SMITH HAYES TRUST INC, 497, 1995-09-08

SMITH HAYES TRUST INC
497, 1995-09-08

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PROSPECTUS

SMITH HAYES Trust, Inc.
200 Centre Terrace
1225 L Street
Lincoln, Nebraska 68508
(402) 476-3000
1-(800)-279-7437

SMITH HAYES Trust, Inc. (the "Trust"), is an open-end management investment
company offering shares in series (the "Funds"). This Prospectus relates to the
three Funds described below. Each Fund is diversified, has its own investment
objectives and policies designed to meet different investment goals and each is
managed by its own Fund Manager.

Small Cap Fund has an investment objective of long-term capital appreciation.

Convertible Fund has as its investment objective the preservation of capital
while maximizing total return (a combination of capital gains, interest and
dividends).

Government/Quality Bond Fund has as its investment objective income with
capital appreciation consistent with preservation of capital.

Shares of the Funds are not deposits or obligations of, or insured,
guaranteed, or endorsed by, the U.S. government, any bank, the Federal Deposit
Insurance Corporation, the Federal Reserve, or any other agency, entity or
person. The purchase of shares necessarily involves investment risks, including
the possible loss of principal.

This Prospectus concisely describes information about the Funds that an
investor ought to know before investing. Please read it carefully before
investing and retain it for future reference. A Statement of Additional
Information about the Funds dated as of the date of this Prospectus is available
free of charge by writing to SMITH HAYES Trust, Inc., 200 Centre Terrace, 1225 L
Street, Lincoln, Nebraska 68508, or telephone (402) 476-3000 or 1-(800)
279-7437. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated in its entirety by
reference in this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is September 1, 1995.

<PAGE>

[THIS PAGE LEFT BLANK INTENTIONALLY]

<PAGE>

INTRODUCTION

SMITH HAYES Trust, Inc. (the "Trust") is an open-end management investment
company, commonly called a mutual fund. The Trust, which was organized under the
laws of the state of Minnesota in January, 1988, has one class of capital stock
that is issued in series, (collectively, the "Funds" or individually a "Fund").
Each Fund has different investment objectives designed to meet different
investment needs.

Small Cap Fund has an investment objective of long-term capital appreciation.
The Fund will normally invest at least 90% of its assets (excluding Money Market
Instruments) in stocks of companies which have market capitalizations of between
$50 million and $2 billion, with the average market capitalization of these
companies owned by the Fund in the aggregate normally between $350 million to
$600 million.

Convertible Fund has as its investment objective the preservation of capital
while maximizing total return (a combination of capital gains, interest and
dividends). The Fund will invest primarily in convertible corporate debt
securities and/or convertible preferred stock.

Government/Quality Bond Fund has as its investment objective income with
capital appreciation consistent with preservation of capital. The Fund will
invest in U.S. Government Securities and debt obligations which are rated A
or higher by Moody's Investor Services, Inc. and A or higher by Standard &
Poor's Corporation. See "Investment Objectives and Policies."

The Investment Adviser and Administrator

The Trust is managed by CONLEY SMITH, Inc. ("CSI"), formerly SMITH HAYES
Portfolio Management, Inc., a wholly owned subsidiary of Consolidated Investment
Corporation ("Consolidated"). CSI acts as the investment adviser for the Fund
("Adviser"). Each Fund pays CSI a monthly fee for advisory services rendered.
While the charges to be incurred by the Trust for advisory services are higher
than the advisory fees paid by most investment companies, such other companies
may impose other charges and incur expenses which the Trust does not. These
include, for example, front-end sales loads, deferred contingent sales charges,
exchange fees, account maintenance fees and dividend reinvestment charges. The
Administrator of the Trust is Lancaster Administrative Services, Inc. ("LAS").
LAS acts as transfer agent and provides or contracts with others to provide all
necessary recordkeeping services. The Trust pays LAS a monthly fee for such
services. See "Management-Investment Adviser and Administrator" and
"Management-Portfolio Brokerage."

The Adviser has entered into Sub-Investment Advisory Agreements with other
investment advisers ("Portfolio Managers") to assist in rendering investment
advisory services to the Trust. Each Portfolio Manager will be compensated
solely by the Adviser. See "Management - Portfolio Managers."

<PAGE>

The Distributor

SMITH HAYES Financial Services Corporation ("SMITH HAYES"), also a wholly
owned subsidiary of CIC, acts as the distributor ("Distributor") of the Trust's
shares. Pursuant to the Trust's Rule 12b-1 Plan, the Trust will reimburse the
Distributor monthly for certain expenses incurred in connection with the
distribution and promotion of the Trust's shares, not to exceed .50%, (.25% in
the case of the Government/Quality Bond Fund), annually of the Fund's average
net assets. See "Distribution of Portfolio Shares."

Purchase of Shares

Shares of the Funds are offered to the public at the next determined net
asset value after receipt of an order by the Distributor, without a sales
load. The minimum initial investment in the Fund is $1,000, and the minimum
initial investment in any one Fund is $500. Subsequent investments can be made
in any amount.

Certain Risk Factors to Consider

An investment in any of the Funds is subject to certain risks, as set forth
in detail under "Investment Objective and Policies" and "Special Investment
Methods." As with other mutual funds, there can be no assurance that any Fund
will achieve its objective. Some or all of the Funds, to the extent set forth
under "Investment Objective and Policies" and "Special Investment Methods," may
engage in the following investment practices: the use of repurchase agreements,
borrowing from banks, entering into options transactions, entering into options
on stock index contracts and the purchase of mortgage-related securities. All of
these transactions involve certain special risks, as set forth under "Investment
Objective and Policies" and "Special Investment Methods."

Shareholder Inquiries

Any questions or communications regarding a shareholder account should be
directed to your SMITH HAYES investment executive or other broker-dealer.
General inquiries regarding the Fund should be directed to the Trust at one of
the telephone numbers set forth on the cover page of this Prospectus.

Redemptions

Shares of any Fund may be redeemed at any time at their net asset value next
determined after receipt of a redemption request by the Distributor. The Trust
reserves the right, upon 30 days' written notice, to redeem a shareholder's
investment in the Fund if the net asset value of the shares held by such
shareholder falls below $500 as a result of redemptions or transfers. See
"Redemption of Shares-Involuntary Redemption."

<PAGE>

Expenses

The Trust offers shares of the Funds without any sales load or contingent
sales loads on purchases, reinvestment of dividends or redemption of shares and
does not charge any exchange or account maintenance fees. The payments made by
the Funds under the Trust's Rule 12b-1 Plan may result in long-term shareholders
paying more than the economic equivalent of the maximum front end sales charge
permitted by the National Association of Securities Dealers, Inc. The table
below is provided to assist the investor in understanding the various expenses
that an investor in the Trust's Funds will bear, whether directly or indirectly,
through an investment in the Funds. For more complete descriptions of the
various costs and expenses, see "Management - Investment Adviser and
Administrator", "Management - Expenses," "Special Investment Methods - Portfolio
Turnover," and "Distribution of Fund Shares."

Annual Operating Expenses

The table below provides information regarding expenses for the Funds of the
Trust based on and expressed as annual percentages of average net assets for the
period July 1, 1994 to June 30, 1995.

Small Cap Convertible Government/Quality
Fund Fund Bond Fund
Management Fees
Investment Advisory Fees .75% .75% .60%
Administration Fees .25% .25% .25%
----- ----- ----
Total Management Fees 1.00% 1.00% .85%

12b-1 Fees .50% .50% .25%
Other Expenses .24% .56% .28%
------ ------ ------

Total Fund Operating Expenses1.74% 2.06% 1.38%
===== ===== =====

The annual operating expenses have been restated to reflect the current fees.

Example: You would pay these expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.

Period
1 year $18 $21 $14
3 years $55 $65 $44
5 years $94 $111 $76
10 years $205 $239 $166

The example should not be considered a representation of past or future
expenses or yield. Actual expenses and yield may be greater or lower than those
shown.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial information, which provides selected data for a share
of each Fund outstanding throughout the periods indicated, has been audited by
Deloitte & Touche, LLP, independent certified public accountants, for the year
ended June 30, 1995 and by KPMG Peat Marwick, LLP, independent certified public
accountants,for all preceding years presented, to the extent of the audit report
appearing in the Trust's Annual Financial Report, which is contained in the
Statement of Additional Information and which is available upon request without
charge as set forth on the cover page of this Prospectus. Further information
about the performance of the Funds is also contained in the Trust's Annual
Financial Report.

Small Cap Fund
Years Ended June 30, 1995, 1994 and 1993

1995 1994 1993
---- ---- ----
Net asset value:
Beginning of period $11.59 $11.77 10.00
------ ------ -----

Income from investment operations:
Net investment loss (0.08) (0.07) (0.05)
Net realized and unrealized gain on investments 2.34 0.20 1.83
---- ---- ----
Total income from investment operations 2.26 0.13 1.78
---- ---- ----

Distributions from capital gains (0.36) (0.31) (0.01)
------ ------ ------

End of period $13.49 $11.59 11.77
====== ====== =====

Total return 20.33% 1.21% 17.80%
====== ===== ======

Ratios/Supplemental data:
Net assets, end of period $9,589,788 7,218,944 3,137,762

Ratio of expenses to average net assets 1.93% 1.91% 2.18% Ratio of net income
to average net assets(0.60%) (0.60%) (0.87%) Portfolio turnover rate 86.50%
75.23% 47.55%

<PAGE>

Convertible Fund

Years Ended June 30, 1995, 1994, 1993, 1992, 1991 and 1990 and the Periods from
January 1, 1989 to June 30, 1989 and June 23, 1988 (commencement of
operations) to December 31, 1988

1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $11.69 $12.58 10.76 9.96 9.86 9.68 9.24 10.00
------ ------ ----- ---- ---- ---- ---- -----

Income (loss) from investment operations:
Net investment
income 0.30 0.29 0.33 0.31 0.40 0.39 0.23 0.22
Net realized and
unrealized gain (loss)
on investments 1.01 (0.53) 2.16 0.80 (0.06) 0.16 0.43 (0.76)
---- ------ ---- ---- ------ ---- ---- ------
Total income (loss)
from investment
operations 1.31 (0.24) 2.49 1.11 0.34 0.55 0.66 (0.54)
---- ------ ---- ---- ---- ---- ---- ------

Less distributions:
Dividends from net
investment
income (0.30) (0.29) (0.33) (0.31) (0.21) (0.37) (0.22) (0.22)
Distributions from
capital gains (0.73) (0.36) (0.34) - (0.03) - - -
----- ---- ----- ----- ----- ----- ------ ------

Total distributions (1.03) (0.65) (0.67) (0.31) (0.24) (0.37) (0.22) (0.22)
------ ------ ------ ------ ------ ------ ------ ----

End of period $11.97 $11.69 12.58 10.76 9.96 9.86 9.68 9.24
====== ====== ===== ===== ==== ==== ==== ====

Total return 14.09% (2.26%) 24.06% 10.95% 5.09% 5.74% 14.36%*(10.87%)*
====== ====== ====== ====== ===== ===== ======= ========

Ratios/Supplemental data:
Net assets, end of period
1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----

$1,764,967 2,708,104 2,368,876 1,791,325 1,188,680 1,645,097 1,497,905 1,543,768

Ratio of expenses to
average net
assets 2.25% 2.06% 2.13% 2.48% 2.79% 2.57% 2.57%* 2.52%*
Ratio of net income to
average net
assets 2.58% 2.27% 2.91% 2.85% 3.48% 3.73% 4.73%* 4.58%*
Portfolio turnover
rate 51.31% 65.76% 69.72% 96.02% 70.77% 96.40% 1.75% 33.60%

*Annualized for those periods less than twelve months in duration.

<PAGE>

Government/Quality Bond Fund
Years Ended June 30, 1995, 1994, 1993, 1992, 1991 and 1990 and the Periods
from January 1, 1989
to June 30, 1989 and June 23, 1988 (commencement of operations) to
December 31, 1988

1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $10.21 11.17 10.93 10.42 10.31 10.56 10.01 10.00
------ ------ ----- ----- ----- ----- ----- -----

Income (loss) from investment operations:
Net investment
income 0.60 0.54 0.64 0.73 0.57 0.57 0.32 0.22
Net realized and
unrealized gain
(loss)
on investments 0.22 (0.75) 0.43 0.60 0.11 (0.16) 0.49 0.01
---- ------ ---- ---- ---- ----- ---- ----
Total income (loss) from
investment
operations 0.82 (0.21) 1.07 1.33 0.68 0.41 0.81 0.23
---- ------ ---- ---- ---- ---- ---- ----

Less distributions:
Dividends from net
investment
income (0.60) (0.54) (0.64) (0.71) (0.51) (0.55) (0.26 (0.22)
Distributions from
capital gains - (0.21) (0.19) (0.11) (0.06) (0.11) - -
----- ------ ----- ----- ----- ---- ----- -----
Total distributions (0.60) (0.75) (0.83) (0.82) (0.57) (0.66) (0.26)(0.22)
------ ------ ------ ------ ------ ------ ------ ----

End of period $10.43 $10.21 11.17 10.93 10.42 10.31 10.56 10.01
====== ====== ===== ===== ===== ===== ===== =====

Total return 9.42% (2.00%)11.00% 12.79% 8.91% 5.27% 16.46%* 3.68*
===== ============= ====== ===== ===== ======= =====

Ratios/Supplemental data:
Net assets,
end of period
1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----
$4,693,924 8,832,147 9,709,386 8,112,226 6,060,110 4,079,762 2,554,552 1,312,557

Ratio of expenses to
average net
assets 1.47% 1.37% 1.38% 1.50% 1.58% 1.61% 1.51%* 1.55%*
Ratio of net income to
average net
assets 5.86% 4.94% 6.25% 6.64% 6.92% 7.11% 7.26%* 6.62%*
Portfolio
turnover rate 9.33% 218.11% 175.95% 507.52% 102.55% 103.60% 7.60% 0.00%

*Annualized for those periods less than twelve months in duration.

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of each Fund listed cannot be changed without
shareholder approval in the manner described under the caption "Special
Investment Methods - Investment Restrictions." In view of the risks inherent in
all investments in securities, there is no assurance that these objectives will
be achieved. The investment policies and techniques employed in pursuit of the
Fund's objectives may be changed without shareholder approval, unless otherwise
noted. See "Special Investment Methods" for definitions and discussion regarding
certain types of securities and the risks of investing in such securities,
including U.S. Government Securities, money market instruments, mortgage-related
securities and convertible securities in which some or all of the Funds may
invest.

Small Cap Fund

Investment Objective. The Small Cap Fund's investment objective is
long-term capital appreciation.

Investment Policies and Techniques. The Small Cap Fund will normally invest
at least 90% of its assets (excluding investments in Money Market Instruments)
in stocks of companies which have market capitalizations between $50 million and
$2 billion, with the average market capitalization of these companies owned by
the Fund in the aggregate normally between $350 million and $600 million. Market
capitalization, for purposes of this policy, is determined by multiplying the
per share market value of a company's shares by the total number of shares
outstanding. For purposes of the percentage restrictions, such percentage
restriction shall not be deemed violated as a result of a change in the market
capitalization subsequent to the acquisition of the security. While the Fund
intends to be virtually fully invested at all times, it may take defensive
positions from time to time in Money Market Instruments without regard to these
policies and it will from time to time maintain investments in Money Market
Instruments pending investment in stocks.

The Small Cap Fund will be conservatively managed under an investment
strategy that is referred to as "growth at a discount." The Fund will seek to
invest in companies which (i) show above average growth (as compared to long
term overall market growth of 7% to 8% per year), (ii) on average trade at a
discount to the S&P 500 price-earnings ratio, (iii) have consistent positive
historical earnings over the last three to five years, (iv) have debt to capital
ratios of 35% or less, and (v) either have cash on their balance sheets
exceeding 10% of shareholder equity, or have employee ownership exceeding 10% of
shares outstanding, or are currently paying a dividend. All of the foregoing
investment policies and techniques are non fundamental and may be changed
without shareholder approval.

Convertible Fund

Investment Objective. The Convertible Fund has the investment objective of
preservation of capital while maximizing total return (a combination of capital
gains, interest and dividends) by investing in a portfolio of convertible
corporate debt securities and/or convertible preferred stock.

<PAGE>

Investment Policies and Techniques. In seeking to accomplish its objective,
the Fund normally invests at least 65% of its total assets in a diversified
portfolio of convertible securities, primarily bonds and preferred stocks which
are convertible into common stock. See "Special Investment Methods - Convertible
Securities." Generally, the Fund emphasizes investments in securities that are
in the higher rating categories of the recognized rating agencies (i.e.,
securities rated BBB or higher by Standard & Poor's Corporation ("S&P") or Ba or
lower by Moody's Investors Services, Inc. ("Moody's")) and other securities of
comparable quality as determined by the Portfolio Manager or unrated securities,
which are commonly referred to as ("junk bonds"). There are no restrictions as
to the ratings of convertible debt securities acquired by the Convertible Fund's
assets that may be invested in debt securities in a particular ratings category,
except that the Convertible Fund will not acquire any security rated below C. In
an attempt to earn additional income on its portfolio, the Fund may write
covered call options in securities the Fund holds or has an immediate right to
acquire upon conversion or exchange of securities held by the Fund. See "Special
Investment Methods - Options Transactions." The Fund's investment in convertible
securities offers the potential for capital appreciation through the conversion
feature of such securities, which enables the Fund to benefit from increases in
the market prices of the underlying common stock. However, the Fund's emphasis
on convertible securities will also necessarily result in fluctuations in the
net asset value and yield of the Fund as interest rate changes and corresponding
inverse changes in market values of the underlying stock occur. Generally, there
is an inverse relationship between the market value of fixed income securities
and the yield of such securities. As interest rates rise, the value of the
security falls. Conversely, as interest rates fall, the market value of the
security rises.

A description of the ratings issued by Standard & Poor's and Moody's is set
forth in Appendix A to the Statement of Additional Information. Securities rated
BBB and Baa have speculative characteristics while securities rated BB and Ba or
lower are considered speculative. Securities rated C are of poor standing and
may be in default and have serious questions of payment. See Appendix A to the
Statement of Additional Information for a complete description of the S&P and
Moody's ratings. Investment in junk bonds involves greater investment risk,
including the possibility of issuer default or bankruptcy. An economic down-turn
could severely disrupt the market for such securities and adversely affect the
value of such securities. In addition, junk bonds are less sensitive to interest
rate changes than higher quality instruments and generally are more sensitive to
adverse economic changes or individual corporate developments. During a period
of adverse economic changes, including a period of rising interest rates,
issuers of such securities may experience difficulty in servicing their
principal and interest payment obligations. Lower rated and unrated convertible
securities normally offer a current yield appreciably above that generally
available on bonds in the highest rating categories but involve a higher risk of
default than securities with higher ratings. Market prices of lower rated
convertible securities tend to fluctuate more than market prices of higher rated
securities, and the market for such securities tends to be less liquid than the
market for higher rated securities. Changes in the market value of convertible
securities subsequent to the acquisition do not affect cash income of the Fund
but are reflected in the net asset value of the Fund's shares and the Fund's
effective yield.

As of June 30, 1995, the Convertible Fund had 5%, and 7% of its net assets in
vested in convertible debt securities rated B+ and B by Moody's.
<PAGE>

In selecting the Fund's securities, including unrated securities, the
Portfolio Manager performs its own credit analysis, in addition to depending
upon recognized rating agencies and other sources, giving consideration, among
other things, to the issuer's financial soundness, its anticipated cash flow,
interest or dividend coverage, asset coverage, sinking fund provisions,
responsiveness to changes in interest rates, business conditions, and
liquidation value related to the market price of the security. The Fund
diversifies its holdings to reduce risk. Although risk cannot be eliminated,
diversification reduces the impact of any single investment. Furthermore,
convertible securities, because of their fixed income features, are less
susceptible to declines in the equity market than the common stock of the same
issuer.

The Fund may invest up to 20% of the value of its total assets in
non-convertible income-producing securities consisting of stocks, bonds, U.S.
Government Securities and repurchase agreements on U.S. Government Securities.
Although it is intended that the Fund will invest primarily in convertible
securities, securities received upon conversion or exercise of warrants and
securities remaining upon the breakup of units or detachments of warrants may be
retained to permit orderly disposition or to establish long-term holding periods
for Federal income tax purposes. The Fund is not required to immediately sell
securities for the purpose of assuring that 65% of its total assets are invested
in convertible securities.

The Fund may invest up to 15% of the value of its total assets at the time of
purchase in warrants (not including those acquired in units or attached to other
securities), including up to 5% of its total assets in warrants that are not
listed on the New York or American Stock Exchanges. A warrant is a right to
purchase common stock at a specific price (usually at a premium above the market
value of the underlying common stock at time of issuance) during a specified
period of time. A warrant may have a life ranging from less than a year to
twenty years or longer, but a warrant becomes worthless unless it is exercise or
sold before expiration. In addition, if the market price of the common stock
does not exceed the warrant's exercise price during the life of the warrant, the
warrant will be worthless and will expire. Warrants have no voting rights, pay
no dividends and have no rights with respect to the assets of the corporation
issuing them. The percentage increase or decrease in the market price of the
warrant may tend to be greater than the percentage increase or decrease in the
market price of the underlying common stock. Warrants not listed on the New York
or American Stock exchanges are considered to be illiquid and as such are
subject to the Fund's 10% limitation on investments in illiquid securities. See
"Special Investment Methods - Investment Restrictions."

The Fund may write (i.e., sell) covered call options on stocks, purchase put
options on stocks and stock indices, and enter into closing transactions with
respect to certain of such options. All options traded by the Fund will be
listed on national securities exchanges. See "Special Investment Methods -
Options Transactions."
<PAGE>

The Fund may write covered call options and purchase put options on stocks
and stock indices in order to hedge its portfolio and reduce investment risks.
Hedging strategies are defensive in nature; some capital gain potential is
forsaken in advancing markets in order to reduce risk in declining markets.
However, the Portfolio Manager believes that hedging strategies designed to
reduce risk can be pursued without unduly sacrificing the potential for capital
gains over the long term. See "Special Investment Methods."

The Fund may make short sales of common stock, provided it owns an equal
amount of such securities or owns securities that are convertible or
exchangeable, without payment of further consideration, into an equal amount of
such common stock. The Fund may make a short sale when the Portfolio Manager
believes the price of the stock may decline and, for tax or other reasons, the
Portfolio Manager does not want to currently sell the stock or convertible
security it owns. In such case, any decline in the value of the Fund's
securities would be reduced by a gain in the short sale transaction. Conversely,
any increase in the value of the Fund's securities would be reduced by a loss in
the short sale transaction. The Fund may not make short sales or maintain a
short position unless at all times when a short position is open, not more than
10% of its total assets (taken at a current value) are held as collateral for
such sales at any one time.

Government/Quality Bond Fund

Investment Objective. The investment objective of the Government/Quality
Bond Fund is income and capital appreciation, consistent with preservation of
capital.

Investment Policies and Techniques. The Fund will attempt to achieve its
objective by investing solely in U.S. Government Securities, repurchase
agreements on U.S. Government Securities, and corporate bonds rated A or better
by Moody's or Standard & Poor's. See Appendix A to the Statement of Additional
Information for a description of these debt rating categories. To achieve
capital appreciation, the Portfolio Manager may sell those U.S. Government
Securities and corporate bonds which have appreciated in value during periods of
declining interest rates. Except for temporary defensive investment situations
when the Fund will invest in Money Market Instruments, the Fund will normally
maintain at least 65% of its total assets in U.S. Government Securities and no
more than 10% in corporate bonds rated A by Moody's or Standard & Poor's. The
Fund's average maturity of all U.S. Government Securities and corporate bonds
will not exceed ten years. See "Special Investment Methods - U.S. Government
Securities."

SPECIAL INVESTMENT METHODS

Some or all of the Funds may invest in U.S. Government Securities,
mortgage-related securities, repurchase agreements, convertible securities,
options, and money market instruments. Descriptions of such securities, and the
inherent risks of investing in such securities are set forth below.

U.S. Government Securities

All of the Funds may invest in U.S. Government Securities which are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Obligations issued by the U.S. Treasury include Treasury
Bills, Notes and Bonds which differ from each other mainly in their interest
rates and the length of their maturity at original issue. In this regard,
Treasury Bills have a maturity of one year or less, Treasury Notes have
maturities of one to ten years and Treasury Bonds generally have maturities
greater than ten years. Such Treasury Securities are backed by the full faith
and credit of the U.S. Government.
<PAGE>

The obligations of U.S. Government agencies or instrumentalities are
guaranteed or backed in a variety of ways by the U.S. Government, its agencies
or instrumentalities. Some of these obligations, such as Government National
Mortgage Association mortgage-related securities, and obligations of the Farmers
Home Administration, are backed by the full faith and credit of the U.S.
Treasury. Obligations of the Farmers Home Administration are also backed by the
issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks and the Farmers Home Administration are backed by the discretionary
authority of the U.S. Government to purchase certain obligations of agencies or
instrumentalities. Obligations of Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation are backed by the credit of the agency or
instrumentality issuing the obligations.

As with all fixed income securities, various market forces influence the
value of such securities. There is an inverse relationship between the market
value of such securities and yield. As interest rates rise, the value of the
securities falls; conversely, as interest rates fall, the market value of such
securities rises.

Mortgage-Related Securities

The Government/Quality Bond Fund may invest in U.S. Government
mortgage-related securities. Mortgage-related securities include those
representing an undivided ownership interest in a pool of mortgage loans, such
as certificates of the Government National Mortgage Association ("GNMA"). The
actual yield of such certificates is influenced by the prepayment experience of
the mortgage pool underlying it. In periods of declining interest rates, the
rate of prepayment of mortgages underlying the securities tends to increase. If
the higher yielding mortgages from the pool are prepaid, the yield on the
remaining pool will be reduced. In addition, it will be necessary for the Funds
to reinvest such prepayments, presumably at a lower interest rate. In periods of
rising interest rates, mortgages will be repaid more slowly than expected.

Most mortgage-related securities are pass-through securities, which means
that they provide investors with payments consisting of both interest and
principal as the mortgages in the underlying mortgage pool are paid off. The
following types of mortgage-related securities, which represent the majority of
the mortgage-related securities currently available, are issued by
government-sponsored organizations formed to increase the availability of
mortgage credit.

Ginnie Maes, securities issued by GNMA, are interests in pools of mortgage
loans insured by the Federal Housing Administration or by the Farmer's Home
Administration, or guaranteed by the Veterans Administration. GNMA is a U.S.
Government corporation within the Department of Housing and Urban Development.
Ginnie Maes are backed by the full faith and credit of the United State
Government, which means that the U.S. Government guarantees that interest and
principal will be paid when due.
<PAGE>

Fannie Maes and Freddie Macs are pass-through securities issued by the
Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC), respectively. FNMA and FHLMC, which guarantee payment of
interest and principal on Fannie Maes and Freddie Macs, are federally chartered
corporations supervised by the U.S. Government and acting as governmental
instrumentalities under authority granted by Congress. FNMA is authorized to
borrow from the U.S. Treasury to meet its obligations. Fannie Maes and Freddie
Macs are not backed by the full faith and credit of the U.S. Government;
however, their close relationship with the U.S. Government makes them high
quality securities with minimal credit risks.

Mortgage-related securities, when they are issued, have stated maturities of
up to forty years, depending on the length of the mortgages underlying the
securities. In practice, unscheduled or early payments of principal and interest
on the underlying mortgages will make the securities' effective maturity shorter
than this. A security based on a pool of forty-year mortgages may have an
average life of as short as two years. The relationship between mortgage
prepayments and interest rates will give some high-yielding mortgage-related
securities less potential for growth in value than conventional bonds with
comparable maturities.

Repurchase Agreements

The Funds may enter into repurchase agreements on U.S. Government Securities
for temporary defensive purposes. A repurchase agreement involves the purchase
by a Fund of U.S. Government Securities with the condition that after a stated
period of time (usually seven days or less) the original seller will buy back
the same securities ("collateral") at a predetermined price or yield. Repurchase
agreements involve certain risks not associated with direct investments in
securities. In the event the original seller defaults on its obligation to
repurchase, as a result of its bankruptcy or otherwise, the Fund will seek to
sell the collateral, which action could involve costs or delays. In such case,
the Fund's ability to dispose of the collateral to recover such investment may
be restricted or delayed. While collateral will at all times be maintained in an
amount equal to the repurchase price under the agreement (including accrued
interest due thereunder), to the extent proceeds from the sale of collateral
were less than the repurchase price, a Fund would suffer a loss. As a
fundamental policy that may not be changed without the vote of a majority of the
Fund's shares, no Fund will cause more than 10% of the value of its total assets
to be invested, collectively, in Fund repurchase agreements maturing in more
than seven days and other illiquid securities.

Options Transactions

Writing Covered Options. The Convertible Fund may write covered exchange
listed call options, with respect to the securities in which they may invest. A
put option is sometimes referred to as a "standby commitment" and a call option
is sometimes referred to as a "reverse standby commitment". By writing a call
option, the Fund becomes obligated during the term of the option to deliver the
securities underlying the option upon payment of the exercise price if the
option is exercised. By writing a put option, the Fund becomes obligated during
the term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised.
<PAGE>

The Convertible Fund may write only "covered" options. This means that so
long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to option (or comparable securities satisfying the
cover requirements of securities exchanges). The Fund will be considered
"covered" with respect to a put option it writes if, so long as it is obligated
as the writer of a put option, it deposits and maintains with its custodian
cash, U.S. Government Securities or other liquid high-grade debt obligations
having a value equal to or greater than the exercise price of the option.

The principal reason for writing call or put options is to obtain, through
the receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives premiums from writing call or put
options, which it retains whether or not the options are exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
price upon exercise.

Purchasing Options. The Convertible Fund may purchase put options, solely for
hedging purposes, in order to protect portfolio holdings in an underlying
security against a substantial decline in the market value of such holdings
("protective puts"). Such protection is provided during the life of the put
because the Fund may sell the underlying security at the put exercise price,
regardless of a decline in the underlying security's market price. Any loss to
the Fund is limited to the premium paid for, and transaction costs paid in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the exercise price. However, if the market price of
such security increases, the profit the fund realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
for which the put is sold.

The Fund may wish to protect certain portfolio securities against a decline
in market value at a time when no put options on those particular securities are
available for purchase. In that case, the Fund may purchase a put option on
securities other than those it wishes to protect even though it does not hold
such other securities when, in the opinion of the Adviser or Portfolio Manager,
changes in the value of the put option should generally offset changes in the
value of the securities to be hedged, the correlation will be less than in
transactions in which the Fund purchases put options on underlying securities
they own.

The Fund may only purchase and sell exchange-traded put and call options.
Exchange-traded options are third party contracts with standardized strike
prices and expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while other options
may not. See "Special Investment Methods - Investment Restrictions."

The securities exchanges have established limitations governing the maximum
number of options which may be written by an investor or group of investors
acting in concert. These position limits may restrict a Fund's ability to
purchase or sell options on a particular security. It is possible that the Fund
and other clients of the Adviser may be considered to be a group of investors
acting in concert. Thus the number of options which the Fund may write may be
affected by other investment advisory clients, if any, of the Adviser or
Portfolio Manager.

<PAGE>

Options on Stock Index Contracts

The Convertible Fund may purchase put options on stock index contracts. Stock
index contracts are based upon broad-based stock indexes such as the Standard &
Poor's 500 or upon narrow-based stock indexes. A buyer entering into a stock
index contract will, on a specified future date, pay or receive a final cash
payment equal to the difference between the actual value of the stock index on
the last day of the contract and the value of the stock index established by the
contract. The Fund may use such index options in connection with its hedging
strategies in lieu of purchasing and writing options directly on the underlying
index contract and the underlying securities. For example, to hedge against a
possible decrease in the value of its securities, the Fund may purchase put
options on stock index contracts. Further information concerning index contracts
and options thereon is found in Appendix B to the Statement of Additional
Information.

In connection with transactions in index options, the Fund will be required
to deposit as "initial margin" an amount of cash and short-term U.S. Government
Securities equal to 5% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract. The Fund will not purchase or sell
options on index contracts if (a) as a result the sum of the initial margin
deposit on that Fund's existing futures and related options positions and
premiums paid for options on futures contracts would exceed 5% of the Fund's
assets, or (b) the sum of the aggregate purchase prices of options on index
contracts would exceed one-third of the value of the Fund's total assets.

The use of options on stock index contracts also involves additional risk.
The effective use of options strategies is dependent, among other things, on the
Fund's ability to terminate options positions at a time when the Portfolio
Manager deems it desirable to do so. Although the Fund will enter into an option
position only if the Portfolio Manager believes that a liquid secondary market
exists for such option, there is no assurance that the Fund will be able to
effect closing transactions at any particular time or at an acceptable price.
The Fund's transactions involving options on index contracts will be concluded
only on recognized exchanges.

The Fund's purchase or sale of put options on stock index contracts will be
based upon predictions as to anticipated market trends by the Portfolio Manager,
which could prove to be inaccurate. Even if the expectations of the Portfolio
Manager are correct, there may be an imperfect correlation between the change in
the value of the options and of the Fund's securities.

Additional information with respect to stock index contracts and options on
such contracts is set forth in Appendix B to the Statement of Additional
Information.

Convertible Securities

Convertible securities are securities that may be exchanged or converted into
a predetermined number of the issuer's underlying common shares at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, and stock
purchase warrants, or a combination of the features of these securities. The
investment characteristics of convertible securities vary widely, allowing
convertible securities to be employed for different investment objectives.
<PAGE>

Convertible bonds and convertible preferred stocks are fixed income
securities entitling the holder to receive the fixed income of a bond or the
dividend preference of a preferred stock until the holder elects to exercise the
conversion privilege. They are senior securities, and therefore, have a claim to
assets of the issuer prior to the common stock in the case of liquidation.
However, convertible securities are generally subordinated to non-convertible
securities of the same company. The interest income and dividends from
convertible bonds and preferred stocks provide a stream of income with generally
higher yields than common stocks, but lower than non-convertible securities of
similar quality.

As with all fixed income securities, various market forces influence the
market value of convertible securities, including changes in the prevailing
level of interest rates. As the level of interest rates increases, the market
value of convertible securities tends to decline, and conversely, as interest
rates decline, the market value of convertible securities tends to increase. The
unique investment characteristic of convertible securities (the right to
exchanges for the issuer's common stock) causes the market value of the
convertible securities to increase also when the value of the underlying common
stock increases. However, because security prices fluctuate, there can be no
assurance of capital appreciation and most convertible securities will not
reflect as much capital appreciation as their underlying common stocks. When the
underlying common stock is experiencing a decline, the value of the convertible
security tends to decline to a level approximating the yield-to-maturity basis
of straight non-convertible debt of similar quality, often called "investment
value," and may not experience the same decline as the underlying common stock.

Most convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a fixed
income security with a possibility of capital appreciation due to the conversion
privilege. If this appreciation potential is not realized, the premium may not
be recovered.

Money Market Instruments

Money market instruments include:

(i) U.S. Treasury Bills;

(ii) U.S. Treasury Notes with maturities of 18 months or less;

(iii) U.S. Government Securities subject to repurchase agreements;

(iv) Obligations of domestic branches of U.S. banks (including
certificates of deposit and banker's acceptances with maturities
of 18 months or less) which at the date of investment have
capital, surplus, and undivided profits (as of the date of their
most recently published financial statements) in excess of $100
million and obligations of other banks or savings and loan
associations if such obligations are insured by the Federal
Deposit Insurance Corporation ("FDIC");

(v) Commercial paper which at the date of investment is rated A-1 by S&P
or P-1 by Moody's or, if not rated, is issued or guaranteed as to
payment of principal and interest by companies which at the date of
investment have an outstanding debt issue rated AA or better by S&P
or Aa or better by Moody's;

(vi) Short-term (maturing in one year or less) corporate obligations
which at the date of investment are rated AA or better by S&P or Aa
or better by Moody's;

(vii) Shares of no-load money market mutual funds (subject to the
ownership restrictions of the Investment Company Act of 1940).
See "Investment Policies and Restrictions" in the Statement of
Additional Information.

Investments by a Fund in shares of a money market mutual fund indirectly
result in the investor paying not only the advisory fee and related fees charged
by the Fund, but also the advisory fees and related fees charged by the adviser
and other entities providing services to the money market mutual fund.

Borrowing

A Fund may borrow money from banks for temporary or emergency purposes in an
amount of up to 10% of the value of the Fund's total assets. Interest paid by a
Fund on borrowed funds would decrease the net earnings of the Fund. None of the
Funds will purchase portfolio securities while outstanding borrowings exceed 5%
of the value of the Fund's total assets. Each of the Funds may mortgage, pledge,
or hypothecate its assets in an amount not exceeding 10% of the value of its
total assets to secure temporary or emergency borrowing. The polices set forth
in this paragraph are fundamental and may not be changed with respect to a Fund
without the approval of a majority of the Fund's shares.

Portfolio Turnover

While it is not the policy of any of the Funds to trade actively for
short-term (less than six months) profits, each Fund will dispose of securities
without regard to the time they have been held when such action appears
advisable to the Adviser, or the Portfolio Manager, subject to, among other
factors, the constraints imposed on regulated investment companies by Subchapter
M of the Internal Revenue Code. See "Dividends, Distributions and Taxes." In the
case of each Fund frequent changes will result in increased brokerage and other
costs.

The method of calculating portfolio turnover rate is set forth in the
Statement of Additional Information under "Investment Objectives, Policies and
Restrictions-Portfolio Turnover." The turnover rate will not be a factor
when management deems portfolio changes appropriate.

<PAGE>

Investment Restrictions

Each of the Funds has adopted certain investment restrictions, which are set
forth in detail in the Statement of Additional Information. These restrictions,
which are fundamental and may not be changed without shareholder approval,
include the following: (1) no Fund will invest 25% or more it its total assets
in any one industry (this restriction does not apply to securities of the U.S.
Government or its agencies and instrumentalities and repurchase agreements
relating thereto; however, utility companies, gas, electric, telephone,
telegraph, satellite, and microwave communications companies are considered as
separate industries); (2) no security can be purchased by any Fund, except the
Small Cap Fund, if as a result more than 5% of the value of the total assets of
that Fund would then be invested in the securities of a single issuer (other
than U.S. Government obligations); (3) with respect to the Small Cap Fund, the
Small Cap Fund may not purchase a security of a single issuer if, as to 75% of
the value of its total assets, such purchase would result in the Fund holding
more than 5% of its assets in such security; (4) no security can be purchased by
any Fund if as a result more than 10% of any class of securities, or more than
10% of the outstanding voting securities of an issuer, would be held by that
Fund; and with respect to the Trust, in the aggregate the Trust may not own more
than 15% of any class of securities or more than 10% of the outstanding voting
securities of an issuer; (5) no Fund will invest more than 5% of its total
assets in restricted securities; (6) no Fund will cause more than 10% of the
value of its total assets to be invested collectively in repurchase agreements
maturing in more than seven days and other illiquid securities; and (7) no Fund
will invest more than 5% of its total assets in foreign securities.

If a percentage restriction set forth under "Investment Objective and
Policies" is adhered to at the time of an investment, a later increase or
decrease in percentage resulting from changes in values or assets will not
constitute a violation of such restrictions. The foregoing investment
restrictions, as well as all investment objectives and policies designated by
the Trust as fundamental policies, may not be changed without the approval of a
"majority" of the shares outstanding, defined as the lesser of: (a) 67% of the
votes cast at a meeting of shareholders at which more than 50% of the shares are
represented in person or by proxy, or (b) a majority of the outstanding voting
shares. These provisions apply to each Fund if the actions proposed to be taken
affect that Fund.

MANAGEMENT

Board of Directors

As in all corporations, the Trust's Board of Directors has the primary
responsibility for overseeing the overall management of the Trust. The Board of
Directors meets periodically to review the activities of the Trust, the Adviser
and the Portfolio Managers and to consider policy matters relating to the Trust.
<PAGE>

Investment Adviser and Administrator

CONLEY SMITH, Inc. ("CSI") has been retained under an Investment Advisory
Agreement with the Trust to act as the Fund's Adviser subject to the authority
of the Board of Directors. CONLEY SMITH, Inc. was incorporated in October, 1987,
under the name SMITH HAYES Portfolio Management, Inc. and changed its name in
April of 1995. CSI has advised and managed the Trust since it inception. CSI is
a wholly owned subsidiary of Consolidated, which is engaged through its
subsidiaries in various aspects of the financial services industry. Thomas C.
Smith is a controlling person of Consolidated and is an officer and director of
the Trust. John H. Conley, the Fund's Portfolio Manager, owns 5% of the voting
stock of Consolidated. The address of the Adviser is 444 Regency Parkway, Suite
202 Lake Regency Building Omaha, Nebraska 68114.

The Adviser furnishes each of the Funds with investment advice and, in
general, supervises the management and investment programs of the Funds. The
Adviser furnishes at its own expense all necessary administrative services,
office space, equipment, and clerical personnel for servicing the investments of
the Funds, and investment advisory facilities and executive and supervisory
personnel for managing the investments and effecting the securities transactions
of the Funds. In addition, the Adviser pays the salaries and fees of all
officers and directors of the Trust who are affiliated persons of the Adviser
and pays the advisory fees of all Portfolio Managers. Under the Investment
Advisory Agreement, the Adviser receives a monthly fee computed separately for
the Small Cap and Convertible Funds at an annual rate of .75% and for the
Government/Quality Bond Fund at an annual rate of .6% of the daily average net
asset value of each Fund.

John H. Conley, President of the Adviser, will have the day-to-day
responsibility of managing the Government/Quality Bond Fund investments. Mr.
Conley is a Chartered Financial Analyst with a finance and business degree
from Nebraska Wesleyan University. Mr. Conley has been an investment analyst
since 1974 and Mr. Conley was the President and owner of Conley Investment
Counsel, Inc. an investment advisory firm which transferred all of investment
advisory business to CSI on or about April 7, 1995. At the time of the
transfer of the investment advisory business to CSI, Mr. Conley managed over
$40 million in assets.

Lancaster Administrative Services, Inc., was incorporated in 1995, and is
also a wholly owned subsidiary of Consolidated and has been retained as the
Trust's Administrator under a Transfer Agent and Administrative Services
Agreement with the Trust. The Administrator provides, or contracts with others
to provide to the Trust, all necessary bookkeeping and shareholder record
keeping services, share transfer services, and custodial services. Under the
Administration Agreement, the Administrator receives a fee, computed separately
for each Fund and paid monthly, at an annual rate of .25% of the daily average
net assets. The address of the Administrator is 200 Centre Terrace, 1225 L
Street, Lincoln, Nebraska 68508.

Portfolio Managers

The Adviser has entered into Sub-Investment Advisory Agreements with other
registered investment advisers to assist in advising the Funds. The Portfolio
Managers provide investment advice solely with respect to specific Funds. The
Adviser is solely responsible for and will pay the Portfolio Managers' advisory
fees based upon the average net assets values of the Funds for which they render
advisory services.
<PAGE>

Crestone Capital Management, Inc. ("Crestone"), 7720 East Belleview Avenue,
Suite 220, Englewood, Colorado 80111, provides advisory services for the Small
Cap Fund. Kirk McCown, C.F.A., is the founder, President and one of two
directors of Crestone which was incorporated in 1990. Norwest Bank, N.A.
Minneapolis, and Kirk McCown own the controlling interests in Crestone. Mr.
McCown is the Portfolio Manager of the Small Cap Fund and has been involved in
the investment industry since 1977. Other principals of Crestone include Mark S.
Sunderhuse, Senior Vice President, and Garth E. Anderson, Senior Vice President.
All of Crestone's revenues are currently derived from investment advisory
services and Crestone currently has over 45 clients and $270 million under
management. In return for the investment advisory services rendered to the Small
Cap Fund, Crestone is paid by the advisor a monthly fee at an annual rate of
.75% on the first $1,000,000 and .5% over $1,000,000 of the daily average net
assets of the Fund.

Calamos Asset Management, Inc. ("Calamos"), 1111 East Warrenville Road,
Naperville, Illinois 60563-1448, provides advisory services for the Convertible
Fund. Calamos is wholly owned by its President and Chief Investment Officer,
John P. Calamos. Mr. Calamos has over 23 years experience in investment research
and portfolio management of convertible securities. Mr. Calamos is also
President and sole owner of Calamos Financial Services, Inc., an NASD
broker-dealer and is Trustee and President of CFS Investment Trust, an open end
diversified registered investment Company. Calamos acts as the investment
adviser to the CFS Investment Trust which has a net asset value of over $26
million. Calamos has over $1.2 billion under management excluding the CFS
Investment Trust. In return for its investment advisory services rendered to the
Convertible Fund, Calamos is paid by the Adviser a monthly fee at an annual rate
of .75% of the first $1,000,000 and .5% over $1,000,000 of the daily average net
assets of the Fund.

Expenses

The expenses paid by each Fund are deducted from total income before
dividends are paid. These expenses include, but are not limited to, the fees
paid to the Adviser and the Administrator, taxes, interest, ordinary and
extraordinary legal and auditing fees, distribution expenses pursuant to the
Rule 12b-1 Plan, custodial charges, registration and blue sky fees incurred in
registering and qualifying the Fund shares under state and federal securities
laws, association fees, and directors fees paid to directors who are not
affiliated with the Adviser and any other fees not expressly assumed by the
Adviser or Administrator under the Investment Advisory Agreement and
Administration Agreement. Any general expenses of the Trust that are not readily
identifiable as belonging to a particular Fund will be allocated among the Funds
on a pro rata basis at the time such expenses are accrued. Each Fund pays its
own brokerage commissions and related transaction costs.

The Adviser has agreed to assume or reimburse the Trust for expenses relating
to the cost of shareholder reports, the charges and expenses of any registrar,
the charges of any stock transfer or dividend agent, the fees and travel
expenses of the Directors and other persons who are employees of the Adviser,
expenses incident to the payment of dividends, distribution, withdrawal or
redemption of shares, and insurance premiums on property.
<PAGE>

Portfolio Brokerage

The primary consideration in effecting transactions for each Fund is
execution at the most favorable prices. The Portfolio Managers, subject to the
general oversight of the Adviser, have complete freedom as to the markets in and
the broker-dealers through or with which (acting on an agency basis or as
principal), they seek this result. The Portfolio Managers may consider a number
of factors in determining which broker-dealers to use for the Funds'
transactions. These factors, which are more fully discussed in the Statement of
Additional Information, include, but are not limited to, research services, the
reasonableness of commissions and quality of services and execution. Portfolio
transactions for the Funds may be effected through SMITH HAYES, which also acts
as the Distributor of the Trust's shares (see "Distribution of Fund Shares"
below) if the commissions, fees or other remuneration received by SMITH HAYES
are reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. SMITH HAYES has represented that, in executing portfolio
transactions for the Trust, it intends to charge commissions which are
substantially less than non-discounted retail commissions. In effecting
portfolio transactions through SMITH HAYES, the Funds intend to comply with
Section 17(e)(1) of the Investment Company Act of 1940, as amended.

DISTRIBUTION OF FUND SHARES

SMITH HAYES acts as the principal distributor of the Trust's shares. The
Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act
(the "Plan"), pursuant to which SMITH HAYES is entitled to reimbursement each
month for its actual expenses incurred in the distribution and promotion of the
Trust's shares. These expenses include, but are not limited to, compensation
paid to investment executives of SMITH HAYES and to broker-dealers which have
entered into sales agreements with SMITH HAYES, expenses incurred in the
printing of prospectuses, statements of additional information and reports used
for sales purposes, expenses of preparation and printing of sales literature,
advertisement, promotion, marketing and sales expenses, and other
distribution-related expenses (including trail fees paid to SMITH HAYES
investment representatives, dealers or other persons for advising shareholders
regarding to purchase, sale and retention of Fund shares.) Reimbursement to
SMITH HAYES is computed separately for each Fund and may not exceed .50% per
annum of the average daily net assets of the Small Cap and Convertible Funds.
The Government/Quality Bond Fund reimburses SMITH HAYES at a rate not to exceed
.25% per annum. Compensation will be paid out of such amounts to SMITH HAYES
investment executives, to broker-dealers which have entered into sales
agreements with SMITH HAYES. In the event distribution expenses for a Fund in
any one year exceed the maximum reimbursable under the Plan, such expenses may
not be carried forward to the following year. Further information regarding the
Plan is contained in the Statement of Additional Information.

<PAGE>

PURCHASE OF SHARES

General

The Trust's shares may be purchased at the net asset value per share from
SMITH HAYES and from certain other broker-dealers who have sales agreements with
SMITH HAYES. The address of SMITH HAYES is that of the Trust. Shareholders will
receive written confirmation of their purchases. Stock Certificates will not be
issued in order to facilitate redemptions and transfers between the Funds. SMITH
HAYES reserves the right to reject any purchase order. Shares of the Funds are
offered to the public without a sales load at the net asset value per share
next determined following receipt of an order by SMITH HAYES.

Investors may purchase Trust shares by completing the Purchase Application
included in this Prospectus and submitting it with a check payable to:

SMITH HAYES Trust, Inc.
200 Centre Terrace
1225 L Street
Lincoln, Nebraska 68508

For subsequent purchases, the name of the account and account number should
be included with any purchase order to properly identify your account.

Payment for Trust shares may also be made by bank wire. To do so the investor
must direct his or her bank to wire immediately available funds directly to the
Trust's Custodian as indicated below:

1. Telephone the Trust (402) 476-3000 and furnish the name, the account
number and the telephone number of the investor, as well as the amount
being wired and the name of the wiring bank. If a new account is being
opened, additional account information will be requested and an account
number will be provided.

2. Instruct the bank to wire the specific amount of immediately available
funds to the Trust's Custodian. The Trust will not be responsible for the
consequences of delays in the bank or Federal Reserve wire system. The
investor's bank must furnish the full name of the investor's account and
the account number. The wire should be addressed as follows:

UNION BANK AND TRUST COMPANY
Lincoln, Nebraska
Trust Department, ABA# 104910795
Lincoln, Nebraska 68506
Account of SMITH HAYES Trust, Inc.
FBO (Account Registration name)
<PAGE>

3. Complete a Purchase Application and mail it to the Trust if shares being
purchased by bank wire transfer represent an initial purchase. (The
completed Purchase Application must be received by the Trust before
subsequent instructions to redeem Trust shares will be accepted.) Banks
may impose a charge for the wire transfer of funds.

Minimum Investment

A minimum initial aggregate investment of $1,000 in the Trust is required.
The minimum initial investment in any one Fund is $500. SMITH HAYES may modify
or waive any such minimums. Subsequent investments can be made in any amount.

All investments must be made through your SMITH HAYES investment executive or
other broker-dealer.

REDEMPTION OF SHARES

Redemption Procedure

Shares of each Fund, in any amount, may be redeemed at any time at their
current net asset value next determined after a request in good order is
received by SMITH HAYES. To redeem shares of the Funds, an investor must make a
redemption request through his or her SMITH HAYES investment executive or other
broker-dealer. If the redemption request is made to a broker-dealer other than
SMITH HAYES, such broker-dealer will wire a redemption request to SMITH HAYES
immediately following the receipt of such a request. A redemption request will
be considered to be in "good order" if made in writing and accompanied by the
following, if requested by the Trust:

1. a letter of instruction or stock assignment specifying the number or
dollar value of shares to be redeemed, signed by all owners of the shares
in the exact names in which they appear on the account, or by an
authorized officer of a corporate shareholder indicating the capacity in
which such officer is signing;

2. a guarantee of the signature of each owner by an eligible institution
which is a participant in the Securities Transfer Agent Medallion
Program which includes many U.S. commercial banks and members of
recognized securities exchanges; and

3. other supporting legal documents, if required by applicable law, in the
case of estates, trusts, guardianships, custodianships, corporations
and pension and profit-sharing plans.
<PAGE>

Payment of Redemption Proceeds

Normally, the Funds will make payment for all shares redeemed within five
business days, but in no event will payment be made more than seven days after
receipt by SMITH HAYES of a redemption request in good order. However, payment
may be postponed or the right of redemption suspended for more than seven days
under unusual circumstances, such as when trading is not taking place on the New
York Stock Exchange. Payment of redemption proceeds may also be delayed if the
shares to be redeemed were purchased by a check, until such checks have cleared
the banking system (normally within 15 days).

Involuntary Redemption

Each Fund reserves the right to redeem a shareholder's account at any time
the net asset value of the account falls below $500 as the result of a
redemption or transfer request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.

Systematic Withdrawal

Investors who own shares of the Trust with a value of $5,000 or more, may
elect to redeem a portion of their shares on a regular periodic (monthly or
quarterly) basis. A withdrawal plan may be established by delivering a completed
withdrawal plan application (available from the Trust or SMITH HAYES) to the
Trust. The withdrawal plan may be terminated at any time by written notice to
the Trust.

VALUATION OF SHARES

The Funds determine their net asset value on each day the New York Stock
Exchange (the "Exchange") is open for business, provided that the net asset
value need not be determined for a Fund on days when no Fund shares are tendered
for redemption and no order for Fund shares is received. The calculation is made
as of the close of the Exchange (currently 4:00 p.m., New York time) after the
Funds have declared any applicable dividends.

The net asset value per share for each of the Funds is determined by dividing
the value of the securities owned by the Fund plus any cash and other assets
(including interest accrued and dividends declared but not collected) less all
liabilities by the number of Fund shares outstanding. For the purposes of
determining the aggregate net assets of the Funds, cash and receivable will be
valued at their face amounts. Interest will be recorded as accrued and dividends
will be recorded on the ex-dividend date. Securities traded on a national
securities exchange or on the NASDAQ National Market System are valued at the
last reported sale price that day. Securities traded on a national securities
exchange or on the NASDAQ National Market System for which there were no sales
on that day and valued at the mean between the bid and asked prices. If the Fund
should have an open short position as to a security, the valuation of the
contract will be at the average of the bid and asked prices. Fund securities
underlying actively traded options will be valued at their market price as
determined above. The current market value of any exchange-traded option held or
written by the Fund is its last sales price on the exchange prior to the time
when assets are valued unless the bid price is higher or the asked price is
lower, in which event such bid or asked price is used. Lacking any sales that
day, the options will be valued at the mean between the current closing bid and
asked prices. Securities and other assets for which market prices are not
readily available, are valued at fair value as determined in good faith by the
Board of Directors. With the approval of the Board of Directors, the Funds may
utilize a pricing service, bank, or broker-dealer experienced in such matters to
perform any of the above-described functions.
<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

Dividends and Distributions

All net investment income dividends and net realized capital gains
distributions with respect to the shares of any Fund will be payable in
additional shares of the Fund unless the shareholder notifies his or her SMITH
HAYES investment executive or other broker-dealer of an election to receive
cash. The taxable status of the income dividends and/or net capital gains
distributions is not affected by whether they are reinvested or paid in cash.

Each of the Funds will pay dividends from net investment income to its
shareholders at least annually or as may be required to remain a regulated
investment company under the Internal Revenue Code and distribute net realized
capital gains, if any, to its shareholders on an annual basis.

Taxes

Each Fund will be treated as a separate entity for federal income tax
purposes with the result that the amounts of investment income and capital gain
earned will be determined separately for each Fund. The Trust intends to qualify
each Funds as a "regulated investment company" as defined in the Internal
Revenue Code. The requirements for qualification may cause a Fund to restrict
the degree to which it engages in short-term trading and transactions in options
even if the Portfolio Manager would otherwise deem such transactions to be in
the best interest of a Fund. Provided certain distribution requirements are met,
a qualified Fund will not be subject to federal income tax on its net investment
income and net capital gains that it distributes to its shareholders.

Shareholders subject to federal income taxation will receive taxable dividend
income or capital gains, as the case may be, from distributions, whether paid in
cash or reinvested in the form of additional shares. Promptly after the end of
each calendar year, each shareholder will receive a statement of the federal
income tax status of all dividends and distributions paid during the year.

The Trust is subject to the backup withholding provisions of the Code and is
required to withhold income tax from dividends and/or redemptions paid to a
shareholder at a 31% rate if such shareholder fails to furnish the Trust with a
taxpayer identification number or under certain other circumstances.
Accordingly, shareholders are urged to complete and return Form W-9 when
requested to do so by the Trust.

This discussion is only a summary and relates solely to federal tax matters.
Dividends may also be subject to state and local taxation. Shareholders are
urged to consult with their personal tax advisors.

<PAGE>

GENERAL INFORMATION
Capital Stock

The Trust is authorized to issue a total of one billion shares of common
stock, with a par value of $.001 per share. Of these shares, the Board of
Directors has authorized the issuance of ten million shares for each of the
Convertible Fund, Government/Quality Bond Fund and Small Cap Fund. The Board of
Directors is empowered under the Trust's Articles of Incorporation to issue
other series of the Trust's common stock without shareholder approval or to
designate additional authorized but unissued shares for issuance by one or more
existing Funds. The Board of Directors is also authorized to divide any new or
existing series into two or more sub-series or classes, which could be used to
create differing expense and fee structures for investors in the same fund. To
date no such classes have been created. The creation of classes in the future
would not affect the rights of existing shareholders.

All shares, when issued, will be fully paid and nonassessable and will be
redeemable and freely transferable. All shares have equal voting rights. They
can be issued as full or fractional shares. A fractional share has pro rata the
same rights and privileges as a full share. The shares possess no preemptive or
conversion rights.

Voting Rights

Each share of the Fund has one vote (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the Fund's shares. On
some issues, such as the election of directors, all shares of the Trust vote
together as one series. Cumulative voting is not authorized. This means that the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so, and, in such event, the
holders of the remaining shares will be unable to elect any directors.

On an issue affecting only a particular Fund, the shares of the affected Fund
vote as a separate series. An examples of such an issue would be a fundamental
investment restriction pertaining to only one Fund. In voting on the Investment
Advisory Agreement or any Sub-Investment Advisory Agreement, approval of such an
agreement by the shareholders of a particular Fund would make that agreement
effective as to that Fund whether or not it had been approved by the
shareholders of the other Funds.

Shareholder Meetings

The Trust will not hold annual or periodically scheduled regular meetings of
shareholders. Minnesota corporation law requires only that the Board of
Directors convene shareholder meetings when it deems appropriate. In addition,
Minnesota law provides that if a regular meeting of shareholders has not been
held during the immediately preceding 15 months, a shareholder or shareholders
holding 3% or more of the voting shares of the Trust may demand a regular
meeting of shareholders by written notice given to the Chief Executive Officer
or Chief Financial Officer of the Trust. Within 30 days after receipt of the
demand, the Board of Directors shall cause a regular meeting of shareholders to
be called, which meeting shall be held no later than 90 days after receipt of
the demand, all at the expense of the Trust. In addition, the Investment Company
Act of 1940 requires a shareholder vote for all amendments to fundamental
investment policies and restrictions, for all investment advisory contracts and
amendments thereto, and for all amendments to Rule 12b-1 distribution plans.
Finally, the Trust's bylaws provide that shareholders also have the right to
remove Directors upon two-thirds vote of the outstanding shares and may call a
meeting to remove a Director upon the application of 10% or more of the
outstanding shares. The Trust is obligated to facilitate shareholder
communications to this end if certain conditions are met.

<PAGE>

Allocation of Income and Expenses

The assets received by the Trust for the issue or sale of shares of each
Fund, and all income, earnings, profits, and proceeds thereof, subject only to
the rights of creditors, are allocated to such Fund, and constitute the
underlying assets of such Fund. The underlying assets of each Fund are required
to be segregated on the books of account, and are to be charged with the
expenses in respect to such Fund and with a share of the general expenses of the
Trust. Any general expenses of the Trust not readily identifiable as belonging
to a particular Fund shall be allocated among the Funds based upon the relative
net assets of the Funds at the time such expenses were accrued.

Transfer Agent, Dividend Disbursing Agent and Custodian

Union Bank and Trust Company, Lincoln, Nebraska, serves as Custodian for the
Trust's portfolio securities and cash. The Administrator acts as Transfer Agent
and Dividend Disbursing Agent. In its capacity as Transfer Agent and Dividend
Disbursing Agent, the Administrator performs many of the clerical and
administrative functions for the Funds.

Yield and Performance Comparisons

Advertisements and other sales literature for the Funds may refer to "total
return". Total return is the percentage change between the public offering price
of a Fund share at the beginning of a period and the net asset value of such
share at the end of the period, with dividends and capital gains distributions
treated as reinvestments. In addition, comparative performance information may
be used from time to time in advertising the Fund's shares, including data from
Lipper Analytical Services, Inc. and indices of bond prices and yields prepared
by Shearson Lehman Brothers Inc., and Merrill Lynch & Company.

The Funds may also calculate an annualized yield. Annualized yield is
calculated by dividing the net investment income per share for the period by the
maximum offering price per share on the last day of the period during a period.
For purposes of computing yield, realized and unrealized capital gains and
losses are not included.

Performance of the Funds will vary from time to time and past results are not
necessarily representative of future performance. Performance information may
not provide a basis for comparison with other investments or other mutual funds
using a different method of calculating performance.

Reports to Shareholders

The Trust will issue semi-annual reports which will include a list of
securities by Fund owned by the Trust and financial statements, which in the
case of the annual report, will be examined and reported upon by the Trust's
independent auditors.

<PAGE>

Legal Opinion

The legality of the shares offered hereby will be passed upon, and the opinion
with respect to all tax matters will be rendered by, Messrs. Cline, Williams,
Wright, Johnson & Oldfather, 1900 FirsTier Bank Building, Lincoln, Nebraska
68508.

Auditors

The Trust's auditors are Deloitte & Touche LLP, 1040 NBC Center, Lincoln,
Nebraska, independent certified public accountants.

<PAGE>

TABLE OF CONTENTS

Introduction...................................................... 1
Financial Highlights.............................................. 4
Investment Objective and Policies................................. 7
Small Cap Fund................................................. 7
Convertible Fund............................................... 7
Government/Quality Bond Fund................................... 10
Special Investment Methods........................................ 10
Management........................................................ 17
Distribution of Fund Shares....................................... 20
Purchase of Shares................................................ 21
Redemption of Shares.............................................. 22
Valuation of Shares............................................... 23
Dividends, Distributions and Taxes................................ 24
General Information............................................... 25
<PAGE>
APPLICATION
---Small Cap Fund
---Convertible Fund
---Goverement Quality Bond Fund
SMITH HAYES TRUST, Inc. Date --------------------
200 Centre Terrace, 1225 L Street, Lincoln, NE 68508 Amount #------------------

In accordance with the terms and conditions set forth in this form, the current
prospectus, and my instructions below, I wish to establish or revise a
Shareholder Account as follows:

ACCOUNT REGISTRATION (Please Print)
NOTE: In the case of two or more co-owners, the account will be registered "
Joint Tenants with Right of Survivorship" and not as "Tenants-in-common" unless
otherwise specified.
O Individual
---------------------------------------------------------- O Jt. WROS
Name of Shareholder O Corporation
O Trust
---------------------------------------------------------- O Other------
Name of Co-Owner (if any)

--------------------------------------------------------------------------------
Street Address City State Zip Code

---------------------- Citizen of-----U.S.----- Other(specify)------------
Social Security or T.I.N. #

------------------------------------ -----------------------------------------
(Area Code) Home Telephone (Area Code) Business Telephone

DIVIDEND AND INVESTMENT OPTION (One box must be checked)
O Reinvest all dividends and capital gains distributions.
O Reinvest capital gain distributions only.
O Receive all dividends and capital gain distributions in cash.

SYSTEMATIC WITHDRAWAL PLAN
Mail a check for $-------------- prior to the last day of each
O Month
O Quarter
O Year
First check to be mailed------------(specify month)

SHAREHOLDER AUTHORIZATION AND CERTIFICATION
I authorize any instructions contained herein and certify under penalties
of perjury:(Strike number 2 if not true) 1. that the social security or other
taxpayer identification number is correct; 2. that I am not subject to
withholding either because of a failure to report all interest or dividends or I
was subject to withholding and the Internal Revenue Service has notified me that
I am no longer subject to withholding. O Exempt from backup withholding
O Non-exempt from backup withholding

X----------------------------- X---------------------------------------------
Signature of Shareholder/or Authorized Officer Signature of Co-Owner (if any)

FOR DEALER ONLY (We hereby authorize SMITH HAYES Trust, Inc. as our agent in
connection with transactions under this authorization form. We guarantee the
shareholder's signature.)

---------------------------- -----------------------------------------------
Dealer Name Signature of Registered Representative

---------------------------- -----------------------------------------------
Home Office Address Address of Office Serving Account

---------------------------- -----------------------------------------------
City State Zip Code City State Zip Code

---------------------------- ----------------------------------------------
Authorized Signature of Dealer Branch No. Reg. Rep. No. Reg. Rep. Last Name

<PAGE>

INVESTMENT ADVISER

CONLEY SMITH, Inc.

ADMINISTRATOR,
TRANSFER AGENT AND
DIVIDEND PAYING AGENT

Lancaster Administrative Services, Inc.

DISTRIBUTOR

SMITH HAYES Financial
Services Corporation

CUSTODIAN

Union Bank and Trust Company

No dealer, sales representative or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus (and/or in the Statement of Additional Information referred to on the
cover page of this Prospectus), and, if given or made, such information or
representations must not be relied upon as having been authorized by SMITH HAYES
Trust, Inc. or SMITH HAYES Financial Services Corporation. This Prospectus does
not constitute an offer or solicitation by anyone in any state in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation.

<PAGE>

SMITH HAYES Trust, Inc.

SMALL CAP FUND
CONVERTIBLE FUND
GOVERNMENT QUALITY BOND FUND

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

September 1, 1995

Table of Contents

Page

Investment Objectives, Policies and Restrictions........................ 2
Directors and Executive Officers........................................ 5
Investment Advisory and Other Services.................................. 6
Distribution Plan....................................................... 10
Portfolio Transactions and Brokerage
Allocations....................................................... 12
Capital Stock and Control............................................... 14
Net Asset Value and Public Offering Price............................... 15
Redemption.............................................................. 15
Tax Status.............................................................. 16
Calculation of Performance Data......................................... 16
Financial Statements.................................................... 18
Auditors................................................................ 18
Appendix A - Ratings of Corporate
Obligations and Commercial Paper.................................. A-1
Appendix B - Stock Index Options........................................ B-1

This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Prospectus dated September 1,
1995 and should be read in conjunction therewith. A copy of the Prospectus may
be obtained from the Trust at 200 Centre Terrace, 1225 L Street, Lincoln,
Nebraska 68508.

<PAGE>

INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

The shares of SMITH HAYES Trust, Inc. (the "Trust") are offered in series.
This Statement of Additional Information only relates to the three series
designated: Small Cap Fund, Convertible Fund and Government/Quality Bond Fund
(sometimes referred to herein as a "Fund" or, collectively, as the "Funds"). The
investment objectives and policies of the Funds are set forth in the Prospectus.
Certain additional investment information is set forth below.

Repurchase Agreements.

All of the Funds may invest in repurchase agreements on U. S. Government
Securities. The Funds' Custodian will hold the securities underlying any
repurchase agreement or such securities will be part of the Federal Reserve Book
Entry System. The market value of the collateral underlying the repurchase
agreement will be determined on each business day. If at any time the market
value of the collateral falls below the repurchase price of the repurchase
agreement (including any accrued interest), the respective Fund will promptly
receive additional collateral so that the total collateral is an amount at least
equal to the repurchase price plus accrued interest.

Portfolio Turnover.

Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including short-term securities maturing in less than 12 months. A 100%
portfolio turnover rate would occur, for example, if the lesser of the value of
purchases or sales of portfolio securities for a particular year were equal to
the average monthly value of the portfolio securities owned during such year.
The turnover rate will not be a limiting factor when management deems portfolio
changes appropriate.

Investment Restrictions.

In addition to the investment objectives and policies set forth in the
Prospectus, the Trust and each of the Funds is subject to certain investment
restrictions, as set forth below, which may not be changed without the vote of a
majority of the Trust's or Fund's outstanding shares. "Majority," as used in the
Prospectus and in this Statement of Additional Information, means the lesser of
(a) 67% of the Trust's or a Fund's outstanding shares voting at a meeting of
shareholders at which more than 50% of the outstanding shares are represented in
person or by proxy or (b) a majority of the Trust's or a Fund's outstanding
shares.

Unless otherwise specified below, none of the Funds will:

1. Invest more than 5% of the value of their total assets in the
securities of any one issuer (other than securities of the U.S. Government or
its agencies or instrumentalities), except that the Small Cap Fund shall, as to
75% of the value of its assets, invest no more than 5% of its assets in the
securities of any one issuer.

2. Purchase more than 10% of any class of securities of any one issuer
(taking all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer. In the aggregate, the Trust may not
own more than 15% of any class of securities or more than 10% of the outstanding
voting securities of an issuer.

3. Invest 25% or more of the value of their total assets in the securities
of issuers conducting their principal business activities in any one industry.
This restriction does not apply to securities of the U.S. Government or its
agencies and instrumentalities and repurchase agreements relating thereto. The
various types of utilities companies, such as gas, electric, telephone,
telegraph, satellite and microwave communications companies, are considered as
separate industries.

<PAGE>

4. Invest more than 5% of the value of their total assets in the
securities of any issuers which, with their predecessors, have a record of less
than three years' continuous operation. (Securities of such issuers will not be
deemed to fall within this limitation if they are guaranteed by an entity in
continuous operation for more than three years. The value of all securities
issued or guaranteed by such guarantor and owned by a Fund shall not exceed 10%
of the value of the total assets of such Fund.)

5. Issue any senior securities (as defined in the Investment Company Act
of 1940, as amended), other than as set forth in restriction number 6 below and
except to the extent that using options and futures contracts or purchasing or
selling securities on a when-issued or forward commitment basis may be deemed to
constitute issuing a senior security.

6. Borrow money except from banks for temporary or emergency purposes. The
amount of such borrowing may not exceed 10% of the value of the Fund's total
assets. None of the Funds will purchase securities while outstanding borrowing
exceeds 5% of the value of the Fund's total assets. None of the Funds will
borrow money for leverage purposes.

7. Mortgage, pledge or hypothecate their assets except in an amount not
exceeding 10% of the value of their total assets to secure temporary or
emergency borrowing. For purposes of this policy, collateral arrangements for
margin deposits on futures contracts or with respect to the writing of options
are not deemed to be a pledge of assets.

8. Make short sales of securities or maintain a short position; except
that the Convertible Fund may make short sales or maintain short positions if at
all times when a short position is open the Fund owns an equal amount of such
securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short; and no more than
10% of the Fund's net assets (taken at current value) will be held as collateral
for such short sales at any one time.

9. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and except that
the Fund may make margin deposits in connection with futures contracts.

10. Write, purchase or sell puts, calls or combinations thereof, except
that Convertible Fund may write covered call options; may purchase put options
on stocks; and may purchase put options on stock index contracts.

11. Purchase or retain the securities of any issuer if, to the Fund's
knowledge, those officers or directors of the Trust or its affiliates or of its
investment adviser who individually own beneficially more than 0.5% of the
outstanding securities of such issuer, together own more than 5% of such
outstanding securities.

12. Invest for the purpose of exercising control or management.

13. Purchase or sell commodities or commodity futures contracts, except
that the Convertible Fund may purchase put options on stock index contracts.

14. Purchase or sell real estate or real estate mortgage loans, except
that the Funds may invest in securities secured by real estate or interests
therein or issued by companies that invest in real estate or interests therein.

15. Purchase or sell oil, gas or other mineral leases, rights or royalty
contracts, except that the Funds may purchase or sell securities of companies
investing in the foregoing.

<PAGE>

16. Participate on a joint or a joint and several basis in any securities
trading account (as prohibited by Section 12(a)2 of the Investment Company Act
of 1940) except to the extent that the staff of the Securities and Exchange
Commission may in the future grant exemptive relief therefrom.

17. Act as an underwriter of securities of other issuers.

18. Invest more than 5% of the Fund's net assets in restricted securities
or more than 10% of the Fund's net assets in repurchase agreements with a
maturity of more than seven days, and other liquid assets, such as securities
with no readily available market quotation.

19. Invest more than 5% of its total assets in foreign securities.

20. Purchase the securities of other investment companies except as
provided by Section 12(d)(1) of the Investment Company Act of 1940.

Any investment restriction or limitation referred to above or in the
Prospectus, except the borrowing policy, which involves a maximum percentage of
securities or assets, shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom.

None of the Funds will engage in the practice of lending their securities
until such time as the Prospectus is amended disclosing such practice and
furthermore disclosing that portfolio securities may be loaned only if
collateral values are continuously maintained at no less than 100% by "marking
to market daily" and the practice is fair, just and equitable as determined by a
finding by the Board of Directors that adequate provision has been made for
margin calls, termination of the loan, reasonable servicing fees (including
finder's fees), voting rights, dividend rights, shareholder approval and related
disclosure.

The Government/Quality Bond Fund will not invest in warrants until such
time as the Prospectus is amended to include disclosure regarding such practice
and furthermore will only invest in warrants if such warrants, valued at the
lower of cost or market, do not exceed 5% of the value of the Fund's net assets.
For purposes of calculating this percentage, no more than 1% of the value of the
Fund's net assets may be in warrants which are not listed on the New York or
American Stock Exchange and warrants acquired by the Fund in units or attached
to securities may be deemed without value for purposes of this limitation.

DIRECTORS AND EXECUTIVE OFFICERS

The names, addresses and principal occupations during the past five
years of the directors and executive officers of the Fund are as follows:

<S> <C>

Name, Position with Fund and Address Principal Occupation Last Five Years
*Thomas C. Smith, Chairman, President, Chief Chairman, CONLEY SMITH, Inc., Omaha, Nebraska;
Executive Officer and Treasurer; 200 Centre Chairman and President, SMITH HAYES
Terrace, 1225 L Street, Lincoln, Nebraska 68508 Financial Services Corporation, Lincoln, Nebraska;
Vice President, Lancaster Administrative
Services, Inc., Lincoln, Nebraska; Chairman
and President, Consolidated Investment Corporation,
Lincoln, Nebraska; Vice President and Director,
Consolidated Realty Corporation, Lincoln, Nebraska

<PAGE>
Name, Position with Fund and Address Principal Occupation Last Five Years
Thomas D. Potter, Director; 1800 Memorial Drive, President and Chief Executive Officer, Lincoln Mutual
Lincoln, Nebraska 68502 Life Insurance Company, Lincoln, Nebraska;
December, 1987 - Current

Dale C. Tinstman, Director; Suite 200, Financial and Investment Consultant; Chairman of
1201 "O" Street, Lincoln, Nebraska 68508 University of Nebraska Foundation; Director and
Consultant of IBP, Inc. (meat packing and
agribusiness), Dakota City, Nebraska

Thomas R. Larsen, C.P.A., Director; 6211 "O" Certified Public Accountant, Chairman, and President
Street, Lincoln, Nebraska 68510 Larsen Bryant & Porter CPA's, P.C., Lincoln,
Nebraska

John H.Conley, Director President, CONLEY SMITH, Inc. Omaha,
444 Regency Parkway, Omaha, Nebraska; Chairman, Lancaster Administrative
Nebraska 68114-3779 Services, Inc., Lincoln, Nebraska;
President and Director Conley Investment
Counsel, Omaha, Nebraska;
December, 1986 - April, 1995.

Jean B. Norris, Vice President and Secretary; Vice President and Secretary, CONLEY SMITH,
200 Centre Terrace, 1225 L Street, Lincoln, Inc., Omaha, Nebraska; President,
Nebraska 68508 Lancaster Administrative Services, Inc., Lincoln,
Nebraska;
</TABLE>

The addresses of the directors and officers of the Fund are that of the Fund
unless otherwise indicated.

*Interested director of the Fund by virtue of his affiliation with CONLEY SMITH,
Inc., as defined under the Investment Company Act of 1940.

The following table represents the compensation amounts received for
services as a director of the Fund:

<TABLE>

<CAPTION>
Compensation Table

Pension or
Aggregate Retirement Benefits Total Compensation
Compensation Accrued as Part From the Fund
Name and Position From Fund of the Fund Expenses Paid to Directors
<S> <C> <C> <C>
---------------- ------------- -------------------- -----------------
Thomas D. Potter, Director $1,200 $0 $1,200
Dale C. Tinstman, Director $1,200 $0 $1,200
Thomas R. Larsen, Director $1,200 $0 $1,200
Thomas C. Smith, Chairman $0 $0 $0
John C. Conley, Director $0 $0 $0

</TABLE>
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

General

The investment adviser for the Funds is CONLEY SMITH , Inc., (formerly
SMITH HAYES Portfolio Management, Inc.) (the "Adviser" ). The administrator and
transfer agent for the Funds is Lancaster Administrative Services, Inc., (the
"Administrator"). Crestone Capital Management, Inc., and Calamos Asset
Management, Inc., and act as the Portfolio Managers ("Portfolio Managers") to
the Small Cap Fund and Convertible Fund, respectively. SMITH HAYES Financial
Services Corporation acts as the Trust's distributor ("Distributor"). The
Adviser, Administrator and the Portfolio Managers act as such pursuant to
written agreements which are periodically reviewed and approved by the directors
or the shareholders of the Trust. The Adviser's address is 444 Regency Parkway,
Suite 202 Lake Regency Building, Omaha, Nebraska 68114-3779. The Administrator's
address is 200 Centre Terrace, 1225 L Street, Lincoln, Nebraska 68508. The
Portfolio Managers' addresses are:

Crestone Capital Management
7720 East Belleview Avenue
Suite 220
Englewood, Colorado 80111

Calamos Asset Management, Inc.
1111 East Warrenville Road
Naperville, Illinois 60563-1448

Control of the Adviser, Administrator and the Distributor

The Adviser, Administrator and the Distributor are wholly owned
subsidiaries of Consolidated Investment Corporation, a Nebraska corporation,
which is engaged through its subsidiaries in various aspects of the financial
services industry. Thomas C. Smith owns 75% and John H. Conley owns 5% of the
outstanding stock of Consolidated Investment Corporation.

Control of Portfolio Managers

Crestone Capital Management is controlled by Kirk McCowan and Norwest
Bank, N.A. Minnesota. Calamos Asset Management, Inc. is wholly owned by
John P. Calamos.

Investment Advisory Agreements and Administration Agreement

The Advisory Agreement, Administration Agreement and the Sub-Advisory
Agreements have been approved by the Board of Directors (including a majority of
the directors who are not parties to the Advisory, Administration and
Sub-Advisory Agreements, or interested persons of any such party, other than as
directors of the Trust). The Advisory Agreement and Administration Agreement for
the Convertible and Government/Quality Bond Funds, and the Sub-Advisory
Agreement for the Convertible Fund were approved by the shareholders on June 23,
1989. The Advisory Agreement, Administration Agreement and Sub-Advisory
Agreement for the Small Cap Fund were initially approved by the Board of
Directors on April 20, 1992 and by the shareholders on December 18, 1992 and
renewed on June 29, 1994. The Sub-Advisory Agreement was reapproved by the Board
of Directors on June 6, 1994 and by the shareholders on June 29, 1994 as a
result of a change of control of Crestone upon the acquisition of a controlling
block of shares of Crestone by Norwest Bank, N.A. Minnesota. The Investment
Advisory Agreement, Sub-Advisory Agreements and Administration Agreement were
last approved by the Board of Directors on July 18, 1995.
<PAGE>

The Advisory Agreement, Administration Agreement and Sub-Advisory
Agreements terminate automatically in the event of their assignment. In
addition, the Advisory Agreement, Administration Agreement and Sub-Advisory
Agreements are terminable at any time, without penalty, by the Board of
Directors of the Trust or by vote of a majority of the Trust's outstanding
voting securities on 60 days' written notice to the Adviser, the Administrator
or Portfolio Manager, as the case may be, and by the Adviser, Administrator or
Portfolio Manager, as the case may be, on 60 days' written notice to the Trust.
The Advisory Agreement or Sub-Advisory Agreements may be terminated with respect
to a particular Fund at any time by a vote of the holders of a majority of the
outstanding voting securities of such Fund, upon 60 days' written notice to the
Adviser or Portfolio Manager. Each Sub-Advisory Agreement is also terminable by
the Adviser upon 60 days' written notice to the Portfolio Manager. The
Administration Agreement is terminable by the vote of a majority of all
outstanding voting securities of the Trust. Unless sooner terminated, the
Advisory Agreement, Administration Agreement and Sub-Advisory Agreements shall
continue in effect only so long as such continuance is specifically approved at
least annually by either the Board of Directors or by a vote of a majority of
the outstanding voting securities of the Trust, provided that in either event
such continuance is also approved by a vote of a majority of the directors who
are not parties to such agreement, or interested persons of such parties, cast
in person at a meeting called for the purpose of voting on such approval. If a
majority of the outstanding voting securities of any of the Funds approves a
Sub-Advisory Agreement, the Sub-Advisory Agreement shall continue in effect with
respect to such approving Fund whether or not the shareholders of any other Fund
approve such Sub-Advisory Agreement.

Pursuant to the Advisory Agreement, the Small Cap and Convertible Funds
pay the Adviser a monthly advisory fee equal on an annual basis to .75% of
each Fund's average daily net assets. The Government/Quality Bond Fund pays the
Adviser a monthly advisory fee equal on an annual basis to .6% of its average
daily net assets.

During the fiscal years ended June 30, 1993, June 30, 1994 and June 30,
1995 the Trust paid the Adviser $107,831, $167,425 and $180,013 respectively for
advisory and administration services rendered to all the Funds allocated among
them as follows:

7/1/92 to 7/1/93 to 7/1/94 to
6/30/93 6/30/94 6/30/95

Convertible Fund 25,023 32,863 26,152
Government/Quality Bond Fund 64,681 74,363 53,741
Small Cap Fund 18,127 60,199 100,120
------- ------ -------

$107,831 $167,425 $180,013

Of these amounts, pursuant to the Sub-Advisory Agreements, the Adviser
paid the respective Portfolio Managers for the Funds $53,373, $76,606 and
$81,467 allocated among the Funds as follows:

7/1/92 to 7/1/93 to 7/1/94 to
6/30/93 6/30/94 6/30/95

Convertible Fund 13,044 16,342 13,137
*Government/Quality Bond Fund 29,971 32,180 23,641
Small Cap Fund 10,358 28,084 44,689
------ ------- --------

$53,373 $76,606 $81,467

*There is no longer a Sub-Advisory Agreement in effect.

Additionally, the Adviser has paid advisory and administrative fees in the
last three fiscal years and paid Portfolio Managers for investment advice out of
the fees paid for certain other Funds, which have now ceased operations.
<PAGE>

Under the Sub-Advisory Agreements, the Adviser, as its sole obligation,
pays the Portfolio Manager monthly advisory fees equal on an annual basis to a
certain percentage of the respective Fund's average daily net assets as set
forth in the Prospectus.

Pursuant to the Administration Agreement, the Administrator acts as
transfer agent and provides, or contracts with others to provide, to the Trust
all necessary bookkeeping and shareholder recordkeeping services, share transfer
services, and custodial services. Under the Administration Agreement, the
Administrator receives an administration fee, computed separately for each Fund
and paid monthly, at an annual rate of .25% of the daily average net assets of
the Trust.

Under the Advisory Agreement, the Adviser provides each Fund with advice
and assistance in the selection and disposition of that Fund's investments. All
investment decisions are subject to review by the Board of Directors of the
Trust. The Adviser is obligated to pay the salaries and fees of any affiliates
of the Adviser serving as officers or directors of the Trust.

Under the Sub-Advisory Agreements, the Portfolio Managers provide the
Adviser with investment advice and assist in the selection and disposition of
the Funds' investments. The Portfolio Managers do not provide any administrative
services for the Funds nor do they pay any compensation to any of the Trust's
officers or directors.

The laws of certain states require that if a mutual fund's expenses
(including advisory fees but excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed certain percentages of average net assets,
the fund must be reimbursed for such excess expenses. Pursuant to an agreement
between the Adviser and the Trust, the Adviser will reimburse the Government/
Quality Bond Fund, to the extent that the Funds' share of annual operating
expenses, excluding interest, taxes, 12b-1 fees and brokerage commissions exceed
two percent (2%) of the first $10 million of average daily net assets, and one
and one-half percent (1 1/2%) of the next $20 million of average daily net
assets and one percent (1%) of the remaining average daily net assets of the
Fund.

Custodian

The Custodian for the Trust and each of the Funds is Union Bank and Trust
Company ("Union"), 3643 South 48th, Lincoln, Nebraska 68506. Union, as
Custodian, holds all of the securities and cash owned by the Funds.

DISTRIBUTION PLAN

Rule 12b-1(b) under the Investment Company Act of 1940 provides that any
payments made by the Funds in connection with financing the distribution of
their shares may only be made pursuant to a written plan describing all aspects
of the proposed financing of distribution, and also requires that all agreements
with any person relating to the implementation of the plan must be in writing.
Because some of the payments described below to be made by the Funds are
distribution expenses within the meaning of Rule 12b-1, the Trust has entered
into an Underwriting and Distribution Agreement with the Distributor pursuant to
a Distribution Plan adopted in accordance with such Rule. Under the Underwriting
and Distribution Agreement, the Distributor, on a best efforts basis,
continuously distributes the Funds' shares.

In addition, Rule 12b-1(b)(1) requires that such plan be approved by a
majority of a Fund's outstanding shares, and Rule 12b-1(b)(2) requires that such
plan, together with any related agreements, be approved by a vote of the Board
of Directors who are not interested persons of the Trust and who have no direct
or indirect interest in the operation of the plan, cast in person at a meeting
for the purpose of voting on such plan or agreement. Rule 12(b)-1(b)(3) requires
that the plan or agreement provide, in substance:

<PAGE>

(a) that it shall continue in effect for a period of more than one
year from the date of its execution or adoption only so long as such
continuance is specifically approved at least annually in the manner
described in paragraph (b)(2) of Rule 12b-1;

(b) that any person authorized to direct the disposition of moneys
paid or payable by the Trust pursuant to the plan or any related agreement
shall provide to the Trust's Board of Directors, and the directors shall
review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and

(c) in the case of a plan, that it may be terminated at any time by
a vote of a majority of the members of the Board of Directors of the Trust
who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the plan or in any
agreements related to the plan or by a vote of a majority of the
outstanding voting securities of a Fund.

Rule 12b-1(b)(4) requires that such a plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments to the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.

Rule 12b-1(c) provides that the Trust may rely upon Rule 12b-1(b) only if
the selection and nomination of the Trust's disinterested directors are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the Trust may implement or continue a plan pursuant to Rule
12b-1(b) only if the directors who vote to approve such implementation or
continuation conclude, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Sections 36(a) and
(b) of the Investment Company Act of 1940, that there is a reasonable likelihood
that the plan will benefit the Trust and its shareholders. The Board of
Directors has concluded that there is a reasonable likelihood that the
Distribution Plan will benefit the Trust and its shareholders.

Pursuant to the provisions of the Distribution Plan, as amended, the Small
Cap and Convertible Funds pay a fee to the Distributor computed and paid monthly
at an annual rate of up to .50% (.25% for the Government/Quality Bond) Fund of
such Fund's average daily net assets in order to reimburse the Distributor for
its actual expenses incurred in the distribution and promotion of such Fund's
shares.

Expenses for which the Distributor will be reimbursed under the
Distribution Plan include, but are not limited to, compensation paid to
registered representatives of the Distributor and to broker-dealers which have
entered into sales agreements with the Distributor; expenses incurred in the
printing of prospectuses, statements of additional information and reports used
for sales purposes; expenses of preparation and printing of sales literature;
advertisement, promotion, marketing and sales expenses; and other
distribution-related expenses. Compensation will be paid out of such amounts to
investment executives of the Distributor and to broker-dealers which have
entered into sales agreements with the Distributor as follows. If shares of the
Funds are sold by a representative of a broker-dealer other than the
Distributor, that portion of the reimbursement which is attributable to shares
sold by such representative is paid to such broker-dealer. If shares of the
Funds are sold by an investment executive of the Distributor, compensation will
be paid to the investment executive by the Distributor in an amount not to
exceed that portion of .50% (.25% to the Government/Quality Bond Fund) of the
average daily net assets of the Funds which is attributable to shares sold by
such investment executive.

Under the Distribution Plan, the Trust paid the Distributor a total of
$80,467 for the fiscal year ended June 30, 1995 allocated among the existing
Funds as follows:

7/1/94 to
6/30/95

Convertible Fund 10,996
Government/Quality Bond Fund 27,252
Small Cap Fund 42,219

$80,467

<PAGE>

Of the total amount paid to the Distributor pursuant to the Distribution Plan in
these periods, the Distributor retained or paid to its agents $70,731. The
Distributor paid the balance to various other broker-dealers pursuant to selling
agreements between the Distributor and such persons for distribution services.
Additionally, the Distributor was paid $59,851 pursuant to the Distribution Plan
for certain other Funds which have now ceased operations. The Distributor
incurred additional expenses in excess of the remaining amount paid for printing
prospectuses, sales literature, a toll free watts line utilized in soliciting
orders for the Trust shares, postage and other related promotion, marketing and
sales expenses. Thomas C. Smith, a director and officer of the Trust, controls
the Distributor and as a result has a financial interest in the Distribution
Plan.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS

Under the general supervision of the Adviser, the Portfolio Managers are
responsible for decisions to buy and sell securities for the Funds, the
selection of broker-dealers to effect the transactions and the negotiation of
brokerage commissions, if any. In placing orders for securities transactions,
the primary criterion for the selection of a broker-dealer is the ability of the
broker-dealer, in the opinion of the Portfolio Manager, to secure prompt
execution of the transactions on favorable terms, including the reasonableness
of the commission (if any) and considering the state of the market at the time.
In the case of principal transactions involving new issues, the Portfolio
Manager may have little discretion in controlling the mark-up on such
transactions. However, in the case of principal transactions involving secondary
sales, the Portfolio Manager will seek to negotiate the lowest mark-up possible.

When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research and/or services to one or more of
the Portfolio Managers. Such research or services include advice, both directly
and in writing, as to the value of securities; the advisability of investing in,
purchasing or selling securities; and the availability of securities, or
purchasers or sellers of securities; as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts. This allows the Portfolio Managers to
supplement their own investment research activities and enables the Portfolio
Managers to obtain the views and information of individuals and research staffs
of many different securities firms prior to making investment decisions for the
Funds. To the extent portfolio transactions are effected with broker-dealers who
furnish research services to one or more Portfolio Managers, the recipient
Portfolio Manager receives a benefit, not capable of evaluation in dollar
amounts, without providing any direct monetary benefit to the Funds from these
transactions. The Portfolio Managers believe that most research services
obtained by them generally benefit several or all of the accounts which they
manage, as opposed to solely benefiting one specific managed fund or account.
Normally, research services obtained through managed funds or accounts investing
in common stocks would primarily benefit the managed funds or accounts which
invest in common stock; similarly, services obtained from transactions in
fixed-income securities would normally be of greater benefit to the managed
funds or accounts which invest in debt securities.

Neither the Adviser nor any Portfolio Manager has entered into any formal
or informal Agreements with any broker-dealers, nor does it maintain any
"formula" which must be followed in connection with the placement of any Fund's
transactions in exchange for research services provided the Portfolio Manager
except as noted below. However, from time to time, Portfolio Managers may elect
to use certain brokers to execute transactions in order to encourage them to
provide research services which the Portfolio Managers anticipate will be useful
to them. The recipient Portfolio Manager will authorize the Fund to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker-dealer would have charged only if the
Portfolio Manager doing so determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer, viewed in terms of either that
particular transaction or the Portfolio Manager's overall responsibilities with
respect to the accounts as to which it exercises investment discretion.
<PAGE>

Portfolio transactions for the Funds may be effected on an agency basis
through the Distributor, as discussed in the Prospectus under
"Management-Portfolio Brokerage." In determining the commissions to be paid to
the Distributor, it is the policy of the Funds that such commissions, will, in
the judgment of the Adviser, subject to review by the Board of Directors, be
both (a) at least as favorable as those which would be charged by other
qualified brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time, and (b) at least as favorable as commissions contemporaneously
charged by the Distributor on comparable transactions for its most favored
comparable unaffiliated customers. While the Funds do not deem it practicable
and in their best interest to solicit competitive bids for commission rates on
each transaction, consideration will regularly be given to posted commission
rates as well as to other information concerning the level of commissions
charged on comparable transactions by other qualified brokers.

During the fiscal years ending June 30, 1993, June 30, 1994 and June 30,
1995, the Trust Funds incurred $33,816, $54,279, and $26,567 respectively of
brokerage commissions, some of which was paid to the Fund's Distributor,
allocated among the Portfolios as follows:

7/1/92 to 7/1/93 to 7/11/94 to
6/30/93 6/30/94 6/30/95

Convertible 12,783 12,987 15,359
Government/Quality Bond 0 0 0
Small Cap 21,033 41,292 11,208

$33,816 $54,279 $26,567

The Fund's Distributor, SMITH HAYES Financial Services Corporation, which
is an affiliate of the Trust's Adviser, was paid 100% of the aggregate brokerage
commissions incurred in the fiscal years ending June 30, 1993, and 1994, and
$23,682 or 89% in 1995. The remaining brokerage commissions were paid to other
unaffiliated broker dealers. Of the aggregate dollar amount of transactions
involving payment of commissions, 84% were effected through the Distributor in
the fiscal year ending June 30, 1995. It is the Trust's intent that brokerage
transactions executed through SMITH HAYES will be effected pursuant to the
Trust's Guidelines Regarding Payment of Brokerage Commissions to Affiliated
Persons adopted by the Board of Directors including a majority of the
non-interested directors pursuant to Rule 17(e)-1 under the Investment Company
Act of 1940.

In certain instances, there may be securities which are suitable for the
Trust's Funds as well as for that of one or more of the advisory clients of the
Portfolio Managers or the Adviser. Investment decisions for the Trust's Funds
and for such advisory clients are made by the Portfolio Managers or the Adviser
with a view to achieving their respective investment objectives. It may develop
that a particular security is bought or sold for only one client of a Portfolio
Manager or the Adviser even though it might be held by, or bought or sold for,
other clients. Likewise, a particular security may be bought for one or more
clients of one of the Portfolio Managers or the Adviser when one or more other
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients of a
particular Portfolio Manager or the Adviser are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed by the Portfolio Manager or the Adviser, as the
case may be, to be equitable to each (and may result, in the case of purchases,
in allocation of that security only to some of those clients and the purchase of
another security for other clients regarded by the Portfolio Manager or the
Adviser, as the case may be, as a satisfactory substitute). It is recognized
that in some cases this system could have a detrimental effect on the price or
volume of the security as far as the Fund involved is concerned. At the same
time, however, it is believed that the ability of the Fund to participate in
volume transactions will sometimes produce better execution prices.

<PAGE>

Option Trading Limits

The writing by the Funds of options on securities is subject to
limitations established by each of the registered securities exchanges on which
such options are traded. Such limitations govern the maximum number of options
in each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held or written in one or more accounts or
through one or more brokers. Thus, the number of options which one Fund may
write may be affected by options written by the other Funds and by other
investment advisory clients of the Adviser or the Portfolio Managers. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions. The Adviser believes it is
unlikely that the level of option trading by the Trust will exceed applicable
limitations.

CAPITAL STOCK AND CONTROL

A complete description of the rights and characteristics of the Trust's
capital stock is included in the Prospectus.

The following table provides the name and address of any person who owns
of record or beneficially 5% or more of the outstanding shares of each Fund as
of June 30, 1995.

Fund Name & Address Shares % Ownership

Small Cap UBATCO & Company 337,962.248 47.83%
Union Bank and Trust Company
Trust Department-nominee name
4732 Calvert Street
Lincoln, NE 68506
Including
Linweld Inc. Profit 37,820.514 5.35%
Sharing/401K Plan
1225 "L" Street
Suite 600
Lincoln, NE 68501

Convertible The Eihusen 15209.160 10.32%
Fund Chief Foundation, Inc.
Old West Hwy 30
P.O. Box 2078
Grand Island, NE 68802

Thomas L. Williams 7,650.633 5.19%
Susan M. Williams JTWROS
2820 South 99th Avenue
Omaha, NE 68124

Government Quality
Bond Portfolio The Eihusen 14,965.459 6.63%
Chief Foundation, Inc.
Old West Hwy 30
P.O. Box 2078
Grand Island, NE 68802

<PAGE>

As a group, the officers and directors of the Fund owned 2,849.095,
4,731.099, and 6,932.841 shares of the Convertible, Government/Quality Bond, and
Small Cap Funds respectively, which constituted 1.93%, 1.05% and .97.%,
respectively of these Funds' outstanding shares. Officers and directors of the
Fund as a group owned 182,827.596 shares of the outstanding shares of all Funds,
and shares of the Trust's Institutional Money Market Fund, Nebraska Tax Free
Fund and Capital Builder Fund which constituted .67% of all such outstanding
shares.

NET ASSET VALUE AND PUBLIC OFFERING PRICE

The method for determining the public offering price of Fund shares is
summarized in the Prospectus in the text following the headings "Purchase of
Shares--Valuation of Shares." The net asset value of each Fund's shares is
determined on each day on which the New York Stock Exchange is open, provided
that the net asset value need not be determined on days when no Fund shares are
tendered for redemption and no order for Fund shares is received. The New York
Stock Exchange is not open for business on the following holidays (or on the
nearest Monday or Friday if the holiday falls on a weekend): New Year's Day,
Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving
and Christmas.

The portfolio securities in which each Fund invests fluctuate in value,
and hence the net asset value per share of each Fund also fluctuates. An example
of how the net asset value per share for all Funds is calculated is as follows:

Net Assets ($100,000) = Net Asset Value
Shares Outstanding (10,000) per Share ($10)

REDEMPTION

Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Funds of securities owned by them
is not reasonably practicable, or it is not reasonably practicable for the Funds
fairly to determine the value of their net assets, or (d) during any other
period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.

TAX STATUS

The Trust has qualified and intends to continue to qualify its Funds as
"regulated investment companies" under Subchapter M of the Internal Revenue Code
of 1986, as amended, so as to be relieved of federal income tax on its capital
gains and net investment income distributed to shareholders. To qualify as a
regulated investment company, a Fund must, among other things, receive at least
90% of its gross income each year from dividends, interest, gains from the sale
of other disposition of securities and certain other types of income including,
with certain exceptions, income from options and futures contracts. However,
gains from the sale or other disposition of stock or securities held for less
than three months must constitute less than 30% of each Fund's gross income.
This restriction may limit the extent to which a Fund may effect sales of
securities held for less than three months or transactions in futures contracts
and options even when the Adviser otherwise would deem such transaction to be in
the best interest of a Fund. The Code also requires a regulated investment
company to diversify its holdings. The Internal Revenue Service has not made its
position clear regarding the treatment of futures contracts and options for
purposes of the diversification test, and the extent to which a Fund could buy
or sell futures contracts and options may be limited by this requirement.

The Code requires that all regulated investment companies pay a
nondeductible 4% excise tax to the extent the regulated investment company does
not distribute 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end.
The required distributions are based only on the taxable income of a regulated
investment company.

Ordinarily, distributions and redemption proceeds earned by a Fund
shareholder are not subject to withholding of federal income tax. However, if a
shareholder fails to furnish a tax identification number or social security
number, or certify under penalties of perjury that such number is correct, the
Fund may be required to withhold federal income tax ("backup withholding") from
all dividend, capital gain and/or redemption payments to such shareholder.
Dividends and capital gain distributions may also be subject to backup
withholding if a shareholder fails to certify under penalties of perjury that
such shareholder is not subject to backup withholding due to the underreporting
of certain income. These certifications are contained in the purchase
application enclosed with the Prospectus.

CALCULATIONS OF PERFORMANCE DATA

From time to time the Trust may quote the yield for the Funds in
advertisements or in reports and other communications to shareholders. For this
purpose, yield is calculated by dividing a Funds's net investment income per
share for the base period which is 30 days or one month, by the Fund's maximum
offering purchase price on the last day of the period and annualizing the
result. The Fund's net investment income changes in response to fluctuations in
interest rates and in the expenses of the Fund. Consequently, any given
quotation should not be considered as representative of what the Fund's yield
may be for any specified period in the future.

Yield information may be useful in reviewing a Fund's performance and for
providing a basis for comparison with other investment alternatives. However, a
Fund's yield will fluctuate, unlike other investments which pay a fixed yield
for a stated period of time. Current yield should be considered together with
fluctuations in the Fund's net asset value over the period for which yield has
been calculated, which, when combined, will indicate a Fund's total return to
shareholders for that period. Other investment companies may calculate yields on
a different basis. In addition, investors should give consideration to the
quality and maturity of the portfolio securities of the respective investment
companies when comparing investment alternatives.

Investors should recognize that in periods of declining interest rates a
bond portfolio's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, such portfolio's yield will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a bond portfolio from the continuous sale of its shares will likely
be invested in instruments producing lower yields than the balance of such
portfolio's holdings, thereby reducing the current yield of such portfolio. In
periods of rising interest rates, the opposite can be expected to occur.

The Trust may also quote the indices of bond prices and yields prepared by
Shearson Lehman Hutton Inc. and Merrill Lynch & Company, leading broker-dealer
firms. These indices are not managed for any investment goal. Their composition
may, however, be changed from time to time.

The Government/Quality Bond Fund may quote the yield or total return on
Ginnie Maes, Fannie Maes, Freddie Macs, corporate bonds and Treasury bonds and
notes, either as compared to each other or as compared to the Fund's
performance. In considering such yields or total returns, investors should
recognize that the performance of securities in which the Fund may invest does
not reflect the Fund's performance, and does not take into account either the
effects of portfolio management or of management fees or other expenses; and
that the issuers of such securities guarantee that interest will be paid when
due and that principal will be fully repaid if the securities are held to
maturity, while there are no such guarantees with respect to shares of the Fund.
Investors should also be aware that the mortgages underlying mortgage-related
securities may be prepaid at any time. Prepayment is particularly likely in the
event of an interest rate decline, as the holders of the underlying mortgages
seek to pay off high-rate mortgages or renegotiate them at potentially lower
current rates. Because the underlying mortgages are more likely to be prepaid at
their par value when interest rates decline, the value of certain high-yielding
mortgage-related securities may have less potential for capital appreciation
than conventional debt securities (such as U. S. Treasury bonds and notes) in
such markets. At the same time, such mortgage-related securities may have less
potential for capital appreciation when interest rates rise.

The yield of the Government/Quality Bond Fund for the 30-day period ending
June 30, 1995 was 5.62%.

In connection with the quotations of yields in advertisements described
above, the Trust may also provide average annual total returns from the date of
inception for one, five and ten-year periods if applicable. Total return is a
calculation which equates an initial amount invested to the ending redeemable
value at a specified time. It assumes the reinvestment of all dividends and
capital gains distributions. Average total return will be the average of the
total returns for each year in the period. The Funds may also provide a total
return figure for the most recent calendar quarter prior to the publication of
the advertisement.

The average annual total return of the Funds for the one, inception to
date and five years ended on June 30, 1995 are as follows:

Inception to
1 year 5 years Date
------ ------- ----

Convertible Fund 14.09% 10.03% 8.05%
Government Quality Bond Fund 9.42% 7.89% 7.82%
Small Cap Fund 20.33% NA 12.81%

FINANCIAL STATEMENTS

The Trust hereby incorporates by reference the information in the Trust's
Annual Financial Report dated June 30, 1995, attached hereto.

AUDITORS

On July 18, 1995, the Board of Directors, including all disinterested
directors, unanimously approved the appointment of Deloitte & Touche LLP, 1040
NBC Center, Lincoln, Nebraska 68508 as the Trust's accountants.

<PAGE>
A-6
APPENDIX A

RATINGS OF CORPORATE OBLIGATIONS,
COMMERCIAL PAPER, AND PREFERRED STOCK

Ratings of Corporate Obligations

Moody's Investors Service, Inc.

Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba: Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal and interest.

Ca: Bonds rated Ca represent obligations which are speculative in a high
degree. Such bonds are often in default or have other marked shortcomings.

Those securities in the A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols A-1 and Baa-1.
Other A and Baa securities comprise the balance of their respective groups.
These rankings (1) designate the securities which offer the maximum in security
within their quality groups, (2) designate securities which can be bought for
possible upgrading in quality, and (3) additionally afford the investor an
opportunity to gauge more precisely the relative attractiveness of offerings in
the marketplace.

Standard & Poor's Corporation

AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.

A: Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Although they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories. Bonds rated
BBB are regarded as having speculation characteristics.

BB--B--CCC-CC: Bonds rated BB, B, CCC, and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

Commercial Paper Ratings

Standard & Poor's Corporation

Commercial paper ratings are graded into four categories, ranging from
"A" for the highest quality obligations to "D" for the lowest. Issues assigned
the A rating are regarded as having the greatest capacity for timely payment.
Issues in this category are further refined with the designation 1, 2 and 3 to
indicate the relative degree of safety. The "A-1" designation indicates that the
degree of safety regarding timely payment is very strong. Those issues
determined to possess overwhelming safety characteristics will be denoted with a
plus sign designation.

<PAGE>

Moody's Investors Service, Inc.

Moody's commercial paper ratings are opinions of the ability of the
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated issuer
or issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

Prime-1 Superior capacity for repayment
Prime-2 Strong capacity for repayment
Prime-3 Acceptable capacity for repayment

Ratings of Preferred Stock

Standard & Poor's Corporation

Standard & Poor's preferred stock rating is an assessment of
the capacity and willingness of an issuer to pay preferred stock dividends and
any applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect this difference, the preferred stock rating symbol will normally not be
higher than the bond rating symbol assigned to, or that would be assigned to,
the senior debt of the same issuer.

The preferred stock ratings are based on the following
considerations:

1. Likelihood of payment--capacity and willingness of the
issuer to meet the timely payment of preferred stock
dividends and any applicable sinking fund requirements
in accordance with the terms of the obligation.

2. Nature of and provisions of the issue.

3. Relative position of the issue in the event
of bankruptcy, reorganization, or other arrangements
affecting creditors' rights.

AAA: This is the highest rating that may be assigned by
Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.

AA: A preferred stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as
for issues rated AAA.

A: An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions.

BBB: An issue rated BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to make payments for a preferred stock in this
category than for issues in the A category.

BB, B, CCC: Preferred stock issues rated BB, B, and CCC are
regarded, on balance, as predominantly speculative with respect to
the issuer's capacity to pay preferred stock obligations. BB
indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.

CC: The rating CC is reserved for a preferred stock issue
in arrears on dividends or sinking fund payments but
that is currently paying.

C: A preferred stock rated C is a nonpaying issue.

D: A preferred stock rated D is a nonpaying issue with
the issuer in default on debt instruments.

NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S & P
does not rate a particular type of obligation as a matter of
policy.

Plus (+) or Minus (-): To provide more detailed indications
of preferred stock quality, the ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.

Moody's Investors Service, Inc.

aaa: An issue which is rated aaa is considered to be a
top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within the
universe of preferred stocks.

aa: An issue which is rated aa is considered a high-grade
preferred stock. This rating indicates that there is reasonable
assurance that earnings and asset protection will remain relatively
well maintained in the foreseeable future.

a: An issue which is rated a is considered to be an
upper-medium grade preferred stock. While risks are judged to be
somewhat greater than in the aaa and aa classifications, earnings
and asset protection are, nevertheless, expected to be maintained
at adequate levels.

baa: An issue which is rated baa is considered to be medium
grade, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable
over any great length of time.

ba: An issue which is rated ba is considered to have
speculative elements and its future cannot be considered well
assured. Earnings and asset protection may be very moderate and not
well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.

b: An issue which is rated b generally lacks the
characteristics of a desirable investment. Assurance of dividend
payments and maintenance of other terms of the issue over any long
period of time may be small.

caa: An issue which is rated caa is likely to be in arrears
on dividend payments. This rating designation does not purport to
indicate the future status of payments.

ca: An issue which is rated ca is speculative in a high
degree and is likely to be in arrears on dividends with little
likelihood of eventual payment.

c: This is the lowest rated class of preferred or
preference stock. Issues so rated can be regarded as
having extremely poor prospects of ever attaining any
real investment standing.

<PAGE>

B-3
APPENDIX B

STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS

Stock Index Futures Contracts

Convertible Fund may purchase put options on stock indexes. Stock index
futures contracts are commodity contracts listed on commodity exchanges. They
presently include contracts on the Standard & Poor's 500 Stock Index (the "S&P
500 Index") and such other broad stock market indexes as the New York Stock
Exchange Composite Stock Index and the Value Line Composite Stock Index, as well
as narrower "sub-indexes" such as the S&P 100 Energy Stock Index and the New
York Stock Exchange Utilities Stock Index. A stock index assigns relative values
to common stocks included in the index and the index fluctuates with the value
of the common stocks so included. A futures contract is a legal agreement
between a buyer or seller and the clearing house of a futures exchange in which
the parties agree to make a cash settlement on a specified future date in an
amount determined by the stock index on the last trading day of the contract.
The amount is a specified dollar amount (usually $100 or $500) times the
difference between the index value on the last trading day and the value on the
day the contract was struck.

For example, the S&P 500 Index consists of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The S&P 500 Index
assigns relative weightings to the common stocks included in the Index, and the
Index fluctuates with changes in the market values of those common stocks. In
the case of S&P 500 Index futures contracts, the specified multiple is $500.
Thus, if the value of the S&P 500 Index were 150, the value of one contract
would be $75,000 (150 x $500). Unlike other futures contracts, a stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract with the settlement amount being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example (excluding any transaction costs), if a
Fund enters into one futures contract to buy the S&P 500 Index at a specified
future date at a contract value of 150 and the S&P 500 Index is at 154 on that
future date, the Fund will gain $500 x (154-150) or $2,000. If a Fund enters
into one futures contract to sell the S&P 500 Index at a specified future date
at a contract value of 150 and the S&P 500 Index is at 152 on that future date,
the Fund will lose $500 x (152-150) or $1,000.

Unlike the purchase or sale of an equity security, no price would be paid
or received by the Fund upon entering into stock index futures contracts. Upon
entering into a contract, the Fund would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount of
cash or U.S. Treasury bills equal to a portion of the contract value. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve borrowing funds by the Fund to finance
the transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. Subsequent payments, called "variation margin," to and from the
broker would be made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the contract more or less
valuable, a process known as "marking to the market." For example, when a Fund
enters into a contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, the Fund will receive
from the broker a variation margin payment equal to that increase in value.
Conversely, if the price of the underlying stock index declines, the Fund would
be required to make a variation margin payment to the broker equal to the
decline in value.

The Fund intends to use stock index futures contracts and related options
for hedging and not for speculation. Hedging permits the Fund to gain rapid
exposure to or protect itself from changes in the market. For example, the Fund
may find itself with a high cash position at the beginning of a market rally.
Conventional procedures of purchasing a number of individual issues entail the
lapse of time and the possibility of missing a significant market movement. By
using futures contracts, the Fund can obtain immediate exposure to the market
and benefit from the beginning stages of a rally. The buying program can then
proceed, and once it is completed (or as it proceeds), the contracts can be
closed. Conversely, in the early stages of a market decline, market exposure can
be promptly offset by entering into stock index futures contracts to sell units
of an index and individual stocks can be sold over a longer period under cover
of the resulting short contract position.

The Fund may enter into contracts with respect to any stock index or
sub-index. To hedge a Fund's portfolio successfully, however, the Fund must
enter into contracts with respect to indexes or sub-indexes whose movements will
have a significant correlation with movements in the prices of the Fund's
portfolio securities.

Options on Stock Index Futures and on Stock Indexes

Convertible Fund may purchase put options on stock indexes. Stock indexes
are securities traded on national securities exchanges. An option on a stock
index is similar to an option on a futures contract except all settlements are
in cash. A Fund exercising a put, for example, would receive the difference
between the exercise price and the current index level. Such options would be
used in a manner identical to the use of options on futures contracts.

As with options on stocks, the holder of an option on a stock index may
terminate a position by selling an option covering the same contract or index
and having the same exercise price and expiration date. Trading in options on
stock indexes began only recently. The ability to establish and close out
positions on such options will be subject to the development and maintenance of
a liquid secondary market. It is not certain that this market will develop. The
Fund will not purchase options unless and until the market for such options has
developed sufficiently so that the risks in connection with options are not
greater than the risks in connection with stock index futures contracts
transactions themselves. Compared to using futures contracts, purchasing options
involves less risk to the Fund because the maximum amount at risk is the premium
paid for the options (plus transaction costs). There may be circumstances,
however, when using an option would result in a greater loss to a Fund than
using a futures contract, such as when there is no movement in the level of the
stock index.

Regulatory Matters

The Commodity Futures Trading Commission (the "CFTC"), a federal agency,
regulates trading activity on the exchanges pursuant to the Commodity Exchange
Act, as amended. The CFTC requires the registration of "commodity pool
operators," defined as any person engaged in a business which is of the nature
of an investment trust, syndicate or a similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others, funds,
securities or property for the purpose of trading in any commodity for future
delivery on or subject to the rules of any contract market. The CFTC has
recently adopted Rule 4.5, which provides an exclusion from the definition of
commodity pool operator for any registered investment company which (i) will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes (provided, however, that in the alternative, with respect to each long
position in a commodity future or commodity option contract, an investment
company may meet certain other tests set forth in Rule 4.5); (ii) will not enter
into commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of its assets; (iii) will not be marketed
to the public as a commodity pool or as a vehicle for investing in commodity
interests; (iv) will disclose to its investors the purposes of and limitations
on its commodity interest trading; and (v) will submit to special calls of the
CFTC for information. Any investment company wishing to claim this exclusion
must file a notice of eligibility with both the CFTC and the National Futures
Association. Before engaging in transactions involving interest rate futures
contracts, the Funds will file such notices and meet the requirements of Rule
4.5, or such other requirements as the CFTC or its staff may from time to time
issue, in order to render registration as a commodity pool operator unnecessary.

<PAGE>
-------------------------------------------------------------------------------

PROSPECTUS

SMITH HAYES Trust, Inc.
Institutional Money Market Fund
200 Centre Terrace
1225 L Street
Lincoln, Nebraska 68508
(402) 476-3000
1-800-279-7437

SMITH HAYES Trust, Inc. (the "Trust"), is a Minnesota corporation offering
shares in series, each series operated as a separate open-end management
investment company. This Prospectus relates to the diversified series designated
Institutional Money Market Fund (the "Fund").

The investment objective of the Fund is to provide maximum current income
consistent with the preservation of capital and maintenance of liquidity. The
Fund will attempt to achieve this objective by investing solely in debt
obligations with maturities of less than one year, including United States
government and Federal agency obligations, and federally insured student loans
(subject to unconditional obligations from banks to purchase such loans on five
days notice) purchased through a trust established to purchase and hold such
student loans. THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANK AND ARE NEITHER INSURED BY THE FDIC NOR
GUARANTEED BY THE U.S. GOVERNMENT OR ANY FEDERAL OR STATE AGENCY, AND WHILE THE
FUND INTENDS TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO
ASSURANCE THAT THIS WILL OCCUR.

This Prospectus concisely describes information about the Fund an investor
ought to know before investing. Please read it carefully before investing and
retain it for future reference. A Statement of Additional Information about the
Fund dated as of the date of this Prospectus is available free of charge by
writing to SMITH HAYES Financial Services Corporation, 200 Centre Terrace, 1225
L Street, Lincoln, Nebraska 68508, or telephone (402) 476-3000 or (800)
279-7437. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated in its entirety by
reference in this Prospectus.

The date of this Prospectus is September 1, 1995.

<PAGE>

[THIS PAGE LEFT BLANK INTENTIONALLY]

<PAGE>

INTRODUCTION

SMITH HAYES Trust, Inc. (the "Trust") is a Minnesota corporation, commonly
called a series mutual fund. The Trust, which was organized in 1988, has one
class of capital stock that is issued in series, each series referred to as a
Fund and each operated as a separate open-end management investment company.
This Prospectus only relates to the series designated Institutional Money Market
Fund (the "Fund"). For information regarding the Trust's other Funds, call or
write to the Trust at the address and telephone number on the cover page of this
Prospectus.

The Investment Adviser and Administrator

The Trust is managed by CONLEY SMITH, Inc. ("CSI") formerly SMITH HAYES
Portfolio Management, Inc., a wholly owned subsidiary of Consolidated Investment
Corporation ("Consolidated"). CSI acts as the investment adviser for the Fund
("Adviser"). The Administrator of the Trust is Lancaster Administrative
Services, Inc. ("LAS"). LAS acts as transfer agent and provides or contracts
with others to provide all necessary recordkeeping services. The Trust pays LAS
a monthly fee for such services. The Trust pays the Adviser a monthly fee for
advisory services rendered.

The Distributor

SMITH HAYES Financial Services Corporation ("SMITH HAYES"), also a wholly
owned subsidiary of Consolidated, acts as the distributor ("Distributor") of the
Trust's shares. Pursuant to the Trust's Rule 12b-1 Plan, the Trust will
reimburse the Distributor monthly for certain expenses incurred in connection
with the distribution and promotion of the Trust's shares, not to exceed .20%
annually of the Fund's average net assets. See "Distribution of Fund Shares".

Purchase of Shares

Shares of the Fund are offered to the public at $1.00 per share, except in
extraordinary circumstances. See "Valuation of Shares". The minimum aggregate
initial investment in the Fund is $1,000 unless waived by the Trust. Subsequent
investments can be made in any amount.

Certain Risk Factors to Consider

An investment in the Fund is subject to certain risks, as set forth in detail
under "Investment Objective and Policies". As with other mutual funds, there can
be no assurance that the Fund will achieve its objective.

Redemptions

Shares of the Fund may be redeemed at any time at their net asset value next
determined after receipt of a redemption request by the Distributor. The
redemption price will be $1.00 per share, except in extraordinary circumstances.
The Trust reserves the right, upon 30 days written notice, to redeem a
shareholder's investment in the Fund if the net asset value of the shares held
by such shareholder falls below $500 as a result of redemptions or transfers.
See "Redemption of Shares-Involuntary Redemption".

<PAGE>

Dividends

Dividends are declared and accrued once daily and either automatically
reinvested or paid monthly (see "Dividends and Taxes").

Shareholder Inquiries

Expenses

The Trust offers shares of the Fund without any sales load or contingent
sales loads on purchases, reinvestments of dividends or redemptions of Fund
shares and does not charge any exchange or account maintenance fees. The table
below is provided to assist the investor in understanding the various expenses
that an investor in the Fund will bear, whether directly or indirectly, through
an investment in the Fund. For more complete descriptions of the various costs
and expenses, see "Management-Investment Adviser and Administrator",
"Management-Expenses" and "Distribution of Fund Shares".

Annual Operating Expenses

The table below provides information regarding expenses for the Fund
expressed as annual percentages of average net assets.

Management Fees
Investment Advisory Fees .10%
Administration Fees .12%
---
Total Management Fees .22%

12b-1 Fees .20%
Other Expenses .12%
---
Total Fund Operating Expenses .54%

Example: You would pay these expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period.

1 year 3 years 5 years 10 years
$6 $18 $31 $68

The example should not be considered a representation of past or future
expenses or yield. Actual expenses and yield may be greater or lower than those
shown.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial information, which provides selected data for a share
of the Fund outstanding throughout the period indicated has been audited by
Deloitte & Touche, LLP, independent certified public accountants, for the year
ended June 30, 1995 and by KPMG Peat Marwick, LLP, independent certified public
accountants, for all preceding years presented, to the extent of the audit
report appearing in the Annual Financial Report contained in the Statement of
Additional Information, which is available upon request without charge as set
forth on the cover page of this Prospectus.

Financial Highlights
Years Ended June 30, 1995 and 1994 and the Period from November 12,
1992 (commencement of operations) to June 30, 1993

1995 1994 1993
---- ---- ----
Net asset value, beginning of period: $1.00 $1.00 $1.00
Income from investment operations,
Net investment income 0.054 0.040 0.009
Less distributions,
Dividends from net investment income (0.054) (0.040) (0.009)
End of period $1.00 $1.00 $1.00

Current yield * * 5.63% 4.52% 4.28% *
======= ======= =======
Effective yield * * 5.79% 4.62% 4.37% *
======= ======= =======

Ratios/Supplemental data:
Net assets, end of period $24,336,936 $28,008,803 $14,855,439
Ratio of expenses to average net assets 0.54% 0.61% 0.68%*
Ratio of net income to average net assets 5.42% 4.05% 4.40%*

* Annualized for those periods less than twelve months in duration.
* * Current yield refers to the income by an investment over a seven-day
period ending June 30, 1995. Effective yield assumes compounding. Yields are
computed in accordance with a standardized formula described in the Statement
of Additional Information.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to provide maximum current income
consistent with preservation of capital and maintenance of liquidity.

The investment objective of the Fund cannot be changed without shareholder
approval in the manner described on page 6. In view of the risks inherent in
all investments in securities, there is no assurance that this objective will
be achieved. The investment policies and techniques employed in pursuit of
the Fund's objectives may be changed without shareholder approval, unless
otherwise noted.
<PAGE>

Investment Policies

Pursuant to Rule 2a-7 adopted under the Investment Company Act, the Fund may
invest only in "eligible securities" as defined in that Rule. Generally, an
eligible security is a security that (i) is denominated in U.S. Dollars and has
a remaining maturity of 397 days or less; (ii) is rated, or is issued by an
issuer with short-term debt outstanding that is rated, in one of the two highest
rating categories by two nationally recognized statistical rating organizations
("NRSROs") or, if only one NRSRO has issued a rating, by that NRSRO; and (iii)
has been determined by the Adviser to present minimal credit risk pursuant to
procedures approved by the Board of Directors. A security that originally had a
maturity of greater than 397 days is an eligible security if the issuer has
outstanding short-term debt that would be an eligible security. Unrated
securities may also be eligible securities if the Adviser determines that they
are of comparable quality to a rated eligible security pursuant to guidelines
approved by the Board of Directors.

Under Rule 2a-7, a fund may not invest more than five percent of its assets
in the securities of any one issuer other than the United States Government, its
agencies and instrumentalities. In addition, a fund may not invest in a security
that has received, or is deemed comparable in quality to a security that has
received, the second highest rating by the requisite number of NRSROs (a "second
tier security") if immediately after the acquisition thereof the fund would have
invested more than (A) the greater of one percent of its total assets or one
million dollars in securities issued by that issuer which are second tier
securities, or (B) five percent of its total assets in second tier securities.

In order to accomplish this objective, assets of the Fund will be invested in
the following types of money market instruments maturing in 364 days or less
from the time of investment, as defined herein:

(1)Securities issued or guaranteed by the United States Government. These
include, for example, Treasury Bills, Bonds and Notes which are direct
obligations of the United States Government.

(2)Obligations issued or guaranteed by agencies or instrumentalities of the
United States Government. Such agencies and instrumentalities include, for
example, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association and Farmers Home Administration.
Such securities will include those supported by the full faith and credit
of the United States Treasury or the right of the agency or
instrumentality to borrow from the Treasury as well as those supported
only by the credit of the issuing agency or instrumentality.

(3)Federally insured student loans held in trust by the Mid-America Student
Finance Trust, (the "MASFT"), for which Union Bank and Trust Company,
Lincoln, Nebraska, is trustee, created for the purpose of facilitating the
funding and purchase of federally insured student loans. Insured student
loans are made by various banks to students attending trade schools,
colleges and universities under the Federal Guaranteed Student Loan
Program ("GSL Program"). The loans are insured by guarantee and interest
subsidy agreements made by the Secretary of Education with various
agencies pursuant to the Higher Education Act. Under the GSL Program,
banks making the loans and/or the holders of the loans are reimbursed for
<PAGE>
defaults and subsidized on the interest paid on the loans. The Trust will
purchase GSL Program loans for the Fund from various institutions, trusts
and banks through MASFT, which will, as part of their agreement to sell
loans to MASFT, also agree to purchase on not less than five days' written
notice, the lesser of 5% of the GSL Program loans held by MASFT or the
amount of GSL Program loans sold by them to MASFT. MASFT will evidence the
Fund's purchase of student loans by issuing redeemable Trust Certificates,
which will be issuable only to the Fund (except in extraordinary
circumstances) and will represent equitable ownership in a group of
individual student loans. All interest accruing on the student loans
attributable to the Trust Certificates is payable to the Fund net of fees
and expenses. The Certificates will have original maturities of 364 days
but will be redeemable by the Fund at their face amount upon not more than
five days' written notice. The Trust's decision to purchase student loans
through MASFT for the Fund will be based upon the amount of funds
available for investment, the investment yield of the GSL Program loans
compared with yields available on the other short-term liquid investments
and upon the aggregate amount of student loans owned by the Trust, which
may not exceed 90% of the Trust's assets. The yield to the Fund on the
Trust Certificates will be commensurate with current net yields on GSL
Program loans. Presently, such loans gross yield approximately the 91-day
U.S. Treasury Bill rate, plus 3.10%. The yield from the student loans
owned by the Fund through MASFT is anticipated to be approximately 2.65%
less, in the aggregate, than the student loans purchased as a result of
various fees, which are deducted for origination take-out, servicing and
trustee fees. Further details concerning the Trust and the Fund's
investment in Trust Certificates are found in the Statement of Additional
Information.

Assets of the Fund will consist of securities with maturities of 364 days or
less at date of purchase. The dollar-weighted average maturity of the Fund's
investments will be 90 days or less.

As a general policy, it is the Fund's intention to hold investments until
they mature. However, in an effort to increase Fund yields, the Fund may
periodically trade securities to take advantage of perceived disparities between
markets for various short-term money market instruments. It is also possible
that redemptions of Fund shares could necessitate the sale of Fund investments
prior to maturity and at times when such sale would be undesirable because of
unfavorable market conditions.

While investments by the Fund will be confined to high-quality government
instruments and insured student loans, the complete elimination of risk is not
possible. Under certain circumstances described in more detail in the Statement
of Additional Information, the net asset value of Fund shares could decrease as
a result of events which affect the value of securities. With respect to the
Fund's student loans, it is also possible, although unlikely, that banks which
are obligated to repurchase student loans from the Trust to meet redemption
requests of the Fund could default on such commitments, which could also cause
the net asset value per share to decrease. In light of these various
contingencies, there can be no assurance the Fund will achieve its investment
objectives.

The Fund has adopted a number of investment policies and restrictions, some
of which can be changed by the Board of Directors. Others may be changed only by
holders of a majority of the outstanding shares and include the following.
<PAGE>

Without shareholder approval the Fund may not: (1) purchase any securities
other than those described under "Investment Policies"; and (2) invest in
securities with legal or contractual restrictions on resale (except for Trust
Certificates) or for which no ready market exists.

The foregoing investment restrictions, which are considered fundamental
policies, cannot be changed without the approval of a "majority" of the Fund's
outstanding voting securities, that is, by (a) 67% or more of the securities
voting at a special or annual meeting if more than 50% of the outstanding shares
are represented at such meeting in person or by proxy; or (b) more than 50% of
the outstanding shares, whichever is less. The Statement of Additional
Information includes discussion of certain other investment policies and
restrictions, some of which are also considered fundamental and may not be
changed without shareholder approval.

MANAGEMENT

Board of Directors

As in all corporations, the Trust's Board of Directors has the primary
responsibility for overseeing the business of the Trust. The Board of Directors
meets periodically to review the activities of the Fund and the Adviser and to
consider policy matters relating to the Fund and the Trust.

Investment Adviser and Administrator

CONLEY SMITH, Inc. ("CSI") has been retained under an Investment Advisory
Agreement with the Trust to act as the Fund's Adviser subject to the authority
of the Board of Directors. CONLEY SMITH, Inc. was incorporated in October, 1987,
under the name SMITH HAYES Portfolio Management, Inc. and changed its name in
April of 1995. CSI has advised and managed the Trust since it's inception. CSI
is a wholly owned subsidiary of Consolidated, which is engaged through its
subsidiaries in various aspects of the financial services industry. Thomas C.
Smith is a controlling person of Consolidated and is an officer and director of
the Trust. John H. Conley, the Fund's Portfolio Manager, owns 5% of the voting
stock of Consolidated.. The address of the Adviser is 444 Regency Parkway, Suite
202 Lake Regency Building Omaha, Nebraska 68114.

The Adviser furnishes the Fund with investment advice and, in general,
supervises the management and investment programs of the Trust. The Adviser
furnishes at its own expense all necessary administrative services, office
space, equipment, and clerical personnel for servicing the investments of the
Fund, and investment advisory facilities and executive and supervisory personnel
for managing the investments and effecting the securities transactions of the
Fund. In addition, the Adviser pays the salaries and fees of all officers and
directors of the Trust who are affiliated persons of the Adviser. Under the
Investment Advisory Agreement, the Adviser receives a monthly fee computed
separately for the Fund at an annual rate of .10% of the daily average net asset
value of the Fund.

Lancaster Administrative Services, Inc. ("LAS") has been retained as the
Trust's Administrator under a Transfer Agent and Administrative Services
Agreement with the Trust. LAS is a wholly owned subsidiary of Consolidated
Investment Corporation. The Administrator provides, or contracts with others to
provide, the Trust with all necessary recordkeeping services and share transfer
services. The Administrator receives an administration fee, computed and paid
monthly at an annual rate of 0.25% of the Fund's daily average net assets. The
address of the Administrator is 200 Centre Terrace, 1225 L Street, Lincoln,
Nebraska 68508.
<PAGE>

Expenses

The expenses paid by the Fund are deducted from total income before dividends
are paid. These expenses include, but are not limited to, the fees paid to the
Adviser and the Administrator, taxes, interest, ordinary and extraordinary legal
and auditing fees, distribution expenses pursuant to the Rule 12b-1 Plan,
custodial charges, registration and blue sky fees incurred in registering and
qualifying the Fund under state and federal securities laws, association fees,
directors fees paid to directors who are not affiliated with the Adviser and any
other fees not expressly assumed by the Adviser or Administrator. Any general
expenses of the Trust that are not readily identifiable as belonging to a
particular Fund will be allocated among the Funds on a pro rata basis at the
time such expenses are accrued. The Fund pays its own brokerage commissions and
related transaction costs.

Portfolio Brokerage

The primary consideration in effecting transactions for the Fund is execution
at the most favorable prices. The Adviser has complete freedom as to the markets
in which, and the broker-dealers through or with which (acting on an agency
basis or as principal), it seeks this result. The Adviser may consider a number
of factors in determining which broker-dealers to use for the Fund's
transactions. These factors, which are more fully discussed in the Statement of
Additional Information, include, but are not limited to research services, the
reasonableness of commissions and quality of services and execution. Portfolio
transactions for the Fund may be effected through SMITH HAYES, which also acts
as the Distributor of the Trust's shares (see "Distribution of Fund Shares"
below) if the commissions, fees or other remuneration received by SMITH HAYES
are reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. SMITH HAYES has represented that, in executing portfolio
transactions for the Trust, it intends to charge commissions which are
substantially less than non-discounted retail commissions. In effecting
portfolio transactions through SMITH HAYES, the Fund intends to comply with
Section 17 (e)(1) of the Investment Company Act of 1940 (the "1940 Act"), as
amended.

DISTRIBUTION OF FUND SHARES

SMITH HAYES acts as the principal distributor of the Trust's shares. The
Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940 Act
(the "Plan"), pursuant to which SMITH HAYES is entitled to reimbursement each
month (subject to the limitation discussed below) for its actual expenses
incurred in the distribution and promotion of the Trust's shares. These expenses
include, but are not limited to, compensation paid to investment executives of
SMITH HAYES and to broker-dealers which have entered into sales agreements with
SMITH HAYES, expenses incurred in the printing of reports used for sales
purposes, preparation and printing of sales literature, advertising, promotion,
marketing and sales expenses, payments to banks for shareholder services and
<PAGE>
accounting services and other distribution-related expenses. Reimbursement to
SMITH HAYES is computed separately for each of the Trust's Funds and, in the
case of this Fund, may not exceed .20% per annum of the average daily net assets
of the Fund. Compensation will be paid out of such amounts to SMITH HAYES
investment executives, to broker-dealers which have entered into sales
agreements with SMITH HAYES and to banks who provide services to the Trust for
the Fund. The Glass-Steagall Act and other applicable laws prohibit banks from
engaging in the business of underwriting, selling, or distributing securities.
Insofar as banks are compensated, their only function will be to perform
administrative and shareholder services for their clients who wish to invest in
the Fund. If a bank at a future date is prohibited from acting in this capacity,
the shareholder may lose the services provided by the bank; however, it is not
expected that the shareholders would incur any adverse financial consequences.
It is intended that none of the services provided by such banks other than
through registered brokers will involve the solicitation or sale of shares of
the Fund. In the event distribution expenses for a Fund in any one year exceed
the maximum reimbursable under the Plan, such expenses may not be carried
forward to the following year. Further information regarding the Plan is
contained in the Statement of Additional Information.

PURCHASE OF SHARES

General
The Fund's shares may be purchased at the net asset value per share from
SMITH HAYES and from certain other broker-dealers who have sales agreements with
SMITH HAYES. The address of SMITH HAYES is that of the Trust. Stock certificates
will not be issued. SMITH HAYES reserves the right to reject any purchase order.
Shares of the Fund are offered to the public without a sales load at the net
asset value per share (which usually will be $1.00 per share) next determined
following receipt of an order by SMITH HAYES. See "Valuation of Shares."

Investors may purchase shares by completing the Purchase Application included
in this Prospectus and submitting it with a check payable to:

SMITH HAYES Trust, Inc.
200 Centre Terrace
1225 L Street
Lincoln, Nebraska 68508

For subsequent purchases, the name of the account and account number should
be included with any purchase order to properly identify your account.

Payment for shares may also be made by bank wire. To do so the investor must
direct his or her bank to wire immediately available funds directly to the
Custodian as indicated below.

Federal funds transmitted by wire transfer and received before 11:00 a.m.
will be invested at the net asset value computed at the close of business that
day, funds received after 11:00 a.m. will be invested the following day.
<PAGE>

1. Telephone the Trust at (402) 476-3000 and furnish the name, the account
number and the telephone number of the investor, as well as the amount
being wired and the name of the wiring bank. If a new account is being
opened, additional account information will be requested and an account
number will be provided.

2. Instruct the bank to wire the specific amount of immediately available
funds to the Custodian. The Trust will not be responsible for the
consequences of delays in the bank or Federal Reserve wire system. The
investor's bank must furnish the full name of the investor's account
and the account number. The wire should be addressed as follows:

UNION BANK AND TRUST COMPANY
Lincoln, Nebraska
Trust Department, ABA #104910795
Lincoln, Nebraska 68506
Account of SMITH HAYES Trust, Inc.
------------------------------------
FBO (Account Registration name)
# ____________________________________

3. Complete a Purchase Application and mail it to the Trust if shares
being purchased by bank wire transfer represent an initial purchase.
(The completed Purchase Application must be received by the Trust
before subsequent instructions to redeem Trust shares will be
accepted.) Banks may impose a charge for a wire transfer of funds.

Minimum Investments

A minimum initial aggregate investment of $1,000 is required, unless waived
by the Trust.

All investments must be made through your SMITH HAYES investment executive or
other broker-dealer.

REDEMPTION OF SHARES

Redemption Procedure

Shares of the Fund, in any amount, may be redeemed at any time at their
current net asset value next determined after a request in good order is
received by SMITH HAYES. Because of the nature of the Fund, the redemption price
will usually be $1.00 per share. To redeem shares of the Fund, an investor must
make a redemption request through a SMITH HAYES investment executive or other
broker-dealer. If the redemption request is made to a broker-dealer other than
SMITH HAYES, such broker-dealer will wire a redemption request to SMITH HAYES
immediately following the receipt of such a request. A redemption request will
be considered to be in "good order" if made in writing and accompanied by the
following:
<PAGE>

1. a letter of instruction or stock assignment specifying the number or
dollar value of shares to be redeemed, signed by all owners of the
shares in the exact names in which they appear on the account, or by an
authorized officer of a corporate shareholder indicating the capacity
in which such officer is signing;

2. a guarantee of the signature of each owner by an eligible
institution which is a participant in the Securities Transfer Agent
Medallion Program which includes many U.S. commercial banks and
members of recognized securities exchanges; and

3. other supporting legal documents, if required by applicable law, in
the case of estates, trust, guardianships, custodianships,
corporations and pension and profit-sharing plans.

Payment of Redemption Proceeds

Normally, the Fund will make payment for all shares redeemed within five
business days, but in no event will payment be made more than seven days after
receipt by SMITH HAYES of a redemption request in good order. However, payment
may be postponed or the right of redemption suspended for more than seven days
under unusual circumstances, such as when trading is not taking place on the New
York Stock Exchange. Payment of redemption proceeds may also be delayed until
the check used to purchase the shares to be redeemed has cleared the banking
system, which may take up to 15 days from the purchase date.

A shareholder may request that the Trust transmit redemption proceeds by
Federal bank wire to a bank account designated on the shareholder's account
application form provided all requisite account information is provided to the
Trust.

Involuntary Redemption

The Fund reserves the right to redeem a shareholder's account at any time the
net asset value of the account falls below $500 as the result of a redemption or
transfer request. Shareholders will be notified in writing that the value of
their account is less than $500 and will be allowed 30 days to make additional
investments before the redemption is processed.

VALUATION OF SHARES

The Fund determines its net asset value once each day, as of the close of the
New York Stock Exchange (currently 3:00 p.m., Lincoln, Nebraska time) on each
day the New York Stock Exchange is open for business. The calculation is made
after the Fund has declared any applicable dividends.

<PAGE>

The net asset value per share for the Fund is determined by dividing the
value of the securities owned by the Fund plus any cash and other assets
(including interest accrued) less all liabilities by the number of Fund shares
outstanding. The Fund will value its assets pursuant to the amortized cost
method of valuation as permitted by Rule 2a-7 under the 1940 Act. Under this
method of valuation, a security is initially valued at cost on the date of
purchase and, thereafter, any discount or premium is amortized on a
straight-line basis to maturity, regardless of the extent of fluctuating
interest rates or the market value of the security. Utilization of the amortized
cost method of valuation under Rule 2a-7 results in the stabilization of the
Fund's net asset value at $1.00 per share. The procedures adopted by the Board
of Directors pursuant to Rule 2a-7 are described in more detail in the Statement
of Additional Information. Securities and other assets for which market prices
are not readily available are valued at fair value as determined in good faith
by the Board of Directors. With the approval of the Board of Directors, the Fund
may utilize a pricing service, bank, or broker-dealer experienced in such
matters to perform any of the above-described functions.

DIVIDENDS AND TAXES

Dividends

All net income with respect to the shares of the Fund is declared and accrued
as a dividend each business day to shareholders of record immediately before
3:00 p.m., Lincoln, Nebraska time. Dividends are accrued and credited to
shareholders' accounts each business day and are automatically reinvested in
additional Fund shares on the last day of each month at the net asset value of
shares on such day, unless the shareholder notifies his or her SMITH HAYES
investment executive or other broker-dealer of an election to receive cash. Cash
payment, if requested, is also accrued through the last day of each month and
checks for such cash payment will be mailed within five days thereof. The
taxable status of income dividends and/or net capital gains distribution is not
affected by whether they are reinvested or paid in cash.

Taxes

The Fund will be treated as a separate entity for federal income tax
purposes. The Trust intends to qualify the Fund as a "regulated investment
company" as defined in the Internal Revenue Code (the "Code"). Provided certain
distribution requirements are met, the Fund will not be subject to federal
income tax on its net investment income and net capital gains that it
distributes to its shareholders.

The Trust is subject to the backup withholding provisions of the Code and is
required to withhold income tax from dividends and/or redemptions paid to a
shareholder at a 31% rate, if such shareholder fails to furnish the Trust with a
taxpayer identification number or under certain other circumstances.
Accordingly, shareholders are urged to complete and return Form W-9 when request
to do so by the Trust.

GENERAL INFORMATION

Capital Stock

The Trust is authorized to issue a total of one billion shares of common
stock, with a par value of $.001 per share. Of these shares, the Board of
Directors has authorized the issuance of one hundred million shares in a series
designated Institutional Money Market Fund shares. The Board of Directors is
empowered under the Trust's Articles of Incorporation to issue other series of
the Trust's common stock without shareholder approval or to designate additional
authorized but unissued shares for issuance by one or more existing Funds. See
the Statement of Additional Information for information regarding the Trust's
other Funds. The Board of Directors is also authorized to divide any new or
existing series into two or more sub-series or classes, which could be used to
create differing expense and fee structures for investors in the same fund. To
date no such classes have been created. The creation of classes in the future
would not affect the rights of existing shareholders.

All shares, when issued, will be fully paid and nonassessable and will be
redeemable and freely transferable. All shares have equal voting rights. They
can be issued as full or fractional shares. A fractional shares has pro rata the
same rights and privileges as a full share. The shares possess no preemptive or
conversion rights.

Voting Rights

Each share of the Fund has one vote (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the Trust's shares. On
some issues, such as the election of directors, all shares of the Trust,
irrespective of series, vote together as one series. Cumulative voting is not
authorized. This means that the holders of more than 50% of the shares voting
for the election of directors can elect 100% of the directors if they choose to
do so, and, in such event, the holders of the remaining shares will be unable to
elect any directors.

On an issue affecting only the Fund, the shares of the Fund vote as a
separate series. Examples of such issues would be proposals to (i) change a
Fund's Investment Advisory Agreement, (ii) change a fundamental investment
restriction pertaining to only one Fund or (iii) change a Fund's Distribution
Plan. In voting on the Investment Advisory Agreement or proposals affecting only
one Fund, approval of such agreement or proposal by the shareholders of one Fund
would make that agreement effective as to that Fund whether or not the agreement
or proposal had been approved by the Trust's other Funds.

Shareholders Meetings

The Trust does not intend to hold annual or periodically scheduled regular
meetings of shareholders unless it is required to do so. Minnesota corporation
law requires only that the Board of Directors convene shareholder meetings when
it deems appropriate. However, Minnesota law provides that if a regular meeting
of shareholders has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding 3% or more of the voting shares of the Trust
may demand a regular meeting of shareholders by written notice given to the
Chief Executive Officer or Chief Financial Officer of the Trust. Within 30 days
after receipt of the demand, the Board of Directors shall cause a regular
meeting of shareholders to be called, which meeting shall be held no later than
90 days after receipt of the demand, all at the expense of the Trust. In
addition, the 1940 Act requires a shareholder vote for all amendments to
fundamental investment policies and restrictions, for all investment advisory
contracts and amendments thereto, and for all amendments to Rule 12b-1
distribution plans Finally, the Trust's Articles of Incorporation provide that
shareholders also have the right to remove Directors upon two-thirds vote of the
outstanding shares and may call a meeting to remove a Director upon the
application of 10% or more of the outstanding shares. The Trust is obligated to
facilitate shareholder communications in this situation if certain conditions
are met.

Allocation of Income and Expenses

The assets received by the Trust for the issue or sale of shares of the Fund,
and all income earnings, profits, and proceeds thereof, subject only to the
rights of creditors, are allocated to the Fund, and constitute the underlying
assets of the Fund. The underlying assets of the Fund are required to be
segregated on the books of account, and are to be charged with the expenses of
the Fund and with a share of the general expenses of the Trust. Any general
expenses of the Trust not readily identifiable as belonging to a particular Fund
are allocated among all Funds based upon the relative net assets of each Fund at
the time such expenses were accrued.

Transfer Agent, Dividend Disbursing Agent and Custodian

Union Bank and Trust Company, Lincoln, Nebraska, serves as Custodian for the
Trust's Fund securities and cash. The Administrator acts as Transfer Agent and
Dividend Disbursing Agent. In its capacity as Transfer Agent and Dividend
Disbursing Agent, the Administrator performs many of the clerical and
administrative functions for the Funds.

Reports to Shareholders

The Trust will issue semi-annual reports which will include a list of
securities of the Fund owned by the Trust and financial statements, which in the
case of the annual report, will be examined and reported upon by the Trust's
independent auditor.

Legal Opinion

The legality of the shares offered hereby will be passed upon, and the
opinion with respect to all tax matters will be rendered, by Messrs. Cline,
Williams, Wright, Johnson & Oldfather, 1900 FirsTier Bank Building, Lincoln,
Nebraska 68508.

Auditors

The Trust's auditors are Deloitte & Touche, LLP, Lincoln, Nebraska,
independent certified public accountants.

<PAGE>
APPLICATION

SMITH HAYES TRUST, Inc. Date --------------------
200 Centre Terrace, 1225 L Street, Lincoln, NE 68508 Amount #------------------