Fund
Miller/Howard Investments, Inc.
141 Upper Byrdcliffe Road, P.O. Box 549
Woodstock, New York 12498
Subadvisor/The Highlands Growth Fund
Sector Capital Management L.L.C.
51 Germantown Court, Suite 309
Cordova, TN 38018
Board of Trustees
Milton S. Bartholomew
Dr. Roger D. Blackwell
James Didion
Charles Donabedian
Robert S. Meeder, Sr.
Robert S. Meeder, Jr.
Jack Nicklaus II
Walter L. Ogle
Custodian
The Huntington National Bank
Columbus, Ohio 43215
Transfer Agent Dividend Disbursing Agent
Mutual Funds Service Co.
6125 Memorial Drive
Dublin, Ohio 43017
Auditors
KPMG LLP
Columbus, Ohio 43215
The Flex-funds
Managed by Meeder Asset Management, Inc.
6125 Memorial Drive, Dublin Ohio, 43017
Call Toll Free 800-325-3539 | 614-760-2159
Fax: 614-766-6669 | www.flexfunds.com
Email: flexfunds@meederfinancial.com
The Flex-funds
- --------------
The Money Market Fund
2003 Annual Report
December 31, 2003
[GRPAHIC]
The Flex-funds
------------------------------------------
Managed by Meeder Asset Management, Inc.
6125 Memorial Drive, Dublin Ohio, 43017
Call Toll Free 800-325-3539 | 614-760-2159
Fax: 614-766-6669 | www.flexfunds.com
Email: flexfunds@meederfinancial.com
The Flex-funds
- --------------
The Money Market Fund
- ---------------------------------------------------------------------------------------------------
Performance Perspective
Average Annual Total Returns 1 5 10 Since
as of December 31, 2003 year years years Inception
- ---------------------------------------------------------------------------------------------------
The Money Market Fund 0.92% 3.53% 4.35% 5.38%/1/
- ---------------------------------------------------------------------------------------------------
Average General Purpose Money Market Fund/3/ 0.44% 3.01% 3.94% 4.96%/2/
===================================================================================================
Current & Effective Yields* 7-day simple yield: 0.87% 7-day compound yield: 0.87%
- ---------------------------------------------------------------------------------------------------
/1/ Inception Date: 3/27/85
/2/ Average Annual total return from 3/31/85 to 12/31/03.
* As of December 31, 2003, yield quotations more closely reflect the earnings
of The Money Market Fund than total return quotations.
Source for average money market fund data: Lipper, Inc.
Annual Market Perspective
[PHOTO]
Joseph A. Zarr
Co-Portfolio Manager
[PHOTO]
Christopher M. O'Daniel
Co-Portfolio Manager
The Flex-funds Money Market Fund ranked #3 among all retail money market funds
for highest 7-day yield as of December 31, 2003, according to iMoneyNet, Inc. In
addition, the Fund ranked among the top 10 retail money market funds for highest
12-month yield as of December 31, 2003, according to iMoneyNet, Inc.
The year began and ended on two entirely different themes. Most markets began
the year more concerned about foreign policy than Fed policy. Deflationary fears
outweighed inflationary expectations, and a number of money funds were on their
way toward annualized yields of 0.10% or less. Yields continued to erode through
the 2nd Quarter as the Federal Reserve lowered short-term rates in June and
talked rates lower at the long end. The Fed was quite concerned about a
Japanese-style deflationary recession enveloping the economy, and openly talked
of further stimulus should conditions continue to worsen.
By the 3rd Quarter, the Bush tax cuts were taking hold on the consumer side of
the ledger, and capital spending began to inch upward on the corporate side as
well. A perception began to emerge of an expanding economy with little standing
in its way (i.e., The Federal Reserve). Inflation remained low, job losses
subsided, and other economic numbers began to improve one by one. By the end of
the year, GDP growth had exploded and, on a seasonally adjusted basis, the job
growth began to accelerate. We had come full circle, from wondering at the start
of the year how low rates would go, to contemplating by the end of the year when
the Fed would begin to raise rates.
As always, we will be monitoring the situation closely and trying to take
advantage of any market anomalies. The key may well reside in the extent to
which the market anticipates inflation, and we will follow its lead accordingly.
Past performance does not guarantee future results. Except for the current and
effective yields, all performance figures represent average annual total returns
for the periods ended De-cember 31, 2003, and assume reinvestment of all
dividend and capital gain distributions. 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. Expenses were
waived and/or reimbursed in order to reduce the operating expenses of The Money
Market Fund during the periods shown above. Investments in The Money Market Fund
are neither insured nor guaranteed by the Federal Deposit Insurance Corporation
or any other governmental agency. Although the Fund seeks to preserve the value
of your invesment at $1.00 per share, it is possible to lose money by investing
in The Money Market Fund.
/3/ An index of funds such as Lipper's Average General Purpose Money Market
Fund index includes a number of mutual funds grouped by investment
objective.
2 2003 Annual Report | December 31, 2003
The Flex-funds
- --------------
Portfolio Holdings as of December 31, 2003
% of Total
Net Assets
[CHART APPEARS 1) Variable Rate Notes 36%
HERE]
2) Corporate Notes 26%
3) Repurchase Agreements 14%
4) U.S. Gov't Agency Notes 14%
5) Time Deposits 4%
6) Commercial Paper 6%
Portfolio holdings are subject to change.
Annual Returns
[_] The Money Market Fund [_] Average Money Market Fund
[GRAPH]
Source for average money market fund performance: Lipper, Inc.
Annual The Money Avg. Money
Returns Market Fund Market Fund**
1994 4.10% 3.75%
1995 5.85% 5.49%
1996 5.27% 4.95%
1997 5.38% 5.10%
1998 5.31% 5.04%
1999 4.96% 4.65%
2000 6.20% 5.70%
2001 4.10% 3.44%
2002 1.59% 1.00%
2003 0.92% 0.44%
** Source for average money market fund data: Lipper, Inc.
2003 Annual Report | December 31, 2003 3
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
Money Market Portfolio
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- -----------
Commercial Paper -- 6.2%
CIT Group, Inc. 1.12% 01/06/04 2,719,000 2,718,577
Duff & Phelps Utility &
Corporate Bond Trust,
Inc.** 1.14% 02/06/04 5,905,000 5,898,268
General Electric Capital
Services, Inc. 1.08% 02/09/04 1,500,000 1,498,245
Northern Illinois Gas 1.11% 03/02/04 2,000,000 1,996,239
-----------
Total Commercial Paper
(Cost $12,111,329) 12,111,329
-----------
Corporate Obligations -- 58.3%
Abbott Laboratories 5.13% 07/01/04 1,000,000 1,019,575
American Express Co. 6.75% 06/23/04 2,000,000 2,052,614
Aquarium Holdings, KY** 1.25%* 01/02/04 108,000 108,000
Associates Corp. 5.50% 02/15/04 700,000 703,738
Austin Printing Co., Inc.** 1.21%* 01/02/04 1,815,000 1,815,000
Bath Technologies, Inc.** 1.21%* 01/02/04 1,310,000 1,310,000
Bank Of America Corp. 7.75% 08/15/04 651,000 676,686
Bear Stearns Co., Inc. 6.63% 01/15/04 500,000 501,037
Bear Stearns Co., Inc. 6.15% 03/02/04 965,000 972,930
Bear Stearns Co., Inc.** 1.70%* 06/01/04 2,870,000 2,875,287
Bear Stearns Co., Inc. 6.63% 10/01/04 750,000 778,691
Beaver Creek
Enterprise** 1.21%* 01/02/04 1,590,000 1,590,000
Cascade Plaza Project** 1.21%* 01/02/04 8,395,000 8,395,000
Citigroup, Inc. 5.50% 02/15/04 1,500,000 1,507,878
Citigroup, Inc. 5.63% 05/17/04 3,618,000 3,677,154
Clark Grave Vault Co.** 1.25%* 01/02/04 1,200,000 1,200,000
Commercial Credit Co. 7.88% 07/15/04 1,430,000 1,480,385
Coughlin Family
Property, Inc.** 1.25%* 01/02/04 1,605,000 1,605,000
CVS Corp.** 5.50% 02/15/04 5,000,000 5,026,642
DuPont, E.I.,De Nemours
& Co. 8.13% 03/15/04 543,000 550,635
Espanola/Nambe** 1.21%* 01/02/04 915,000 915,000
FleetBoston Financial
Corp. 8.13% 07/01/04 3,000,000 3,101,820
FPL Group Capital, Inc. 6.88% 06/01/04 4,000,000 4,091,247
General Electric Capital
Corp. 5.38% 04/23/04 1,220,000 1,234,874
Gordon Flesch Co.
Project** 1.21%* 01/02/04 900,000 900,000
Heller Financial, Inc. 6.00% 03/19/04 610,000 616,289
Isaac Tire, Inc.** 1.25%* 01/02/04 870,000 870,000
J.P. Morgan & Co., Inc. 5.69% 02/10/04 3,000,000 3,013,911
J.P. Morgan & Co., Inc. 7.63% 09/15/04 365,000 380,920
K.L. Morris, Inc.** 1.25%* 01/02/04 2,095,000 2,095,000
Kiser Street, Inc.** 1.21%* 01/02/04 1,785,000 1,785,000
Leggett & Platt, Inc.** 6.90% 06/29/04 2,000,000 2,055,281
Martin Wheel Co, Inc.** 1.44%* 01/02/04 2,420,000 2,420,000
Merrill Lynch & Co., Inc. 5.70% 02/06/04 1,500,000 1,506,251
Merrill Lynch & Co., Inc. 6.55% 08/01/04 5,336,000 5,495,757
MetLife Insurance Co.*** 1.25%* 01/02/04 12,000,000 12,000,000
Morgan Stanley Dean
Witter & Co. 5.63% 01/20/04 2,785,000 2,791,405
Mubea, Inc.** 1.21%* 01/02/04 5,825,000 5,825,000
Osco Industries, Inc.** 1.21%* 01/02/04 1,200,000 1,200,000
O.K.I. Supply Co.** 1.25%* 01/02/04 1,460,000 1,460,000
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- -----------
Corporate Obligations -- continued
Paine Webber Group,
Inc. 6.38% 05/15/04 200,000 203,671
Presrite Corp.** 1.21%* 01/02/04 170,000 170,000
Pro Tire, Inc.** 1.25%* 01/02/04 1,045,000 1,045,000
R.I. Lampus Co.** 1.21%* 01/02/04 625,000 625,000
Salomon, Inc. 7.20% 02/01/04 2,101,000 2,111,142
Seariver Maritime, Inc.** 1.13%* 01/02/04 4,400,000 4,400,000
SGS Tool Co.** 1.21%* 01/02/04 600,000 600,000
Wachovia Corp. 8.38% 04/15/04 4,185,000 4,270,779
Wachovia Corp. 7.20% 08/15/04 788,000 816,061
Wells Fargo & Co. 9.13% 02/01/04 1,000,000 1,006,402
White Castle Project** 1.21%* 01/02/04 6,500,000 6,500,000
-----------
Total Corporate Obligations
(Cost $113,352,062) 113,352,062
-----------
U.S. Government Agency Obligations -- 14.3%
Federal Home Loan Bank 5.17% 01/08/04 515,000 515,363
Federal Home Loan Bank 5.22% 01/12/04 500,000 500,587
Federal Home Loan Bank 3.25% 02/13/04 510,000 511,137
Federal Home Loan Bank 6.75% 04/05/04 300,000 304,217
Federal Home Loan Bank 3.40% 07/19/04 500,000 505,645
Federal Home Loan Bank 1.20% 08/20/04 3,000,000 3,000,000
Federal Home Loan Bank 1.40% 09/01/04 3,000,000 3,000,000
Federal Home Loan Bank 1.50% 12/24/04 1,000,000 1,000,000
Federal Home Loan
Mortgage Corp. 3.33% 01/30/04 500,000 500,842
Federal Home Loan
Mortgage Corp. 6.25% 07/15/04 5,017,000 5,150,277
Federal Home Loan
Mortgage Corp. 1.50% 11/16/04 2,000,000 2,000,000
Federal National
Mortgage Association 8.63% 06/30/04 200,000 207,151
Federal National
Mortgage Association 7.40% 07/01/04 500,000 514,749
Federal National
Mortgage Association 1.25% 08/27/04 3,000,000 3,000,000
Federal National
Mortgage Association 1.50% 12/03/04 2,000,000 2,000,000
Federal National
Mortgage Association 1.50% 12/21/04 3,000,000 3,000,000
Federal National
Mortgage Association 1.65% 12/30/04 2,000,000 2,000,000
-----------
Total U.S. Government Agency Obligations
(Cost $27,709,968) 27,709,968
-----------
Variable Rate Demand Notes -- 5.2%
Caterpillar Financial, Inc. 2.25%* 01/05/04 10,064,934 10,064,934
-----------
Total Variable Rate Demand Notes
(Cost $10,064,934) 10,064,934
-----------
Demand Deposits -- 3.6%
Bank One Corp. 1.24%* 01/02/04 4,021,783 4,021,783
National City Corp. 1.98%* 01/02/04 3,010,779 3,010,779
-----------
Total Demand Deposits
(Cost $7,032,562) 7,032,562
-----------
The Flex-funds
4
Schedule of Investments
December 31, 2003
- --------------------------------------------------------------------------------
Money Market Portfolio
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- -----------
Repurchase Agreements -- 13.6%
Salomon Smith Barney,
Inc., 1.05%, 01/02/04,
(Collateralized by
$26,916,270 Eureka
Securities Commercial
Paper, at 1.06%, due
02/18/04, value --
$26,878,167) 26,351,000 26,351,000
-----------
Total Repurchase Agreements
(Cost $26,351,000) 26,351,000
-----------
Total Investments -- 101.2%
(Cost $196,621,855)(a) 196,621,855
-----------
Liabilities less Other Assets -- (1.2%) (2,275,888)
-----------
Total Net Assets -- 100.0% 194,345,967
-----------
Principal
Coupon/ Amount ($)
Security Description Yield Maturity or Shares Value ($)
-------------------- ------- -------- ---------- ---------
Trustee Deferred Compensation****
The Flex-funds Dynamic
Growth Fund 1,196 9,173
The Flex-funds Highlands
Growth Fund 1,178 17,458
The Flex-funds Muirfield
Fund 4,158 19,917
The Flex-funds Total Return
Utilities Fund 967 13,818
------
Total Trustee Deferred Compensation
(Cost $60,366) 60,366
------
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate security. Interest rate is as of December 31, 2003. Maturity
date reflects the next rate change date.
** Represents a restricted security purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended. Security is
restricted as to resale to institutional investors, but has been deemed
liquid in accordance with guidelines approved by the Board of Trustees. As
of December 31, 2003, securities restricted as to resale to institutional
investors represented 31.9% of Total Investments.
*** Illiquid security. The sale or disposition of such security would not be
possible in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the security. As of
December 31, 2003, illiquid securities represented 6.1% of Total
Investments.
**** Assets of affiliates to the Money Market Portfolio held for the benefit of
the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.
See accompanying notes to financial statements.
The Flex-funds
5
Statement of Assets & Liabilities
December 31, 2003
- --------------------------------------------------------------------------------
The Money
Market
Fund
------------
Assets
Investments in corresponding portfolio, at value $165,650,714
Receivable from investment advisor 8,157
Prepaid expenses/other assets 35,400
- ------------------------------------------------------------------------------------------------
Total Assets 165,694,271
- ------------------------------------------------------------------------------------------------
Liabilities
Dividends payable 13,594
Accrued distribution plan (12b-1) fees 29,579
Accrued transfer agent, fund accounting, and administrative fees 23,392
Other accrued liabilities 21,103
- ------------------------------------------------------------------------------------------------
Total Liabilities 87,668
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Net Assets $165,606,603
- ------------------------------------------------------------------------------------------------
Net Assets
Capital $165,606,603
- ------------------------------------------------------------------------------------------------
Total Net Assets $165,606,603
- ------------------------------------------------------------------------------------------------
Capital Stock Outstanding (indefinite number of shares authorized, $0.10 par value) 165,606,603
Net Asset Value, Offering and Redemption Price Per Share $ 1.00
See accompanying notes to financial statements.
The Flex-funds
6
Statement of Operations
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
The Money
Market
Fund
----------
Net Investment Income from Corresponding Portfolio
Interest $2,516,659
Expenses net of reductions (343,380)
--------------------------------------------------------------------
Total Net Investment Income from Corresponding Portfolio 2,173,279
--------------------------------------------------------------------
Fund Expenses
Transfer agent 149,280
Administrative 93,301
Audit 9,853
Legal 5,350
Distribution plan (12b-1) 373,815
Postage 65,133
Printing 53,193
Registration and filing 26,200
Insurance 11,531
Other 60,028
--------------------------------------------------------------------
Total Expenses Before Reductions 847,684
--------------------------------------------------------------------
Expenses reimbursed by investment advisor (106,944)
Distribution plan (12b-1) expenses waived (264,972)
Transfer agent expenses waived (13,353)
--------------------------------------------------------------------
Net Expenses 462,415
--------------------------------------------------------------------
--------------------------------------------------------------------
Net Investment Income 1,710,864
--------------------------------------------------------------------
--------------------------------------------------------------------
Net Change in Net Assets Resulting from Operations $1,710,864
--------------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
7
Statements of Changes in Net Assets
For the Years Ended December 31,
- --------------------------------------------------------------------------------
The Money Market Fund
----------------------------
2003 2002
------------- -------------
Operations
Net investment income $ 1,710,864 $ 3,551,609
- ----------------------------------------------------------------------------------------------------------
Net change in net assets resulting from operations 1,710,864 3,551,609
- ----------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From net investment income (1,710,864) (3,551,609)
- ----------------------------------------------------------------------------------------------------------
Net change in net assets resulting from distributions (1,710,864) (3,551,609)
- ----------------------------------------------------------------------------------------------------------
Capital Transactions
Issued 201,399,826 279,654,157
Reinvested 1,688,792 3,508,939
Redeemed (223,761,740) (318,477,532)
- ----------------------------------------------------------------------------------------------------------
Net change in net assets resulting from capital transactions (20,673,122) (35,314,436)
- ----------------------------------------------------------------------------------------------------------
Total Change in Net Assets (20,673,122) (35,314,436)
- ----------------------------------------------------------------------------------------------------------
Net Assets -- Beginning of Period 186,279,725 221,594,161
- ----------------------------------------------------------------------------------------------------------
Net Assets -- End of Period $ 165,606,603 $ 186,279,725
- ----------------------------------------------------------------------------------------------------------
Accumulated undistributed (distributions in excess of) net investment income $ -- $ --
- ----------------------------------------------------------------------------------------------------------
Share Transactions
Issued 201,399,826 279,654,157
Reinvested 1,688,792 3,508,939
Redeemed (223,761,740) (318,477,532)
- ----------------------------------------------------------------------------------------------------------
Net change in shares (20,673,122) (35,314,436)
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
8
Financial Highlights
For a Share Outstanding Through Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
The Money Market Fund
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income 0.009 0.016 0.040 0.060 0.049
- ---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.009 0.016 0.040 0.060 0.049
- ---------------------------------------------------------------------------------------------------------
Less Distributions
From net investment income (0.009) (0.016) (0.040) (0.060) (0.049)
- ---------------------------------------------------------------------------------------------------------
Total Distributions (0.009) (0.016) (0.040) (0.060) (0.049)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------
Total Return (assumes reinvestment of distributions) 0.92% 1.59% 4.10% 6.20% 4.96%
Ratios/Supplemental Data
Net assets, end of period ($000) $165,607 $186,280 $221,594 $233,227 $232,023
Ratio of net expenses to average net assets(1) 0.43% 0.44% 0.44% 0.41% 0.41%
Ratio of net investment income to average net assets(1) 0.92% 1.58% 4.00% 6.01% 4.88%
Ratio of expenses to average net assets before
reductions(1) 0.82% 0.66% 0.62% 0.60% 0.54%
(1) Ratio reflects reduction in corresponding portfolio.
See accompanying notes to financial statements.
The Flex-funds
9
Notes to Financial Statements
December 31, 2003
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Flex-funds Trust (the "Trust") was organized in 1982 and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
diversified, open-end management investment company. At December 31, 2003, the
Trust consisted of seven separate series. The accompanying financial statements
relate only to The Money Market Fund (the "Fund"). The Fund invests all of its
investable assets in a corresponding open-end management investment company
(the "Portfolio"). The Fund, the Portfolio into which the Fund invests and the
percentage of the Portfolio owned by the Fund is as follows:
Percentage of
Portfolio Owned by
Fund as of
Fund Portfolio December 31, 2003*
---- --------- ------------------
The Money Market Fund Money Market Portfolio 85%
*There is a partner of the Portfolio that owns a de minimis position.
The financial statements of the Portfolio, including the Schedule of
Investments, are included elsewhere in this report and should be read in
conjunction with the financial statements of the Fund.
Use of estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Valuation of investments. The Fund records its investment in the corresponding
Portfolio at value. Valuation of securities held by the Portfolio is discussed
in the notes of the Portfolio's notes to financial statements included
elsewhere in this report.
Federal income taxes. It is the Fund's policy to continue to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable income and net capital gains to its shareholders. Therefore, no federal
income tax provision is required.
Distributions to shareholders. Distributions to shareholders are recorded on
the ex-dividend date. The Fund declares dividends from net investment income on
a daily basis and pays such dividends on a monthly basis. The Fund distributes
net capital gains, if any, on an annual basis.
Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ from
GAAP. These differences are primarily due to deferrals of certain losses and
expiring capital loss carryforwards held by the Fund's corresponding Portfolio.
Accordingly, timing differences relating to shareholder distributions are
reflected in the components of net assets and permanent book and tax
differences relating to shareholder distributions have been reclassified within
the components of net assets.
Investment income & expenses. The Fund records daily its proportionate share
of the corresponding Portfolio's income, expenses, and realized and unrealized
gains and losses. In addition, the Fund accrues its own expenses. Expenses
incurred by the Trust that do not specifically relate to an individual fund of
the Trust are allocated to the Fund based on the Fund's relative net assets or
other appropriate basis.
2. Agreements and Other Transactions with Affiliates
Meeder Asset Management, Inc. ("MAM"), a wholly-owned subsidiary of Meeder
Financial, Inc. ("Meeder"), provides the Portfolio with investment management,
research, statistical and advisory services.
The Flex-funds
10
Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of Meeder, serves
as stock transfer, dividend disbursing and shareholder services agent for the
Fund. In compensation for such services, the Fund pays MFSCo an annual fee
equal to the greater of $20 per active shareholder account or 0.08% of the
Fund's average daily net assets. MFSCo is entitled to receive an annual minimum
fee of $4,000 from the Fund. The Fund is currently subject to an expense cap,
thus the basis point fee has been reduced by 0.02%.
MFSCo provides the Trust with certain administrative services. In compensation
for such services, the Fund pays MFSCo an annual fee equal to 0.05% of the
Fund's average daily net assets.
MAM has voluntarily agreed to reduce its fees and/or reimburse expenses,
including expenses allocated from its respective Portfolio (excluding brokerage
fees and commissions, taxes, interest, and extraordinary or non-recurring
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 2003. Such reduction and/or reimbursement is limited to the total of
fees charged to the Fund by MAM and MFSCo. For the year ended December 31,
2003, MAM and MFSCo, collectively, reimbursed $106,944 to the Fund.
Pursuant to Rule 12b-1 of the 1940 Act, a mutual fund can adopt a written plan
to pay certain expenses out of fund assets relating to the sale and
distribution of its shares. The Fund has adopted a distribution plan that
limits the Fund, on an annual basis, to pay 0.20% of average daily net assets
for such expenses.
3. Federal Tax Information
The Fund paid dividends, characterized for tax purposes as ordinary income, of
$1,711,417 and $3,571,277 during the years ended December 31, 2003 and December
31, 2002, respectively./1/
As of December 31, 2003 and December 31, 2002, the components of accumulated
earnings/(deficit) on a tax basis for the Fund were as follows:
Accumulated Total
Undistributed Capital and Unrealized Accumulated
Ordinary Dividends Other Gains Appreciation/ Earnings/
Year Income Payable and (Losses) (Depreciation) (Deficit)
---- ------------- --------- ------------ -------------- -----------
2003 $13,594 $(13,594) $-- $-- $--
/1/ Total dividends paid may differ from the amount reported in the Statements
of Changes in Net Assets because for tax purposes dividends are recognized
when actually paid.
4. Subsequent Event
The Flex-funds Money Market Fund and the Institutional Fund of the Meeder
Advisor Funds Trust, which are managed by Meeder Asset Management, Inc., are
organized in the master-feeder structure. Under this structure both funds,
having the same investment objective, invest in the same master portfolio, the
Money Market Portfolio. The Board of Trustees has approved the liquidation, on
or about April 30, 2004, of the Institutional Fund. In conjunction with this
liquidation, the Board of Trustees has also approved the termination, on or
about April 30, 2004, of the Money Market Portfolio. The shareholders of the
Institutional Fund will have the opportunity to invest their liquidation
proceeds in a new class of shares of The Money Market Fund, which will have a
virtually identical investment objective as the Institutional Fund.
Consequently, on or about April 30, 2004, The Flex-funds Money Market Fund will
be a stand-alone fund offering two classes of shares and will continue to be
managed by Meeder Asset Management, Inc.
The Flex-funds
11
Independent Auditors' Report
To the Shareholders and Board of Trustees
of The Money Market Fund:
We have audited the accompanying statement of assets and liabilities of The
Money Market Fund (the Fund) as of December 31, 2003, and the related statement
of operations for the year then ended, the statements of changes in net assets
for each of the periods presented in the two year period then ended, and the
financial highlights for each of the periods presented in the five year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of December 31, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the periods presented in the
two year period then ended, and the financial highlights for each of the
periods presented in the five year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Columbus, Ohio
March 15, 2004
The Flex-funds
12
Statement of Assets & Liabilities
December 31, 2003
- --------------------------------------------------------------------------------
Money
Market
Portfolio
------------
Assets
Investments, at value* $170,270,855
Repurchase agreements, at value* 26,351,000
Trustee deferred compensation investments, at value 60,366
Cash 748
Interest and dividend receivable 1,467,815
Prepaid expenses/other assets 778
----------------------------------------------------------------
Total Assets 198,151,562
----------------------------------------------------------------
Liabilities
Payable for securities purchased 3,704,289
Payable for Trustee Deferred Compensation Plan 60,366
Payable to investment advisor 24,754
Accrued fund accounting fees 5,261
Other accrued liabilities 10,925
----------------------------------------------------------------
Total Liabilities 3,805,595
----------------------------------------------------------------
----------------------------------------------------------------
Total Net Assets $194,345,967
----------------------------------------------------------------
----------------------------------------------------------------
* Investments, at cost $196,621,855
----------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
13
Statement of Operations
For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
Money
Market
Portfolio
----------
Investment Income
Interest $2,800,152
--------------------------------------------------------------
Total Investment Income 2,800,152
--------------------------------------------------------------
Expenses
Investment advisor 668,771
Fund accounting 57,751
Trustee 8,583
Audit 6,168
Custodian 8,322
Legal 4,081
Insurance 1,824
Other 1,482
--------------------------------------------------------------
Total Expenses Before Reductions 756,982
--------------------------------------------------------------
Investment advisor fees waived (374,508)
--------------------------------------------------------------
Total Net Expenses 382,474
--------------------------------------------------------------
--------------------------------------------------------------
Net Investment Income 2,417,678
--------------------------------------------------------------
--------------------------------------------------------------
Net Change in Net Assets Resulting from Operations $2,417,678
--------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
14
Statements of Changes in Net Assets
For the Years Ended December 31,
- --------------------------------------------------------------------------------
Money Market Portfolio
----------------------------
2003 2002
------------- -------------
Operations
Net investment income $ 2,417,678 $ 4,658,599
- ---------------------------------------------------------------------------------------------------------------------
Net change in net assets resulting from operations 2,417,678 4,658,599
- ---------------------------------------------------------------------------------------------------------------------
Transactions of Investors' Beneficial Interests
Contributions 245,964,298 325,392,543
Withdrawals (264,913,444) (389,503,659)
- ---------------------------------------------------------------------------------------------------------------------
Net change in net assets resulting from transactions of investors' beneficial interests (18,949,146) (64,111,116)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total Change in Net Assets (16,531,468) (59,452,517)
- ---------------------------------------------------------------------------------------------------------------------
Net Assets -- Beginning of Period 210,877,435 270,329,952
- ---------------------------------------------------------------------------------------------------------------------
Net Assets -- End of Period $ 194,345,967 $ 210,877,435
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
The Flex-funds
15
Financial Highlights
Ratios/Supplementary Data For Each Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
Money Market Portfolio
2003 2002 2001 2000 1999
-------- -------- -------- -------- ----------
Total Return 1.17% 1.83% 4.54% 6.61% 5.37%
Net assets, end of period ($000) $194,346 $210,877 $270,330 $297,206 $1,104,197
Ratio of net expenses to average net assets 0.18% 0.20% 0.21% 0.19% 0.18%
Ratio of net investment income to average net assets 1.16% 1.83% 4.26% 6.05% 5.07%
Ratio of expenses to average net assets before reductions 0.36% 0.36% 0.35% 0.30% 0.30%
See accompanying notes to financial statements.
The Flex-funds
16
Notes to Financial Statements
December 31, 2003
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
The Money Market Fund (the "Fund") invests all of its investable assets in a
corresponding open-end management investment company (a "Portfolio") having the
same investment objective as the Fund. The Portfolio is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a no-load,
open-ended management investment company, which was organized as a trust under
the laws of the State of New York. For federal income tax purposes the
Portfolio qualifies as a partnership, and each investor in the Portfolio is
treated as the owner of its proportionate share of the net assets, income,
expenses, and realized and unrealized gains and losses of the Portfolio.
Accordingly, as a "pass-through" entity, the Portfolio pays no income dividend
or capital gain distribution.
Use of estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Security valuation. Money market securities held in the Portfolio are valued
at amortized cost, which approximates value. In compliance with Rule 2a-7 of
the 1940 Act, the amortized values are compared to prices obtained from
independent pricing services that use valuation techniques approved by the
Board of Trustees ("Trustees").
Repurchase agreements. The Portfolio may engage in repurchase agreement
transactions whereby the Portfolio takes possession of an underlying debt
instrument subject to an obligation of the seller to repurchase the instrument
from the Portfolio and an obligation of the Portfolio to resell the instrument
at an agreed upon price and term. At all times, the Portfolio maintains the
value of collateral, including accrued interest, at least 100% of the amount of
the repurchase agreement, plus accrued interest. If the seller defaults or the
fair value of the collateral declines, realization of the collateral by the
Portfolio may be delayed or limited.
Federal income taxes. The Portfolio will be treated as a partnership for
federal income tax purposes. As such, each investor in the Portfolio will be
subject to taxation on its share of the Portfolio's ordinary income and capital
gains. It is the Portfolio's policy to continue to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to it. Therefore, no
federal income tax provision is required.
Other. The Portfolio records security transactions on the trade date. Gains
and losses realized from the sale of securities are determined on the specific
identification basis. Interest income (including amortization of premium and
accretion of discount) is recognized as earned.
Under a Deferred Compensation Plan (the "Plan"), non-interested Trustees may
elect to defer receipt of a portion of their annual compensation. Under the
Plan, deferred amounts are invested in shares of The Flex-funds. Deferred
amounts remain in the Portfolio until distributed in accordance with the Plan.
2. Investment Transactions
As of December 31, 2003, the aggregate cost basis of investments for federal
income tax purposes was $196,621,855.
3. Investment Advisory Fees and Other Transactions with Affiliates
Meeder Asset Management, Inc. ("MAM"), a wholly-owned subsidiary of Meeder
Financial, Inc. ("Meeder"), provides the Portfolio with investment management,
research, statistical and advisory services. For such services the Portfolio
pays a fee at the following annual rates: 0.40% of average daily net assets up
to $100 million and 0.25% of average daily net assets exceeding $100 million.
During the year ended December 31, 2003, MAM agreed to reduce $374,508 of
investment advisory fees in the Portfolio.
Mutual Funds Service Co. ("MFSCo"), a wholly owned subsidiary of Meeder, serves
as accounting services agent for the Portfolio. In compensation for such
services, the Portfolio pays MFSCo an annual fee equal to the greater of:
a. 0.15% of the first $10 million of average daily net assets, 0.10% of the
next $20 million of average daily net assets, 0.02% of the next $50
million of average daily net assets, and 0.01% in excess of $80 million
of average daily net assets, or
b. $30,000.
The Flex-funds
17
Independent Auditors' Report
To the Shareholders and The Board of Trustees
of the Money Market Portfolio:
We have audited the accompanying statement of assets and liabilities of the
Money Market Portfolio (the Portfolio), including the schedule of investments,
as of December 31, 2003, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the periods
presented in the two year period then ended, and the financial highlights for
each of the periods presented in the five year period then ended. These
financial statements and financial highlights are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 2003, by
correspondence with the custodian, brokers, and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolio as of December 31, 2003, the results of its operations for the year
then ended, the changes in its net assets for each of the periods presented in
the two year period then ended, and the financial highlights for each of the
periods presented in the five year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Columbus, Ohio
March 15, 2004
The Flex-funds
18
Trustees and Officers
- --------------------------------------------------------------------------------
Certain trustees and officers of the Portfolio are also officers or directors
of Meeder, MAM and MFSCo. The Trustees oversee the management of the Trust, the
Fund, and the Portfolio and elect their officers. The officers are responsible
for the Fund's and the Portfolio's day-to-day operations. The Trustees' and
officers' names, addresses, years of birth, positions held with the Trust, and
length of service as a Flex-funds Trustee are listed below. Also included is
each Board member's principal occupation during, at least, the past five years.
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 MAM, including The Flex-funds, Meeder Advisor Funds, and the
corresponding portfolios of The Flex-funds and Meeder Advisor Funds
(collectively, the "Fund Complex"). Those Trustees who are "interested
persons", as defined in the 1940 Act, by virtue of their affiliation with the
Fund Complex are indicated by an asterisk (*).
Principal Occupation During
Name, Address(1), and Year of Birth Position and Length of Service(2) Past Five Years
- ----------------------------------- --------------------------------- ------------------------------------------
Robert S. Meeder, Sr.* Trustee and President Chairman of Meeder Asset Management,
Year of Birth: 1929 Inc., an investment advisor; Chairman and
Director of Mutual Funds Service Co., the
Fund Complex's transfer agent; Director
of Adviser Dealer Services, Inc., the Fund
Complex's Distributor.
Milton S. Bartholomew Trustee Retired; formerly a practicing attorney in
Year of Birth: 1929 Columbus, Ohio; member of the Fund
Complex's Audit Committee.
Roger D. Blackwell Trustee Professor of Marketing and Consumer
Year of Birth: 1940 Behavior, The Ohio State University;
President of Blackwell Associates, Inc., a
strategic consulting firm.
Robert S. Meeder, Jr.* Trustee and Vice President President of Meeder Asset Management,
Year of Birth: 1961 Inc.
Walter L. Ogle Trustee Retired; formerly Executive Vice President
Year of Birth: 1937 of Aon Consulting, an employee benefits
consulting group; member of the Fund
Complex's Audit Committee.
Charles A. Donabedian Trustee President, Winston Financial, Inc., which
Year of Birth: 1943 provides a variety of marketing consulting
services to investment management
companies; CEO, Winston Advisors, Inc.,
an investment advisor; member of the
Fund Complex's Audit Committee.
James W. Didion Trustee Retired; formerly Executive Vice President
Year of Birth: 1930 of Core Source, Inc., an employee benefit
and Workers' Compensation
administration and consulting firm (1991 -
1997).
Jack W. Nicklaus Trustee Designer, Nicklaus Design, a golf course
Year of Birth: 1961 design firm and division of The Nicklaus
Companies.
(1) The address of each Trustee is 6125 Memorial Drive, Dublin, OH 43017.
(2) Each Trustee serves for an indefinite term, until his or her resignation,
death, or removal.
* Robert S. Meeder, Sr. is deemed an "interested person" of the Trust by
virtue of his position as Chairman of Meeder Asset Management, Inc., the
Advisor of the Portfolio. Robert S. Meeder, Jr. is deemed an "interested
person" of the Trust by virtue of his position as President of Meeder Asset
Management, Inc., the Advisor of the Portfolio.
The Flex-funds
19
Manager and Investment Advisor:
Meeder Asset Management, Inc
6125 Memorial Drive
P.O. Box 7177
Dublin, Ohio 43017
Board of Trustees
Milton S. Bartholomew
Dr. Roger D. Blackwell
James Didion
Charles Donabedian
Robert S. Meeder, Sr.
Robert S. Meeder, Jr.
Jack Nicklaus II
Walter L. Ogle
Custodian
The Huntington National Bank
Columbus, Ohio 43215
Transfer Agent Dividend Disbursing Agent
Mutual Funds Service Co.
6125 Memorial Drive
Dublin, Ohio 43017
Auditors
KPMG LLP
Columbus, Ohio 43215
The Flex-funds
Managed by Meeder Asset Management, Inc.
6125 Memorial Drive, Dublin Ohio, 43017
Call Toll Free 800-325-3539 | 614-760-2159
Fax: 614-766-6669 | www.flexfunds.com
Email: flexfunds@meederfinancial.com
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, comptroller or
principal accounting officer, and any person who performs a similar function.
Item 3. Audit Committee Financial Expert.
Currently, The Flex-funds (the "Funds") do not have an Audit Committee member
who possesses all of the attributes required to be an "audit committee financial
expert" as defined in instruction 2(b) of Item 3 of Form N-CSR. However, the
Board of Trustees believes that each member of the Audit Committee has
substantial experience relating to the review of financial statements and the
operations of audit committees. Accordingly, the Board of Trustees believes that
the members are qualified to evaluate the Funds' financial statements, supervise
the Funds' preparation of its financial statements, and oversee the work of the
Funds' independent auditors. The Board of Trustees also believes that, although
no single Audit Committee member possesses all of the attributes required to be
an "audit committee financial expert", the Audit Committee members collectively
as a group possess the attributes required to be an "audit committee financial
expert."
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2003 2002
Audit Fees $54,196 $103,377
Audit-Related Fees -- --
Tax Fees 20,153 24,365
All Other Fees 2,027 3,530
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts
reasonably related to the performance of the audit of the registrant's financial
statements. Tax fees include amounts related to tax compliance, tax planning,
and tax advice. All other fees include amounts related to the registrant's
annual filing of Form N1A.
(e)(1) A purpose of the Audit Committee is to approve the engagement of the
registrant's independent auditors (i) to render audit and non-audit services for
the registrant in accordance with Rule 2-01(c)(7)(i) of Regulation S-X, subject
to the waiver provisions set forth in Rule 2-01(c)(7)(i)(C) of Regulation S-X,
and (ii) to render non-audit services for the registrant's investment advisors
(other than a sub-advisor whose role is primarily portfolio management and is
subcontracted or overseen by another investment advisor) and any other entity
controlling by, or under common control with the investment advisor that
provides ongoing services to the registrant, in each case under (ii) if the
engagement relates directly to the operations and financial reporting of the
registrant, in accordance with Rule 2-01(c)(7)(ii) of Regulation S-X, subject to
waiver provisions set forth in Rule 2-01(c)(7)(ii) of Regulation S-X.
(e)(2) 100% of services included in (b) - (d) above were approved pursuant to
Rule 2-01(c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment advisor, and any entity controlling,
controlled by, or under common control with the investment advisor that provides
ongoing services to the registrant were $14,000 and $21,700, respectively.
(h) Not applicable.
Items 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) Based on our evaluation conducted within 90 days of the filing date, hereof,
the design and operation of the registrant's disclosure controls and procedures
are effective to ensure that material information relating to the registrant is
made known to the certifying officers by others within the appropriate entities,
particularly during the period in which Forms N-CSR are being prepared, and the
registrant's disclosure controls and procedures allow timely preparation and
review of the information for the registrant's Form N-CSR and the officer
certifications of such Form N-CSR.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Item 10. Exhibits.
(a)(1) Code of Ethics filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive and principal
financial officer of the registrant as required by Rule 30a-2(a) under the
Act(17 CFR270.30a-2(a)). Filed herewith as EX-99.CERT.
(b) Certifications of principal executive officer and principal financial
officer, under Section 906 of the Sarbanes-Oxley Act of 2002, and 18 U.S.C.
ss.1350. Filed herewith as EX-99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
The Flex-funds
By: /s/ Bruce E. McKibben
-----------------------------------
Bruce E. McKibben, Treasurer
Date: March 15, 2004
-----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Bruce E. McKibben
-----------------------------------
Bruce E. McKibben, Treasurer
Date: March 15, 2004
-----------------------------------
By: /s/ Robert S. Meeder, Sr.
-----------------------------------
Robert S. Meeder, Sr., Chairman and President
Date: March 15,2004
-----------------------------------