As filed with the Securities and Exchange Commission
on September 1, 1995
1933 Act Registration No. 33-19894
1940 Act Registration No. 811-5463
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 20 (X)
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 22 (X)
(Check appropriate box or boxes.)
------------------------
SMITH HAYES Trust, Inc.
(Exact Name of Registrant as Specified in Charter)
200 Centre Terrace, 1225 "L" Street
Lincoln, Nebraska 68508
(Address of Principal Executive Offices)(Zip Code)
(402)476-3000
(Registrant's Telephone Number, Including Area Code)
Thomas C. Smith, President
SMITH HAYES Trust, Inc.
200 Centre Terrace, 1225 L Street
Lincoln, Nebraska 68508
(Name and Address of Agent for Service)
------------------------
Copies of all communications to:
DONALD F. BURT, ESQ.
Cline, Williams, Wright, Johnson & Oldfather
1900 FirsTier Bank Building
Lincoln, Nebraska 68508
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective.
It is proposed that this filing will become effective on the date of this filing
pursuant to paragraph (b) of Rule 485.
--------------------------
The Registrant has registered an indefinite number of its shares pursuant to
Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice for
the fiscal year ended June 30, 1995 was filed on or about August 25, 1995.
<PAGE>
SMITH HAYES Trust, Inc.
Cross-Reference Sheet
Required by Rule 404(a)
N-1A Item No. Location in Prospectuses
PART A
,
1. Cover Page.......................................... Cover Page
2. Synopsis............................................ Introduction
3. Condensed Financial Information..................... Financial Highlights
4. General Description of Registrant................... Investment Objective
and Policies; General
Information
5. Management of the Fund.............................. Management;
General Information
6. Capital Stock and Other Securities.................. Cover Page;
Redemption of Shares;
Dividends and Taxes;
General Information
7. Purchase of Securities Being Offered................ Purchase of Shares
8. Redemption or Repurchase............................ Redemption of Shares
9. Pending Legal Proceedings........................... Not Applicable
PART B
Location in Statements of Additional
Information
10. Cover Page.......................................... Cover Page
11. Table of Contents................................... Table of Contents
12. General Information and History..................... Not Applicable
13. Investment Objective and Policies................... Investment
Objectives,Policies
and Restrictions
14. Management of the Fund.............................. Directors and
Executive Officers
15. Control Persons and Principal
Holders of Securities............................... Investment Advisory
and Other Services--
Control of the
Adviser and the
Distributor; Capital
Stock and Control
<PAGE>
16. Investment Advisory and Other Services.............. Investment Advisory
and Other Services-
Investment Advisory
Agreements and
Administration
Agreement
17. Brokerage Allocation and Other Practices............ Portfolio
Transactions and
Brokerage Allocations
18. Capital Stock and Other Securities.................. Capital Stock and
Control
19. Purchase, Redemption and Pricing of
Securities Being Offered............................ Net Asset Value and
Public Offering
Price; Redemption
20. Tax Status.......................................... Tax Status
21. Underwriters........................................ Distribution Plan
22. Calculation of Performance Data..................... Calculation of
Performance Data
23. Financial Statements................................ Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
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:
<TABLE>
<CAPTION>
<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>
SMITH HAYES
TRUST, INC.
ASSET ALLOCATION
BALANCED
CONVERTIBLE
SMALL CAP
VALUE
GOVERNMENT/QUALITY BOND
ANNUAL REPORT
JUNE 30, 1995
<PAGE>
TABLE OF CONTENTS
Shareholder Letter................................. 1
Comparison Graphs
Asset Allocation Portfolio...................... 2
Balanced Portfolio.............................. 2
Convertible Portfolio........................... 3
Small Cap Portfolio............................. 3
Value Portfolio................................. 4
Government/Quality Bond Portfolio............... 4
Independent Auditors' Report....................... 5
Schedule of Investments
Asset Allocation Portfolio...................... 6
Balanced Portfolio.............................. 9
Convertible Portfolio........................... 12
Small Cap Portfolio............................. 15
Value Portfolio................................. 18
Government/Quality Bond Portfolio............... 22
Statement of Assets and Liabilities
Asset Allocation Portfolio...................... 23
Balanced Portfolio.............................. 23
Convertible Portfolio........................... 23
Small Cap Portfolio............................. 24
Value Portfolio................................. 24
Government/Quality Bond Portfolio............... 24
<PAGE>
TABLE OF CONTENTS (CONTINUED)
Statement of Operations
Asset Allocation Portfolio...................... 25
Balanced Portfolio.............................. 25
Convertible Portfolio........................... 25
Small Cap Portfolio............................. 26
Value Portfolio................................. 26
Government/Quality Bond Portfolio............... 26
Statements of Changes in Net Assets
Asset Allocation Portfolio...................... 27
Balanced Portfolio.............................. 27
Convertible Portfolio........................... 28
Small Cap Portfolio............................. 28
Value Portfolio................................. 29
Government/Quality Bond Portfolio............... 29
Financial Highlights
Asset Allocation Portfolio...................... 30
Balanced Portfolio.............................. 31
Convertible Portfolio........................... 32
Small Cap Portfolio............................. 33
Value Portfolio................................. 34
Government/Quality Bond Portfolio............... 35
Notes to Financial Statements...................... 36
<PAGE>
SMITH HAYES TRUST, INC.
FELLOW SHAREHOLDERS:
The return from both the stock and bond markets were extremely favorable for the
fiscal year ended June 30, 1995. Within this time frame, the returns were
significantly different for the two six-month time periods. During the six-month
period ended December 31, 1994, the Federal Reserve Board extended its policy
initiated at the beginning of the year by increasing the Federal Funds rate
twice. Consequently, interest rates increased during the period and the returns
from both bonds and stocks were limited. However, in spite of an additional
increase in the Federal Funds rate in late January 1995, interest rates declined
throughout the six months ended June 30, 1995. Subsequent to the end of the
fiscal year the Federal Reserve, in response to a deceleration in the growth of
the economy as well as a moderation in the rate of inflation, reversed its
previous policy and reduced the Federal Funds rate.
In recognition of the decline in interest rates as well as the growth in
corporate earnings, the stock market had a relatively strong performance in the
first half of 1995. In fact, the increase of 20.2% for the S&P 500 Index during
the 6 months ended June 30, 1995 was among the 5 best first-half rallies over
the last 20 years. For the 12 months ended June 30, 1995 the S&P 500 Index
increased 26.1%. Similar to the market averages, our portfolios showed much
stronger performances during the six months ended June 30, 1995. The returns of
the individual portfolios are included in the following tabulations.
Presently, most economists are of the opinion that the economy will continue to
expand at a moderate rate throughout 1995 and 1996. At the same time, new
efficiencies in production and competition on an international basis are
anticipated to restrain the rate of inflation. Hence, a "soft landing", one
where growth will slow enough to eliminate the threat of inflation but not
enough to cause a recession.
As previously reported, Conley Investment Counsel and SMITH HAYES Portfolio
Management, Inc. have merged to form CONLEY SMITH, Inc., a subsidiary of the
parent, Consolidated Investment Corporation. In conjunction with the formation
of CONLEY SMITH, Inc., the Capital Builder Fund was created as a new fund within
the SMITH HAYES Trust. If you have any questions regarding your investment,
please do not hesitate to call your SMITH HAYES Trust account representative.
Sincerely,
John H. Conley
President July 20, 1995
<PAGE>
GRAPH
-----
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
ASSET ALLOCATION PORTFOLIO AND THE LIPPER BALANCED INDEX
AVG. ANNUAL RETURN 06/30/95
1 YEAR 19.10% ASSET ALLOCATION $17,622.64
5 YEAR 9.62% LIPPER BALANCED $20,689.87
INCEPTION 8.40%
GRAPH
-----
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BALANCED PORTFOLIO AND THE LIPPER BALANCED INDEX
AVG. ANNUAL RETURN 06/30/95
1 YEAR 11.18% BALANCED $16,047.14
5 YEAR 6.66% LIPPER BALANCED $20,689.87
INCEPTION 6.97%
Past performance is not predictive of future performance.
For the period June 23, 1988 (inception) through June 30, 1995.
<PAGE>
GRAPH
-----
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CONVERTIBLE PORTFOLIO AND THE LIPPER BALANCED INDEX
AVG. ANNUAL RETURN 06/30/95
1 YEAR 14.09% CONVERTIBLE $17,225.36
5 YEAR 10.03% LIPPER BALANCED $20,689.87
INCEPTION 8.05%
GRAPH
------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SMALL CAP PORTFOLIO AND THE S&P 400 MIDCAP INDEX
AVG. ANNUAL RETURN 06/30/95
1 YEAR 20.33% SMALL CAP $14,347.60
S&P 400 MIDCAP $14,658.06
INCEPTION 12.81%
Past performance is not predictive of future performance. Convertible Portfolio
for the period June 23, 1988 (inception) through June 30, 1995. Small Cap
Portfolio for the period July 1, 1992 (inception) through June 30, 1995.
<PAGE>
GRAPH
-----
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
VALUE PORTFOLIO AND THE S&P 500 INDEX
AVG. ANNUAL RETURN 06/30/95
1 YEAR ....11.30% VALUE $12,940.37
5 YEAR ..5.63% S&P 500 $18,834.61
INCEPTION 4.77%
GRAPH
-----
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
GOVERNMENT/QUALITY BOND PORTFOLIO AND THE
MERRILL LYNCH U.S. TREASURY INTER-TERM BOND INDEX
AVG. ANNUAL RETURN 06/30/95
------------------ --------
1 YEAR ..9.42% GOVERNMENT/QUALITY $16,968.78
5 YEAR 7.89% MERRILL LYNCH U.S. TREASURY
INCEPTION 7.82% INTER-TERM BOND $17,862.49
Past performance is not predictive of future performance. Value Portfolio for
the period December 20, 1989 (inception) through June 30, 1995.
Government/Quality Bond Portfolio for the period June 23, 1988 (inception)
through June 30, 1995.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SMITH HAYES Trust, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of SMITH HAYES Trust, Inc. (comprised respectively
of the Asset Allocation, Balanced, Convertible, Small Cap, Value, and
Government/Quality Bond Portfolios) as of June 30, 1995, and the related
statements of operations and changes in net assets, and the financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended June 30, 1994
and the financial highlights for the period July 1, 1990, (except for the Small
Cap Portfolio, which commenced operations July 1, 1992) to June 30, 1994 were
audited by other auditors whose report dated July 22, 1994, expressed an
unqualified opinion on such statements and such financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1995 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
aforementioned portfolios constituting SMITH HAYES Trust, Inc. as of June 30,
1995, the results of its operations, the changes in its net assets, and the
financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
July 21, 1995
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1995
ASSET ALLOCATION PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK 50.08% ASSETS VALUE
------- ----------------------------- ---------- ----------
AUTO/TRUCK/PARTS 3.81%
---------------- -----
1,350 Dana Corporation $ 38,644
850 Varity Corporation* 37,400
------
76,044
------
BROADCASTING/MEDIA 1.90%
------------------ -----
350 Capital Cities/ABC, Inc. 37,800
------
CHEMICAL/DRUG 5.72%
------------- -----
350 Dow Chemical Company 25,156
575 PPG Industries, Inc. 24,725
1,500 Praxair, Inc. 37,500
800 Union Carbide Corporation 26,700
--------
114,081
--------
COMMERCIAL SERVICES 0.93%
------------------- -----
725 Manpower, Inc. 18,488
------
COMPUTER RELATED 1.60%
---------------- -----
600 Cabletron Systems, Inc.* 31,950
------
ELECTRICAL EQUIPMENT 1.78%
-------------------- -----
925 General Instrument Corporation* 35,497
------
ELECTRONICS 3.10%
----------- -----
700 Micron Technology, Inc. 38,412
175 Texas Instrument, Inc. 23,428
------
61,840
------
FINANCIAL SERVICES 3.43%
------------------ -----
725 Dean Witter Discover and Company 34,075
775 Green Tree Financial Corporation 34,391
------
$ 68,466
------
* Indicates nonincome-producing security.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
ASSET ALLOCATION PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
FOOD PROCESSING 3.19%
--------------- -----
500 Campbell Soup Company $24,500
900 IBP, Inc. 39,150
------
63,650
------
GROCERY STORES 2.67%
-------------- -----
750 Albertson's, Inc. 22,313
825 Safeway, Inc. * 30,834
------
53,147
------
INSURANCE 2.16%
--------- -----
600 AFLAC, Inc. 26,250
550 U.S. Healthcare, Inc. 16,844
------
43,094
------
MACHINERY/EQUIPMENT 2.01%
------------------- -----
625 Caterpillar, Inc. 40,156
------
MANUFACTURING 4.01%
------------- -----
800 Black & Decker Corporation 24,700
525 Illinois Tool Work, Inc. 28,875
600 Leggett & Platt, Inc. 26,400
------
79,975
------
MEDICAL SUPPLIES/SERVICES 2.55%
------------------------- -----
550 Columbia/HCA Healthcare Corporation 23,788
350 Medtronic, Inc. 26,994
------
$50,782
------
* Indicates nonincome-producing security.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
ASSET ALLOCATION PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
OIL/GAS 5.40%
------- -----
450 Exxon Corporation $ 31,781
700 Halliburton Company 25,025
250 Mobil Corporation 24,000
1,100 Panhandle Eastern Corporation 26,812
--------
107,618
--------
PHARMACEUTICAL 1.36%
-------------- -----
400 Johnson & Johnson 27,050
------
RETAIL STORE/APPAREL 2.82%
-------------------- -----
975 Circuit City Stores, Inc. 30,834
300 Nike, Inc. Class B 25,200
------
56,034
------
TELECOMMUNICATION 1.64%
----------------- -----
975 Equifax, Inc. 32,541
------
PRINCIPAL
AMOUNT UNITED STATES GOVERNMENT SECURITIES44.70%
835,000 United States Treasury Note, 7.25% due 5/15/04 890,971
-------
Total Investments 94.78% 1,889,184
Cash Equivalents 5.08% 101,251
Net Receivables/(Payables) 0.14% 2,863
-------- ----------
TOTAL NET ASSETS 100.00% $1,993,298
======= ==========
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1995
BALANCED PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK 66.97% ASSETS VALUE
------- ----------------------------- ---------- ----------
AEROSPACE/DEFENSE 2.35%
----------------- -----
1,470 General Motors Class H $ 58,065
------
COMMERCIAL SERVICES 1.98%
------------------- -----
1,900 Kelly Services, Inc. Class A 48,925
------
COMPUTER RELATED 2.55%
---------------- -----
1,000 Automatic Data Processing, Inc. 62,875
------
ELECTRONICS/ELECTRICAL EQUIPMENT 8.29%
-------------------------------- -----
1,500 Honeywell, Inc. 64,688
1,200 Motorola, Inc. 80,550
3,200 X-Rite, Inc. 59,200
--------
204,438
--------
FINANCIAL SERVICES 2.61%
------------------ -----
2,000 Comerica Inc. 64,250
------
FOOD PROCESSING 1.87%
--------------- -----
1,400 Quaker Oats Company 46,025
------
FOREST PRODUCTS/PAPER 2.43%
--------------------- -----
1,000 Kimberly Clark Corporation 59,875
------
INSURANCE 2.43%
--------- -----
900 MBIA, Inc. 59,850
------
MACHINERY/EQUIPMENT 2.37%
------------------- -----
1,300 York International Corporation $ 58,500
------
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
BALANCED PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
MANUFACTURING 2.47%
------------- -----
1,400 Pentair, Inc. $ 60,900
------
MEDICAL SUPPLIES/SERVICES 3.20%
------------------------- -----
1,900 Invacare Corporation 78,850
------
METALS/MINING 4.26%
------------- -----
2,600 Homestake Mining Company 42,900
2,700 Trimas Corporation 62,100
--------
105,000
--------
OIL/GAS 4.73%
------- -----
2,100 Apache Corporation 57,488
900 Texaco, Inc. 59,062
--------
116,550
--------
PHARMACEUTICAL 3.02%
-------------- -----
1,100 Johnson & Johnson 74,387
------
TELECOMMUNICATION EQUIPMENT 2.63%
--------------------------- -----
3,000 Federal Signal Corporation 64,875
------
UTILITIES - ELECTRIC 17.22%
-------------------- ------
3,100 American Electric Power Company 108,888
3,580 Detroit Edison Company 105,610
4,000 Peco Energy Company 110,500
3,600 Public Service Enterprise Group, Inc. 99,900
--------
424,898
--------
UTILITIES - TELECOMMUNICATION 2.56%
----------------------------- -----
1,000 BellSouth Corporation $ 63,500
------
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
BALANCED PORTFOLIO
PERCENT
OF NET MARKET
PRINCIPAL ASSETS VALUE
AMOUNT UNITED STATES GOVERNMENT SECURITIES 20.77%
------- ----------------------------- ---------- ----------
525,000 United States Treasury Note, 5.875% due
2/15/04 $512,203
-------
Total Investments 87.74% 2,163,966
Cash Equivalents 11.75% 289,617
Net Receivables/(Payables) 0.51% 12,661
------- ----------
TOTAL NET ASSETS 100.00% $2,466,244
======= ==========
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1995
CONVERTIBLE PORTFOLIO
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT ASSETS VALUE
------- ---------- ----------
CONVERTIBLE DEBENTURES 55.92%
---------------------------------------
15,000 Albany International Corporation 5.25%,
due 3/15/02 $14,588
10,000 American Brands 7.625%, due 3/5/01 10,475
25,000 AMR Corporation 6.125%, due 11/1/24 26,063
30,000 Amoco Corporation 7.375%, due 9/1/13 38,438
15,000 Apache Corporation 6.00%,due 1/15/02 16,800
19,000 Arrow Electronics 5.75%, due 10/15/02 28,832
110,000 Automatic Data Processing,Inc.0%,due 2/20/12 49,225
16,000 Big B Inc. 6.50%, due 3/15/03 19,120
20,000 Carnival Cruise Lines,Inc.4.50%,due 7/1/97 27,825
24,000 Cooper Industries 7.05%, due 1/1/15 24,990
20,000 DAKA International 7.00%, due 3/15/03 38,900
40,000 Delta Air Lines, Inc. 3.23%, due 6/15/03 38,400
45,000 Elan International 0%, due 10/16/12 20,925
15,000 First Financial Management Corp. 5.00%,
due 12/15/99 20,325
12,000 Gencorp, Inc. 8.00%, due 8/1/02 11,550
35,000 Hasbro, Inc. 6.00%, due 11/15/98 39,375
35,000 IMC Global, Inc. 6.25%, due 12/01/01 35,700
35,000 International Paper 5.75%, due 9/23/02 43,794
30,000 Interpublic Group 3.75%, due 4/1/02 26,700
60,000 Motorola, Inc. 0%, due 9/27/13 49,200
50,000 News Corporation 0%, due 3/11/13 23,875
30,000 Olsten Corporation 4.875%, due 5/15/03 31,800
30,000 Pennzoil Company 6.50%, due 1/15/03 35,550
15,000 Raymond Corporation 6.50%, due 12/15/03 18,412
20,000 Riverwood International 6.75%, due 9/15/03 26,900
50,000 RPM, Inc. 0%, due 9/30/12 20,937
55,000 Thermo Electron Corporation 5.00%,
due 4/15/01 72,875
90,000 Time Warner Inc. 0%, due 6/22/13 36,112
40,000 Time Warner Inc. 8.75%, due 1/10/15 41,850
15,000 Titan Wheel International 4.75%, due 12/1/00 20,606
15,000 Unifi, Inc. 6.00%, due 3/15/02 $15,075
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
CONVERTIBLE PORTFOLIO
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT CONVERTIBLE DEBENTURES (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
30,000 USA Waste Services, Inc. 8.50%, due 10/15/02 $ 35,250
25,000 Varlen Corporation 6.50%, due 6/1/03 26,500
--------
986,967
--------
SHARES PREFERRED STOCK 30.43%
AUTO/TRUCKS 7.88%
----------- -----
850 Ford Motor Company, $4.20 Prfd Series A 82,556
900 General Motors, $3.25 Prfd Series C 56,700
--------
139,256
--------
ELECTRONICS 0.01%
----------- -----
3 Comprtonix Corporation, 6% Prfd Series A 10
--
FINANCIAL SERVICES 11.52%
------------------ ------
450 Banc One Corporation, $3.50 Prfd Series C 26,212
350 Citicorp, $1.217 Prfd Series 15 55,694
550 First Chicago $5.75 Prfd Series B 31,900
500 Republic New York Corporation $3.375 Prfd 28,875
500 Soloman, Inc. (Digital), 6.75% Prfd 20,000
650 Travelers, Inc. $2.75 Prfd Series B 40,788
-------
203,469
-------
FOOD/BEVERAGE/TABACCO 4.45%
1,600 ConAgra, Inc. $1.6875 Prfd Series E 56,600
3,600 RJR Nabisco Holdings Corporation,
9% Prfd Series C 22,050
------
78,650
------
METALS/MINING 5.00%
400 Cyprus Amax Mineral Company, $4 Prfd Series A 24,300
650 Magma Copper Company, 5.625% Prfd Series D 38,594
550 Wheeling Pittsburgh Corporation, $3.25
Prfd Series A 25,300
------
88,194
------
PACKAGING/CONTAINER 1.57%
------------------- -----
500 Sonoco Products, $2.25 Prfd Series A $ 27,750
------
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
CONVERTIBLE PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK 13.00% ASSETS VALUE
------ ------------ ------ -------- -----
CHEMICAL/DRUG 0.96%
------------- -----
250 Bristol Meyers Squibb Company $ 17,031
------
COMPUTER RELATED 1.51%
---------------- ------
275 International Business Machines, Inc. 26,400
------
FINANCIAL SERVICES 4.41%
------------------ -----
548 BankAmerica Corporation 28,838
511 Bank of New York Company 20,632
300 Federal National Mortgage Association 28,313
------
77,783
------
PETROLEUM RELATED 2.07%
----------------- -----
2,500 Tuboscope Vetco International Corporation* 15,938
2,500 Varco International, Inc.* 20,625
------
36,563
------
PACKAGING/CONTAINER 1.40%
------------------- -----
1,000 Sonoco Products Corporation 24,750
------
RESTAURANT/FOOD SERVICE 1.62%
----------------------- -----
2,200 Consolidated Products, Inc.* 28,600
------
TELECOMMUNICATIONS 1.03%
------------------ -----
1,000 Alcatel Alsthom ADS 18,125
------
Total Investments 99.35% 1,753,548
Cash Equivalents 0.17% 2,946
Net Receivables/(Payables) 0.48% 8,473
------- ----------
TOTAL NET ASSETS 100.00% $1,764,967
======= ==========
* Indicates nonincome-producing security.
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
JUNE 30,1995
SMALL CAP PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK 95.65% ASSETS VALUE
------- ----------------------------- ---------- ----------
CHEMICALS 7.80%
--------- -----
8,200 Chemed Corporation $ 284,950
9,000 Lesco, Inc. 140,625
3,600 OM Group, Inc. 102,600
11,700 Synalloy Corporation 219,375
-------
747,550
-------
COMPUTER RELATED 7.01%
---------------- -----
17,700 Exabyte Corporation * 245,588
8,000 OPTI, Inc. * 182,000
4,900 Zilog, Inc. * 244,387
-------
671,975
-------
ELECTRICAL EQUIPMENT 8.81%
-------------------- -----
7,600 Baldor Electric Company 217,550
11,000 Gasonics International Corporation* 313,500
4,500 Kent Electronics Corporation 170,437
10,800 Sheldahl, Inc.* 143,100
-------
844,587
-------
ELECTRONICS 17.46%
----------- ------
9,700 Benchmark Electronics, Inc. * 238,863
12,200 BMC Industries, Inc. 306,525
9,900 Dovatron International, Inc. * 242,550
4,200 Input/Output, Inc. * 151,200
6,200 Logicon, Inc. 275,900
12,000 LTX Corporation* 106,500
14,400 Verifone, Inc. * 352,800
----------
1,674,338
----------
ENTERTAINMENT 2.00%
------------- -----
9,600 Players International, Inc.* $ 192,000
-------
* Indicates nonincome-producing security.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
SMALL CAP PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
FINANCIAL SERVICES 7.09%
------------------ -----
3,600 Cullen/Frost Bankers, Inc. $145,800
11,200 Roosevelt Financial Group, Inc. 186,900
7,300 TCF Financial Corporation 346,750
-------
679,450
-------
INSURANCE 1.28%
--------- -----
5,000 Sierra Health Services, Inc.* 122,500
-------
MACHINE/MACHINE TOOL 3.40%
-------------------- -----
8,700 AGCO Corporation 326,250
-------
MANUFACTURING 3.09%
------------- -----
16,600 Paxar Corporation* 296,725
-------
MEDICAL SUPPLIES/SERVICES 3.30%
------------------------- -----
14,400 Coventry Corporation* 203,400
4,000 Lunar Corporation* 113,000
-------
316,400
-------
OIL/GAS 8.55%
------- -----
13,400 Cairn Energy USA, Inc.* 147,400
6,500 Landmark Graphics Corporation* 165,750
9,100 Nuevo Energy Company* 183,138
7,600 Parker & Parsley Petroleum Company 149,150
18,100 Tejas Power Corporation Class A * 174,212
-------
819,650
-------
PUBLISHING/PRINTING 0.90%
------------------- -----
6,300 Consolidated Graphics, Inc.* $ 86,625
------
* Indicates nonincome-producing security.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
SMALL CAP PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
REAL ESTATE 4.04%
----------- -----
8,500 Felcor Suite Hotels, Inc. $ 216,750
11,200 RFS Hotel Investors, Inc. 170,800
-------
387,550
-------
RETAIL/RETAIL STORE 5.33%
------------------- -----
9,000 Big B, Inc. 127,125
9,000 Friedman's Inc. Class A* 171,000
28,400 Sun Television and Appliances 213,000
-------
511,125
-------
STEEL 3.36%
----- -----
13,000 Quanex Corporation 321,750
-------
TELECOMMUNICATIONS 1.66%
------------------ -----
9,100 Intervoice Inc.* 159,250
-------
TRANSPORTATION 5.10%
-------------- -----
14,600 Covenant Transport, Inc. * 189,800
9,900 Kirby Corporation * 157,163
7,500 M.S. Carriers, Inc. * 142,500
-------
489,463
-------
TRUCKING & LEASING 3.14%
------------------ -----
18,000 Swift Transportation Co. Inc.* 301,500
-------
WHOLESALE SPECIAL LINE 2.33%
---------------------- -----
12,900 Sodak Gaming, Inc. * 224,137
-------
Total Investments 95.65% 9,172,825
Cash Equivalents 8.75% 839,390
Net Receivables/(Payables) (4.40)% (422,427)
------- ----------
TOTAL NET ASSETS 100.00% $9,589,788
======= ==========
* Indicates nonincome-producing security.
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1995
VALUE PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK 93.19% ASSETS VALUE
------ ------------- ------ ------ -----
AEROSPACE/DEFENSE 3.77%
----------------- -----
300 Boeing Company $ 18,788
400 Loral Corporation 20,700
500 Rockwell International Corporation 22,875
------
62,363
------
BUILDING MATERIALS/CONSTRUCTION 1.51%
------------------------------- -----
700 Sherwin-Williams Company 24,937
------
CHEMICALS 1.63%
--------- -----
400 FMC Corporation * 26,900
------
COMMERCIAL SERVICES 4.01%
------------------- -----
1,500 Dial Corporation 37,125
600 FlightSafety International, Inc. 29,250
------
66,375
------
ELECTRICAL EQUIPMENT 6.46%
-------------------- -----
1,300 Corning, Inc. 42,575
900 Emerson Electric Company 64,350
--------
106,925
--------
ELECTRONICS 5.62%
----------- -----
1,000 Sundstrand Corporation 59,750
600 Varian Associates, Inc. 33,150
------
92,900
------
ENGINEERING/CONSTRUCTION 1.26%
------------------------ -----
400 Fluor Corp. $ 20,800
------
* Indicates nonincome-producing security.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
VALUE PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
FINANCIAL SERVICES 11.01%
------------------ ------
1,000 Bank of New York Company, Inc. $ 40,375
500 Chase Manhatten Corporation 23,500
1,000 Corestates Financial Corporation 34,875
500 Franklin Resources, Inc. 22,250
400 Merrill Lynch & Company, Inc. 21,000
1,000 Salomon, Inc. 40,125
--------
182,125
--------
FOOD/BEVERAGES 1.93%
-------------- -----
700 Pepsico, Inc. 31,937
------
FOREST PRODUCTS/PAPER 3.20%
--------------------- -----
600 Mead Corporation 35,625
300 Union Camp Corporation 17,362
------
52,987
------
INSURANCE 6.06%
--------- -----
200 American International Group, Inc. 22,800
1,300 Physician Corporation of America* 17,713
600 Progressive Corporation Ohio 23,025
1,200 U.S. Healthcare, Inc. 36,750
--------
100,288
--------
MACHINERY/TOOLS 5.91%
--------------- -----
500 Agco Corporation 18,750
1,000 Cincinnati Milacron, Inc. 27,000
1,500 Harnischfeger Industries, Inc. 51,938
------
$ 97,688
------
* Indicates nonincome-producing security.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
VALUE PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
MANUFACTURING 3.52%
------------- -----
600 AlliedSignal, Inc. $ 26,700
900 Trinova Corporation 31,500
------
58,200
------
MEDICAL SUPPLIES/SERVICES 1.05%
------------------------- -----
400 Columbia/HCA Healthcare Corporation 17,300
------
METALS/MINING 1.39%
------------- -----
500 Timken Company 23,062
------
OIL/GAS 11.39%
------- ------
400 Anadarko Petroleum Corporation 17,250
300 Atlantic Richfield Company 32,925
900 Enron Corporation 31,613
400 Exxon Corporation 28,250
400 Mobil Corporation 38,400
900 Western Atlas, Inc.* 39,937
--------
188,375
--------
PHARMACEUTICAL/MEDICAL 5.27%
---------------------- -----
1,800 Caremark International, Inc. 36,000
4,500 Carter-Wallace, Inc. 51,188
------
87,188
------
RESTAURANT/FOOD SERVICE 1.08%
----------------------- -----
1,000 Wendy's International, Inc. 17,875
------
RETAIL/APPAREL 2.50%
-------------- -----
1,000 Nordstrom, Inc. $ 41,375
------
* Indicates nonincome-producing security.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
VALUE PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------- ----------------------------- ---------- ----------
RETAIL STORE 6.03%
------------ -----
700 Circuit City Stores, Inc. $ 22,138
2,200 Price/Costco, Inc.* 35,750
700 Sears, Roebuck and Company 41,912
------
99,800
------
TRANSPORTATION 5.91%
-------------- -----
1,200 Conrail, Inc. 66,750
1,300 Southwest Airlines Company 31,038
------
97,788
------
UTILITIES 2.68%
--------- -----
400 American Electric Power Company 14,050
1,100 Peco Energy Company 30,387
------
44,437
------
Total Investments 93.19% 1,541,625
Cash Equivalents 6.92% 114,488
Net Receivables/(Payables) (0.11)% (1,793)
------ ----------
TOTAL NET ASSETS 100.00% $1,654,320
======= ==========
* Indicates nonincome-producing security.
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1995
GOVERNMENT/QUALITY BOND PORTFOLIO
PRINCIPAL PERCENT OF MARKET
AMOUNT NET ASSETS VALUE
------- ---------- ----------
U.S. GOVERNMENT SECURITIES 71.62%
-----------------------------------
500,000 Federal Natl. Mtg. Asso. 0%, due 7/17/95 $ 498,604
115,089 Govt. Natl. Mtg. Asso. 11.50%, due 10/15/10 129,512
306,012 Govt. Natl. Mtg. Asso. 10.00%, due 12/15/18 332,980
4,750 Govt. Natl. Mtg. Asso. 10.00%, due 5/15/19 5,169
43,437 Govt. Natl. Mtg. Asso. 9.50%, due 9/15/19 46,003
46,890 Govt. Natl. Mtg. Asso. 10.00%, due 5/15/20 51,023
149,425 Govt. Natl. Mtg. Asso. 9.50%, due 9/15/21 158,251
147,390 Govt. Natl. Mtg. Asso. 7.50%, due 4/15/22 148,081
96,912 Govt. Natl. Mtg. Asso. 7.50%, due 5/15/23 97,367
217,493 Govt. Natl. Mtg. Asso. 7.50%, due 1/15/24 218,513
200,000 Student Loan Mrkt. Asso. Float Rate,
due 4/16/96 200,070
250,000 U. S. Treasury Note 8.50%, due 11/15/95 252,383
100,000 U. S. Treasury Note 5.50%, due 4/30/96 99,765
175,000 U. S. Treasury Note 6.375%, due 8/15/02 177,023
250,000 U. S. Treasury Note 5.75%, due 8/15/03 242,422
100,000 U. S. Treasury Bond 10.75%, due 8/15/05 132,594
300,000 U. S. Treasury Bond 7.125%, due 2/15/23 316,219
1,000,000 U. S. Treasury Strip 0%, due 5/15/15 255,877
----------
3,361,856
CORPORATE BONDS 23.02%
150,000 Associates Corp. North America 8.375%,
due 6/1/96 145,481
225,000 Chase Manhattan Credit Card 8.75%,
due 8/15/99 230,098
200,000 ITT Financial Corp. 8.375%, due 8/1/95 200,293
250,000 Sears Credit Corporation 7.75%, due 9/15/98 254,688
250,000 Standard Credit Card Trust 5.875%,
due 8/07/96 250,000
1,080,560
Total Investments 94.64% 4,442,416
Cash Equivalents 4.05% 190,249
Net Receivables/(Payables) 1.31% 61,259
------- ----------
TOTAL NET ASSETS 100.00% $4,693,924
======= ==========
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
ASSET
ALLOCATION BALANCED CONVERTIBLE
PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ------------
ASSETS:
Investments in securities, at market
value (note 4) $1,889,184 2,163,966 1,753,548
Cash equivalents 101,251 289,617 2,946
Accrued interest and dividends receivable 8,950 20,330 13,710
----- ------ ------
Total assets 1,999,385 2,473,913 1,770,204
--------- --------- ---------
LIABILITY:
Accrued expenses, including investment
management and service fees and
distribution expense reimbursement
payable to adviser, administrator and
distributor (note 3) 6,087 7,669 5,237
----- ----- -----
Net assets applicable to outstanding
capital stock $1,993,298 2,466,244 1,764,967
========== ========= =========
NET ASSETS ARE REPRESENTED BY:
Capital stock outstanding, at par (note 6) 192 226 147
Additional paid-in capital 1,677,240 2,096,677 1,607,031
Accumulated undistributed net
investment income 43 16 86
Accumulated undistributed net realized
gain (loss) 76,319 78,924 (21,355)
Unrealized appreciation (note 5) 239,504 290,401 179,058
------- ------- -------
Total amount representing net assets
applicable to shares outstanding $1,993,298 2,466,244 1,764,967
========== ========= =========
Net asset value per share of outstanding
capital stock $10.37 10.90 11.97
====== ===== =====
See accompanying notes to financial
statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
QUALITY
SMALL CAP VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS:
Investments in securities, at market
value (note 4) $9,172,825 1,541,625 4,442,416
Cash equivalents 839,390 114,488 190,249
Accrued interest and dividends receivable 8,126 3,008 69,384
----- ------- ------
Receivable for investment securities sold 113,259 - -
------- ------ --------
Total assets 10,133,600 1,659,121 4,702,049
---------- --------- ---------
LIABILITIES:
Accrued expenses, including investment
management and service fees and
distribution expense reimbursement payable
to adviser, administrator and
distributor (note 3) 14,347 4,801 8,125
Payable for investment securities
purchased 529,465 - -
Total liabilities 543,812 4,801 8,125
------- ----- -----
Net assets applicable to outstanding $9,589,788 1,654,320 4,693,924
========== ========= =========
capital stock
NET ASSETS ARE REPRESENTED BY:
Capital stock outstanding, at par (note 6) 711 147 450
Additional paid-in capital 8,390,526 1,178,641 4,879,374
Accumulated undistributed net investment
income (loss) (95,165) (51,757) 3,965
Accumulated undistributed net realized
gain (loss) (32,255) 384,968 (186,084)
Unrealized appreciation (depreciation)
(note 5) 1,325,971 142,321 (3,781)
--------- ------- -------
Total amount representing net assets
applicable to shares outstanding $9,589,788 1,654,320 4,693,924
========== ========= =========
Net asset value per share of outstanding $13.49 11.22 10.43
====== ===== =====
capital stock
See accompanying notes to financial
statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995
ASSET
ALLOCATION BALANCED CONVERTIBLE
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- -----------
INVESTMENT INCOME:
Dividends $36,745 57,123 37,510
Interest 132,453 176,502 68,660
------- ------- ------
Total investment income 169,198 233,625 106,170
------- ------- -------
EXPENSES (NOTE 3):
Investment advisory and administration fees 43,111 57,127 26,152
Distribution expenses 18,102 23,996 10,996
Custodial fees 4,556 3,000 3,135
Auditing and tax accounting fees 4,089 3,774 2,422
Security pricing 3,140 1,790 1,851
Other operating expenses 3,396 4,266 4,852
----- ----- -----
Total expenses 76,394 93,953 49,408
------ ------ ------
Net investment income 92,804 139,672 56,762
------ ------- ------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 5):
Net realized gain (loss) 226,971 277,943 (11,847)
------- ------- --------
Net unrealized appreciation (depreciation)
Beginning of period 117,050 252,523 (23,601)
End of period 239,504 290,401 179,058
------- ------- -------
Net unrealized appreciation 122,454 37,878 202,659
------- ------ -------
Net realized and unrealized gain on
investments 349,425 315,821 190,812
------- ------- -------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $442,229 455,493 247,574
======== ======= =======
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995
QUALITY
SMALL CAP VALUE BOND
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- -----------
INVESTMENT INCOME:
Dividends $78,177 48,849 -
Interest 33,755 5,293 498,274
------ ----- -------
Total investment income 111,932 54,142 498,274
------- ------ -------
EXPENSES (NOTE 3):
Investment advisory and administration fees 100,120 42,310 53,741
Distribution expenses 42,219 17,753 27,252
Custodial fees 6,308 4,268 5,381
Auditing and tax accounting fees 2,804 2,886 3,973
Security pricing 3,089 4,206 2,227
Other operating expenses 8,299 3,373 7,134
----- ----- -----
Total expenses 162,839 74,796 99,708
------- ------ ------
Net investment income (loss) (50,907) (20,654) 398,566
-------- -------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 5):
Net realized gain (loss) (37,137) 493,830 (232,150)
-------- ------- ---------
Net unrealized appreciation (depreciation)
Beginning of period (297,619) 415,335 (356,235)
End of period 1,325,971 142,321 (3,781)
--------- ------- -------
Net unrealized appreciation
(depreciation) 1,623,590 (273,014) 352,454
--------- --------- -------
Net realized and unrealized gain
on investments 1,586,453 220,816 120,304
--------- ------- -------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,535,546 200,162 518,870
========== ======= =======
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED JUNE 30, 1995 AND 1994
ASSET ALLOCATION BALANCED
PORTFOLIO PORTFOLIO
1995 1994 1995 1994
--------- -------- -------- -----------
OPERATIONS:
Net investment income $92,804 39,031 139,672 116,998
Net realized gain
on investments 226,971 1,051,128 277,943 502,539
Unrealized appreciation
(depreciation) 122,454 (1,108,816) 37,878 (760,972)
------- ----------- ------ ---------
Net increase (decrease)
in net assets
resulting from operations 442,229 (18,657) 455,493 (141,435)
------- -------- ------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income 93,316 36,674 140,859 118,108
Net realized gains 735,471 555,014 490,579 313,476
------- ------- ------- -------
Total distributions 828,787 591,688 631,438 431,584
------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
(NOTE 6)
Proceeds from sales 89,077 365,135 295,171 1,154,960
Payment for redemptions (3,881,092)(1,437,098) (4,899,867)(1,377,276)
Reinvestment of net investment
income and net realized
gain distributions
at net asset value 828,787 591,397 623,511 427,119
------- ------- ------- -------
Total increase
(decrease) from capital
share transactions (2,963,228)(480,566) (3,981,185) 204,803
---------- --------- ----------- --------
Total decrease in
net assets (3,349,786)(1,090,911) (4,157,130)(368,216)
NET ASSETS:
Beginning of period 5,343,084 6,433,995 6,623,374 6,991,590
--------- --------- --------- ---------
End of period $1,993,298 5,343,084 2,466,244 6,623,374
========== ========= ========= =========
See accompanying notes to
financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED JUNE 30, 1995 AND 1994
CONVERTIBLE SMALL CAP
PORTFOLIO PORTFOLIO
1995 1994 1995 1994
---------- ---------- --------- ----------
OPERATIONS:
Net investment income (loss) $56,762 62,873 (50,907) (30,671)
Net realized gain (loss)
on investments (11,847) 259,369 (37,137) 376,828
Unrealized appreciation
(depreciation) 202,659 (412,999) 1,623,590 (518,423)
------- --------- --------- ---------
Net increase (decrease)
in net assets
resulting from operations 247,574 (90,757) 1,535,546 (172,266)
------- -------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income 58,599 62,336
- -
Net realized gains 165,477 77,731 276,654 129,226
------- ------ ------- -------
Total distributions 224,076 140,067 276,654 129,226
------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
(NOTE 6)
Proceeds from sales 169,674 830,694 3,211,418 4,916,459
Payment for redemptions (1,359,579)(399,942) (2,372,561)(663,011)
Reinvestment of netinvestment
income and net realized
gain distributions
at net asset value 223,270 139,300 273,095 129,226
------- ------- ------- -------
Total increase
(decrease) from capital
share transactions (966,635) 570,052 1,111,952 4,382,674
--------- ------- --------- ---------
Total increase
(decrease) in net assets (943,137) 339,228 2,370,844 4,081,182
NET ASSETS:
Beginning of period 2,708,104 2,368,876 7,218,944 3,137,762
--------- --------- --------- ---------
End of period $1,764,967 2,708,104 9,589,788 7,218,944
========== ========= ========= =========
See accompanying notes to
financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED JUNE 30, 1995 AND 1994
VALUE GOVERNMENT/QUALITY
PORTFOLIO BOND PORTFOLIO
1995 1994 1995 1994
---- ---- ---- ----
OPERATIONS:
Net investment income (loss) ($20,654) (28,848) 398,566 466,128
Net realized gain (loss)
on investments 493,830 343,008 (232,150) 74,839
Unrealized appreciation
(depreciation) (273,014) (591,469) 352,454 (712,515)
--------- --------- ------- ---------
Net increase (decrease)
in net assets
resulting from operations 200,162 (277,309) 518,870 (171,548)
------- --------- ------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income - - 406,678 466,252
Net realized gains 409,507 - 292 166,196
------- ----------- --- -------
Total distributions 409,507 - 406,970 632,448
------- ----------- ------- -------
CAPITAL SHARE TRANSACTIONS:
(NOTE 6)
Proceeds from sales 323,001 793,554 767,050 1,665,565
Payment for redemptions (4,155,154)(1,398,732) (5,398,157)(2,344,444)
Reinvestment of net
investment income and net
realized gain distributions
at net asset value 409,507 - 380,984 605,636
------- ----------- ------- -------
Total decrease from capital
share transactions (3,422,646)(605,178) (4,250,123) (73,243)
--------- --------- ---------- --------
Total decrease in
net assets (3,631,991)(882,487) (4,138,223)(877,239)
NET ASSETS:
Beginning of period 5,286,311 6,168,798 8,832,147 9,709,386
--------- --------- --------- ---------
End of period $1,654,320 5,286,311 4,693,924 8,832,147
========== ========= ========= =========
See accompanying notes to
financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1995, 1994, 1993, 1992 AND 1991
ASSET ALLOCATION PORTFOLIO
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
NET ASSET VALUE:
Beginning of period $11.08 12.33 11.61 10.96 10.09
------ ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment income 0.27 0.07 0.11 0.12 0.24
Net realized and
unrealized gain
(loss) on investments 1.02 (0.15) 1.00 0.78 1.14
---- ------ ---- ---- ----
Total income (loss) from
investment 1.29 (0.08) 1.11 0.90 1.38
---- ------ ---- ---- ----
operations
Less distributions:
Dividends from net
investment income (0.27) (0.07) (0.11) (0.12) (0.34)
Distributions from
capital gains (1.73) (1.10) (0.28) (0.13) (0.17)
------ ------ ------ ------ ------
Total distributions (2.00) (1.17) (0.39) (0.25) (0.51)
------ ------ ------ ------ ------
End of period $10.37 11.08 12.33 11.61 10.96
====== ===== ===== ===== =====
TOTAL RETURN 19.10% (.66%) 9.51% 8.19% 12.95%
====== ====== ===== ===== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,993,298 5,343,084 6,433,995 6,937,275 6,470,722
Ratio of expenses to
average net assets 2.12% 1.96% 1.93% 2.15% 2.39%
Ratio of net income to
average net assets 2.57% 0.64% 0.91% 1.04% 2.05%
Portfolio turnover rate 46.38% 117.77% 40.53% 19.42% 48.30%
See accompanying notes to
financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1995, 1994, 1993, 1992 AND 1991
BALANCED PORTFOLIO
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
NET ASSET VALUE:
Beginning of period $11.26 12.23 11.10 10.72 10.77
------ ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income 0.33 0.20 0.34 0.36 0.37
Net realized and unrealized gain
(loss) on investments 0.74 (0.43) 1.13 0.38 0.02
---- ------ ---- ---- ----
Total income (loss) from
investment 1.07 (0.23) 1.47 0.74 0.39
---- ------ ---- ---- ----
operations
Less distributions:
Dividends from net
investment income (0.33) (0.20) (0.34) (0.36) (0.34)
Distributions from
capital gains (1.10) (0.54) - - (0.10)
------ ------ ------- -------- ------
Total distributions (1.43) (0.74) (0.34) (0.36) (0.44)
------ ------ ------ ------ ------
End of period $10.90 11.26 12.23 11.10 10.72
====== ===== ===== ===== =====
TOTAL RETURN 11.18% (1.99%) 13.16% 6.81% 4.84%
====== ======= ====== ===== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets,end of period $2,466,244 6,623,374 6,991,590 7,386,180 6,122,831
Ratio of expenses to
average net assets 1.96% 1.91% 1.89% 2.13% 2.31%
Ratio of net income to
average net assets 2.92% 1.65% 2.59% 3.20% 3.95%
Portfolio turnover rate 78.34% 24.17% 24.72% 40.63% 31.70%
See accompanying notes to
financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1995, 1994, 1993, 1992 AND 1991
CONVERTIBLE PORTFOLIO
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
NET ASSET VALUE:
Beginning of period $11.69 12.58 10.76 9.96 9.86
------ ----- ----- ---- ----
Income (loss) from investment operations:
Net investment income 0.30 0.29 0.33 0.31 0.40
Net realized and
unrealized gain
(loss) on investments 1.01 (0.53) 2.16 0.80 (0.06)
---- ------ ---- ---- ------
Total income (loss) from
investment operations 1.31 (0.24) 2.49 1.11 0.34
---- ------ ---- ---- ----
Less distributions:
Dividends from net
investment income (0.30) (0.29) (0.33) (0.31) (0.21)
Distributions from
capital gains (0.73) (0.36) (0.34) - (0.03)
------ ------ ------ -------- ------
Total distributions (1.03) (0.65) (0.67) (0.31) (0.24)
------ ------ ------ ------ ------
End of period $11.97 11.69 12.58 10.76 9.96
====== ===== ===== ===== ====
TOTAL RETURN 14.09% (2.26%) 24.06% 10.95% 5.09%
====== ======= ====== ====== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,764,967 2,708,104 2,368,876 1,791,325 1,188,680
Ratio of expenses to
average net assets 2.25% 2.06% 2.13% 2.48% 2.79%
Ratio of net income to
average net assets 2.58% 2.27% 2.91% 2.85% 3.48%
Portfolio turnover rate 51.31% 65.76% 69.72% 96.02% 70.77%
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
SMALL CAP PORTFOLIO
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%
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1995, 1994, 1993, 1992 AND 1991
VALUE PORTFOLIO
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
NET ASSET VALUE:
Beginning of period $11.29 11.92 10.24 9.35 9.75
------ ----- ----- ---- ----
Income (loss) from investment operations:
Net investment income (0.06) (0.06) 0.02 0.00 0.14
Net realized and
unrealized gain
(loss) on investments 0.69 (0.57) 1.68 0.90 (0.25)
---- ------ ---- ---- ------
Total income (loss) from
investment operations 0.63 (0.63) 1.70 0.90 (0.11)
---- ------ ---- ---- ------
Dividends from net
investment income - - (0.02) (0.01) (0.29)
Distributions from
capital gain (0.70) - - - -
----- ----- ----- ----- ----
Total distributions (0.70) - (0.02) (0.01) (0.29)
------ ----------- ------ ------ ------
End of period $11.22 11.29 11.92 10.24 9.35
====== ===== ===== ===== ====
TOTAL RETURN 11.30% (5.29%) 16.60% 9.67% (2.42%)
====== ======= ====== ===== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,654,320 5,286,311 6,168,798 5,138,910 3,983,877
Ratio of expenses to
average net assets 2.11% 1.98% 1.97% 2.35% 2.46%
Ratio of net income to
average net assets (0.58%) (0.48%) 0.18% (0.03%) 1.70%
Portfolio turnover rate 96.81% 68.07% 62.24% 113.56% 31.78%
See accompanying notes to
financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1995, 1994, 1993, 1992 AND 1991
GOVERNMENT/QUALITY BOND PORTFOLIO
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
NET ASSET VALUE:
Beginning of period $10.21 11.17 10.93 10.42 10.31
------ ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income 0.60 0.54 0.64 0.73 0.57
Net realized and
unrealized gain
(loss) on investments 0.22 (0.75) 0.43 0.60 0.11
---- ------ ---- ---- ----
Total income (loss) from
investment 0.82 (0.21) 1.07 1.33 0.68
---- ------ ---- ---- ----
operations
Less distributions:
Dividends from net
investment income (0.60) (0.54) (0.64) (0.71) (0.51)
Distributions from
capital gains - (0.21) (0.19) (0.11) (0.06)
------- ------ ------ ------ ------
Total distributions (0.60) (0.75) (0.83) (0.82) (0.57)
------ ------ ------ ------ ------
End of period $10.43 10.21 11.17 10.93 10.42
====== ===== ===== ===== =====
TOTAL RETURN 9.42% (2.00%) 11.00% 12.79% 8.91%
===== ======= ====== ====== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $4,693,924 8,832,147 9,709,386 8,112,226 6,060,110
Ratio of expenses to
average net assets 1.47% 1.37% 1.38% 1.50% 1.58%
Ratio of net income to
average net assets 5.86% 4.94% 6.25% 6.64% 6.92%
Portfolio turnover rate 9.33% 218.11% 175.95% 507.52% 102.55%
See accompanying notes to
financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1995
1. ORGANIZATION
SMITH HAYES Trust, Inc. (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund issues its shares in series, each series
representing a distinct portfolio with its own investment objectives and
policies. These financial statements relate only to the following
portfolios:
Asset Allocation Portfolio Small Cap Portfolio
Balanced Portfolio Value Portfolio
Convertible Portfolio Government/Quality Bond Portfolio
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of
significant accounting policies employed by the Fund in preparing its
financial statements:
VALUATION OF INVESTMENTS
Investment securities are carried at market determined using the following
valuation methods:
o Securities traded on a national or regional stock exchange or included in
the NASDAQ National Market System are valued at the last quoted sales
price.
o Securities not listed on an exchange or securities for which a latest
quoted sales price is not readily available and securities traded
over-the-counter but not included in the NASDAQ National Market System
are valued at the mean of the closing bid and asked prices.
o Securities including bonds or other assets for which reliable recent
market quotations are not readily available are valued at fair market
value as determined in good faith or under the direction of The Board of
Directors. Determination of fair value involves, among other things,
reference to market indices, matrices and data from independent brokers
and pricing services.
All securities are valued in accordance with the above policies at the close
of each business day.
At June 30, 1995, the cost of investment securities is identical for
financial reporting and income tax purposes.
<PAGE>
SMITH HAYES TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
When a call option is written on behalf of a portfolio, an amount equal to
the premium received by the portfolio is included by the portfolio in the
portfolio's statement of assets and liabilities as a liability. The amount
of the liability is subsequently marked to market to reflect the current
value of the option written. The current market value of a traded option is
the last sales price on the principal exchange on which such options are
traded, or in the absence of such a sale, at the latest ask quotation. When
an option expires on its stipulated expiration date or the portfolio enters
into a closing purchase transaction, the portfolio realizes a gain (or loss
if the cost of a closing transaction exceeds the premium received when the
option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. When an option is exercised, the portfolio realizes a gain or
loss from the sale of the underlying security and the proceeds from such
sale are decreased by the premium originally received.
When a put option is written, an amount equal to the premium paid by the
portfolio is included by the portfolio in the portfolio's statement of
assets and liabilities as an asset. The amount of the asset is subsequently
marked to market to reflect the current value of the option written. The
current market value of a traded option is the last sales price on the
principal exchange on which such options are traded, or in the absence of
such a sale, at the latest ask quotation. When an option expires on its
stipulated expiration date or the portfolio enters into a closing sales
transaction, the portfolio realizes a gain (or loss if the cost of a closing
transaction is lower than the premium paid when the option was sold) without
regard to any unrealized gain or loss on the underlying security, and the
asset related to such option is extinguished. When an option is exercised,
the portfolio realizes a gain or loss from the sale of the underlying
security and the proceeds from the sale are increased by the premium
originally paid.
At June 30, 1995, the portfolios authorized to write option contracts had no
such option contracts outstanding nor were any written during the period.
SECURITY TRANSACTIONS
Security transactions are accounted for on the date securities are purchased
or sold (trade date). Dividend income is recognized on the ex-dividend date
and interest income, including amortization of premium and discount on the
straight-line basis, is accrued daily.
Realized investment gains and losses are determined by specifically
identifying the issue sold.
<PAGE>
SMITH HAYES TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
FEDERAL INCOME TAXES
It is the policy of each portfolio to comply with requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute virtually all of the taxable income generated by the portfolios
to their shareholders within the time period allowed by Federal law. Each
portfolio is treated as a separate entity for tax purposes, and on a
calendar basis will distribute substantially all of its net investment
income and realized gains, if any, to avoid payment of any federal excise
tax. The portfolios will not distribute net realized losses. Distributions
will be made when capital gains have been generated to cover these losses.
Each portfolio prepares its tax return on an accrual basis.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders are recorded on the ex-dividend date.
CASH EQUIVALENTS
The Fund considers investments with a maturity of three months or less when
purchased to be cash equivalents.
3. RELATED PARTY TRANSACTIONS
The Fund and each of its portfolios have retained CONLEY SMITH, Inc.
(formerly SMITH HAYES Portfolio Management, Inc.) (the Adviser) as their
exclusive investment adviser. The agreement provides that each portfolio,
except the Government/Quality Bond Portfolio, will pay the Adviser a fee
equal to 1% per annum of the portfolio's average daily net assets. The
Government/Quality Bond Portfolio pays .60% per annum of its average daily
net assets.
The Fund and each of its portfolios have also retained Lancaster
Administrative Services, Inc. (the Administrator) to act as their
administrator to provide routine administrative services and to serve as
transfer agent. The agreement provides that the portfolios will pay an
administrative fee to the Administrator equal to .1875% per annum of the
average daily net assets of each portfolio.
In addition to the advisory and administrative services agreements, the
Trust and each portfolio have retained SMITH HAYES Financial Services
Corporation (the Distributor), a company related through common ownership
and management, to act as the underwriter and distributor of the portfolio's
shares. Pursuant to the shareholder approved distribution plan under Rule
12b-1, each portfolio will
<PAGE>
SMITH HAYES TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
3. CONTINUED
reimburse the distributor for shareholder-related expenses incurred in
connection with the distribution of the portfolio's shares, however, under
no circumstances shall such reimbursement exceed .50% per annum of the
portfolio's average daily net assets (.40% for the Government/Quality Bond
Portfolio).
Under the terms of the advisory/administrative and distribution agreements
outlined above, the portfolios collectively paid $322,561 and $140,288,
respectively, for such services. Of the amount paid to the Distributor,
$121,994 was retained by them for sales of the Trust's shares made by their
agents and brokers.
At June 30, 1995, the following accrued investment management,
administrative fees and distribution expenses were payable to the Adviser,
Administrator and the Distributor:
Payable Payable Payable
to to to
Adviser Administrator Distributor Total
Asset Allocation Portfolio $1,596 $ 299 $ 890 $ 2,785
Balanced Portfolio 2,164 406 1,189 3,759
Convertible Portfolio 1,406 264 749 2,419
Small Cap Portfolio 7,441 1,395 3,838 12,674
Value Portfolio 1,326 249 741 2,316
Government/Quality
Bond Portfolio 2,284 714 1,643 4,641
======= ====== ====== =======
Under the terms of the adviser agreement, the Adviser may be obligated to
reimburse a portfolio up to the amount of the Adviser's fee paid to the
Adviser if during any year the expenses of the portfolio, including the
Adviser's fee, exceed certain limitations. At June 30, 1995, no expense
reimbursement was required.
In addition to the amounts paid by the portfolios under the adviser,
administrative and distribution plans, the portfolios primarily used SMITH
HAYES Financial Services Corporation (SMITH HAYES) to affect security trades
on their behalf. As is customary in the industry, the investment
sub-advisers evaluate the pricing and ability to execute the transaction in
selecting brokers to affect trades. SMITH HAYES was paid commissions in the
amount of $68,716 for their brokerage services during the period ended June
30, 1995.
<PAGE>
SMITH HAYES TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT
Cost of investment securities held at June 30, 1995, was as follows for each
portfolio:
Asset Allocation Portfolio $1,649,680
Balanced Portfolio 1,873,565
Convertible Portfolio 1,574,490
Small Cap Portfolio 7,846,854
Value Portfolio 1,399,304
Government/Quality Bond Portfolio 4,446,197
5. SECURITIES TRANSACTIONS
Purchases of securities and proceeds from sales during the year ended June
30, 1995, were as follows for each portfolio:
Purchases of Proceeds
Securities from Sales
Asset Allocation Portfolio $1,618,671 $ 5,320,722
Balanced Portfolio 3,021,333 6,015,846
Convertible Portfolio 1,089,325 2,209,887
Small Cap Portfolio 8,090,420 6,806,478
Value Portfolio 3,360,196 7,259,984
Government/Quality Bond Portfolio 6,397,615 10,703,201
At June 30, 1995, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities in each portfolio were
as follows:
Aggregate Gross
Unrealized
Appreciation Depreciation
Asset Allocation Portfolio $ 244,549 $ 5,045
Balanced Portfolio 310,992 20,591
Convertible Portfolio 208,455 29,397
Small Cap Portfolio 1,539,100 213,129
Value Portfolio 169,849 27,528
Government/Quality Bond Portfolio 50,516 54,297
============ ==========
6. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue a total of one billion shares of common
stock in series with a par value of $.001 per share. The following
summarizes the shares of each portfolio at June 30, 1995:
<PAGE>
SMITH HAYES TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
6. (CONTINUED)
Shares
Authorized Outstanding
Asset Allocation Portfolio 10,000,000 192,164.376
Balanced Portfolio 10,000,000 226,168.951
Convertible Portfolio 10,000,000 147,406.527
Small Cap Portfolio 10,000,000 710,792.587
Value Portfolio 10,000,000 147,480.547
Government/Quality Bond Portfolio 10,000,000 450,012.783
Transactions in the capital stock of each portfolio for the year ended June
30, 1995, were as follows:
Asset
Allocation Balanced Convertible
Portfolio Portfolio Portfolio
Transactions in shares:
Shares sold 8,192.273 26,126.648 14,697.652
Shares redeemed (391,623.465) (448,429.652) (119,744.166)
Reinvested distributions 93,235.940 60,212.693 20,799.166
Net decrease (290,195.252) (362,090.311) (84,247.348)
Government/
Small Cap Value Quality Bond
Portfolio Portfolio Portfolio
Transactions in shares:
Shares sold 258,890.892 29,339.030 75,172.609
Shares redeemed (193,771.801) (391,689.929) (527,491.743)
Reinvested distributions 22,968.427 41,658.848 37,484.980
Net increase (decrease) 88,087.518 (320,692.051) (414,834.154)
At June 30, 1995, directors, officers and employees of the Fund, the
Adviser, Administrator and Distributor and their immediate families held the
following in each portfolio:
Shares Value
Asset Allocation 575.131 $ 5,964
Balanced Portfolio 152.468 1,662
Convertible Portfolio 2,849.095 34,104
Small Cap Portfolio 6,932.841 93,524
Value Portfolio 822.582 9,229
Government/Quality Bond Portfolio 4,731.099 49,345
========= ========
<PAGE>
SMITH HAYES TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
7. BUSINESS CHANGES
On December 20, 1995, the Board of Directors of the Fund designated
50,000,000 shares of the authorized but unissued shares of the Fund to
establish the Capital Builder Fund. The Capital Builder Fund will commence
operations in the fall of 1995. Capitalization of the Capital Builder Fund
will occur, in part, through the combination of the Asset Allocation,
Balanced and Value Portfolios.
In April of 1995, the adviser SMITH HAYES Portfolio Management, Inc. changed
its name to CONLEY SMITH, Inc.
On July 18, 1995, the Board of Directors of the Fund approved the appointment
of Lancaster Administrative Services, Inc. successor to the transfer agent
and administrative services functions of the adviser CONLEY SMITH, Inc.
<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.
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 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
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.
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.
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 request
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.
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 #------------------
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>
<PAGE>
TABLE OF CONTENTS
Introduction............................................. 1
Financial Highlights..................................... 3
Investment Objective and Policies........................ 3
Management............................................... 6
Distribution of Fund Shares.............................. 7
Purchase of Shares....................................... 8
Redemption of Shares..................................... 9
Valuation of Shares...................................... 10
Dividends and Taxes...................................... 11
General Information...................................... 12
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 INFORM- ATION REFERRED TO ON
THE COVER PAGE OF THIS PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRE-SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SMITH
HAYES TRUST, INC. OR SMITH HAYES FINANCIAL SERVICES CORPORATION. THIS
PROSPE-CTUS 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.
SMITH HAYES Trust, Inc.
INSTITUTIONAL MONEY MARKET FUND
PROSPECTUS
INVESTMENT ADVISER
CONLEY-SMITH, Inc.
ADMINISTRATOR,
TRANSFER AGENT AND
DIVIDEND PAYING AGENT
Lancaster Adminstrative Services, Inc.
DISTRIBUTOR
SMITH HAYES Financial
Services Corporation
CUSTODIAN
Union Bank and Trust Company
Lincoln, Nebraska
September 1, 1995
<PAGE>
SMITH HAYES Trust, Inc.
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1995
Table of Contents
Page
Investment Objectives, Policies and Restrictions........................ 2
Directors and Executive Officers........................................ 6
Investment Advisory and Other Services.................................. 7
Distribution Plan....................................................... 8
Portfolio Transactions and Brokerage
Allocations....................................................... 10
Capital Stock and Control............................................... 11
Net Asset Value and Public Offering Price............................... 12
Redemption.............................................................. 12
Tax Status.............................................................. 13
Calculation of Performance Data......................................... 13
Auditors................................................................ 15
Financial Statements.................................................... 15
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 Company at 200 Centre Terrace, 1225 L Street, Lincoln,
Nebraska 68508.
<PAGE>
INVESTMENT OBJECTIVE, 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 series designated:
Institutional Money Market Fund (sometimes referred to herein as a "Fund" ). The
investment objective and policies of the Fund are set forth in the Prospectus.
Certain additional investment information is set forth below.
Institutional Money Market Fund.
The investment objective of the Institutional Money Market Fund is to
provide maximum current income consistent with preservation of capital and
maintenance of liquidity. In order to accomplish this goal, assets of the
Institutional Money Market Fund will be invested in the following types of money
market instruments maturing in one year or less from 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 as Federal Intermediate Credit Banks, Federal
Home Loan Banks, Federal National Mortgage Association and Farmers Home
Administration. Such Securities will include, for example, 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. Redeemable interest-bearing Trust Certificates (the "Trust
Certificates") issued by the Mid-America Student Finance Trust (the "MASFT"),
for which Union Bank & Trust Company of Lincoln, Nebraska is trustee, created
for the sole purpose of facilitating the funding and purchase of federally
insured student loans originated by banks. The Trust Certificates, which will be
issuable only to the Trust (except as noted below), will have original
maturities of 364 days but will be redeemable by the Trust at their face amount
upon not more than five days written notice to the Trust. Funds will be made
available to the MASFT to meet early redemptions of Trust Certificates under
agreements between the MASFT and various banks and other institutions requiring
the banks to purchase, on not less than five days written notice, the lesser of
5% of the federally insured student loans held in the MASFT or the dollar amount
of the student loans sold to the MASFT by a bank. There will not be a public
market for the Trust Certificates and the Trust Certificates do not provide any
voting rights.
The Mid-America Student Finance Trust.
The MASFT is a revocable grantor trust and agency formed for the purpose
of purchasing federally insured student loans originated and sold by banks. The
student loans will be subject to repurchase, at the option of the Trust, on no
more than five days written notice. The Trustee is Union Bank & Trust Company of
Lincoln, Nebraska. The Fund's investment in student loans will be evidenced by
Trust Certificates, which will have original maturities of not more than 364
days and which may be redeemed by the Trust, upon not more than five days
written notice to the MASFT. The Trust is under no obligation to purchase
investments in student loans through the MASFT.
The decision to purchase student loans for the Fund will be based upon the
amount of funds available for investment, the investment yield borne by the
student loans compared with yields available on other short-term liquid
investments and upon the aggregate of student loans owned by the Trust, which
may not exceed 90% of the Fund's assets. The yield to the Fund on student loans
held by the MASFT will vary with current gross yields on federally insured
student loans. Presently, student loans' gross yield is approximately the 91-day
U.S. Treasury Bill rate, plus 3.10%. The Fund's yield on the student loans will
be approximately 2.65% less as a result of various fees, which are deducted for
origination, take-out servicing and trustee fees. Such fees will be paid out of
the MASFT assets and no fees will be paid directly by the Trust. Yields on
student loans fluctuate as a result of the special allowance payment feature of
the student loans under the Federal GSL Program described below.
The Higher Education Act (the "Act") sets forth provisions establishing a
program of (i) direct federal insurance to holders of student loans, and (ii)
reimbursement to state agencies or private nonprofit corporations administering
student loan insurance programs for losses sustained in the operation of their
programs (the "Federal GSL Program"). Under the Federal GSL Program, the
Secretary of Education (the "Secretary") is authorized to enter into guarantees
and interest subsidy agreements with various agencies (collectively the
"Agencies"). The Federal GSL Program provides for reimbursements to the Agencies
for default claims paid by them, the payment of administrative cost allowances
to the Agencies, advances for the Agencies' reserve funds and interest subsidy
payments and Special Allowance Payments to the holders of qualifying student
loans made pursuant to the Federal GSL Program.
Pursuant to Section 428(c)(1)(A) of the Act, the Agencies have entered
into guarantee agreements with the Secretary under which the respective Agencies
operate a Guarantee Program, whereby the Secretary agrees to reimburse the
Agencies in an amount equal to 80% of the amount expended by them in the
discharge of their insurance obligations on the unpaid balance of principal and
accrued interest with respect to loans guaranteed by the Agencies. The Act also
authorizes the Secretary to enter into supplemental guarantee agreements whereby
such federal reimbursement will be increased to a maximum of 100% of the amount
expended by the Agencies in the discharge of their insurance obligations. The
supplemental guarantee agreements are subject to annual renegotiation and the
Secretary is not authorized to renew them unless the Agencies' Guarantee
Programs comply with all the terms of the supplemental guarantee agreements and
all the provisions of the applicable federal regulations.
The Secretary and the Agencies have entered into subsidy agreements under
Section 428(b) of the Act whereby the Secretary agrees to pay interest subsidy
payments to the holders of qualifying student loans for the benefit of students
meeting certain requirements. To be eligible for federal reimbursement programs,
such loans must be made by an "eligible lender" under the Agencies' Guarantee
Program, which must meet requirements prescribed by the rules and regulations
promulgated under the Act. The Trustee is an eligible lender and will only
purchase loans originated by eligible lenders.
The Act provides for Special Allowance Payments by the Secretary to
holders of qualifying student loans such as MASFT. Special Allowance Payments
are computed on the basis of the average of the bond equivalent rates of the
91-day U.S. Treasury Bills auctioned during the preceding quarter, and are
provided as an inducement to lenders or holders of loans to compensate them for
the difference between the interest rate carried by the student loans and the
current commercial interest rate.
The Student Loan Reform Act of 1993 made various changes to the Federal
Guaranteed Student Loan Program. Effective October 1, 1993, Agencies are only
required to guarantee student loans at 98% of the unpaid balance of principal
and accrued interest on loans made after October 1, 1993. In addition to other
changes relating to origination fees, borrower interest rates, technical
revisions on how consolidated loans are treated and a limitation on the amount
of guarantee fee that can be charged by Agencies, commencing July 1, 1995, the
lender yield for Guaranteed Student Loans disbursed after July 1, 1995 is
reduced to the 90 day Treasury Bill rate plus 2.65%.
All student loans acquired by the Trust for the Fund will be 100% insured
either directly by the Secretary or under the Federal GSL program and will
qualify for interest subsidy payments and Special Allowance Payments. Loans
typically will be in amounts of $25,000 or less, repayable over a term of 15
years or less.
Investment Policies Applicable to the Fund.
Assets of the Fund will consist of securities with maturities of one year
or less at date of purchase or, if maturing beyond one year, which have variable
interest rates adjustable at least semiannually. In determining whether
particular variable rate investments may be made, the period remaining until
maturity will be deemed to be the longer of the demand notice period required
before the Fund is entitled to receive payment of the principal amount or the
period remaining until the next interest rate adjustment. The dollar-weighted
average maturity of the Fund's investments will be 90 days or less, determined
in the same manner. The underlying securities will be issued or guaranteed by
the United States Government, its agencies or instrumentalities. In attempting
to provide its shareholders with the highest income consistent with safety of
principal, the Fund may not necessarily purchase investments bearing the highest
interest rates available as such investments may also involve a higher degree of
risk.
As a general policy, it is the Trust's intention to hold the Fund's
investments until they mature. However, in an effort to increase portfolio
yields, the Trust may periodically trade securities to take advantage of
perceived disparities between the markets for various short-term money market
instruments. It is also possible that redemptions of Fund shares could
necessitate the sale of a portfolio investment prior to maturity and at time
when such sale would be undesirable.
While investments by the Trust for the Fund will be confined to
high-quality financial instruments, the complete elimination of risk is not
possible Under certain circumstances, the net asset value of Fund shares could
decrease. It is also possible banks will default on their student loan purchase
agreements with MASFT, which could cause the net asset value per share to
decrease. In light of these various contingencies, there cannot be any
assurances that the Fund will achieve its investment objective or maintain a
consistent net asset value.
The Prospectus identifies a number of important policies and restrictions
which are considered fundamental and cannot be changed without the approval of
shareholders. Additional investment policies and restrictions which cannot be
changed without shareholder approval are described under Investment Restrictions
below. Shareholder approval requires 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
of the Fund's Common Stock are represented at such meeting in person or by
proxy; or (2) more than 50% of the Fund's outstanding Common Stock, whichever is
less.
The Trust intends to invest at least 25% and perhaps as much as 90% of the
Fund's total assets in student loans through MASFT, except when such investments
are either not available in sufficient quantity or do not carry yields
competitive with alternative investments.
Investment Restrictions.
In addition to the investment objectives and policies set forth in the
Prospectus, the Trust and the Fund are 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 the 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 the Fund's outstanding
shares.
Unless otherwise specified below, the Fund will not:
1. Purchase any securities other than those described under
"Investment Objectives, Policies and Restrictions";
2. Invest more than 90% of its total assets in Trust Certificates;
3. Invest with a view to exercising control or influencing
management;
4. Purchase or sell real estate commodities or commodity contracts,
interests in oil, gas or other mineral exploration or development program;
5. Purchase any securities on margin, except for the clearing of
occasional purchases or sales of portfolio securities;
6. Make short sales of securities or maintain a short position or
write, purchase or sell puts, calls, straddles, spreads or combinations
thereof;
7. Make loans to other persons; provided, the Fund may invest up to 90% of
its total assets in Trust Certificates, as described in (2) above, and may make
the investments, and enter into repurchase agreements, as described under
"Investment Objective, Policies and Restrictions";
8. Borrow money, except to meet extraordinary or emergency needs for
funds, and then only from banks in amounts not exceeding 10% of its total
assets, nor purchase securities at any time borrowings exceed 5% of the Fund's
total assets;
9. Mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any securities owned by the Fund, except as may be necessary
in connection with borrowings outlined in (8) above and then securities
mortgaged, hypothecated, or pledged may not exceed 5% of the Fund's total assets
taken at market value;
10. Invest in securities with legal or contractual restrictions on
resale (except for repurchase agreements, loans, and Trust Certificates) or
for which no ready market exists;
11. Act as an underwriter of securities;
12. Enter into repurchase agreements if, as a result thereof, more than 5%
of the Fund's total assets (taken at market value at the time of such
investment) would be subject to repurchase agreements maturing in more than
seven days; and
13. Purchase the securities of other investment companies except as
provided by Section 12(d)(1)(F) 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.
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:
<TABLE>
<CAPTION>
<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
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>
<PAGE>
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:
<PAGE>
<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>
INVESTMENT ADVISORY AND OTHER SERVICES
General
The investment adviser for the Fund is CONLEY SMITH, Inc. (the "Adviser").
The administrator and transfer agent for the Fund is Lancaster Administrative
Services, Inc., (the "Administrator"). The Adviser's address is 444 Regency
Parkway, Suite 202 Lake Regency Building, Omaha, Nebraska 68114. The
Administrator's address is 200 Centre Terrace, 1225 L Street, Lincoln, Nebraska
68508. The Adviser and Administrator will act as such pursuant to written
agreements which will be periodically approved by the directors or the
shareholders of the Fund.
Control of the Adviser, Administrator and the Distributor
The Adviser, Administrator and 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.
Investment Advisory Agreements and Administration Agreement
The Advisory Agreement and Administration Agreement have been approved by
the Board of Directors (including a majority of the directors who are not
parties to the Advisory and Administration Agreements, or interested persons of
any such party, other than as directors of the Trust). The Advisory Agreement
and Administration Agreement for the Fund were first approved by the Board of
Directors on April 20, 1992 and were approved by the shareholders on December
18, 1993. The Board of Directors last approved the Advisory Agreement and
Administration Agreement on July 18, 1995.
<PAGE>
The Advisory Agreement and Administration Agreement terminate
automatically in the event of their assignment. In addition, the Advisory
Agreement and Administration Agreement 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 not more than 60 days' written notice
to the Adviser and the Administrator, as the case may be, and by the Adviser and
Administrator, as the case may be, on 60 days' written notice to the Trust. The
Advisory Agreement may be terminated at any time by a vote of the holders of a
majority of the outstanding voting securities of such Portfolio, upon 60 days'
written notice to the Adviser. 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 and Administration Agreement shall
continue in effect for more than two years after their execution 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.
Pursuant to the Advisory Agreement, the Fund will pay the Adviser a
monthly advisory fee equal on an annual basis to .10% of the Fund's average
daily net assets.
Pursuant to the Administration Agreement, the Administrator acts as
transfer agent and provides, or contracts with others to provide, 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 the Fund
and paid monthly, at an annual rate of .12% of the daily average net assets of
the Trust.
For the periods November 12, 1992 to June 30, 1993 and the years ended
June 30, 1994, and 1995 the Trust paid the Adviser the sums of $7,107, $59,888
and $43,815 respectively, for advising and administering the Institutional Money
Market Portfolio.
Under the Advisory Agreement, the Adviser provides the Fund with advice
and assistance in the selection and disposition of the 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.
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. The Fund should not ever
exceed such limits.
Custodian
The Custodian for the Trust and the Fund is Union Bank and Trust Company
("Union"), 3648 South 48th, Lincoln, Nebraska 68506. Union, as custodian, holds
all cash and securities owned by the Fund.
<PAGE>
DISTRIBUTION PLAN
Rule 12b-1(b) under the Investment Company Act of 1940 provides that any
payments made by the Fund 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 Fund are
distribution expenses within the meaning of Rule 12b-1, the Fund 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 Fund's shares.
In addition, Rule 12b-1(b)(1) requires that such plan be approved by a
majority of the 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
members 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:
(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 the 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 Fund
pays a fee to the Distributor computed and paid monthly at the annual rates of
up to .20% for the Institutional Money Market Fund's average daily net assets in
order to reimburse the Distributor for its actual expenses incurred in the
distribution and promotion of the Fund's shares.
<PAGE>
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; shareholder account
servicing fees; and other distribution-related expenses. Compensation may 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 Fund 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 Fund 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 .20% of the average daily net assets of
the Fund which is attributable to shares sold by such investment executive.
For the periods November 12, 1992 to June 30, 1993 and the years ended
June 30, 1994, and 1995 the Institutional Money Market Portfolio paid to the
Distributor $6,461, $54,441 and $39,836 respectively, under the Distribution
Plan.
The Distributor retained or paid to its agents all of such fees. 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
The Adviser is responsible for decisions to buy and sell securities for
the Fund, 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 Adviser, 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.
When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research and/or services to the Adviser.
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 Adviser to supplement their own investment research
activities and enables the Adviser to obtain the views and information of
individuals and research staffs of many different securities firms prior to
making investment decisions for the Fund. To the extent portfolio transactions
are effected with broker-dealers who furnish research services to the Adviser,
the Adviser receives a benefit, not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Fund from these
<PAGE>
transactions. The Adviser 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.
The Adviser has not 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 the Fund's transactions in exchange for
research services provided the Adviser except as noted below. However, from time
to time, the Adviser may elect to use certain brokers to execute transactions in
order to encourage them to provide the Adviser with research services which the
Adviser anticipates will be useful to it. The Adviser 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
Adviser 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 Adviser's overall responsibilities with respect to the
accounts as to which it exercises investment discretion.
Portfolio transactions for the Fund may be effected 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 Fund 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 Fund does not deem it practicable and in its
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.
In certain instances, there may be securities which are suitable for the
Fund as well as for one or more of the advisory clients of the Adviser.
Investment decisions for the Fund and for such advisory clients are made by 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 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 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 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 Adviser 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 Adviseras 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
portfolio 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>
For the period from November 12, 1992 to June 30, 1993, and for the the
years endingJune 30, 1994 and June 30, 1995, the Institutional Money Market Fund
incurred $0, $1,558 and $1,025 for brokerage commissions for securities
purchased. All of the brokerage commissions incurred were paid to SMITH HAYES
Financial Services Corporation, the Fund's Distributor, which is an affiliate of
the Fund's Adviser. All the brokerage transactions executed through SMITH HAYES
were 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 noninterested directors pursuant to Rule 17(e)-1 under the
Investment Company Act of 1940.
CAPITAL STOCK AND CONTROL
A complete description of the rights and characteristics of the Fund's
capital stock is included in the Prospectus. The following table provides the
name and address of any person who owns of record 5% or more of the outstanding
shares of each Portfolio as of June 30, 1995.
Name and Address Shares Ownership
Madonna Rehabilitation Hospital 1,455,892.960 5.97%
Hospital Workman's
Compensation
5401 South Street
Lincoln, NE 68506
Hastings Public Schools 1,279,482.490 5.25%
714 West 5th Street
Hastings, NE 68901
UBATCO & Company 2,901,356.700 11.90%
Union Bank and Trust Company
Trust Department-nominee name
4732 Calvert Street
Lincoln, NE 68506 including:
W. E. Barkley Trust Agency 1,376,856.790 5.64%
c/o Union Bank and Trust Company
Trust Department
4732 Calvert Street
Lincoln, NE 68506
As a group, the officers and directors of the Trust owned less than 1% of
the shares of the Institutional Money Market Portfolio. As a group, the officers
and directors owned 182,827.596 shares of all of the Trust's Portfolios, which
constituted less than 1% of all such outstanding shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of the Fund's shares
is summarized in the Prospectus in the text following the headings "Purchase of
Shares--Public Offering Price" and "Valuation of Shares." The net asset value of
the Fund's shares is determined each day that the New York Stock Exchange is
open, provided that the net asset value need not be determined on days when no
shares are tendered for redemption and no order for 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 Securities and Exchange Commission adopted Rule 2a-7 under the
Investment Company Act of 1940 which permits the Trust to compute the Fund's net
asset values per share using the amortized cost method of valuing portfolio
securities. As a condition for using the amortized cost method of valuation, the
Board of Directors must establish procedures to stabilize the Fund's net asset
value at $1.00 per share. These procedures include a review by the Board of
Directors as to the extent of any deviation of net asset value based on
available market quotations from the Fund's $1.00 amortized cost value per
share. If such deviation exceeds $.005, the Board of Directors will consider
what action, if any, should be initiated to reasonably eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redemption of shares in kind, selling portfolio securities prior to
maturity, withholding dividends or utilizing a net asset value per share as
determined by using available market quotations. In addition, the Fund must
maintain a dollar-weighted average portfolio maturity appropriate to its
investment objective, but in any event, not longer than 90 days, must limit
portfolio investments to those instruments which the Board of Directors
determines present minimal credit risks, and must observe certain other
reporting and recordkeeping procedures.
Under the amortized cost 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 effect of
fluctuating interest rates on the market value of the security. Accordingly,
U.S. Government obligations held by the Fund and Trust Certificates will be
valued at their amortized cost, which normally will be their face amount. Other
assets and securities are valued at a fair value determined, in good faith, by
the Board of Directors.
The amortized cost method of valuation may result in some dilution of a
shareholder's interest in the Fund insofar as general market increases and
decreases of interest rates usually have an inverse effect on the value of debt
instruments. However, the significance of the effect of such general market
increases and decreases in interest rates directly corresponds to the maturity
of the debt instruments, that is, the change in the market value of the
underlying debt instruments and the corresponding change in the premium or
discount of such instruments is greater when maturities are larger and less when
maturities are shorter.
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 Fund of securities owned by them is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its 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 the Fund as
"regulated investment company" 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 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
Trust 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 under-reporting
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 Fund in
advertisements, in reports, and other communications to shareholders.
The Fund's yield (a seven-calendar-day historical yield) is calculated by
first dividing the average daily net investment income per share for that
seven-day period by the average daily net asset value per share for the same
period. This return is then annualized by multiplying the result times 365/7.
Net investment income does not include realized or unrealized gains or losses.
The effective yield calculation is based on the current yield and the
distribution of dividends monthly.
The rate of return, or yield, on the Fund's shares may fluctuate daily
and does not provide a basis of determining future yields. The yield is not
guaranteed nor is the Fund's principal insured. In comparing the Fund's yield
with those of alternative investments (such as savings accounts, various types
of bank deposits and other money market funds), investors should consider
differences between the Fund and the alternate investments, including
differences in the period and methods used in calculating the yields being
compared.
The Fund's current yield and effective (compounded) yield was as follows
as of the seven day period ending June 30, 1995:
Institutional
Money Market
Fund
Assumptions:
Value of a hypothetical preexisting
account with exactly one share at
the beginning of the period: $ 1.00
--------
Value of the same account (excluding
capital changes) at the end of
the seven day period: $ 1.0011
--------
Calculation:
Ending account value $ 1.0011
--------
Less beginning account value $ 1.00
--------
Net change in account value $ .0011
--------
Base period return:
(change account value) .0011
Current yield
(Base period return x (365/7)) 5.63%
Effective yield
[(Base period return + 1)365/7]-1 5.79%
There are no monthly account charges.
From time to time the Fund may quote yield in advertisements or in reports
and other communications to shareholders. The yield changes in response to
fluctuations in interest rates and in the Fund's expenses. Consequently, any
given yield 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 the Fund'sperformance and for
providing a basis for comparison with other investment alternatives. However,
the yield will fluctuate, unlike other investments which may pay a fixed yield
for a stated period of time.
Investors should recognize that in periods of declining interest rates the
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to the
Fund from the continuous sale of its shares will likely be invested in
instruments producing lower yields in the balance of the Fund's holdings,
thereby reducing the current yield of the Fund. In periods of rising interest
rates, the opposite can be expected to occur.
AUDITORS
The Board of Directors, including all disinterested directors, unanimously
approved the appointment of Deloitte & Touche LLP, 1040 NBC Center, Lincoln,
Nebraska 68508-1469 as the Fund's accountants on July 18, 1995.
FINANCIAL STATEMENTS
The Trust hereby incorporates by reference the information in the Trust's
Financial Report for the Fund dated June 30, 1995, attached hereto.
<PAGE>
SMITH HAYES
TRUST, INC.
MONEY MARKET PORTFOLIO
INSTITUTIONAL MONEY MARKET PORTFOLIO
ANNUAL REPORT
JUNE 30, 1995
<PAGE>
TABLE OF CONTENTS
Independent Auditors' Report........... 1
Statement of Net Assets
Institutional Money Market Portfolio 2
Statement of Operations................ 3
Statements of Changes in Net Assets.... 4
Financial Highlights
Money Market Portfolio.............. 5
Institutional Money Market Portfolio 6
Notes to Financial Statements.......... 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SMITH HAYES Trust, Inc.
We have audited the accompanying statement of net assets of SMITH HAYES Trust,
Inc. Institutional Money Market Portfolio as of June 30, 1995, and the related
statements of operations and changes in net assets, and the financial highlights
for the year then ended of the SMITH HAYES Trust, Inc. Money Market and
Institutional Money Market Portfolios. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended June 30, 1994 and the financial highlights for the period
November 12, 1992 (commencement of operations) to June 30, 1994 were audited by
other auditors whose report dated July 22, 1994, expressed an unqualified
opinion on such statements and such financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1995 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the SMITH HAYES
Trust, Inc. Institutional Money Market Portfolio as of June 30, 1995, and the
results of operations, changes in net assets, and financial highlights of the
SMITH HAYES Trust, Inc. Money Market and Institutional Money Market Portfolios
for the year then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Lincoln, Nebraska
July 21, 1995
<PAGE>
SMITH HAYES TRUST, INC.
INSTITUTIONAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
June 30, 1995
Yield
at
Par Time of Amortized
Value Description Purchase Cost
--------------- ------------------------- ---------- -----------
Certificates of
Deposit -- 2%
95,000 First Bank & Trust Company,
Cozad, Nebraska, due 12/16/95 6.14% $95,000
95,000 Curtis State Bank,
Curtis Nebraska, due 3/16/96 6.25% 95,000
95,000 Farmers State Bank,
Carroll Nebraska, due 6/16/96 6.92% 95,000
95,000 Minden Exchange Bank & Trust
Company
Minden Nebraska, due 6/27/96 6.35% 95,000
-------
Total (cost $380,000) 380,000
Government Securities -- 3%
300,000 U.S. Treasury Bill, due 7/6/95 5.48% $496,899
500,000 U.S. Treasury Bill, due 8/10/95 5.60% 299,780
--------
Total (cost $796,679) 796,679
-------
Trust Certificates - U.S. Government Guaranteed Student
Loans -- 90%
22,000,000 Mid-America Student Finance
Trust, due
1/09/96 to 6/29/96 (cost 6.15% *
$22,000,000)
$22,000,000
------------
Total Investments -- 95% 23,176,679
Excess of other Assets over Total Liabilities -- 5%
(Includes $9,287 payable to investment adviser
and distributor and $88,320 dividends payable to
shareholders) 1,160,257
----------
Net Assets -- 100%
Applicable to 24,336,936 outstanding shares of $.001
par value common stock (100,000,000 shares authorized) $24,336,936
==========
Net Asset Value:
Offering and redemption price per share $1.00
=====
*Interest rate fluctuates with 3-month U.S.Treasury Bill rate, subject to no
longer than 5-day settlement.
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENT OF OPERATIONS
Year Ended June 30, 1995
Institutional
Money Money
Market Market
Portfolio Portfolio
Investment Interest Income $384,872 1,186,961
-------- ---------
Expenses (note 2):
Investment advisory and
administration fees 14,222 43,815
Distribution fee 45,258 39,836
Custodial fees 5,169 10,675
Auditing and tax accounting fees 3,103 3,717
Legal fees 2,119 6,804
Other expenses 1,575 1,956
----- -----
Total expenses 71,446 106,803
------ -------
Net Investment Income $313,426 1,080,158
========= =========
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended June 30, 1995 and 1994
Institutional
Money Money
Market Market
Portfolio Portfolio
1995 1994 1995 1994
--------- --------- ---------- ---------
From Investment Operations:
Net investment income
distributed to $313,426 329,239 1,080,158 1,104,578
========= ======== ========== ===========
shareholders
From Share Transactions:
(at constant net asset
value of $1 per share)
Shares sold 14,228,361 28,022,243 61,906,153 82,557,309
Shares issued in
reinvestment
of dividends from net
investment income 296,731 159,003 693,024 477,389
---------- --------- ----------- ----------
14,525,092 28,181,246 62,599,177 83,034,698
Shares redeemed 22,067,396 27,313,566 66,271,044 69,881,334
---------- ---------- ---------- ----------
Total increase (decrease) in
net assets derived
from share
transactions (7,542,304 867,680 (3,671,867)13,153,364
Net Assets:
Beginning of period 7,542,304 6,674,624 28,008,803 14,855,439
--------- --------- ---------- ----------
End of period $ - 7,542,304 24,336,936 28,008,803
--------- ---------- ---------- ----------
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
Years Ended June 30, 1995 and 1994 and the
Period from November 12, 1992 (commencement of operations) to June
30, 1993
Money Market
Portfolio
1995 1994 1993
---- ---- ----
Net asset value:
Beginning of period $1.00 1.00 1.00
----- ---- ----
Income from investment operations,
Net investment income 0.048 0.035 0.009
Less distributions,
Dividends from net investment (0.048) (0.035) (0.009)
------- ------- -------
income
End of period $1.00 1.00 1.00
===== ==== ====
Yield 5.05% 3.85% 3.83% *
===== ===== =====
Effective yield 5.18% 3.92% 3.90% *
===== ===== =====
Ratios/Supplemental data:
Net assets, end of period - 7,542,304 6,674,624
--------- ---------- ---------
Ratio of expenses to average net assets 1.10% 1.17% 1.21% *
----- ----- -----
Ratio of net income to average net assets 4.83% 3.50% 3.99% *
----- ----- -----
*Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
FINANCIAL HIGHLIGHTS
Years Ended June 30, 1995 and 1994 and the
Period from November 12, 1992 (commencement of operations) to June
30, 1993
Institutional
Money Market
Portfolio
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 (0.054) (0.040) (0.009)
------- ------- -------
income
End of period $1.00 1.00 1.00
===== ==== ====
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.
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
Notes to Financial Statements
Year Ended June 30, 1995
1. Organization and Significant Accounting Policies
--------------------------------------------------------
SMITH HAYES Trust, Inc. (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
These financial statements relate only to the Money Market and Institutional
Money Market Portfolios (the Portfolios).
The following is a summary of significant accounting policies employed by
the Fund in preparing its financial statements.
Valuation of Investments: Portfolio securities are valued at amortized
cost. Pursuant to Rule 2a-7 of the Investment Company Act of 1940, amortized
cost as defined is a method of valuing securities at acquisition cost, adjusted
for amortization of premium or accretion of discount rather than at their value
based on current market factors. This method of valuation is used consistently
throughout the industry by money market funds wishing to maintain a constant net
asset value per share. Each of the Portfolios maintains a constant net asset
value of $1 per share.
Security Transactions and Investment Income: Security transactions are
recorded on a trade date basis. Realized gains or losses on sales of investments
are determined by specifically identifying the issue sold. In computing net
investment income, the Portfolios amortize premiums and discounts and accrue
interest income daily.
Federal Income Taxes: It is the policy of each Portfolio to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to have each Portfolio distribute virtually all of its taxable
income generated to each Portfolio's shareholders. Therefore, no liability for
Federal income taxes is required. Each Portfolio is treated as a separate entity
for Federal income tax purposes, and on a calendar year basis, will distribute
substantially all of its net investment income and realized gains, if any, to
avoid the payment of any Federal excise taxes. Each Portfolio prepares its tax
return on an accrual basis.
Distributions to Shareholders: Dividends to shareholders are accrued and
declared daily from net investment income. Payments or reinvestments of
dividends are made monthly.
<PAGE>
SMITH HAYES TRUST, INC.
Notes to Financial Statements
1. Continued
------------
Trust Certificates: The trust certificates represent U. S. Government
guaranteed student loans held by Mid-America Student Finance Trust (the Trust).
The Trust invests in eligible student loans issued under the Higher Education
Act of 1965 as amended (the Act) established by the U. S. Government to provide
access to funds for students attending post-secondary institutions. The Trust
purchases the student loans from Nebraska and Iowa banks who are eligible
lenders as defined by the Act. The terms of the loans, which vary on an
individual basis, generally provide for repayment in monthly installments over a
period normally not in excess of ten years.
All of the student loans are guaranteed by various authorized guarantee
agencies who have contracts of reinsurance with the Department of Education.
These guarantees are made subject to the performance of certain loan servicing
procedures stipulated by the Act. If these due diligence requirements are not
met, the affected loans may not be covered by the guarantees should the borrower
default.
For liquidity purposes, certain banks have entered into unconditional
agreements to repurchase a predetermined amount of student loans from the Trust
upon five days written notice. The maximum amount any bank is obligated to
repurchase is five percent of the total student loans owned by the Trust. The
repurchase agreements are cancelable with 30 days advance written notice. At
June 30, 1995, 35 banks have entered into repurchase agreements for an aggregate
total of $47,000,000.
2. Management Fee, Distribution Expense and Transactions with
Affiliates
---------------------------------------------------------------
The Portfolios have retained CONLEY SMITH, Inc. (formerly SMITH HAYES
Portfolio Management, Inc.) (the Adviser) as their exclusive investment adviser.
Under the terms of the agreement the adviser is paid a monthly fee computed at
an annual rate of .10% of the average daily net assets of each Portfolio.
The Portfolios have also retained Lancaster Administrative Services, Inc.
(the Administrator) to act as their administrator and transfer agent. The
agreements provide for a fee computed and paid monthly at an annual rate of .12%
of the average daily net assets of each Portfolio.
The Portfolios have retained SMITH HAYES Financial Services Corporation
(the Distributor), a company related through common ownership and management, to
act as the underwriter and distributor of the Portfolio's shares. Pursuant to
the shareholder approved distribution plan under Rule 12b-1, the Portfolios will
reimburse the
<PAGE>
SMITH HAYES TRUST, INC.
Notes to Financial Statements
2. Continued
-------------
Distributor for shareholder-related expenses incurred in connection with
the distribution of the Portfolio's shares. Aggregate payments cannot exceed the
annual rate of .70% for the Money Market Portfolio and .20% for the
Institutional Money Market Portfolio of the average daily net assets.
Under the terms of the advisory/administrative and distribution agreements
outlined above, the Portfolios collectively paid $58,037 and $85,094,
respectively, for such services.
In addition to the amounts paid under the advisory, administration and
distribution plans, the Portfolios primarily used SMITH HAYES Financial Services
Corporation (SMITH HAYES) to affect security trades on their behalf. As is
customary in the industry, the adviser evaluates the pricing and ability to
execute the transaction in selecting brokers to affect trades. SMITH HAYES was
paid commissions in the amount of $2,775 for their brokerage services during the
period ended June 30, 1995.
At June 30, 1995, the directors, officers, and employees of the Fund, the
Adviser, Administrator, Distributor and their immediate families held 1,134,632
shares of Institutional Money Market Portfolio, which constituted 4.66% of the
Portfolio's outstanding shares.
2. Business Changes
-------------------
Effective June 22, 1995, the minimum initial aggregate investment in the
Institutional Money Market Portfolio was reduced from $500,000 to $1,000.
Consequently, all shareholders of the Money Market Portfolio redeemed their
shares for Institutional Money Market Portfolio shares. As of June 30, 1995
shares of the Money Market Portfolio will no longer be issued.
In April of 1995, the adviser SMITH HAYES Portfolio Management, Inc.
changed its name to CONLEY SMITH, Inc.
On July 18, 1995, the Board of Directors of the SMITH HAYES Trust, Inc.
approved the appointment of Lancaster Administrative Services, Inc. successor to
the transfer agent and administrative services functions of the adviser CONLEY
SMITH, Inc.
<PAGE>
PROSPECTUS
SMITH HAYES Trust, Inc.
Nebraska Tax-Free Fund
200 Centre Terrace
1225 L Street
Lincoln, Nebraska 68508
(402) 476-3000 or 1-800-279-7437
SMITH HAYES Trust, Inc. (the "Trust"), is a Minnesota corporation offering
shares in series, such series operated as separate open-end management
investment companies. This Prospectus relates to the nondiversified series
designated Nebraska Tax-Free Fund (the "Fund").
The Nebraska Tax-Free Fund seeks to provide investors with a high level of
income exempt from federal income tax and from Nebraska state income tax while
seeking preservation of capital consistent with prudent investing. Under normal
market conditions, the Fund will attempt to invest 100% and, as a matter of
fundamental policy, will invest at least 80% of the value of its net assets in
"municipal securities", the interest on which is exempt from federal income
taxes and from the income taxes of the State of Nebraska. At least 95% of its
total assets will be invested in securities that are rated "investment grade";
that is, rated Baa or higher by Moody's Investor's Services, Inc. and BBB or
higher by Standard & Poor's Corporation, or of comparable quality as determined
by the Board of Directors. Securities rated Baa/BBB are considered investment
grade by the financial community, but are described by Moody's and Standard &
Poor's as "medium grade obligations" that have speculative characteristics.
While the Fund will attempt to diversify its investments in municipal
securities, because of the likelihood that Nebraska municipal securities from a
sufficient number of issuers may not be consistently available to allow
diversification, the Fund is classified as nondiversified. 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. or any other
federal or state agency. See "Investment Objective and Policies".
This Prospectus concisely describes information about the Fund that you
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 from
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.
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>
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, which is operated as a separate open-end management investment company.
This Prospectus only relates to the series designated Nebraska Tax-Free 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. See "Management - Investment Adviser and Administrator".
The Distributor
SMITH HAYES Financial Services Corporation ("SMITH HAYES"), also a wholly
owned subsidiary of Consolidated Investment Corporation, 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 Fund's shares, not to
exceed .25% 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 their net asset value next
determined after an order is received by the Distributor and other selected
financial service firms, plus a varying sales charge, depending on the amount
invested, as follows:
Sales Charges Dealer
-------------
As a % of As a % of Reallowance
Public Offering Net Amount as a % of
Price Invested Offering Price
On Purchases of:
less than $25,000 3.90 4.06 3.00
$25,000 but less than $50,000 2.50 2.56 2.00
$50,000 but less than $100,000 1.30 1.32 1.00
$100,000 and over -0- -0- -0-
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.
<PAGE>
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 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
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 $5,000 as a result of redemptions or transfers. See
"Redemption of Shares-Involuntary Redemption".
Dividends
Dividends are declared and accrued monthly and either automatically
reinvested or paid monthly (see "Dividends and Taxes").
Expenses
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 fees 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. "Other Expenses" is
estimated.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a % of offering price) 3.90%
Annual Fund Operating Expenses
Management Fees
Investment Advisory Fees .15%
Administration Fees .125%
Total Management Fees .275%
12b-1 Fees .25%
Other Expenses .21%
Total Fund Operating Expenses .735%
<PAGE>
The annual operating expenses have been restated to reflect current fees. The
payments made by the Fund 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. See "Purchase of Shares" for a discussion of scheduled variations
in the sales load imposed on purchases.
Example:
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period.
1 year 3 years 5 years 10 years
$46 $62 $79 $128
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.
Financial Highlights
The following financial information, which provides selected data for a
share of the 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 the preceding period presented, to the extent of the
audit report appearing in the Fund'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 Fund is also contained in the Annual
Financial Report.
Year Ended June 30, 1995 and the Period
July 12, 1993 (commencement of operations) to June 30, 1994
Net asset value: 1995 1994
---- ----
Beginning of period $9.42 $10.00
----- ------
Income (loss) from investment operations:
Net investment income 0.48 0.50
Net realized and unrealized gain (loss) on investments 0.29
(0.63)
Total gain (loss) from investment operations0.77 (0.13)
Less distributions from net investment income: (0.48) (0.45)
End of period $9.71 $9.42
Total return 8.5% (1.6%)**
Ratios/Supplemental data:
Net assets, end of period $10,523,865$8,893,922
Ratio of expenses to average net assets .71% 0.41%**
Ratio of net income to average net assets 5.15% 4.99%**
Portfolio turnover rate 34.96% 7.45%**
**Annualized
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Nebraska Tax-Free Fund seeks to provide investors with a high level of
income exempt from federal income tax and from Nebraska state income tax while
seeking preservation of capital consistent with prudent investing.
Under normal market conditions, the Fund will attempt to invest 100% and,
as a matter of fundamental policy, will invest at least 80% of the value of its
net assets in "municipal securities", the interest on which is exempt from
federal income and alternative minimum taxes and from the income taxes of the
State of Nebraska. Thus, it is possible, although not anticipated, that up to
20% of the Fund's net assets could be invested in municipal securities from
another state, or could be invested in taxable obligations, including municipal
obligations such as "private activity bonds," the interest on which may be
subject to the alternative minimum tax. At least 95% of its total assets will be
invested in securities that are rated "investment grade"; that is, rated Baa or
higher by Moody's Investor's Services, Inc. and BBB or higher by Standard &
Poor's Corporation ("S&P"), or be of comparable quality as determined by the
Board of Directors. Securities rated Baa/BBB are considered investment grade by
the financial community, but are described by Moody's and S&P as "medium grade
obligations" that have some speculative characteristics. In times of economic
distress the issuers of these bonds may have difficulty in paying principal and
interest thereon. The Fund may invest no more than 5% of its net assets in
securities that are below investment grade. These securities are commonly
referred to as "junk bonds." See the Statement of Additional Information for a
complete discussion of such ratings.
For temporary defensive purposes, when the Adviser believes that market
conditions, such as rising interest rates and other adverse factors, would cause
serious erosion of portfolio value (see "Special Considerations Regarding the
Fund"), (i) the Fund may invest more than 20% of its assets (which could be up
to 100%) in fixed-income obligations, the interest on which is subject to
federal and State of Nebraska income tax and (ii) may invest more than 20% of
the value of its net assets (which could be up to 100%) in securities the
interest on which is exempt from federal income tax but not the income tax of
the State of Nebraska. Such temporary investments in other than municipal
securities will be limited to obligations issued or guaranteed by the full faith
and credit of the United States government, the highest quality commercial paper
rated A-1 or better by S&P and/or P-1 by Moody's, certificates of deposit and
repurchase agreements. Dividends received by a shareholder from the Fund will
only be excludable from the shareholder's gross income to the extent that they
are attributable to interest exempt from federal income tax and/or exempt from
Nebraska income tax.
The investment objective and policies described above are fundamental and
may not be changed without shareholder approval. The Fund has other investment
policies which are also considered to be fundamental (see "Investment Practices
- Other Fundamental Investment Policies" below) which also require shareholder
approval to be changed. All other policies and practices of the Fund are
nonfundamental and do not require shareholder approval to be changed.
<PAGE>
MUNICIPAL SECURITIES
General. Tax-exempt municipal securities are debt obligations issued by or
on behalf of the governments of states, territories or possessions of the United
States, the District of Columbia and their political subdivisions, agencies and
instrumentalities thereof, certain interstate agencies and certain territories
of the United States, the interest on which, in the opinion of bond counsel or
other counsel to the issuer of such securities, is excludable from gross income
for federal income tax purposes.
Municipal securities are classified generally by maturity as notes, bonds
or adjustable rate securities. These securities are further classified as either
"general obligation" or "revenue" securities. General obligation securities are
secured by the issuer's pledge of its credit and taxing power for the payment of
principal and interest. Revenue securities are usually payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source. Municipal notes include tax anticipation notes, bond anticipation notes
and tax-exempt commercial paper with maturities of three years or less which are
issued to obtain temporary funds for various public purposes. Municipal bonds
include lease revenue bonds, pre-refunded/escrowed to maturity bonds, private
activity bonds and industrial development bonds. Adjustable rate securities
include variable rate issues and floating rate issues.
There are, in addition, a variety of hybrid and special types of municipal
securities, including put option bonds, residual interest bonds, municipal
leases and certificates of participation in any of the foregoing. A more
detailed description of the types of municipal securities in which the Fund may
invest is included in the Statement of Additional Information.
The Fund is not a money market mutual fund and, as a result, the net asset
value of the Fund will change with changes in the value of its respective
portfolio securities. The net asset value of the Fund can be expected to change
as general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio invested in fixed income securities generally can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
invested in fixed income securities generally can be expected to decline.
Volatility may be greater during periods of general economic uncertainty.
From time to time, proposals have been introduced before Congress that
would have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected.
Insured Municipal Securities. Some of the Fund's investment in municipal
securities will be insured by private bond insurers; however, it is likely that
most of the municipal securities purchased by the Fund will be uninsured.
Although each insurer's quality standards may vary from time to time, such
insurers generally insure only those municipal securities that are rated at the
date of purchase (1) in the case of long-term debt, in the four highest ratings
by S&P (AAA, AA, A and BBB) or by Moody's (Aaa, Aa A and Baa); (2) in the case
of short-term notes, SP-1+ through SP-2 by S&P or MIG 1 through MIG 4 by
Moody's; or (3) in the case of tax-exempt commercial paper, A-1+ through A-2 by
S&P or Prime-1 through Prime-2 by Moody's. Such ratings are relative and
subjective and are not absolute standards of quality. The Fund may invest,
without limitation as to rating category, in any securities which are insured.
<PAGE>
Unrated Nebraska Municipal Securities. Historically, many of the municipal
securities offered by Nebraska issuers have been unrated. This is in part due to
the relatively small size of many offerings, the cost and conditions of
obtaining a rating and the historical willingness of the capital markets to
purchase municipal securities offered by Nebraska issuers without insurance or
ratings. As a result, it is likely that many of the municipal securities that
the Fund will purchase will be both uninsured and unrated. The Fund will only
purchase unrated securities if they are insured or of comparable quality to the
rated municipal securities that the Fund is allowed to purchase. In determining
whether unrated municipal securities are of comparable quality, the Adviser will
perform a credit analysis of each issuer of such unrated securities pursuant to
policies and procedures reviewed and approved by the Board of Directors on an
ongoing basis.
INVESTMENT PRACTICES
Selection of Investments. The Adviser will buy and sell securities for the
Fund with a view to seeking a high level of current income exempt from federal
income tax and will select securities which the Adviser believes entail
reasonable credit risk considered in relation to the particular investment
policies of the Fund. As a result, the Fund will not necessarily invest in the
highest yielding tax-exempt municipal securities permitted by its investment
policies if the Adviser determines that market risks or credit risks associated
with such investments would subject the Fund to excessive risk. The potential
for realization of capital gains resulting from possible changes in interest
rates will not be a major consideration. There is no limitation as to the
maturity of municipal securities in which the Fund may invest. The Adviser may
adjust the average maturity of the Fund's investments from time to time,
depending on its assessment of the relative yields available on securities of
different maturities and its expectations of future changes in interest rates.
However, due to the limited supply of Nebraska municipal securities, the Adviser
may not be able to significantly shorten or lengthen average Fund maturity to
reduce market exposure to actual or expected changes in interest rate levels.
Other than for tax purposes, frequency of portfolio turnover will generally not
be a limiting factor if the Fund considers it advantageous to purchase or sell
securities. The Fund may have annual portfolio turnover rates in excess of 100%.
A high rate of portfolio turnover may also result in the realization of
substantial net short-term capital gains and any distributions resulting from
such gains will be taxable. See "Dividends and Taxes".
Defensive Strategies. At times, conditions in the markets for tax-exempt
municipal securities may, in the Adviser's judgment, make pursuing the Fund's
basic investment strategy inconsistent with the best interests of its
shareholders. At such time, the Adviser may use alternative strategies primarily
designed to reduce fluctuations in the value of the Fund's assets. In
implementing these "defensive" strategies, the Fund may invest to a substantial
degree in high-quality, short-term municipal obligations. If these high-quality,
short-term municipal obligations are not available or, in the Adviser's
judgment, do not afford sufficient protection against adverse market conditions,
the Fund may invest in taxable obligations. Such taxable obligations may
include: obligations of the U.S. Government, its agencies or instrumentalities;
other debt securities rated within the four highest grades by either S&P or
Moody's; commercial paper rated in the highest grade by either rating service;
certificates of deposit and repurchase agreements with respect to any of the
foregoing investments.
<PAGE>
In connection with the investment policies described above, the Fund also
may engage in hedging transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risks. Hedging
transactions generally will not be treated as investments in tax-exempt
municipal securities for purpose of the Fund's 80% investment policy with
respect thereto.
Hedging. Hedging is a means of offsetting, or neutralizing, the price
movement of an investment by making another investment, the price of which
should tend to move in the opposite direction from that of the original
investment. If the Adviser deems it appropriate to hedge partially or fully the
Fund against market value changes, the Fund may buy or sell financial futures
contracts and options thereon, such as municipal bond index futures contracts
and the related put or call options contracts on such index futures. A more
detailed description of municipal bond index futures contracts is set forth in
the Statement of Additional Information.
An option on a financial future gives the holder the right to receive,
upon exercise of the option, a position in the underlying futures contract. When
the Fund purchases an option on a financial futures contract, it receives in
exchange for the payment of a cash premium the right, but not the obligation, to
enter into the underlying futures contract at a price (the "strike price")
determined at the time the option was purchased, regardless of the comparative
market value of such futures position at the time the option is exercised. The
holder of a call option has the right to receive a short (or seller's) position
in the underlying futures.
The Fund does not intend to engage in transactions in futures contracts or
related options for speculative purposes but only as a hedge against changes in
the values of securities in its portfolio resulting from market conditions, such
as fluctuations in interest rates or general economic changes.
Investments in financial futures and related options entail certain risks.
Among these are the possibility that the cost of hedging could have an adverse
effect on the performance of the Fund if the Adviser's predictions as to
economic trends are incorrect or due to the imperfect correlation between
movements in the price of the futures contracts and the price of the Fund's
actual municipal securities investments. Although the contemplated use of these
contracts should tend to minimize the risk of loss due to a decline in the value
of the securities owned by the Fund, at the same time hedging transactions tend
to limit any potential gains which might result from an increase in the value of
such securities. In addition, futures and options markets may not be liquid in
all circumstances due, among other things, to daily price movement limits which
may be imposed under the rules of the contract marketplace, which could limit
the Fund's ability to enter into positions or close out existing positions, at a
favorable price. If the Fund were unable to close out a futures position in
connection with adverse market movement, the Fund would be required to make
daily payments of maintenance margin until such position is closed out. Also,
the daily maintenance margin requirement in futures and option sales
transactions creates greater potential financial exposure than do option
purchase transactions, where the Fund's exposure is limited to the initial cost
of the option.
Income earned or deemed to be earned, if any, by the Fund from its hedging
activities will be distributed to shareholders in taxable distributions. See
"Dividends and Taxes".
"When Issued" and "Delayed Delivery" Transactions. The Fund may also
purchase and sell municipal securities on a "when issued" and "delayed delivery"
basis. No income accrues to the Fund on municipal securities in connection with
such transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher than yields on the municipal securities obtained pursuant
to such transactions. Because the Fund relies on the buyer or seller, as the
case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or high-grade municipal portfolio securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made. The Fund will make commitments to purchase municipal securities on such
basis only with the intention of actually acquiring these securities, but the
Fund may sell such securities prior to the settlement date if such sale is
considered advisable. To the extent the Fund engages in "when issued" and
"delayed delivery" transactions, it will do so for the purpose of acquiring
securities consistent with the Fund's investment objectives and policies and not
for the purposes of investment leverage. No specific limitation exists as to the
percentage of the Fund's assets which may be used to acquire securities on a
"when issued" or "delayed delivery" basis.
Other Practices. The Fund has no restrictions on the maturity of municipal
bonds in which it may invest. The Fund will seek to invest in municipal bonds of
such maturities that, in the judgment of the Fund and the Adviser, will provide
a high level of current income consistent with liquidity requirements and market
conditions.
The Fund may borrow amounts up to 15% of its net assets in order to pay
for redemptions, when liquidation of Fund securities is considered
disadvantageous or inconvenient and may pledge up to 15% of its net assets to
secure such borrowings.
Other Fundamental Investment Policies
The Fund is "non-diversified" for securities laws purposes because of the
likelihood that Nebraska municipal securities will not be consistently available
from a sufficient number of issuers to allow diversification. Nevertheless the
Fund will limit its investments so that not more than 25% of its total assets
will be invested in the municipal securities of any one issuer and, with respect
to 50% of its total assets, not more than 5% of such assets will be invested in
the securities of a single issuer. Furthermore, as to concentration, the Fund
will not invest more than 25% of its total assets in any industry. Governmental
issues of municipal securities are not considered part of any "industry";
however, municipal securities backed only by the assets and revenues of
nongovernmental users may for this purpose be deemed to be issued by such
<PAGE>
nongovernmental users, and the 25% limitation would apply to such obligations.
It is nonetheless possible that the Fund may invest more than 25% of its assets
in a broader segment of the municipal securities market, such as revenue
obligations of hospitals and other health care facilities, housing agency
revenue obligations, or airport revenue obligations if the Adviser determines
that the yields available from obligations in a particular segment of the market
justify the additional risks associated with a large investment in such segment.
Although such obligations could be supported by the credit of governmental
users, or by the credit of nongovernmental users engaged in a number of
industries, economic, business, political and other developments generally
affecting the revenues of such users (for example, proposed legislation or
pending court decisions affecting the financing of such projects and market
factors affecting the demand for their services or products) may have a general
adverse effect on all municipal securities in such a market segment.
SPECIAL CONSIDERATIONS
REGARDING THE FUND
The Fund may invest a portion of its assets in securities that pay
interest that is subject to the federal alternative minimum tax. The Fund may
not be a suitable investment for investors who are already subject to the
federal alternative minimum tax or who would become subject to the federal
alternative minimum tax as a result of an investment in the Fund.
The Fund, from time to time, may be unable to purchase municipal
securities, the interest on which is exempt from Nebraska income tax, as a
result of the lack of such securities in the secondary market or because of the
lack of available new issues. In such situations the Fund may be unable to meet
its investment objective of investing at least 80% of its total assets in
municipal securities the interest on which is exempt from Nebraska income tax.
As a result the Fund may invest in other securities which may cause a portion of
the dividends declared by the Fund to be taxable or subject certain shareholders
to the alternative minimum tax.
The likelihood that the Fund will routinely invest in unrated municipal
securities results in the Fund being reliant upon the Adviser's judgment,
analysis and experience in evaluating an issuer's credit risk without the
benefit of a rating agency's third-party evaluation and diligence. The Adviser
has not previously managed a tax-exempt municipal securities fund such as the
Fund. As a result, while the Adviser is subject to policies and procedures that
require a careful credit analysis to determine whether unrated municipal
securities are of comparable quality, an investment in the Fund is exposed to
greater risk than an investment in a mutual fund which invests solely in
investment grade rated municipal securities.
Nonrated municipal securities are frequently traded in markets where the
number of potential purchasers and sellers is limited. Furthermore, there may be
a limited resale market for certain of the municipal securities in which the
Fund will invest. These considerations may have the effect of restricting the
availability of municipal securities for the Fund to purchase, may affect the
choice of municipal securities sold to meet redemption requests and may further
have the effect of limiting the ability of the Fund to sell or dispose of such
municipal securities. Although there may be no daily bid and ask activity for
many of the unrated Nebraska municipal securities in which the Fund will be
invested, there is an active secondary market for such securities as a result of
demand exceeding supply, and for this reason, the Adviser considers many unrated
Nebraska municipal securities to be liquid.
<PAGE>
An investment in unrated municipal securities involves additional risks
that are not present for rated municipal securities. Generally, such risks
include, but are not limited to, a higher level of market price volatility, high
sensitivity to interest rate changes, liquidation in the secondary market and
lack of supply. Any one of these risks, or a combination of them, or other
factors, could have an adverse effect on the Fund's net asset value and income.
The Fund's concentration in securities issued by Nebraska municipalities
and political subdivisions involves somewhat greater risks than a fund broadly
invested in securities issued by municipalities and political subdivisions in
many states. The credit quality of the issuers of the Nebraska municipal
securities in which the Fund will invest will depend on the future financial
strength of the Nebraska economy and the financial condition of the Nebraska
municipalities and political subdivisions issuing such securities. While most
Nebraska municipalities and political subdivisions are predominantly reliant on
independent revenue sources, such as property and sales taxes, they are not
immune to budget shortfalls caused by cutbacks in state aid. While many
observers believe the Nebraska economy has been generally immune from national
recessionary forces, the state economy is agriculturally based and can be
significantly impacted by down trends in the commodity markets and cutbacks in
federal agricultural programs. See the Statement of Additional Information for
information about the Nebraska economy.
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.
<PAGE>
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 0.15% of the daily average net
asset value of the Fund. Thomas C. Smith will have the day-to-day responsibility
of managing the Fund's investments. Mr. Smith has been principally employed by
the Adviser during the last six years. See Statement of Additional Information
for more information about Mr. Smith.
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. The
Administrator provides, or contracts with others to provide, the Trust with all
necessary recordkeeping services and share transfer services. Under the
Administration Agreement, the Administrator receives an administration fee,
computed separately for each Fund and paid monthly, at an annual rate of .125%
of the daily average net assets. The address of the Administrator is 200 Centre
Terrace, 1225 L Street, Lincoln, Nebraska 68508.
In its sole discretion, the Adviser and Administrator may waive all or
part of the advisory or administration fees. Any such waiver can be discontinued
without notice at any time.
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 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, director 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.
<PAGE>
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
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 0.25% 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 which 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 the Fund in any one year exceed
the maximum reimbursable under the Plan, such expenses may not be carried
forward to the following year. In its sole discretion, SMITH HAYES can waive all
or part of payments under the Plan. Any such waiver can be discontinued at any
time. Further information regarding the Plan is contained in the Statement of
Additional Information.
PURCHASE OF SHARES
The Fund's shares may be purchased 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. SMITH HAYES reserves the right to reject any
purchase order. 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:
<PAGE>
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.
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 the wire transfer of funds.
Shares of the Fund are offered to the public at their net asset value next
determined after an order is received by the Distributor and other selected
financial services firms with whom the Distributor has entered into selling
agreements, plus a varying sales charge, depending on the amount invested, see
chart below.
<PAGE>
Net Asset Value Purchases
Shares of the Fund may be sold without a sales charge to (1) directors,
employees (and their families) of the Trust, the Distributor, the Adviser, the
Administrator, and securities dealers having sales agreements with the
Distributor; (2) investors purchasing shares with proceeds of redemptions from
any U.S. mutual fund not distributed by Distributor which imposes front-end
sales charges or deferred sales charges; and (3) persons who have entered into
an investment advisory agreement with the Distributor or the Adviser as to any
portion of their assets that is invested in the Fund or any other Fund of the
Trust. To be eligible to purchase shares without the imposition of sales charges
as described above, the investor or the investor's broker must establish such
eligibility at the time shares are purchased by advising the Distributor.
Reduced Sales Charge
Shares of the Fund may also be purchased at the reduced sales charges as
set forth in the Prospectus if the investor agrees to purchase at least the
aggregate amount necessary to qualify for the reduced sales charge under a
statement of intent. Under the statement of intent, an investor agrees to
purchase a certain amount over a 13 month period, and in so doing qualifies for
the reduced sales charge for the aggregate amount for all purchases in
furtherance of the statement of intent. The statement of intent does not create
a binding obligation on the shareholder to purchase the requisite number and
amount of shares and consequently, 2.5% of the value of the total shares to be
purchased will be segregated from the shareholder's account as statement of
intent shares. All such shares will be credited with the appropriate amount of
dividends and capital gains distributions. In the event that the statement of
intent is fulfilled, all shares will be credited to the shareholder's regular
account. In the event that the statement of intent is not fulfilled, a
sufficient amount of the statement of intent shares will be redeemed to realize
the difference in sales charges based on the number and amount of the shares
actually purchased and the balance of such shares will be released to the
shareholder's regular account. (See account application.)
Investors may also qualify for the reduced sales charges by aggregating
their investments in the Fund with a spouse and children under the age of 21 or
a business entity or trust of which they are a shareholder, partner, owner, or
beneficiary.
Sales Charges
Dealer
As a % of As a % of Reallowance
Public Offering Net Amount as a % of
Price Invested Offering Price
On Purchases of:
less than $25,000 3.90 4.06 3.00
$25,000 but less than $50,000 2.50 2.56 2.00
$50,000 but less than $100,000 1.30 1.32 1.00
$100,000 and over -0- -0- -0-
<PAGE>
Minimum Investments
A minimum initial aggregate investment of $5,000 is required.
All investments must be made through your SMITH HAYES investment executive
or other broker-dealer. Other broker-dealers who have entered into sales
agreements with SMITH HAYES will be reallowed a portion of the sales charge
imposed according to the schedule set forth under "General".
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 plus any accrued but unpaid dividends thereon. 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:
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.
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.
<PAGE>
A shareholder may request that the Trust transmit redemption proceeds by
bank wire to a bank account designated on the shareholder's account application
form provided such bank wire redemptions are in the amounts of $5,000 or more
and 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 $5,000 as the result of a
redemption or transfer request. Shareholders will be notified in writing that
the value of their account is less than $5,000 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 on each day the New York Stock
Exchange (the Exchange) is open for business, provided that the net asset value
need not be determined 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 3:00 p.m. Lincoln, Nebraska time) after the Fund has
declared any applicable dividends.
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. 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 distributed
monthly. Dividends declared each month are accrued and credited to shareholders'
accounts and are automatically reinvested in additional Fund shares each month
at the net asset value of shares on the dividend date, unless the shareholder
notifies the SMITH HAYES investment executive or other broker-dealer of an
election to receive cash. Cash payment, if requested, is also made through the
dividend date and checks for such cash payment will be mailed within five days
thereof. The taxable status of income dividends and/or net capital gains
distributions is not affected by whether they are reinvested or paid in cash.
<PAGE>
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 Fund anticipates that substantially all of its dividends will be
excludable from gross income for federal income and Nebraska state income tax
purposes. Nevertheless, because of the possibility that the Fund may invest in
non-exempt securities, or securities which may be tax-exempt for federal
purposes and not exempt for Nebraska state income tax purposes, or subject
investors to the alternative minimum tax, the Fund will report to all
shareholders in January of each year the amount of all dividends paid which are
taxable or subject to the alternative minimum tax.
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. See "Dividends and Taxes"
in the Statement of Additional Information.
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 10,000,000 shares in a series
designated Nebraska Tax-Free 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. The Trust
presently has authorized the issuance of shares in seven other series. 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.
<PAGE>
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 a 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 an 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
series are allocated among all series based upon the relative net assets of each
series 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.
<PAGE>
Yield and Performance Comparisons
Advertisements and other sales literature for the Fund 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
shares at the end of the period, with dividends and capital gains distributions
treated as reinvested. 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 Lehman Brothers, Inc., and Merrill Lynch & Company.
The Fund 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.
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, 1040 NBC Center, Lincoln,
Nebraska, independent certified public accountants.
<PAGE>
TABLE OF CONTENTS
Introduction............................................. 1
Financial Highlights..................................... 3
Investment Objective and Policies........................ 4
Municipal Securities..................................... 5
Investment Practices..................................... 6
Special Considerations Regarding the Fund................ 9
Management............................................... 10
Distribution of Fund Shares.............................. 12
Purchase of Shares....................................... 12
Redemption of Shares..................................... 15
Valuation of Shares...................................... 16
Dividends and Taxes...................................... 16
General Information...................................... 17
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
Lincoln, Nebraska
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.
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SMITH HAYES Trust, Inc. Nebraska Tax-Free Fund Date ---------
200 Centre Terrace, 1225 L Street, Lincoln, NE 68508 Account # ---------
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:
STATEMENT OF INTENTION
I plan to invest over a 13-month period an aggregate amount of at least
|_| $25,000 |_| $50,000 |_| $100,000 (and above)
RIGHT OF ACCUMULATION
The registration of some of my shares differs or I am affiliated with the
following accounts.
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.
|_| Individual
---------------------------------------------------------- |_| Jt. WROS
Name of Shareholder |_| Corporation
|_| Trust
-------------------------------------------------------------|_| 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)
|_| Reinvest all dividends and capital gains distributions.|_| Reinvest capital
gain distributions only.
|_| Receive all dividends and capital gain distributions in cash.
SYSTEMATIC WITHDRAWAL PLAN
Mail a check for $--------------- prior to the last day of each
|_| Month |_| Quarter |_| 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.
|_| Exempt from backup withholding
|_| Non-exempt from backup withholding
X------------------------------- X------------------------------
Signature of Shareholder/or Authorized Officer,
if corporationSignature 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.)
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Dealer Name (Please Print) 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>
SMITH HAYES Trust, Inc.
NEBRASKA TAX-FREE FUND
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1995
Table of Contents
Page
Investment Objective, Policies and Restrictions..............................2
Municipal Securities.........................................................2
When-Issued Securities.......................................................6
Forwards.....................................................................7
Other Investments............................................................7
Taxable Money Market Securities..............................................8
Futures Contracts............................................................8
Options on Securities.......................................................17
Risk Factors................................................................17
Investment Restrictions.....................................................22
Directors and Executive Officers............................................24
Investment Advisory and Other Services......................................25
Distribution Plan...........................................................27
Portfolio Transactions and Brokerage Allocations............................29
Capital Stock and Control...................................................31
Net Asset Value and Public Offering Price...................................31
Redemption..................................................................32
Calculations of Performance Data............................................32
Auditors....................................................................33
Dividends...................................................................33
Tax Status..................................................................33
Custodian...................................................................34
Financial Statements........................................................35
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the Prospectus dated , 1995 and should be read
in conjunction therewith. A copy of the Prospectus may be obtained from the Fund
at 200 Centre Terrace, 1225 L Street, Lincoln, Nebraska 68508.
<PAGE>
INVESTMENT OBJECTIVE, 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 series designated:
Nebraska Tax-Free Fund (referred to herein as the "Fund"). The investment
objective and policies of the Fund are set forth in the Prospectus. Certain
additional investment information is set forth below.
MUNICIPAL SECURITIES
Subject to the investment objective and policies described in the
prospectus and the additional investment restrictions described in this
Statement of Additional Information, the Fund's investments will consist
primarily of any combination of the various types of municipal securities
described below or others that may be developed. See Appendix A for the
descriptions of ratings for the securities in which the Fund may invest. The
amount of each Fund's assets invested in any particular type of municipal
security can be expected to vary.
The term "municipal securities" means obligations issued by or on behalf
of states, territories, and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, as
well as certain other persons and entities, the interest from which is exempt
from federal income tax and depending on the investor's state of residence,
exempt from Nebraska state income tax. In determining the tax-exempt status of a
municipal security, the Fund relies on the opinion of the issuer's bond counsel
at the time of the issuance of the security. However, it is possible this
opinion could be overturned, and as a result, the interest received by the Fund
from such a security might not be exempt from federal and/or Nebraska state and
local income tax.
Municipal securities are classified generally by maturity as notes, bonds,
or adjustable rate securities.
Municipal Notes. Municipal notes generally are used to provide for
short-term operating or capital needs and generally have maturities of one
year or less. Municipal notes include:
Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as income, property,
use and business taxes, and are payable from these specific future taxes.
Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
notes.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a short-term
obligation with a stated maturity of 270 days or less. It is issued by
state and local governments or their agencies to finance anticipation of
longer term financing.
Municipal Bonds. Municipal bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds. Three additional
categories of other municipal bonds include lease revenue bonds,
pre-refunded/escrowed to maturity bonds and industrial development bonds.
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General Obligation Bonds. Issuers of general obligation bonds include
counties, cities, towns, school districts and special districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, public
buildings, highways and roads, and general projects not supported by user
fees or specifically identified revenues. The basic security behind
general obligation bonds is the user's pledge of its full faith and credit
and taxing power for the payment of principal and interest. The taxes that
can be levied for the payment of debt service may be limited or unlimited
as to the rate or amount of special assessments. In many cases voter
approval is required before an issuer may sell this type of bond.
Revenue Bonds. Generally, the principal security for a revenue bond is the
net revenues derived from a particular facility or enterprise, or in some
cases, the proceeds of a special charge or other pledged revenue source.
Revenue bonds are issued to finance a wide variety of capital projects
including: electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and
hospitals. Revenue bonds are sometimes used to finance various privately
operated facilities provided they meet certain tests established for
tax-exempt status.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a mortgage or debt service reserve
fund. Revenue bonds usually do not require prior voter approval before
they may be issued.
Lease Revenue Bonds. Municipal borrowers may finance capital improvements
or purchases with tax-exempt leases. The security for a lease is generally
the borrower's pledge to make annual appropriations for lease payments.
The lease payment is treated as an operating expense subject to
appropriation risk and to a full faith and credit obligation of the
issuer. Lease revenue bonds are generally considered less secure than a
general obligation or revenue bond and often do not include a debt service
reserve fund. To the extent the Board determines such securities are
illiquid, they will be subject to the Fund's 10% limit on illiquid
securities.
Pre-refunded/Escrowed to Maturity Bonds. Certain municipal bonds have been
refunded with a later bond issue from the same issuer. The proceeds from
the later issue are used to defease the original issue. In many cases the
original issue cannot be redeemed or repaid until the first call date or
original maturity date. In these cases, the refunding bond proceeds
typically are used to buy U.S. Treasury securities that are held in an
escrow account until the original call date or maturity date. The original
bonds then become "pre-refunded" or "escrowed to maturity" and are
considered as high quality investments. While still tax-exempt, the
security is the proceeds of the escrow account.
Private Activity Bonds. Under current tax law all municipal debt is
divided broadly into two groups: governmental purpose bonds and private
activity bonds. Governmental purpose bonds are issued to finance
traditional public purpose projects such as public buildings and roads.
Private activity bonds may be issued by a state or local government or
public authority but principally benefit private users and are considered
taxable unless a specific exemption is provided.
The tax code currently provides exemptions for certain private activity
bonds such as not-for-profit hospital bonds, small-issue industrial
development revenue bonds and mortgage subsidy bonds, which may still be
issued as tax-exempt bonds. Some, but not all, private activity bonds are
subject to alternative minimum tax.
<PAGE>
Industrial Development Bonds. Industrial development bonds are considered
municipal bonds if the interest paid is exempt from federal income tax.
They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and
manufacturing, housing, sports, and pollution control. These bonds are
also used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest on
such bonds is dependent solely on the ability of the facility's user to
meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
Adjustable Rate Securities. Municipal securities may be issued with
adjustable interest rates that are reset periodically by pre-determined formulas
or indexes in order to minimize movements in the principal value of the
investment. Such securities may have long-term maturities, but may be treated as
a short-term investment under certain conditions. Generally, as interest rates
decrease or increase, the potential for capital appreciation or depreciation on
these securities is less than for fixed-rate obligations. These securities may
take the following forms:
Variable Rate Securities. Variable rate instruments are those whose terms
provide for the adjustment of their interest rates on set dates and which,
upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A variable rate instrument, the principal
amount of which is scheduled to be paid in 397 days or less, is deemed to
have a maturity equal to the period remaining until the next readjustment
of the interest. A variable rate instrument which is subject to a demand
feature entitles the purchaser to receive the principal amount of the
underlying security or securities either (i) upon notice of usually 30
days, or (ii) at specified intervals not exceeding 397 days and upon no
more than 30 days' notice is deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered
through demand.
An instrument that is issued or guaranteed by the U.S. Government or any
agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days may be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate.
Floating Rate Securities. Floating rate instruments are those whose terms
provide for the adjustment of their interest rates whenever a specified
interest rate changes and which, at any time, can reasonably be expected
to have a market value that approximates its par value. The maturity of a
floating rate instrument is deemed to be the period remaining until the
date (noted on the face of the instrument) on which the principal amount
must be paid, or in the case of an instrument called for redemption, the
date on which the redemption payment must be made.
Floating rate instruments with demand features are deemed to have a
maturity equal to the period remaining until the principal amount can be
recovered through demand.
Put Option Bonds. Long-term obligations with maturities longer than one
year may provide purchasers an optional or mandatory tender of the
security at par value at predetermined intervals, often ranging from one
month to several years (e.g., a 30-year bond with a five-year tender
period). These instruments are deemed to have a maturity equal to the
period remaining to the put date.
Residual Interest Bonds. The Fund may purchase municipal bond issues that
are structured as two-part, residual interest bond and variable rate
security offerings. The issuer is obligated only to pay a fixed amount of
tax-free income that is to be divided among the holders of the two
securities. The interest rate for the holders of the variable rate
security will be determined by an index or an auction process held
approximately every 35 days, while the bond holders will receive all
<PAGE>
interest paid by the issuer minus the amount given to the variable rate
security holders and a nominal auction fee. Therefore, the coupon of the
residual interest bonds, and thus the income received, will move inversely
with respect to short-term, 35 day tax-exempt interest rates. There is no
assurance that the auction will be successful and that the variable rate
security will provide short-term liquidity. The issuer is not obligated to
provide such liquidity. In general, these securities offer a significant
yield advantage over standard municipal securities, due to the uncertainty
of the shape of the yield curve (i.e., short-term versus longer term
rates) and consequent income flows.
Unlike many adjustable rate securities, residual interest bonds are not
necessarily expected to trade at par and in fact present significant
market risks. In certain market environments, residual interest bonds may
carry substantial premiums or be at deep discounts. This is a relatively
new product in the municipal market with limited liquidity to date.
Participation Interests. The Fund may purchase from third parties
participation interests in all or part of specific holdings of municipal
securities. The purchase may take different forms: in the case of
short-term securities, the participation may be backed by a liquidity
facility that allows the interest to be sold back to the third party (such
as a trust, broker or bank) for a predetermined price of par at stated
intervals that meet the procedures established by the Board of Directors.
The seller may receive a fee from the Fund in connection with the
arrangement.
In the case of longer term bonds, the Fund may purchase interests in a
pool of municipal bonds or a single municipal bond or lease without the
right to sell the interest back to the third party.
The Fund will not purchase participation interests unless a satisfactory
opinion of counsel or ruling of the Internal Revenue Service has been
issued that the interest earned from the municipal securities on which the
Fund holds participation interests is exempt from federal income tax to
the Fund.
There are, of course, other types of municipal securities that are, or may
become, available, and the Fund reserves the right to invest in them.
For the purpose of the Fund's investment restrictions, the identification
of the "issuer" of municipal securities which are not general obligation bonds
is made by the Adviser, on the basis of the characteristics of the obligation as
described above, the most significant of which is the source of funds for the
payment of principal and interest on such securities.
WHEN-ISSUED SECURITIES
New issues of municipal securities are often offered on a when-issued
basis; that is, delivery and payment for the securities normally takes place 15
to 45 days or more after the date of the commitment to purchase. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the buyer enters into the commitment. The Fund will only
make a commitment to purchase such securities with the intention of actually
acquiring the securities. However, the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy.
The Fund will establish a segregated account with its custodian in which it will
maintain cash or liquid high-grade marketable debt securities equal in value to
commitments for when-issued securities. Such segregated securities will either
<PAGE>
mature or, if necessary, be sold on or before the settlement date. Securities
purchased on a when-issued basis and the securities held in each Fund are
subject to changes in market value based upon the public perception of the
creditworthiness of the issuer and changes in the level of interest rates (which
will generally result in similar changes in value; i.e., both experiencing
appreciation when interest rates decline and depreciation when interest rates
rise). Therefore, to the extent the Fund remains substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be greater fluctuations in its net asset value than if it solely set aside
cash to pay for when-issued securities. In addition, there will be a greater
potential for the realization of capital gains, which are not exempt from
federal, Nebraska state or local income taxes. When the time comes to pay for
when-issued securities, the Fund will meet its obligation from then-available
cash flow, sale of securities or, although it would not normally expect to do
so, from sale of the when-issued securities themselves (which may have a value
greater or less than the payment obligation). The policies described in this
paragraph are not fundamental and may be changed by the Fund upon notice to its
shareholders.
FORWARDS
The Fund may also purchase bonds on a when-issued basis with longer than
standard settlement dates, in some cases exceeding one to two years. In such
cases, the Fund must execute a receipt evidencing the obligation to purchase the
bond on the specified issue date, and must segregate cash or liquid high grade
securities internally to meet that forward commitment. Municipal "forwards"
typically carry a substantial yield premium to compensate the buyer for the
risks associated with a long when-issued period, including: shifts in market
interest rates that could materially impact the principal value of the bond,
deterioration in the credit quality of the issuer, loss of alternative
investment options during the when-issued period, changes in tax law or issuer
actions that would affect the exempt interest status of the bonds and prevent
delivery, failure of the issuer to complete various steps required to issue the
bonds and limited liquidity for the buyer to sell the escrow receipts during the
when-issued period.
OTHER INVESTMENTS
The Fund may invest in medium quality securities (rated BBB by Moody's or
Baa by S&P, or unrated securities of equivalent quality). Such securities are
regarded as having an adequate capacity to pay principal and interest, although
adverse economic conditions or changing circumstances are more likely to lead to
a weakening of such capacity than for bonds in the A category. In addition, the
Fund may, from time to time, purchase debt securities that are below investment
grade (i.e., those rated below BBB by Moody's or below Baa by S&P, or unrated
securities of equivalent quality as determined by the Adviser). The purchase of
such lower quality securities will be limited to no more than 5% of the Fund's
total assets. Such bonds are generally referred to as "junk bonds" and 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. (See Appendix A). While lower quality securities generally provide
greater income and increased opportunity for capital appreciation than
investments in medium and high quality securities, such securities also
typically entail greater price volatility and principal and income risk.
TAXABLE MONEY MARKET SECURITIES
Although the Fund expects to be invested solely in municipal securities,
it is anticipated that, when it is deemed to be in the best interests of
shareholders to do so, the Fund may also invest a portion of its assets, on a
temporary basis, in the taxable money market instruments set forth below. As a
matter of fundamental policy, the Fund will not purchase any security if, as a
result, less than 80% of the Fund's income would be exempt from federal and
Nebraska state income taxes; except that the Fund may temporarily invest more
than 20% of total assets in taxable obligations during periods of abnormal
market conditions, when it might be deemed advantageous to shareholders to do so
because market conditions dictate a defensive posture in taxable obligations. In
addition, as a matter of fundamental policy, at least 80% of the Fund's assets
(exclusive of cash) during any fiscal year will be invested in securities whose
income is exempt from federal, Nebraska state and local income taxes.
<PAGE>
The taxable money market securities that the Fund may invest in are
limited to those described below. The interest earned on these money market
securities is not exempt from federal, Nebraska state and local income taxes and
may be taxable to shareholders as ordinary income.
U.S. Government Obligations. Direct obligations of the U.S.
Government and its agencies and instrumentalities;
U.S. Government Agency Securities. Obligations issued or guaranteed by
U.S. Government sponsored enterprises, federal agencies and international
institutions. Some of these securities are supported by the full faith and
credit of the U.S. Treasury; others are supported by the credit of the issuer;
and the remainder are supported only by the credit of the instrumentality;
Bank Obligations. Certificates of deposit, bankers' acceptances, and other
short-term obligations of U.S. and Canadian banks and their foreign branches
with total assets of $1 billion or more;
Commercial Paper. Paper rated A-1 or better by S&P, Prime 2 or better by
Moody's or, if not rated, is issued by a corporation having an outstanding debt
issue rated A or better by Moody's or S&P; and
Short-Term Corporate Debt Securities. Short-term corporate debt
securities rated at least AA by S&P or Moody's.
FUTURES CONTRACTS
Transactions in Futures
The Fund may enter into interest rate futures contracts ("futures
contracts") as a hedge against or to minimize adverse principal fluctuations or
as an efficient means of regulating the Fund's exposure to the municipal bond
market. The Fund could sell interest rate futures as an offset against the
effect of expected increases in interest rates and purchase such futures as an
offset against the effect of expected declines in interest rates.
The Fund will only enter into futures contracts which are traded on
national futures exchanges and are standardized as to maturity date and
underlying instrument. A public market exists in futures contracts covering
various taxable fixed income securities as well as municipal bonds. In order to
provide a means of managing price risk and interest rate volatility for
municipal bond portfolios, the municipal bond index futures contract was
developed. Trading in the municipal bond index futures contract commenced on the
Chicago Board of Trade on June 11, 1985. Futures exchanges and trading in the
United States are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission ("CFTC"). Although techniques other than the sale and
purchase of futures contracts could be used for the above-referenced purposes,
futures contracts offer an effective and relatively low cost means of
implementing the Fund's objectives in these areas.
Regulatory Limitations
The Fund will engage in futures contracts only for bona fide hedging and
risk management purposes in accordance with rules and regulations of the CFTC,
and not for speculation.
<PAGE>
The Fund will not enter into a futures contract or option thereon if, as a
result thereof (i) the then current aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales plus the
then current aggregate purchase prices of financial instruments required to be
purchased under open futures contract purchases would exceed 30% of the Fund's
total assets (taken at market value at the time of entering into the contract)
or (ii) more than 5% of the Fund's assets (taken at market value at the time of
entering into the contract) would be committed to margin deposits or premiums on
options on such futures contracts; provided, however, that in the case of an
option which is in the money at the time of purchase, the in-the-money amount as
defined under certain CFTC regulations may be excluded in computing such 5%. In
instances involving the purchase of futures contracts or all options thereon or
the writing of put options thereon by the Funds, an amount of cash, U.S.
government securities or other liquid, high-grade debt obligations, equal to the
market value of the futures contracts and options thereon (less any related
margin deposits), will be deposited in a segregated account with the Funds'
custodian to cover the position, or alternative cover will be employed thereby
insuring that the use of such futures contracts is unleveraged.
As an alternative to bona fide hedging as described by the CFTC, the Fund
may comply with a different standard established by the CFTC rules with respect
to futures contracts and options thereon purchased by the Fund incidental to the
Fund's activities in the securities markets, under which the value of the assets
underlying such positions will not exceed the sum of (a) cash set aside in an
identifiable manner or short-term U.S. government or other U.S.
dollar-denominated high-grade short-term debt securities segregated for this
purpose, (b) cash proceeds on existing investments due within thirty (30) days
and (c) accrued profits on the particular futures contract thereon.
In addition, CFTC regulations may impose limitations on the Fund's ability
to engage in certain risk management strategies. If the CFTC or other regulatory
authorities adopt different (including less stringent) or additional
restrictions, the Fund would comply with such new restrictions.
Trading in Futures Contracts
A futures contract provides for the future sale by one party and purchase
by another party of a specified amount of a specific financial instrument for a
specified price, date, time and place designated at the time the contract is
made. Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained. Entering into a contract to sell is commonly
referred to as selling a contract or holding a short position.
It is possible that the Fund's hedging activities will occur primarily
through the use of municipal bond index futures contracts since uniqueness of
that index contract should better correlate with the Fund and thereby be more
effective. However, there may be times when it is deemed in the best interest of
shareholders to engage in the use of Treasury Bond futures, and the Fund
reserves the right to use Treasury Bond futures at any time. Use of these
futures could occur, as an example, when both the Treasury Bond contract and
municipal bond index futures contract are correlating well with municipal bond
prices, but the Treasury Bond contract is trading at a more advantageous price
making the hedge less expensive with the Treasury Bond contract than would be
obtained with the municipal bond index futures contract. The Fund's activity in
futures contracts will be limited to municipal bond index futures contracts and
Treasury Bond and Note contracts.
Unlike when the Fund purchases or sells a security, no price would be paid
or received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a futures contract, and to maintain the Fund's open positions in
futures contracts, 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, U.S.
government securities, suitable money market instruments, or liquid, high-grade
debt securities, known as "initial margin." The margin required for a particular
futures contract is set by the exchange on which the contract is traded, and may
be significantly modified from time to time by the exchange during the term of
the contract. Futures contracts are customarily purchased and sold on margins
that may range upward from less than 5% of the value of the contract being
traded.
<PAGE>
If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marked to the market." The Fund expects to
earn interest income on its margin deposits.
Although futures contracts, by their terms, typically require actual
future delivery of and payment for financial instruments, (or, in the case of
municipal bond index futures contracts settle, in cash at the spot market value
of the index on the closing day of the contract) in practice most futures
contracts are usually closed out before the delivery date of securities or, in
the case of municipal bond index futures contract purchase or expiration of the
contract. Closing out an open futures contract purchase or sale is effected by
entering into an offsetting futures contract purchase or sale, respectively, for
the same aggregate amount of the identical type of financial instrument and the
same delivery date. If the offsetting purchase price is less than the original
sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations. There can be no
assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular futures contract at a particular time.
If the Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures contract.
As an example of an offsetting transaction in which the financial
instrument is not delivered, the contractual obligations arising from the sale
of one contract of September municipal bonds index futures on an exchange may be
fulfilled at any time before delivery of the contract is required (i.e., on a
specified date in September, the "delivery month") by the purchase of one
contract of September municipal bond index futures on the same exchange. In such
instance, the difference between the price at which the futures contract was
sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
Special Risks of Transactions in Futures Contracts
Volatility and Leverage. The prices of futures contracts are volatile and
are influenced, among other things, by actual and anticipated changes in
interest rates, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of futures contracts may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of futures contract,
no trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
<PAGE>
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. However, the Fund would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a futures
contract, the Fund earmarks to the futures contract money market instruments
equal in value to the current value of the underlying instrument less the margin
deposit.
Liquidity. The Fund may elect to close some or all of its futures
positions at any time prior to their expiration. The Fund would do so to reduce
exposure represented by long futures positions or increase exposure represented
by short futures positions. The Fund may close its positions by taking opposite
positions which would operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin would then be made,
additional cash would be required to be paid by or released to the Funds, and
the Funds would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. Although the Fund intends to purchase
or sell futures contracts only on exchanges or boards of trade where there
appears to be an active market, there is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge portfolio securities, the Fund
would continue to hold securities subject to the hedge until the futures
contracts could be terminated. In such circumstances, an increase in the price
of the securities, if any, might partially or completely offset losses on the
futures contract. However, as described below, there is no guarantee that the
price of the securities will, in fact, correlate with the price movements in the
futures contract and thus provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when and how to hedge involves skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior, market or interest rate trends. There are
several risks in connection with the use by the Fund of futures contracts as a
hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
securities which are the subject of the hedge. The Adviser will, however,
attempt to reduce this risk by entering into futures contracts whose movements,
in its judgment, will have a significant correlation with movements in the
prices of the Fund's securities sought to be hedged.
Successful use of futures contracts by the Fund for hedging purposes is
also subject to the Adviser's ability to correctly predict movements in the
direction of the market. It is possible that, when the Fund has sold futures to
hedge its portfolio against a decline in the market, the securities on which the
futures are written might advance and the value of securities held by the Fund
might decline. If this were to occur, the Fund would lose money on the futures
and also would experience a decline in value in its portfolio securities.
However, while this might occur to a certain degree, the Adviser believes that
over time the value of the Fund will tend to move in the same direction as the
securities underlying the futures, which are intended to correlate to the price
movements of the portfolio securities sought to be hedged. It is also possible
<PAGE>
that if the Fund were to hedge against the possibility of a decline in the
market (adversely affecting securities held in its portfolio) and prices instead
increased, the Fund would lose part or all of the benefit of increased value of
those securities that it has hedged, because it would have offsetting losses in
its futures positions. In addition, in such situations, if the Fund had
insufficient cash, it might have to sell securities to meet daily variation
margin requirements. Such sales of securities might be, but would not
necessarily be, at increased prices (which would reflect the rising market). The
Fund might have to sell securities at a time when it would be disadvantageous to
do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with the price movements in the
underlying security due to certain market distortions. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by the Adviser might
not result in a successful hedging transaction over a very short time period.
Options on Interest Rate Futures Contracts
The Fund might trade in municipal bond index option futures or similar
options on futures developed in the future. In addition, the Fund may also trade
in options on futures contracts in U.S. Government securities and any U.S.
government securities futures index contract which might be developed. The
Adviser believes that there is a high degree of correlation in the interest
rate, and price movements of U.S. government securities and municipal
securities. However, the U.S. government securities market and municipal
securities markets are independent and may not move in tandem at any point in
time.
The Fund will purchase put options on interest rate futures contracts to
hedge its portfolio of municipal securities against the risk of rising interest
rates, and the consequent decline in the prices of the municipal securities it
owns. The Fund will also write call options on futures contracts as a hedge
against a modest decline in prices of the municipal securities held in the Fund.
If the futures price at expiration of a written call option is below the
exercise price, the Fund will retain the full amount of the option premium,
thereby partially hedging against any decline that may have occurred in the
Fund's holdings of debt securities. If the futures price when the option is
exercised is above the exercise price, however, the Fund will incur a loss,
which may be wholly or partially offset by the increase of the value of the
securities in the Fund which were being hedged.
Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of securities the Fund intends to acquire. If
the futures price at expiration of the option is above the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase that may have occurred in the price of the debt
securities the Fund intends to acquire. If the futures price when the option is
exercised is below the exercise price, however, the Fund will incur a loss,
which may be wholly or partially offset by the decrease in the price of the
securities the Fund intends to acquire.
<PAGE>
Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put), rather than purchase or sell
the futures contract, at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the futures contract.
Alternatively, settlement may be made totally in cash. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
From time to time, a single order to purchase or sell futures contracts
(or options thereon) may be made on behalf of the Fund and other accounts. Such
aggregated orders would be allocated among the Fund and the accounts in a fair
and non-discriminatory manner.
Special Risks of Transactions in Options on Futures Contracts
The Fund may seek to close out an option position by writing or buying an
offsetting option covering the same security and having the same exercise price
and expiration date. The ability to establish and close out positions on such
options will be subject to the maintenance of a liquid secondary market. Reasons
for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options, or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders. In the event no such market exists for a particular contract in which
the Fund maintains a position, in the case of a written option, the Fund would
have to wait to sell the underlying securities or futures position until the
option expires or is exercised. The Fund would be required to maintain margin
deposits on payments until the contract is closed. Options on futures are
treated for accounting purposes in the same way as the analogous options on
securities are treated.
In addition, the correlation between movements in the price of options on
futures contracts and movements in the price of the securities hedged can only
be approximate. This risk is significantly increased when an option on a U.S.
government securities future or an option on a municipal securities index future
is used to hedge a municipal bond portfolio. Another risk is that the movements
in the price of options on futures contracts may not move inversely with changes
in interest rates. If the Fund has written a call option on a futures contract
and the value of the call increases by more than the increase in the value of
the securities held as cover, the Fund may realize a loss on the call which is
not completely offset by the appreciation in the price of the securities held as
cover and the premium received for writing the call.
The successful use of options on futures contracts requires special
expertise and techniques different from those involved in portfolio securities
transactions. A decision of whether, when and how to hedge involves skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or interest rate trends. During periods
when municipal securities market prices are appreciating, the Fund may
experience poorer overall performance than if it had not entered into any
options on futures contracts.
<PAGE>
General Considerations
Transactions by the Fund in options on futures will be subject to
limitations established by each of the exchanges, boards of trade or other
trading facilities governing the maximum number of options in each class which
may be written or purchased by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges, boards of trade or other trading facilities or are held or written in
one or more accounts or through one or more brokers. Thus, the number of
contracts which the Funds may write or purchase may be affected by contracts
written or purchased by other investment advisory clients of the Adviser. An
exchange, board of trade or other trading facility may order the liquidations of
positions found to be in excess of these limits, and it may impose certain other
sanctions.
Federal Tax Treatment of Futures Contracts
Although the Fund invests almost exclusively in securities which generate
income which is exempt from federal and Nebraska state income taxes, the
instruments described above are not exempt from such taxes. Therefore, use of
investment techniques described above could result in taxable income to
shareholders of the Fund.
Generally, the Fund is required, for federal income tax purposes, to
recognize as income for each taxable year its net unrealized gains and losses on
futures contracts as of the end of the year as well as those actually realized
during the year. Gain or loss recognized with respect to a futures contract will
generally be 60% long-term capital gain or loss and 40% short-term capital gain
or loss, without regard to the holding period of the contract.
Futures contracts which are intended to hedge against a change in the
value of securities may be classified as "mixed straddles," in which case the
recognition of losses may be deferred to a later year. In addition, sales of
such futures contracts on securities may affect the holding period of the hedged
security and, consequently, the nature of the gain or loss on such security on
disposition.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from dividends, interest, certain other types
of income, including income from loans of securities, and gains from the sale of
securities. Gains realized on the sale or other disposition of securities,
including futures contracts on securities, held for less than three months, must
be limited to less than 30% of the Fund's annual gross income. In order to avoid
realizing excessive gains on securities held less than three months, the Fund
may be required to defer the closing out of futures contracts beyond the time
when it would otherwise be advantageous to do so. It is anticipated that
unrealized gains on futures contracts, which have been open for less than three
months as of the end of the Fund's fiscal year and which are recognized for tax
purposes, will not be considered gains on securities held less than three months
for purposes of the 30% test.
The Fund will distribute to shareholders annually any net gains which have
been recognized for federal income tax purposes from futures transactions
(including unrealized gains at the end of the Fund's fiscal year). Such
distributions will be combined with distributions of ordinary income or capital
gains realized on the Fund's other investments. Shareholders will be advised of
the nature of the payments. The Fund's ability to enter into transactions in
options on futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company.
<PAGE>
OPTIONS ON SECURITIES
The Fund has no current intention of investing in options on securities,
although it reserves the right to do so. Appropriate disclosure would be added
to the Fund's prospectus and Statement of Additional Information when and if the
Fund decides to invest in options.
Repurchase Agreements.
The Fund may invest in repurchase agreements on U. S. Government
securities. The Fund's 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 Fund will promptly receive
additional collateral so that the total collateral is an amount at least equal
to the repurchase price plus accrued interest.
RISK FACTORS
The Fund's concentration in the debt obligations of the State of Nebraska
carries a higher risk than a portfolio that is geographically diversified. There
are 93 counties and 535 incorporated municipalities in Nebraska, many of which
may have outstanding debt. A number of other public authorities and private,
nonprofit organizations, including utilities, also issue tax exempt debt within
the State of Nebraska.
Economy. The economy of the State of Nebraska continues to demonstrate
relatively strong performance, with estimated personal income for 1993 ranking
23rd in the nation at $19,726. Total State employment was 829,974 in 1993, with
the majority of jobs in trade, services and government. Unemployment was 2.6% in
1993, compared to a national average of 6.8%. The State's population in 1990 was
1,578,385, with 1,600,524 estimated for 1992. Two-fifths of the population is
concentrated in the three metropolitan areas of Lincoln, Omaha and South Sioux
City.
Debt. The State of Nebraska does not issue debt. Local governments issue
three basic types of debt, with varying degrees of credit risk: general
obligation bonds backed by the unlimited, and in some cases limited, taxing
power of the issuer, revenue bonds secured by specific pledged fees or charges
for a related project, and tax-exempt lease obligations, secured by annual
appropriations by the issuer, usually with no implied tax or specific revenue
appropriations by the issuer. In 1993, over $3.3 billion in municipal debt was
issued in Nebraska, with approximately 16% representing general obligation debt
and 84% revenue bonds, compared to 32% general obligation and 68% revenue backed
bonds nationally.
Many agencies and other instrumentalities of the State government are
authorized to borrow money under legislation which expressly provides that the
loan obligations shall not be deemed to constitute a debt or a pledge of the
faith and credit of the State of Nebraska. Representative issuers of this kind
of debt include the Nebraska Educational Facilities Authority and Nebraska
Investment Finance Authority. The principal of and interest on bonds issued by
these bodies are payable solely from various sources, principally fees generated
from use of the facilities, enterprises financed by the bonds, or other
dedicated fees.
Financial. To a large degree, the risk of the Fund is dependent upon the
financial strength of the State of Nebraska and its political subdivisions.
Agriculture traditionally has been the backbone of Nebraska's economy, although
its strength has diminished in the last two decades compared to other sectors.
Its continued importance to the State's economy was clearly demonstrated in
recent years, when increasing farm credit problems and adverse weather
conditions affected other sectors interacting with agriculture. These sectors
include manufacturers of farm equipment and supplies; feed, seed, and other farm
supply retailers; truckers transporting farm products; and banks providing loans
for farm operating capital. While Nebraska has not experienced severe symptoms
of past national recessions, the State has faced budget crises in the recent
past (see Property Tax System below).
<PAGE>
Property Tax System. The passage of certain legislation relating to
personal property taxes by the Nebraska Legislature and a recent challenge of
the current taxation system make it difficult to predict what the effect will be
on the ability of political subdivisions in the State to levy and collect ad
valorem taxes to support their governmental operations. These concerns were
initiated by litigation involving railroad rolling stock, the taxation of which
is governed by the provisions of the Federal Railroad Revitalization and
Regulatory Reform Act (the "4-R Act"). As a result of the successful challenge
by the railroad of personal property taxes levied on railroad rolling stock,
further challenges to personal property taxes levied on pipelines and other
interstate businesses with personal property in Nebraska were filed and
ultimately raised the issue of the validity of Nebraska's system of personal
property taxation under the provisions of Article VIII, Section 1 of the
Nebraska Constitution requiring that taxes be "levied uniformly and
proportionately upon all tangible property and franchises."
In order to resolve the constitutional issues raised by a number of
lawsuits, the 1992 Nebraska Legislature submitted an amendment to Article VIII,
Section 1 of the Nebraska Constitution ("Amendment 1") allowing the exemption of
certain classes of personal property from taxation and the taxation of
nonexempted personal property at depreciated cost to the electors of the State
of Nebraska at the May 12, 1992 primary election. The Constitutional amendment
was approved by the required number of voters and has been effective since
December 15, 1992. As a result of the adoption of Amendment 1, the Legislature
has exempted certain classes of tangible personal property from taxation and
concern over the validity of the State's property taxation system has been
reduced. The 1992 Nebraska Legislature also passed, during a special session
following the approval of Amendment 1, Legislative Bill 1 containing revisions
to the Nebraska statutes concerning the levy and collection of property taxes
and taxing all depreciable income-producing personal property at its net book
value beginning in tax year 1992.
Both Amendment 1 and Legislative Bill 1, as enacted, were recently
challenged in Lancaster County District Court as unconstitutional because they
create ad valorem taxes that are not uniform nor proportionate. Boettcher v.
State, 494-102. On February 2, 1994, the defendants filed an answer to the
plaintiff's amended petition. It is uncertain when the matter will be resolved
and, if an adverse decision were handed down, the effect of the decision on
political sub-divisions.
Puerto Rico. From time to time the Fund may invest in obligations of the
Commonwealth of Puerto Rico and its public corporations exempt from federal and
Nebraska state and local income taxes. The majority of the Commonwealth's debt
is issued by ten of the major public agencies that are responsible for many of
the islands' public functions, such as water, wastewater, highways,
telecommunications, education, and public construction.
Since the 1980's, Puerto Rico's economy and financial operations have
paralleled the economic cycles of the United States. The island's economy,
particularly the manufacturing sector, has experienced substantial gains in
employment. Unemployment, while reaching its lowest level in ten years, still
remains high. Much of these economic gains are attributable in part to favorable
treatment under Section 936 of the U.S. Federal Tax Code for U.S. corporations
doing business in Puerto Rico.
Debt ratios for the Commonwealth are high as it assumes much of the
responsibility for local infrastructure. Sizable infrastructure improvements are
anticipated to upgrade the island's water, sewer, and road system. The
Commonwealth's general obligation debt is secured by a first lien on all
available revenues.
<PAGE>
The Commonwealth's economy remains vulnerable to changes in oil prices,
American trade, foreign policy, and levels of federal assistance. Per capita
income levels, while the highest in the Caribbean, lag far behind the United
States.
Other Risk Factors. Because of its investment policies, the Fund may not
be suitable or appropriate for all investors. The Fund is designed for investors
who want a high level of current income that is exempt from federal and Nebraska
state income taxes. Investors in the Fund should not rely on the Fund for their
short-term financial needs. The principal values of longer term securities
fluctuate more widely in response to changes in interest rates than those of
shorter term securities, providing greater opportunity for capital gain or risk
of capital loss.
In addition, because the Fund may invest up to 5% of assets in
noninvestment-grade ("junk bond") securities and since investors generally
perceive that there are greater risks associated with investment in lower
quality securities, the yields from such securities normally exceed those
obtainable from higher quality securities. On the other hand, short-term market
developments generally have a greater effect on the value of lower rated
securities--causing their principal value to fluctuate more widely relative to
higher quality securities.
There can be no assurance that the Fund will achieve its investment
objective. Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the money market and the municipal bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. Municipal securities with longer maturities tend to
produce higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of municipal securities usually vary, depending upon
available yields. An increase in interest rates will generally reduce the value
of Fund investments, and a decline in interest rates will generally increase the
value of Fund investments. The ability of the Fund to achieve its investment
objective is also dependent on the continuing ability of the issuers of
municipal securities in which the Fund invests to meet their obligations for the
payment of interest and principal when due. The ratings of Moody's and S&P
represent their opinions as to the quality of municipal securities which they
undertake to rate. Ratings are not absolute standards of quality; consequently,
municipal securities with the same maturity, coupon, and rating may have
different yields. There are variations in municipal securities, both within a
particular classification and between classifications, depending on numerous
factors. It should also be pointed out that, unlike other types of investments,
municipal securities have traditionally not been subject to regulation by, or
registration with, the Securities and Exchange Commission, although there have
been proposals which would provide for regulation in the future.
The federal bankruptcy statutes relating to the debts of political
subdivisions and authorities of states of the United States provide that, in
certain circumstances, such subdivisions or authorities may be authorized to
initiate bankruptcy proceedings without prior notice to or consent of creditors,
which proceedings could result in material and adverse changes in the rights of
holders of their obligations.
Proposals have been introduced in Congress to restrict or eliminate the
federal income tax exemption for interest on municipal securities, and similar
proposals may be introduced in the future. Some of the past proposals would have
applied to interest on municipal securities issued before the date of enactment,
which would have adversely affected their value to a degree. If such a proposal
were enacted, the availability of municipal securities for investment by the
Fund and the value of each Fund's investments would be affected and, in such an
event, the Fund would reevaluate its investment objectives and policies.
<PAGE>
Although the banks and securities dealers from which the Fund will acquire
repurchase agreements, puts, or purchase participation interests on municipal
securities, will be banks and securities dealers that the Adviser believes to be
financially sound, there can be no assurance that they will be able to honor
their obligations to the Fund with respect to such securities.
The Fund's concentration in securities issued by municipalities and
political subdivisions of the State of Nebraska involves greater risk than
investing in municipal securities issued by a diversified group of entities from
various geographical areas in the United States. Specifically, the credit
quality of the Fund will depend upon the continued financial strength of the
public bodies and municipalities in Nebraska. The State of Nebraska does not
issue debt and, as a result, the financial condition of each municipality or
political subdivision for each issue must be analyzed separately.
Municipal securities issued by Nebraska municipalities and political
subdivisions generally have been highly regarded. Defaults on Nebraska municipal
securities have been confined to issues made by sanitary improvement districts
primarily occurring in the early 1980's and a few of the industrial development
bond issues also occurring in the early 1980's.
The Fund expects to invest a substantial portion of its assets in the debt
obligations of local governments and public authorities in the State of
Nebraska. While local governments in Nebraska are predominantly reliant on
independent revenue sources, such as property taxes, they are not immune to
budget shortfalls caused by cut-backs in state aid. None of the obligations
issued by public authorities in Nebraska are backed by the full faith and credit
of the State of Nebraska. In addition, property tax increases and general
increases in governmental spending may be subject to voter approval.
The Fund may also invest in certain sectors of the municipal securities
market which have unique risks. The sectors include, but are not limited to,
investments in issuances of health care providers, electric revenue issues with
exposure to nuclear power plants, and private activity bonds without
governmental backing. Each of these sectors is impacted by its own unique set of
circumstances, including significant regulatory impacts, which may adversely
affect an issuer's financial performance.
Investment in Puerto Rico obligations requires a careful assessment of
certain risk factors. These include reliance on substantial federal assistance
and favorable tax programs, above average levels of employment and low wealth
levels, and an economy vulnerable to adverse shifts in energy prices in U.S.
foreign trade/monetary policies. These risks are countered by strong security
provisions, a long history of timely debt repayment and improved financial
practices.
INVESTMENT RESTRICTIONS
The Prospectus identifies a number of important policies and restrictions
which are considered fundamental and cannot be changed without the approval of
shareholders. Additional investment policies and restrictions which cannot be
changed without shareholder approval are described below. Shareholder approval
requires 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 of the Fund's Common
Stock are represented at such meeting in person or by proxy; or (b) more than
50% of the Fund's outstanding Common Stock, whichever is less.
Unless otherwise specified below, the Fund will not:
1. Borrow money, except (i) the Fund may borrow from banks as a temporary
measure for extraordinary or emergency purposes, and then only in amounts not
exceeding 15% of its total assets valued at market; (ii) the Fund may enter into
reverse repurchase agreements; and (iii) the Fund may also enter into futures
contracts as set forth in 4. below;
<PAGE>
2. Purchase or sell commodities or commodity contracts; except
that the Fund may enter into futures contracts or options on futures
contracts, subject to 4. below;
3. Purchase equity securities, or securities convertible into
equity securities;
4. Enter into a futures contract or options thereon if, as a result
thereof, (i) the then current aggregate futures market prices of securities
required to be delivered under open futures contract sales plus the then current
aggregate purchase prices of securities required to be purchased under open
futures contracts purchases would exceed 30% of the Fund's total assets (taken
at market value at the time of entering into the contract) or (ii) more than 5%
of the Fund's total assets (taken at market value at the time of entering into
the contract) would be committed to margin or premiums on options on such
futures contracts; provided, however, that in the case of an option which is
in-the-money at the time of purchase, the in-the-money amount as defined under
certain CFTC regulations may be excluded in computing such 5%;
5. Purchase any security if, as a result, 25% or more of the value of the
Fund's total assets would be invested in the securities of issuers having their
principal business activities in the same industry, except that this limitation
does not apply to : (i) securities issued or guaranteed by the U.S. Government,
or any of its agencies or instrumentalities; and (ii) municipal securities. For
the purpose of this restriction, industrial development bonds issued by
nongovernmental users will not be considered to be municipal securities;
6. Make loans, although the Fund may (i) purchase issues of debt
securities, acquire privately negotiated loans to tax-exempt borrowers, and
enter into repurchase agreements and (ii) lend portfolio securities provided
that no such loan may be made if, as a result, the aggregate of such loan would
exceed 30% of the value of the Fund's total assets;
7. Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Fund as security for indebtedness except (i) as may be necessary in
connection with permissible borrowings and then such mortgaging, pledging, or
hypothecating may not exceed 15% of the Fund's total assets valued at cost at
the time of borrowing; provided, however, that as a matter of operating policy,
which may be changed without shareholder approval, the Fund will limit any such
mortgaging, pledging or hypothecating to 10% of its net assets, valued at
market, in order to comply with certain state investment restrictions, and (ii)
it may enter into futures contracts as set forth in 4. above;
8. Purchase a security if, as a result, more than 25% of the
outstanding voting securities of any issuer would be held by the Fund,
except securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities;
9. Purchase or sell real estate (although it may purchase
municipal securities and other debt securities secured by real estate or
interests therein);
10. Purchase restricted securities or other securities to the extent such
securities are not readily marketable or invest in repurchase agreements which
do not provide for payment within seven days if, as a result of such investment,
more than 10% of the Fund's net assets would be invested in such securities;
11. Issue senior securities except in compliance with the
Investment Company act of 1940;
12. Make short sales of securities or purchase securities on margin,
except for such short-term credit as may be necessary for the clearance of
purchases of Fund securities; except that it may make margin deposits in
connection with interest rate futures contracts, subject to 4. above;
<PAGE>
13. Underwrite any issue of securities, except to the extent that the
purchase of municipal securities, or other permitted investments, directly from
the issuer thereof (or from an underwriter for an issuer) and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
14. Purchase any security if, as a result, more than 5% of the value of
the Fund's total assets would be invested in the securities of issuers which at
the time of purchase had been in operation for less than three years except
obligations issued or guaranteed by the U.S. Government, or its agencies, and
municipal securities (for this purpose, the period of operation of any issuer
shall include the period of operation of any predecessor or unconditional
guarantor of such issuer); provided, however, that for the purpose of this
limitation, industrial development bonds issued by nongovernmental users shall
not be deemed municipal securities;
15. Purchase any securities other than those described under
"Investment Objectives, Policies and Restrictions" in the Prospectus;
16. Invest with a view to exercising control or influencing
management;
17. Purchase or sell interests in oil, gas or other mineral
exploration or development program;
18. Make short sales of securities or maintain a short position or
purchase puts, calls, straddles, spreads or combinations thereof;
19. Purchase the securities of other investment companies except as
provided by Section 12(d)(1)(F) 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.
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:
<TABLE>
<CAPTION>
<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>
<PAGE>
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 Fund is CONLEY SMITH, Inc. (the "Adviser")
. The administrator and transfer agent for the Fund is Lancaster Administrative
Services, Inc., (the "Administrator"). The Adviser's address is 444 Regency
Parkway, Suite 202 Lake Regency Building, Omaha, Nebraska 68114. The
Administrator's address is 200 Centre Terrace, 1225 L Street, Lincoln, Nebraska
68508. The Adviser and Administrator will act as such pursuant to written
agreements which will be periodically approved by the directors or the
shareholders of the Trust.
Control of the Adviser 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.
Investment Advisory Agreements and Administration Agreement
The Advisory Agreement and Administration Agreement have been approved
by the Board of Directors (including a majority of the directors who are not
parties to the Advisory and Administration Agreements, or interested persons of
any such party, other than as directors of the Trust). The Advisory Agreement
and Administration Agreement for the Fund were first approved by the Board of
Directors on February 23, 1993 and last approved on July 18, 1995.
The Advisory Agreement and Administration Agreement terminate
automatically in the event of their assignment. In addition, the Advisory
Agreement and Administration Agreement 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 not more than 60 days' written notice
to the Adviser and the Administrator, as the case may be, and by the Adviser and
Administrator, as the case may be, on 60 days' written notice to the Trust.
Unless sooner terminated, the Advisory Agreement and Administration Agreement
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.
Pursuant to the Advisory Agreement, the Fund pays the Adviser a monthly
advisory fee equal on an annual basis to .15% of the Fund's average daily net
assets.
Pursuant to the Administration Agreement, the Administrator provides, or
contracts with others to provide, the Trust all necessary bookkeeping and
shareholder record keeping services, share transfer services, and custodial
services. Under the Administration Agreement, the Administrator receives an
administration fee, computed separately for each Fund of the Trust and paid
monthly, at an annual rate of .125% of the daily average net assets of the
Trust. For the period ending June 30, 1994, the Fund paid the Adviser $3,782 for
advisory and administrative services. The Adviser waived $13,650 of the fees it
was entitled to receive for such services for the months of November, 1993
through June, 1994. For the year ended June 30, 1995, the Fund paid the Adviser
$24,854 for advisory and administrative services.
<PAGE>
Under the Advisory Agreement, the Adviser provides the Fund with advice
and assistance in the selection and disposition of the 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.
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. The Fund should not ever
exceed such limits. In its sole discretion the Adviser and Administrator may
waive all or part of the advisory or administration fees. Any such waiver may be
discontinued at any time.
DISTRIBUTION PLAN
Rule 12b-1(b) under the Investment Company Act of 1940 provides that any
payments made by the Fund in connection with financing the distribution of its
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 Fund 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 Fund's shares.
In addition, Rule 12b-1(b)(1) requires that such plan be approved by a
majority of the 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
members 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
12b-1(b)(3) requires that the plan or agreement provide, in substance:
(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 the 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.
<PAGE>
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 Fund
pays a fee to the Distributor computed and paid monthly at the annual rate of up
to .25% for the Fund's average daily net assets in order to reimburse the
Distributor for its actual expenses incurred in the distribution and promotion
of the Fund's shares. In its sole discretion the Distributor may waive all or
part of such fee. Any such waiver may be discontinued at any time. Additionally,
the Distributor receives commissions consisting of that portion of the sales
charge remaining after reallowance to dealers.
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; shareholder account
servicing fees; and other distribution-related expenses. Compensation may 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 Fund 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 Fund 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 .25% of the average daily
net assets of the Fund which is attributable to shares sold by such investment
executive. For the period ending June 30, 1995, the Fund paid to the Distributor
$24,873 under the Distribution Plan. The Distributor paid to its agents $20,761
and $4,093 to other broker-dealers of such fees. The Distributor also received
$22,103 and retained $4,828 (after allowances to dealers) as its portion of the
sales charges paid by purchasers of the Fund shares. 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.
FUND TRANSACTIONS AND BROKERAGE ALLOCATIONS
The Adviser is responsible for decisions to buy and sell securities for
the Fund, 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 Adviser, to secure prompt
execution of the transactions at the most favorable prices. In selecting
broker-dealers the Adviser may consider a number of factors including but not
limited to the reasonableness of the commission (if any), quality of services,
research services and execution.
When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research and/or services to the Adviser.
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 Adviser to supplement its own investment research
activities and enables the Adviser to obtain the views and information of
<PAGE>
individuals and research staffs of many different securities firms prior to
making investment decisions for the Fund. To the extent portfolio transactions
are effected with broker-dealers who furnish research services to the Adviser,
the Adviser receives a benefit, not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Fund from these
transactions. The Adviser believes that most research services obtained by it
generally benefit several or all of the accounts which it manages, 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.
The Adviser has not 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 the Fund's transactions in exchange for
research services provided the Adviser except as noted below. However, from time
to time, the Adviser may elect to use certain brokers to execute transactions in
order to encourage them to provide the Adviser with research services which the
Adviser anticipates will be useful to it. The Adviser 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
Adviser 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
Adviser's overall responsibilities with respect to the accounts as to which it
exercises investment discretion.
Securities transactions for the Fund may be effected 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 Fund 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 Fund does not deem it practicable and in its
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 year ended June 30, 1995, the Fund incurred $38,418 of
brokerage commissions, all of which were paid to the Distributor. This amounted
to 100% of the total brokerage commissions paid by the Fund and represented 100%
of the total number of transactions involving commissions. Most of the Fund's
securities purchases are typically principal transactions involving new issues.
In certain instances, there may be securities which are suitable
investments for the Fund as well as for one or more of the advisory clients of
the Adviser. Investment decisions for the Fund and for such advisory clients are
made by 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 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 the Adviser when one or more other clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
<PAGE>
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 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 Adviser 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 Adviser, 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 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>
CAPITAL STOCK AND CONTROL
A complete description of the rights and characteristics of the Fund's
capital stock is included in the Prospectus. As of June 30, 1995, UBATCO & CO.,
4732 Calvert Street, Lincoln, Nebraska, nominee of the Custodian, was the record
owner of 18.46% of the outstanding shares of the Fund and Roper & Sons Pre need
Burial Revocable Trust, (c/o Union Bank and Trust Company, 4732 Calvert Street,
Lincoln, Nebraska) was the beneficial owner of 6.29% of the Fund's outstanding
shares. Officers and directors of the Trust, in the aggregate, owned less than
1% of the shares of the Fund as of that date.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of the Fund's shares
is summarized in the Prospectus in the text following the headings "Purchase of
Shares--General" and "Valuation of Shares." The net asset value of the Fund's
shares is determined each day that the New York Stock Exchange is open, provided
that the net asset value need not be determined on days when no shares are
tendered for redemption and no order for 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.
Determination of Net Asset Value, Redemption Price and Maximum Offering
Price per Share as of June 30, 1995
Net asset value and redemption price per share (Net assets divided by
shares outstanding - $9.71)
Maximum offering price per share (100/96.10 of the per share net asset
value, which takes into account the Fund's current maximum sales charge) -
$10.10
Statement of Intention
The reduced sales charges and offering prices set forth in the Prospectus
apply to purchases of $25,000 or more made within a 13-month period pursuant to
the terms of a written statement of intention (the "Statement") in the
application form provided by the Principal Underwriter and signed by the
purchaser. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder signs a Statement in order to qualify for a reduced
sales charge, shares equal to 5% of the dollar amount specified in the Statement
will be held in escrow in the shareholder's account out of the initial purchase
(or subsequent purchases, if necessary) by the Transfer Agent. All dividends and
capital gain distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the intended
investment is not completed within the specified 13-month period, the purchaser
will remit to the Principal Underwriter the difference between the sales charge
actually paid and the sales charge which would have been paid if the total
purchases had been made at a single time. If the difference is not paid within
20 days after written request by the Principal Underwriter or the investment
dealer, the appropriate number of escrowed shares will be redeemed to pay such
difference. If the proceeds from this redemption are inadequate, the purchaser
will be liable to the Principal Underwriter for the balance still outstanding.
The Statement may be revised upward at any time during the 13-month period, and
such a revision will be treated as a new Statement, except that the 13-month
period during which the purchase must be made will remain unchanged and there
will be no retroactive reduction of the sales charges paid on prior purchases.
<PAGE>
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 Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its 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.
CALCULATIONS OF PERFORMANCE DATA
From time to time the Trust may quote the yield for the Fund in
advertisements or in reports and other communications to shareholders. For this
purpose, yield is calculated by dividing the Fund'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 the 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 the 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 yield of the Fund for the 30-day period ending June 30, 1995 was
4.93%.
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 Fund may also provide a total
return figure for the most recent calendar quarter prior to the publication of
the advertisement. The total return for the Fund for year ended June 30, 1995
was 8.46% and from inception (July 12, 1993) through June 30, 1995, annualized,
was 3.39%.
AUDITORS
The Board of Directors, including all disinterested directors, unanimously
approved the appointment of Deloitte & Touche, LLP, 1040 NBC Center, Lincoln,
Nebraska 68508 as the Fund's accountants.
<PAGE>
DIVIDENDS
All net investment income and capital gains of the portfolio are
distributed to shareholders periodically. Dividends are declared and paid once
each month. Capital gains distributions, if any, will be paid at least once per
year. Dividends are accrued and credited to shareholders' accounts and are
automatically reinvested in additional Fund shares on the dividend date each
month at the net asset value of the shares on such day, unless the shareholder
notifies the SMITH HAYES investment executive or other broker-dealer of an
election to receive cash. Cash payment, if requested, is made through the
dividend date and checks for such payment will be mailed within 5 days thereof.
TAX STATUS
The Fund anticipates that substantially all of the dividends declared will
be exempt from federal income taxes. Additionally, substantially all dividends
are anticipated to be exempt from the state income taxes of the state of
Nebraska. Due to seasonal variations and the supply of municipal securities and
temporary investment strategies, the Fund may generate income which is tax
exempt for federal purposes, nontax-exempt for Nebraska state income tax
purposes, income that may be subject to the alternative minimum tax, and/or
income that is not federal tax-exempt or Nebraska state income tax-exempt.
Annually the Trust or the Fund will mail shareholders Form 1099-DIV and other
information indicating the federal and state tax status of dividends and capital
gain distributions made by the Fund during the calendar year.
As indicated, the Fund may invest in certain "private activity" bonds,
which may result in some shareholders having to include income generated by
these bonds in their alternative minimum tax computation. The amount of
dividends declared by the Fund which are subject to alternative minimum tax will
be reported to shareholders in January.
A redemption or exchange of Fund shares by a shareholder is treated as a
sale for tax purposes which will result in a short or long-term capital gain or
loss to a shareholder, depending upon how long the shareholder has owned the
shares. In January of each year, shareholders will receive a Form 1099-B
indicating the trade date and proceeds from all sales and exchanges of portfolio
shares.
At the time of purchase, the share price of the Fund may reflect
undistributed capital gains or unrealized appreciation of securities. Any
capital gains which the Fund may declare from these amounts or from future
capital gains which are distributed to shareholders, are fully taxable assets.
CUSTODIAN
Union Bank & Trust Company, Lincoln, Nebraska (the "Bank"), under an
agreement with the Trust, is the custodian for the Fund's securities and cash.
The Bank's main office is at 4732 Calvert Street, Lincoln, Nebraska.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Included in Part A:
Financial Highlights
(2) Included in Part B:
Statement of Assets and Liabilities, June 30, 1995;
Statement of Operations, Year ended June 30, 1995;
Statements of Changes in Net Assets, Years ended June
30, 1995 and 1994; Schedules of Investments; Notes to
Financial Statements; Financial Highlights and
Independent Auditors' Report dated July 21, 1995 for
the Small Cap Fund, Convertible Fund,
Government/Quality Bond Fund, Institutional Money
Market Fund and Nebraska Tax-Free Fund.
(3) Included in Part C:
Consent of Deloitte & Touche LLP
<PAGE>
(b) Exhibits
Exhibit No. Description
1. (a)(1) Articles of Incorporation
(b)(2) Articles of Amendment to the Articles of Incorporation
(c)(2) Certificate of Redesignation
(d)(2) Certificate of Designation - Nebraska Tax-Free Fund
(e)(3) Certificate of Designation of Capital Builder Fund
2. (a)(1) Bylaws of Company
(b)(4) Amendment to Bylaws
5. (a)(5) Amended Transfer Agent and Administrative Services
Agreement
(b)(5) Investment Advisory Agreement for the Small Cap Fund,
Convertible Fund, Government/Quality Bond Fund, Nebraska
Tax-Free Fund and Capital Builder Fund
(c)(1) Form of Sub-Investment Advisory Agreement
(d)(6) Investment Advisory Agreement for Institutional Money
Market Fund
6. (a)(3) Underwriting Agreement
(b)(3) Specimen Copy of Servicing Agreement
8. (7) Amended Custodian Agreement with Union Bank and Trust
Company
9. (6) Form of Declaration of Trust establishing the Mid-America
Student Finance Trust
10. (a)(4) Opinion and Consent of Messrs. Cline, Williams, Wright,
Johnson & Oldfather with respect to the Convertible Fund
and Government/Quality Bond Fund
(b)(8) Opinion and Consent of Messrs. Cline, Williams, Wright,
Johnson & Oldfather with respect to the Small Cap Fund
(c)(6) Opinion and Consent of Messrs. Cline, Williams, Wright,
Johnson & Oldfather with respect to the Institutional Money
Market Fund
(d)(2) Opinion and Consent of Messrs. Cline, Williams, Wright,
Johnson & Oldfather with respect to the Nebraska Tax-Free
Fund
15. (5) Amended Rule 12 B-1 Plan
16. Schedule of Performance Computations for the Nebraska
Tax-Free Fund
Footnotes to Exhibits
(1) Incorporated by reference to Form N-1A Registration Statement File No.
33-19894 (the "Form N-1A") filed January 30, 1988
(2) Incorporated by reference to Post-Effective Amendment No. 14 to Form N-1A
filed May 10, 1993
(3) Incorporated by reference to Post-Effective Amendment No. 18 to Form N-1A
filed January 19, 1995
(4) Incorporated by reference to Pre-Effective Amendment No. 2 to Form N-1A
filed June 3, 1988
(5) Incorporated by reference to Pre-Effective Amendment No. 2 to Form N-14
Registration Statement File No. 33-92012 filed July 14, 1995
(6) Incorporated by reference to Post-Effective Amendment No. 10 to Form N-1A
filed July 1, 1992
(7) Incorporated by reference to Post-Effective Amendment No. 17 to Form N-1A
filed October 28, 1994
(8) Incorporated by reference to Post-Effective Amendment No. 9 to Form N-1A
filed July 1, 1992
Item 25. Persons Controlled by or under Common Control with Registrant
None
<PAGE>
Item 26. Number of Holders of Securities
As of June 30, 1995:
Title of Class Number of Record Holders
Common Stock
Asset Allocation Fund 70
Value Fund 41
Balanced Fund 123
Small Cap Fund 210
Convertible Fund 80
Government Quality Bond Fund 109
Money Market Fund 0
Institutional Money Market Fund 186
Nebraska Tax Free Fund 139
----
958
Item 27. Indemnification
Section 302A.521 of the Minnesota Business Corporation Act requires
indemnification of officers and directors of the Registrant under circumstances
set forth therein. Reference is made to Article 8.d. of the Articles of
Incorporation, Article XIII of the Bylaws of Registrant (Exhibit 2 hereto) and
to Section 10 of the Underwriting Agreement (Exhibit 6 hereto) for additional
indemnification provisions.
The general effect of such provisions is to require indemnification of
persons who are made or threatened to be made a party to a proceeding by reason
of the former or present official capacity of the person with the corporation
against judgments, penalties, fines and reasonable expenses including attorneys'
fees incurred by said person if: (1) the person has not been indemnified by
another organization for the same judgments, penalties, fines and expenses for
the same acts or omissions; (2) the person acted in good faith; (3) the person
received no improper personal benefit; (4) in the case of a criminal proceeding,
the person had no reasonable cause to believe the conduct was unlawful; and (5)
in the case of directors and officers and employees of the corporation, such
persons reasonably believed that the conduct was in the best interests of the
corporation, or in the case of directors, officers, or employees serving at the
request of the corporation for another organization, such person reasonably
believed that the conduct was not opposed to the best interests of the
corporation. A corporation is permitted to maintain insurance on behalf of any
officer, director, employee or agent of the corporation, or any person serving
as such at the request of the corporation, against any liability of such person.
<PAGE>
Nevertheless, Article 8(d) of the Articles of Incorporation prohibits
any indemnification which would be in violation of Section 17(h) of the
Investment Company Act of 1940, as now enacted or hereafter amended and Article
XIII of the Fund's Bylaws prohibit any indemnification inconsistent with the
guidelines set forth in Investment Company Act Releases No. 7221 (June 9, 1972)
and No. 11330 (September 2, 1980). Such Releases prohibit indemnification in
cases involving willful misfeasance, bad faith, gross negligence and reckless
disregard of duty and establish procedures for the determination of entitlement
to indemnification and expense advances.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification by the Registrant is against public policy as
expressed in the Act and, therefore, may be unenforceable. In the event that a
claim for such indemnification (except insofar as it provides for the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted against the Registrant by such director, officer or controlling
person and the Securities and Exchange Commission is still of the same opinion,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether or not such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28.(a) Business and Other Connections of Investment Adviser
CONLEY SMITH, Inc. (formerly SMITH HAYES Portfolio Management, Inc.)
Name and Principal Occupations
Principal Business Positions with (Present and for
Address* Adviser Past Two Years)
Thomas C. Smith Chairman See caption "Management" in
the Statement of Additional
Information forming a part
of this Registration Statement
John H. Conley President See caption "Management" in
the Statement of Additional
Information forming a part
of this Registration Statement
Jean B. Norris Vice President See caption "Management"
and Secretary in the Statement of Additional
Information forming a part
of this Registration Statement
* The address is the address of the Adviser or Portfolio Manager unless
otherwise indicated, which is contained under "Management" in the Prospectus.
<PAGE>
(b) Business and Other Connections of the Portfolio Managers
CALAMOS ASSET MANAGEMENT, INC.
Name and Principal Occupations
Principal Business Positions with (Present and for
Address* Adviser Past Two Years)
John P. Calamos President and President,Calamos Asset Management,
Managing Director Inc.("CAM"); President, Calamos
Financial Services, Inc. ("CFS"),
a broker-dealer; President and
Trustee, Calamos Investment Trust
("CIT"); and investment adviser.
Robert M. Slotky Senior Vice President Senior Vice President and
Treasurer, CAM and CFS; Treasurer
CIT; from 1984 until September
1987, Financial Vice President, NCA
and Treasurer, NCAM.
Joyce A. Cagnina Vice President Vice President and Secretary, and
Secretary, CAM and CFS; Secretary,
CIT; from 1986 to September 1987,
Vice President, NCA; prior thereto,
employee, NCA.
* The address is the address of the Adviser or Portfolio Manager unless
otherwise indicated, which is contained under "Management" in the Prospectus.
For the past two years, the directors, officers and partners of
Renaissance Investment Management, Inc., Crestone Capital Management, Cashman
Farrell and Associates and Swanson Capital Management, Inc. have not been
engaged in any other business, profession, vocation or employment for their own
account or as a director, officer, employee, partner or trustee and have devoted
substantially their full time to their respective businesses. Further
information about these Portfolio Managers and Bear Stearns & Co., Inc. is
included in such Portfolio Managers' Form ADVs filed with the Commission and
which are incorporated by this reference herein.
Item 29. Principal Underwriters
(a) Not applicable.
(b)
Positions and Name Positions and
and Principal Offices with Offices with
Business Address* Underwriter Registrant
Thomas C. Smith Chairman and President Chairman, President, Chief
200 Centre Terrace Executive Officer,
1225 L Street Treasurer and Director
Lincoln, NE 68508
<PAGE>
(c) Not applicable.
Item 30. Location of Accounts and Records
All required accounts, books and records will be maintained by
Thomas C. Smith, 200 Centre Terrace 1225 L Street, Lincoln, Nebraska 68508.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements for effectiveness of this amendment to its Registration Statement
under Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Lincoln and the State of Nebraska, on the 1st day of September, 1995. No other
material event requiring prospectus disclosure has occurred since the later of
the three dates specified in Rule 485(b)(2).
SMITH HAYES Trust, Inc.
By: /s/ Jean B. Norris
Jean B. Norris, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on September 1, 1995.
Signature Title
/s/ Thomas C. Smith Chairman, President, Principal Executive
Thomas C. Smith Officer, Principal Financial and
Accounting Officer and Treasurer
/s/ Thomas D. Potter Director
Thomas D. Potter
/s/ Thomas R. Larsen Director /s/ Jean B. Norris
Jean B. Norris
Thomas R. Larsen Attorney-in-Fact
/s/ Dale C. Tinstman Director
Dale C. Tinstman
/s/ John H. Conley Director
John H. Conley
DELOITTE & TOUCHE LLP
LINCOLN, NEBRASKA
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
SMITH HAYES Trust, Inc.
Lincoln, Nebraska
We consent to the incorporation by reference in this Post-Effective
Amendment No. 20 to the Registration Statement (No. 33-19894) of SMITH HAYES
Trust, Inc. filed on Form N-1A of our reports dated July 21, 1995 appearing in
the Annual Reports dated June 30, 1995, and to the reference to us under the
heading "Financial Highlights" in the Propectuses, which is a part of such
Registration Statement.
Deloitte & Touche LLP
Lincoln, Nebraska
August 28, 1995
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT
NO. 20
TO
FORM N-1A REGISTRATION STATEMENT
FOR
SMITH HAYES TRUST, INC.
<PAGE>
EXHIBITS
TO
SMITH HAYES TRUST, INC.
POST-EFFECTIVE AMENDMENT NO. 20
FORM N-1A REGISTRATION STATEMENT
Exhibit No. Description
16 Schedule of Computation for
Performance Quotations
<PAGE>
EXHIBIT (16)
SCHEDULE OF COMPUTATIONS OF PERFORMANCE
GOVERNMENT/QUALITY BOND PORTFOLIO
The Total Return information shown on page 19 of the Statement of
Additional Information for the Government/Quality Bond Portfolio was calculated
as follows:
TOTAL RETURN:
P(1 + T)n=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of a
period, at the end of the period
The computation of average annual return assumes dividends and
distributions are reinvested at net asset value (as stated in the prospectus) on
the reinvestment dates during the period.
The ending redeemable value assumes a complete redemption at the end of
the period.
Total Return for the Year Ending June 30, 1995:
P = $1,000 (initial value)
n = 1 (1 year)
ERV = 1,094 (ending redeemable value)
Solve for T:
$1,000 (1 + T)1 = 1,094
T = .0942 or 9.42%
Total return for the 5 year period ending June 30, 1995:
P = $1,000 (initial value)
n = 5 years
ERV = 1,462 (ending redeemable value)
Solve for T:
$1,000 (1 + T)5 = 1,462
T = .0789 or 7.89%
<PAGE>
Total Return from Inception (June 23, 1988) to June 30, 1995:
P = $1,000 (initial value)
n = 7.0219 years (2,563 days)
ERV = 1,697 (ending redeemable value)
Solve for T:
$1,000 (1 + T)7.0219 = 1,697
T = .0782 or 7.82%
The yield quotation for the Government/Quality Bond Portfolio described
on page 18 of the Statement of Additional Information was calculated according
to the following formula for the 30 day period ending June 30, 1995.
YIELD = 2[( a = 1)6 - 1]
cd
a = dividends and interest earned during period net for accrued
expenses (net of reimbursements) or $21,456.
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends or 444,072.280.
d = the maximum offering price per share on the last day of the
period or $10.43.
<PAGE>
SMALL CAP PORTFOLIO
The Total Return information shown on page 19 of the Statement of
Additional Information for the Small Cap Portfolio was calculated as follows:
TOTAL RETURN:
P(1 + T)n=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of a
period, at the end of the period
The computation of average annual return assumes dividends and
distributions are reinvested at net asset value (as stated in the prospectus) on
the reinvestment dates during the period.
The ending redeemable value assumes a complete redemption at the end of
the period.
Total Return for the Year Ending June 30, 1995:
P = $1,000 (initial value)
n = 1 (1 year)
ERV = 1,203 (ending redeemable value)
Solve for T:
$1,000 (1 + T)1 = 1,203
T = .2033 or 20.33%
Total Return from Inception (July 1, 1992) to June 30, 1995:
P = $1,000 (initial value)
n = 2.9973 years (1,094 days)
ERV = 1,435 (ending redeemable value)
Solve for T:
$1,000 (1 + T)2.9973 = 1,435
T = .1281 or 12.81%
<PAGE>
CONVERTIBLE PORTFOLIO
The Total Return information shown on page 19 of the Statement of
Additional Information for the Convertible Portfolio was calculated as follows:
TOTAL RETURN:
P(1 + T)n=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of a
period, at the end of the period
The computation of average annual return assumes dividends and
distributions are reinvested at net asset value (as stated in the prospectus) on
the reinvestment dates during the period.
The ending redeemable value assumes a complete redemption at the end of
the period.
Total Return for the Year Ending June 30, 1995:
P = $1,000 (initial value)
n = 1 (1 year)
ERV = 1,141 (ending redeemable value)
Solve for T:
$1,000 (1 + T)1 = 1,141
T = .1409 or 14.09%
Total return for the 5 year period ending June 30, 1995:
P = $1,000 (initial value)
n = 5 years
ERV = 1,613 (ending redeemable value)
Solve for T:
$1,000 (1 + T)5 = 1,613
T = .1003 or 10.03%
<PAGE>
Total Return from Inception (June 23, 1988) to June 30, 1995:
P = $1,000 (initial value)
n = 7.0219 years (2,563 days)
ERV = 1,723 (ending redeemable value)
Solve for T:
$1,000 (1 + T)7.0219 = 1,723
T = .0805 or 8.05%
<PAGE>
NEBRASKA TAX-FREE PORTFOLIO
The Total Return information shown in the Statement of Additional
Information for the Nebraska Tax-Free Portfolio was calculated as follows:
TOTAL RETURN:
P(1 + T)n=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning
of a period, at the end of the period
The computation of average annual return assumes dividends and
distributions are reinvested at net asset value (as stated in the prospectus) on
the reinvestment dates during the period.
The ending redeemable value assumes a complete redemption at the end of
the period.
Total Return for the Year Ending June 30, 1995:
P = $1,000 (initial value)
n = 1 (1 year)
ERV = $1,042 (ending redeemable value)
Solve for T:
$1,000 (1 + T)1 = 1,042
T = .0846 or 8.46% annualized
Total Return from Inception (July 12, 1993) to June 30, 1995:
P = $1,000 (initial value)
n = 1.9671 years (718 days)
ERV = 1,026 (ending redeemable value)
Solve for T:
$1,000 (1 + T)1.9671 = 1,026
T = .0339 or 3.39%
<PAGE>
The yield quotation for the Nebraska Tax-Free Portfolio described in the
Statement of Additional Information was calculated according to the following
formula for the 30 day period ending June 30, 1995.
YIELD = 2[( a = 1)6 - 1]
cd
a = dividends and interest earned during period net
for accrued expenses (net of reimbursements) or $44,862
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends or
1,091,855.812
d = the maximum offering price per share on the last day of
the period or $10.10
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 1
<NAME> ASSET ALLOCATION PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 1750931
<INVESTMENTS-AT-VALUE> 1990435
<RECEIVABLES> 8950
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1999385
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6087
<TOTAL-LIABILITIES> 6087
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1677432
<SHARES-COMMON-STOCK> 192164
<SHARES-COMMON-PRIOR> 482360
<ACCUMULATED-NII-CURRENT> 43
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 76319
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 239504
<NET-ASSETS> 1993298
<DIVIDEND-INCOME> 36745
<INTEREST-INCOME> 132453
<OTHER-INCOME> 0
<EXPENSES-NET> 76394
<NET-INVESTMENT-INCOME> 92804
<REALIZED-GAINS-CURRENT> 226971
<APPREC-INCREASE-CURRENT> 122454
<NET-CHANGE-FROM-OPS> 442229
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 93316
<DISTRIBUTIONS-OF-GAINS> 735470
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8192
<NUMBER-OF-SHARES-REDEEMED> (391623)
<SHARES-REINVESTED> 93236
<NET-CHANGE-IN-ASSETS> (290195)
<ACCUMULATED-NII-PRIOR> 555
<ACCUMULATED-GAINS-PRIOR> 584818
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36304
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 76394
<AVERAGE-NET-ASSETS> 3611433
<PER-SHARE-NAV-BEGIN> 11.08
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> (.27)
<PER-SHARE-DISTRIBUTIONS> (1.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> 2.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000848844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 3
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 2163182
<INVESTMENTS-AT-VALUE> 2453583
<RECEIVABLES> 20330
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2473913
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7669
<TOTAL-LIABILITIES> 7669
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2096903
<SHARES-COMMON-STOCK> 226169
<SHARES-COMMON-PRIOR> 588259
<ACCUMULATED-NII-CURRENT> 16
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 78924
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 290401
<NET-ASSETS> 2466244
<DIVIDEND-INCOME> 57123
<INTEREST-INCOME> 176502
<OTHER-INCOME> 0
<EXPENSES-NET> 93953
<NET-INVESTMENT-INCOME> 139672
<REALIZED-GAINS-CURRENT> 277943
<APPREC-INCREASE-CURRENT> 37878
<NET-CHANGE-FROM-OPS> 455493
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 140859
<DISTRIBUTIONS-OF-GAINS> 490579
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26127
<NUMBER-OF-SHARES-REDEEMED> (448430)
<SHARES-REINVESTED> 60213
<NET-CHANGE-IN-ASSETS> (362090)
<ACCUMULATED-NII-PRIOR> 1203
<ACCUMULATED-GAINS-PRIOR> 291560
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48107
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93953
<AVERAGE-NET-ASSETS> 4788761
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> .74
<PER-SHARE-DIVIDEND> (.33)
<PER-SHARE-DISTRIBUTIONS> (1.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.90
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 5
<NAME> CONVERTIBLE PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 1577436
<INVESTMENTS-AT-VALUE> 1756494
<RECEIVABLES> 13710
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1770204
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5237
<TOTAL-LIABILITIES> 5237
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1607178
<SHARES-COMMON-STOCK> 147407
<SHARES-COMMON-PRIOR> 231674
<ACCUMULATED-NII-CURRENT> 86
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 21355
<ACCUM-APPREC-OR-DEPREC> 179058
<NET-ASSETS> 1764967
<DIVIDEND-INCOME> 37510
<INTEREST-INCOME> 68660
<OTHER-INCOME> 0
<EXPENSES-NET> 49408
<NET-INVESTMENT-INCOME> 56762
<REALIZED-GAINS-CURRENT> (11847)
<APPREC-INCREASE-CURRENT> 202659
<NET-CHANGE-FROM-OPS> 247574
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 58599
<DISTRIBUTIONS-OF-GAINS> 165477
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14698
<NUMBER-OF-SHARES-REDEEMED> (119744)
<SHARES-REINVESTED> 20799
<NET-CHANGE-IN-ASSETS> (84247)
<ACCUMULATED-NII-PRIOR> 1924
<ACCUMULATED-GAINS-PRIOR> 155968
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 49408
<AVERAGE-NET-ASSETS> 2196391
<PER-SHARE-NAV-BEGIN> 11.69
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> (.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 8
<NAME> GOVERNMENT/QUALITY BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 4636446
<INVESTMENTS-AT-VALUE> 4632665
<RECEIVABLES> 69384
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4702049
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8125
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 9
<NAME> VALUE PORTFOLIO
<S> <C>
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<TABLE> <S> <C>
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<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 10
<NAME> SMALL CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
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<TABLE> <S> <C>
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<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 11
<NAME> MONEY MARKET PORTFOLIO
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<TABLE> <S> <C>
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<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 12
<NAME> INSTITUTIONAL MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
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<TABLE> <S> <C>
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<LEGEND>
Pursuant to Item 601 (c) (2) (i) of Regulations S-K and S-B.
</LEGEND>
<CIK> 0000828844
<NAME> SMITH HAYES TRUST, INC.
<SERIES>
<NUMBER> 13
<NAME> NEBRASKA TAX FREE PORTFOLIO
<S> <C>
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