As filed with the Securities and Exchange Commission on May 26, 1995
Securities Act File No. 33-----------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No.-- |_| Post-Effective Amendment No.---
(Check appropriate box or boxes)
SMITH HAYES Trust, Inc.
-------------------------------
(Exact Name of Registrant as specified in Charter)
(402) 476-3000
------------------------------
(Area Code and Telephone Number)
500 Centre Terrace, 1225 L Street, Lincoln, Nebraska 68508
--------------------------------------------------------------
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
Thomas C. Smith
SMITH HAYES Trust, Inc.
500 Centre Terrace, 1225 L Street, Lincoln, Nebraska 68508
--------------------------------------------------------------
(Name and Address of Agent for Service)
With a copy to:
Donald F. Burt
Cline, Williams, Wright, Johnson & Oldfather
1900 FirsTier Bank Building
13th and "M" Streets
Lincoln, Nebraska 68508
It is proposed that this filing will become effective on June 26, 1995,
pursuant to Rule 488.
Approximate date of proposed public offering: As soon as practicable after
the Registration Statement under the Securities Act of 1933 becomes effective.
No filing fee is required because an indefinite number of shares is being
registered pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Pursuant to Rule 429, this Registration Statement relates to shares for which a
registration statement on Form N-1A has been filed.
<PAGE>
SMITH HAYES TRUST, INC.
Cross Reference Sheet
Pursuant to Rule 481(a) Under the Securities Act of 1933
Proxy Statement/
Form N-14 Item No. Prospectus Caption
Part A
Item 1. Beginning of Registration Outside front cover
Statement and Outside Front
Cover Page of Prospectus
Item 2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
Item 3. Synopsis Information and Outside front cover;
Risk Factors Proposed Plan of Reorganization--
Risk Factors
Item 4. Information About the Proposed Plan of Reorganization
Transaction
Item 5. Information About the Additional Information About
Registrant the Trust
Item 6. Information About the Additional Information About
Company Being Acquired the Trust
Item 7. Voting Information Information Relating to Voting
Matters
Item 8. Interest of Certain Persons Not Applicable
and Experts
Item 9. Additional Information Required Not Applicable
for Reoffering by Persons
Deemed to be Underwriters
<PAGE>
Statement of Additional
Part B Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information Appendix I
About Registrant
Item 13. Additional Information About Appendix II
the Company Being Acquired
Item 14. Financial Statements Financial Statements; Pro Forma
Financial Statements
Part C
The information required in Part C is included therein under the appropriate
heading for the item.
<PAGE>
SMITH HAYES TRUST, INC.
500 Centre Terrace
1225 L Street
Lincoln, NE 68508
1-800-279-7437
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on ---------------, 1995
To the Shareholders of the SMITH HAYES Trust, Inc.
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Shareholders of the SMITH HAYES
Trust, Inc. (the "Trust"), will be held at 500 Centre Terrace, 1225 L Street,
Lincoln, NE 68508 on ------------, 1995, at 8:00 a.m., local time for the
following purposes:
ALL SHAREHOLDERS WILL VOTE
1. To elect the Board of Directors;
2. To ratify the selection of Deloitte & Touche, LLP as independent
auditors for the Trust;
3. To approve an amendment to the Articles of Incorporation (a) to provide
that the Board of Directors may subdivide all series of shares of the
Trust into classes; and (b) to substitute the word "Fund" for the word
"Portfolio" in all series of shares;
SHAREHOLDERS OF THE ASSET ALLOCATION PORTFOLIO, BALANCED PORTFOLIO AND VALUE
PORTFOLIO WILL VOTE
4. To approve or disapprove a Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets and
liabilities of the Trust's Asset Allocation Portfolio, Balanced
Portfolio, and Value Portfolio to the Trust's Capital Builder Fund, the
amendment of the Trust's Articles of Incorporation reclassifying all
shares of the Asset Allocation Portfolio, Balanced Portfolio, and Value
Portfolio as shares of the Capital Builder Fund, and the issuance of
Capital Builder Fund shares to shareholders of the Asset Allocation
Portfolio, Balanced Portfolio, and Value Portfolio.
ALL SHAREHOLDERS WILL VOTE
5. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof;
The proposed actions are described in the attached Combined Proxy
Statement/ Prospectus. A copy of the Plan of Reorganization is attached as
Exhibit A and the form of Articles of Amendment to the Articles of Incorporation
is attached as Exhibit B.
<PAGE>
Shareholders of record as of the close of business on ------------, 1995
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF
DIRECTORS OF THE TRUST. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING.
PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO
THE TRUST A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY
ATTENDING THE MEETING AND ELECTING TO VOTE IN PERSON.
BY THE ORDER OF THE BOARD OF DIRECTORS
Jean B. Norris
Assistant Secretary
Lincoln, Nebraska ---------------, 1995
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
Dated ------------, 1995
SMITH HAYES TRUST, INC.
500 Centre Terrace, 1225 L Street, Lincoln, Nebraska 18508
Phone (800) 279-7437
This Combined Proxy Statement/Prospectus is furnished in connection with
the solicitation of proxies by the Board of Directors of SMITH HAYES Trust, Inc.
(the "Trust") for use at a Meeting of Shareholders (the "Meeting") to be held at
8:00 a.m., local time on --------------, 1995 at SMITH HAYES Trust, Inc., 500
Centre Terrace, 1225 L Street, Lincoln, Nebraska 68508, or any adjournment
thereof (the "Meeting"). At the Meeting all shareholders of the Trust will be
asked to elect directors, ratify the selection of auditors and approve an
amendment to the Articles of Incorporation. Select portfolio shareholders will
be asked to consider and approve a proposed Plan of Reorganization and the
transactions contemplated thereby.
The Amendment to the Articles of Incorporation includes authorizing the
Board of Directors to subdivide any series of Trust shares into classes, and
substitution of the word "Fund" for the word "Portfolio" in all series of
shares.
The Plan of Reorganization provides that, if approved by shareholders at
the Meeting, all assets and liabilities of the Asset Allocation Portfolio,
Balanced Portfolio and Value Portfolio will be transferred to the Capital
Builder Fund; all shares of the Asset Allocation Portfolio, Balanced Portfolio
and Value Portfolio will be reclassified as shares of the Capital Builder Fund;
and each holder of shares in the Asset Allocation Portfolio, Balanced Portfolio
and Value Portfolio at the Effective Time of the Reorganization will receive
full and fractional shares in the Capital Builder Fund in an amount equal to the
net asset value of the shares of the Asset Allocation Portfolio, Balanced
Portfolio and Value Portfolio then owned.
THE SECURITIES OF THE CAPITAL BUILDER FUND 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 COMBINED PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST.
<PAGE>
This Combined Proxy Statement/Prospectus sets forth concisely the
information that a shareholder of the Trust should know before voting on these
proposals and should be retained for future reference. Prospectuses relating to
the Asset Allocation Portfolio, Balanced Portfolio, Value Portfolio and Capital
Builder Fund, which describe their operations, accompany this Combined Proxy
Statement/Prospectus as Exhibit D. Additional information is set forth in the
Statement of Additional Information dated the date hereof relating to this
Combined Proxy Statement/Prospectus. That Statement of Additional Information is
on file with the Securities and Exchange Commission (the "SEC") and is available
without charge upon written or oral request by writing or calling the Trust at
the address or toll-free telephone number indicated above. A request form for
such purposes is included near the end of this Combined Proxy
Statement/Prospectus. The information contained in the aforesaid Prospectuses
and Statement of Additional Information is incorporated herein by reference.
This Combined Proxy Statement/Prospectus constitutes a proxy statement for
the Meeting, and the prospectus for the shares of the Capital Builder Fund that
have been registered with the SEC in connection with the reorganization.
This Combined Proxy Statement/Prospectus is expected to be sent to shareholders
on or about ------------------------, 1995.
<PAGE>
TABLE OF CONTENTS
Page
Information Relating to Voting Matters.......................................4
General Information....................................................4
Shareholder and Board Approval.........................................4
Appraisal Rights.......................................................7
Quorum.................................................................7
Annual Meetings........................................................8
1. Election of Directors.....................................................8
2. Ratification of Selection of Auditors.....................................9
3. Proposed Amendments to Articles of Incorporation..........................9
4. Proposed Plan of Reorganization..........................................10
Reasons for Reorganization............................................10
Comparison of the Portfolios..........................................11
Risk Factors..........................................................11
Description of Plan of Reorganization.................................11
Board Consideration...................................................13
Capitalization........................................................14
Federal Income Tax Consequences.......................................15
Additional Information About the Trust .....................................15
Other Business..............................................................16
Legal Matters...............................................................16
Shareholder Inquiries.......................................................16
Request for Statement of Additional Information.............................18
Exhibit A--Plan of Reorganization..........................................A-1
Exhibit B--Form of Articles of Amendment to Articles of Incorporation......B-1
Exhibit C--Opinion of Counsel..............................................C-1
Exhibit D--Prospectuses ...................................................D-1
1. Acquired Portfolios Prospectus
2. Capital Builder Fund Prospectus
<PAGE>
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being furnished
in connection with the solicitation of proxies by the Board of Directors of the
Trust for use at the Meeting. It is expected that the solicitation of proxies
will be primarily by mail. The Trust's officers may also solicit proxies by
telephone, facsimile transmission or personal interview.
The following table gives the total number of shares of the Trust's
outstanding by Portfolio at the close of business ---------------, 1995, the
record date for the meeting.
Asset Allocation Portfolio.......................... -------------
Balanced Portfolio.................................. -------------
Convertible Portfolio............................... -------------
Government/Quality Bond Portfolio................... -------------
Small Cap Portfolio................................. -------------
Value Portfolio..................................... -------------
Nebraska Tax-Free Portfolio......................... -------------
Money Market Portfolio.............................. -------------
Institutional Money Market Portfolio................ -------------
Each shareholder of record on the record date is entitled to one vote for each
share owned and a fractional vote for each fractional share owned on each matter
presented for shareholder vote. On those matters affecting the Trust as a whole
the shareholders of all Portfolios vote together. On other matters relating to a
specific Portfolio, the shareholders of said Portfolio will vote as a separate
series. Each share or fraction thereof is entitled to one vote or fraction
thereof.
If the accompanying proxy is executed and returned in time for the
Meeting, the shares represented thereby will be voted in accordance with the
proxy on all matters that may properly come before the Meeting. If no
specification is made the proxy will be voted FOR the election of all director
nominees and FOR all other enumerated proposals. Any shareholder submitting a
proxy may revoke it at any time before it is exercised by submitting to the
Trust, c/o Secretary, 500 Centre Terrace, 1225 L Street, Lincoln, Nebraska
68508, a written notice of revocation or a subsequently executed proxy or by
attending the meeting and electing to vote in person.
SHAREHOLDER AND BOARD APPROVAL. The Plan of Reorganization and the transactions
contemplated therein (including an amendment to the Trust's Articles of
Incorporation ("Articles") are being submitted for approval at the Meeting by
the holders of a majority of the outstanding shares of each of the Asset
Allocation Portfolio, Balanced Portfolio and Value Portfolio in accordance with
the provisions of the Trust's Articles and Bylaws. Under Minnesota law,
abstentions do not constitute a vote "for" or "against" a matter and will be
disregarded in determining the "votes cast" on an issue. Broker "non-votes"
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares on a particular matter with respect to which the brokers or nominees
do not have discretionary power) will be deemed to be abstentions. An abstention
will have the same effect as casting a vote against the Plan of Reorganization.
<PAGE>
The vote of the shareholders of the Capital Builder Fund is not being
solicited in connection with the approval of the Plan of Reorganization, since
their approval or consent is not necessary for the Reorganization.
The approval of the Plan of Reorganization by the Board of Directors of
the Trust is discussed under "Proposed Plan of Reorganization--Reasons for
Reorganization" and "Board Consideration."
As of the Record Date, all of the officers and Board members of the Trust
beneficially owned, individually and as a group, less than 1% of the shares of
the Trust.
The following table provides the name and address of any person who owned
of record or beneficially 5% or more of the outstanding shares of each Portfolio
as of April 30, 1995.
Portfolio Name & Address Shares % Ownership
- ---------------- --------------------- --------- ------------
Asset Allocation The Eihusen 17,650.937 8.69%
Portfolio Chief Foundation, Inc.
Old West Hwy 30
P.O. Box 1078
Grand Island, NE 68802
Lincoln Plating 12,555.047 6.18%
600 West F Street
Lincoln, NE 68522
Government Quality
Bond Portfolio The Eihusen 37,972.104 8.22%
Chief Foundation, Inc.
Old West Hwy 30
P.O. Box 2078
Grand Island, NE 68802
Madonna Rehabilitation 29,735.462 6.44%
Hospital Workman's
Compensation
5401 South Street
Lincoln, NE 68506
Hastings Irrig. Pipe Co. 33,413.314 7.24%
P.O. Box 1048
Hastings, NE 68902
Willard Folsom 26,609.592 5.77%
3324 South Oneida Way
Denver, CO 80224
<PAGE>
Portfolio Name & Address Shares % Ownership
- ---------------- --------------------- --------- ------------
Small Cap Portfolio UBATCO & Company 299,213.287 42.27%
Union Bank and Trust Company
Trust Department-nominee name
4732 Calvert Street
Lincoln, NE 68506
Including
Linweld Inc. Profit 49,066.800 6.93%
Sharing/401K Plan
1225 L Street
Suite 600
Lincoln, NE 68501
Convertible Portfolio The Eihusen 14,972.684 9.98%
Chief Foundation, Inc.
Old West Hwy 30
P.O. Box 2078
Grand Island, NE 68802
Thomas L. Williams 7,531.679 5.02%
Susan M. Williams JTWROS
2820 South 99th Avenue
Omaha, NE 68124
Value Portfolio FirsTier Trustee UTELL 18,866.005 10.99%
International LTD
Retirement Savings Plan
P.O. Box 2819
Omaha, NE 68103
Norwest Bank Trustee 19,891.204 11.59%
Hastings Irrig. Pipe Co.
P.O. Box 1048
Hastings, NE 68902
Nebraska Tax Free UBATCO & Company 216,954.633 20.17%
Portfolio Union Bank and Trust Company
Trust Department-nominee name
4732 Calvert Street
Lincoln, NE 68506
Including
Ropers & Sons Pre-Need Burial Trust
4300 E. O Street
Lincoln, NE 68510
<PAGE>
Portfolio Name & Address Shares % Ownership
- ---------------- --------------------- --------- ------------
Money Market Portfolio Lexington State Bank 1,200,000.000 16.32%
P.O. Box 579
Lexington, NE 68850
Senior Health Found., Inc. 387,852.880 5.27%
7915 N. 30th St.
Omaha, NE 68112
James M. McClymond IRA 377,517.330 5.13%
1213 So. 113th Ct.
Omaha, NE 68144
Institutional Money Lexington State Bank 1,200,000.000 6.92%
Market Portfolio P.O. Box 579
Lexington, NE 68850
Madonna Rehabilitation 1,441,867.680 8.35%
Hospital Workman's
Compensation
5401 South Street
Lincoln, NE 68506
UBATCO & Company 2,105,161.890 12.15%
Union Bank and
Trust Company
Trust Department-nominee name
4732 Calvert Street
Including
W.E. Barkley Inc./Corp.
4732 Calvert Street
Lincoln, NE 68516
Consolidated Blenders 2,476,203.420 14.29%
P.O. Box 609
Hastings, NE 68902
APPRAISAL RIGHTS. Shareholders are not entitled to any rights of share appraisal
under the Trust's Articles or under the laws of the State of Minnesota in
connection with the Reorganization. Shareholders have, however, the right to
redeem their Asset Allocation Portfolio, Balanced Portfolio and Value Portfolio
shares at net asset value until the Effective Time of the Reorganization, and
thereafter shareholders may redeem from the Trust the shares acquired by them in
the Reorganization at net asset value subject to the forward pricing
requirements of Rule 22c-l under the 1940 Act.
<PAGE>
QUORUM. In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present at the Meeting but sufficient votes to approve a
particular proposal are not received, the persons named as proxies, or their
substitutes, may propose one or more adjournments of the Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the meeting in
person or by proxy. If a quorum is present, the persons named as proxies will
vote those proxies which they are entitled to vote FOR the particular proposal
in favor of such adjournments, and will vote those proxies required to be voted
AGAINST such proposal against any adjournment. Under the Bylaws of the Trust, a
quorum is constituted by the presence in person or by proxy of the holders of
more than 50% of the aggregate outstanding shares of the Portfolios entitled to
vote at the Meeting. If a proxy is properly executed and returned and is marked
with an abstention, the shares represented thereby will be considered to be
present at the Meeting for the purpose of determining the existence of a quorum
for the transaction of business.
ANNUAL MEETINGS. The Trust does not presently intend to hold annual meetings of
shareholders for the election of directors and other business unless and until
such time as less than a majority of the directors holding office have been
elected by the shareholders, at which time the directors then in office will
call a shareholders' meeting for the election of directors. Under certain
circumstances, however, shareholders have the right to call a meeting of
shareholders to consider the removal of one or more directors and such meeting
will be called when requested by the holders of record of 10% or more of the
Trust's outstanding shares of common stock. To the extent required by law and
the Trust's undertaking with the SEC, the Trust will assist in shareholder
communications in such matters. In addition, the Trust will hold special
meetings of shareholders when required under the Investment Company Act of 1940
(the "1940 Act") in accordance with SEC policy.
1. ELECTION OF DIRECTORS
A Board of five directors is to be elected at the Meeting. The persons
named below are nominees for election as directors. Each director will hold
office until the next meeting of the shareholders or until a successor has been
elected and qualified. Unless otherwise instructed, proxy holders will vote the
proxies received by them FOR the election of the persons listed below. In the
event that any nominee is unable or declines to serve as a director prior to the
Meeting, the proxy holders reserve the right to select and substitute another
person as a director nominee.
A nominating committee comprised of Messrs. Larsen, Potter and Tinstman,
the "noninterested" directors of the Trust, as defined by the 1940 Act, propose
"non-interested" candidates to serve on the Board of Directors pursuant to the
conditions of the Trust's Distribution Plan pursuant to Rule 12b-l. Otherwise,
the members of the Board generally propose candidates for reelection or to fill
vacancies on the Board. The Board has no standing audit committee or
compensation committee.
Each nominee who is deemed an "interested person" of the Trust, as defined
in the 1940 Act, is indicated by an asterisk. Messrs. Smith and Conley are
deemed "interested persons" of the Trust because each is an officer of CONLEY
SMITH, Inc., the investment adviser to the Trust. Each person listed below has
consented to being named in this Combined Proxy Statement/Prospectus and has
indicated a willingness to serve as a director if elected. The address of each
nominee is the Trust's address unless otherwise indicated.
<PAGE>
INFORMATION CONCERNING NOMINEES
* Thomas C. Smith, age 50; Chairman and President of the Trust; Chairman of
CONLEY SMITH, Inc.; Chairman and President of SMITH HAYES Financial Services
Corporation; and Chairman and President of Consolidated Investment Corporation,
Lincoln, Nebraska; director since 1988.
* John H. Conley, age 42; President of CONLEY SMITH, Inc., Lincoln, Nebraska;
President of Conley Investment Counsel, Inc., Omaha, Nebraska; new nominee.
Thomas D. Potter, 1800 Memorial Drive, Lincoln, Nebraska; age 55; President,
Chairman and Chief Executive Officer of Lincoln, Mutual Life Insurance
Company, Lincoln, Nebraska; director since 1988.
Thomas R. Larsen, 125 Bruce Drive, Lincoln, Nebraska; age 50; Certified Public
Accountant and Chairman, Larsen, Bryant and Porter CPA's P.C., Lincoln,
Nebraska; director since 1988.
Dale C. Tinstman, 3901 S 27th Street, Lincoln, Nebraska; age 76, Financial
and Investment Consultant; Chairman of University of Nebraska Foundation;
Director of IBP, Inc., Dakota City, Nebraska; director since 1994;
REMUNERATION OF DIRECTORS AND OFFICERS AND OTHER TRANSACTIONS WITH DIRECTORS
During the year ended June 30, 1994, no remuneration was paid by the Trust
to any of the Trust's officers for acting as such; however, the Trust paid $300
each to Messrs. Larsen, Potter and Tinstman per Board meeting attended. In the
year ended June 30, 1994, payments to the "noninterested" directors for
attendance at Board of Directors meetings aggregated $3,600. Each director
attended all meetings of the Board of Directors during the most recently
completed fiscal year.
2. RATIFICATION OF SELECTION OF AUDITORS
On April 18, 1995, the Board of Directors of the Trust, including those
directors who are not "interested persons" of the Trust, selected Deloitte &
Touche LLP as independent auditors for the year ended June 30, 1995. To the
knowledge of the Trust and the Adviser, apart from its fees received as
independent auditors, neither the firm of Deloitte & Touche LLP nor any of its
partners has a direct, or material indirect, financial interest in the Trust or
the Adviser or affiliates of the Adviser.
THE BOARD OF DIRECTORS, INCLUDING ALL "NONINTERESTED" DIRECTORS,
RECOMMENDS THAT SHAREHOLDERS VOTE FOR RATIFICATION OF THE SELECTION OF DELOITTE
& TOUCHE LLP AS INDEPENDENT AUDITORS OF THE TRUST.
3. PROPOSED AMENDMENTS TO ARTICLES OF INCORPORATION
The Board of Directors of the Trust has approved an amendment (the
"Amendment") to the Articles of Incorporation to (a) authorize the Board of
Directors to subdivide the various series of Trust shares into classes; and (b)
to substitute the word "Fund" for the word "Portfolio" in the designation or
name of each series of Trust shares. This change will be effective upon the
receipt of the affirmative vote of a majority of the respective Portfolios'
outstanding shares and the filing of the Articles of Amendment with the
Secretary of the State of Minnesota.
<PAGE>
The Trust's Articles presently permit the Board of Directors, by
resolution, to create new series of common shares relating to new investment
portfolios. The Amendment would permit the Board, by resolution, to subdivide
any previously-existing or newly-created series of shares into two or more
classes. Classes of shares could be utilized in the future to create differing
expense and fee structures for investors in the same portfolio. Differences
could exist, for example, in the sales load, Rule 12b-1 fees or administrative
fees applicable to different classes of shares offered by a particular
portfolio. Such an arrangement could enable the Trust to tailor its marketing
efforts to a broader segment of the investing public with a goal of attracting
additional investments in the Trust. Any creation of classes by Board action
would require compliance by the Trust with certain applicable rules of the SEC.
The Amendment also changes the formal designation of various series of
Trust shares to include the word "Fund" instead of "Portfolio." This change,
while not substantive in nature, is in keeping with current industry
nomenclature and it is believed that designating each Trust investment pool as a
"Fund" will be more understandable to investors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT TO THE ARTICLES OF INCORPORATION TO AUTHORIZE THE BOARD OF DIRECTORS
TO SUBDIVIDE THE VARIOUS SERIES OF TRUST SHARES INTO CLASSES AND TO SUBSTITUTE
THE WORD "FUND" FOR "PORTFOLIO" IN ALL SERIES OF SHARES.
4. PROPOSED PLAN OF REORGANIZATION
The Board of Directors of the Trust has approved the Plan of
Reorganization (the "Plan"), which is being recommended to the shareholders of
the Asset Allocation Portfolio, Balanced Portfolio and Value Portfolio for
approval at the Meeting. Subject to such approval, the Plan provides for the
acquisition by the Capital Builder Fund of all of the assets and liabilities
(such assets subject to such liabilities being called the "Assets"), of the
Asset Allocation Portfolio, Balanced Portfolio and Value Portfolio (the
"Acquired Portfolios)", the amendment of the Trust's Articles of Incorporation
to reclassify all shares of the Acquired Portfolios as shares of the Capital
Builder Fund, and the issuance of shares of the Capital Builder Fund to
shareholders of the Acquired Portfolios.
REASONS FOR REORGANIZATION: The Acquired Portfolios and Capital Builder Fund are
equity portfolios which have similar investment objectives and policies. As of
December 31, 1994, the Asset Allocation Portfolio had total assets of
$3,571,228, the Balanced Portfolio had total assets of $4,694,480 and the Value
Portfolio had total assets of $3,261,598. The Capital Builder Fund will commence
operations in approximately early July, 1995 when it is expected to acquire
approximately $2,818,000 of assets of Conley Partners Limited Partnership. See
"Capitalization." Management of the Trust believes that because of their
relatively smaller size and higher fee structure, the investment and other
operations of the Acquired Portfolios would be conducted more efficiently
through their reorganization with the Capital Builder Fund (the
"Reorganization"), and that the proposed Reorganization is in the interests of
the Acquired Portfolios and their shareholders. See "Board Consideration."
<PAGE>
COMPARISON OF THE PORTFOLIOS:
INVESTMENT OBJECTIVES AND POLICIES - The Asset Allocation Portfolio,
Balanced Portfolio, Value Portfolio and Capital Builder Fund and their shares
are described in the Prospectuses which accompany this Combined Proxy
Statement/Prospectus. Their investment objectives and policies are similar; that
is, they each seek to achieve capital appreciation with income as a secondary
objective. Furthermore, they seek to achieve their investment objectives by
investing primarily in common stocks and securities convertible into common
stocks.
INVESTMENT MANAGEMENT, ADMINISTRATIVE, AND DISTRIBUTION SERVICES -
Investment advisory, administration, and transfer agent services are provided to
the Portfolios by CONLEY SMITH, Inc. (the "Adviser") and Lancaster
Administrative Services, Inc. (the "Administrator"). Distribution services are
provided by SMITH HAYES Financial Services Corporation ("SMITH HAYES"). The fees
borne for such services as set forth below are lower for the Capital Builder
Fund than for the Acquired Portfolios.
Management/
Transfer Agent/ 12b-1
Administration Fees Distribution Fees Total
-------------------- ----------------- -------
Asset Allocation Portfolio 1.1875% .50% 1.6875%
Balanced Portfolio 1.1875% .50% 1.6875%
Value Portfolio 1.1875% .50% 1.6875%
Capital Builder Fund 1.00% .50% 1.50%
DISTRIBUTION - The manner in which shares of the Acquired Portfolios are
distributed and the procedures for purchasing, redeeming and exchanging such
shares will not change as a result of the Reorganization.
RISK FACTORS: The Board of Directors believes that an investment in the Capital
Builder Fund involves investment risks that are similar to those of the Asset
Allocation Portfolio, Balanced Portfolio and Value Portfolio. These investment
risks, in general, are those typically associated with investing in a portfolio
of equity securities which are managed conservatively for growth and income. See
the Prospectuses of the Acquired Portfolios and Capital Builder Fund for a more
detailed discussion of the risks of investing therein.
DESCRIPTION OF THE PLAN OF REORGANIZATION: The terms and conditions under which
the Reorganization will be consummated are set forth in the Plan. Significant
provisions of the Plan are summarized below; however, this summary is qualified
in its entirety by reference to the Plan of Reorganization, a copy of which is
attached as Exhibit A to this Combined Proxy Statement/Prospectus.
The Plan provides that prior to the Effective Time of the Reorganization,
the Trust will execute and file with the State of Minnesota Articles of
Amendment to the Trust's Articles (a form of which is attached hereto as part of
Exhibit B). Such Articles of Amendment will, as of the Effective Time of the
Reorganization, reclassify all of the issued and outstanding shares of the
Acquired Portfolios as an equal number of shares of the Capital Builder Fund and
reclassify all of the authorized but unissued shares of the Acquired Portfolios
as authorized but unissued shares of the Capital Builder Fund.
<PAGE>
At the Effective Time of the Reorganization, all of the Assets of the
Acquired Portfolios will be transferred to the Capital Builder Fund, such that
at and after the Effective Time of the Reorganization the Assets (including
liabilities) of the Acquired Portfolios will be deemed to be Assets of the
Capital Builder Fund. In exchange for the transfer of the Assets and in order to
accomplish the reclassification of the shares described above, the Trust will
contemporaneously issue to the shareholders of the Acquired Portfolios full and
fractional shares of the Capital Builder Fund. THE NUMBER OF SHARES OF THE
CAPITAL BUILDER FUND SO ISSUED WILL BE EQUAL TO THE AGGREGATE NET ASSET VALUE OF
SUCH ACQUIRED PORTFOLIOS IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE
REORGANIZATION, DIVIDED BY THE NET ASSET VALUE PER SHARE OF THE CAPITAL BUILDER
FUND AFTER THE EFFECTIVE TIME OF THE REORGANIZATION. At and after the Effective
Time of the Reorganization all debts, liabilities, obligations and duties of the
Acquired Portfolios shall become liabilities of the Capital Builder Fund as
aforesaid and may thereafter be enforced against the Capital Builder Fund to the
same extent as if the same had been incurred by it.
To facilitate the exchange the Trust will establish accounts in the name
of each shareholder of the Acquired Portfolios representing the number of shares
of the Capital Builder Fund owned by the shareholder as a result of the
reorganization. The stock transfer books of the Trust with respect to the
Acquired Portfolios will be permanently closed as of the close of business on
the day immediately preceding the Effective Time of the Reorganization.
Redemption requests received thereafter by the Trust with respect to the
Acquired Portfolios will be deemed to be redemption requests for shares of the
Capital Builder Fund issued in the Reorganization.
The Reorganization is subject to a number of conditions, including
approval of the Plan and the transactions contemplated therein by the
shareholders of the Acquired Portfolios; the receipt of the legal opinion of
Cline, Williams, Wright, Johnson & Oldfather that shares of the Capital Builder
Fund issued to shareholders of the Acquired Portfolios in accordance with the
terms of the Plan will be validly issued, fully paid and non-assessable; the
filing of one or more post-effective amendments to the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933 (the "1933 Act") and the
1940 Act as may be necessary and appropriate as a result of the Reorganization;
and the registration on Form N-14 under the 1933 Act of the shares of the
Capital Builder Fund to be issued in connection with the Reorganization, and
such post-effective amendment or amendments to the Trust's registration
statements becoming effective.
At the Effective Time of the Reorganization, the Trust will liquidate the
Acquired Portfolios and issue shares of the Capital Builder Fund as aforesaid,
such that the number of shares of the Capital Builder Fund credited to a
shareholder of an Acquired Portfolio will be as indicated above. In addition,
each such shareholder shall have the right to receive any unpaid dividends or
other distributions which were declared before the Effective Time of the
Reorganization with respect to the shares representing interests in the Acquired
Portfolios held by the shareholder immediately prior to the Effective Time of
the Reorganization. Assuming satisfaction of the conditions in the Plan of
Reorganization, the Effective Time of the Reorganization will be on
- -------------------, 1995, or such other date as is scheduled by the Trust.
The Plan and the Reorganization described therein may be abandoned at any
time for any reason prior to the Effective Time of the Reorganization upon the
vote of a majority of the Board of Directors of the Trust. The Plan provides
further that any time prior to or (to the fullest extent permitted by law) after
approval of the Plan by the shareholders of the Acquired Portfolios the Trust
may, upon authorization by the Board of Directors of the Trust and with or
without the approval of the shareholders, amend any of the provisions of the
Plan.
<PAGE>
BOARD CONSIDERATION. Based upon their evaluations of the relevant information
presented to them, and in light of their fiduciary duties under Federal and
state law, the Board of Directors of the Trust has unanimously determined that
the proposed Reorganization is in the best interests of the shareholders of the
Acquired Portfolios, and recommends the approval of the Plan by shareholders at
the Meeting.
The Board of Directors of the Trust considered the proposed Reorganization
on December 20, 1994. At the meeting representatives of the Adviser stated that
(i) the net assets of the Acquired Portfolios had flattened or decreased as a
result of share redemptions in the past year, (ii) with the offering of the
Capital Builder Fund shares to the public following the Reorganization, the
acquisition of Conley Partners Limited Partnership assets for shares of the
Capital Builder Fund, and because of its greater size, the investment and other
operations of the Capital Builder Fund would be more efficient than those of the
Acquired Portfolios, (iii) the per share operating expenses of the Capital
Builder Fund would be lower than those of the Acquired Portfolios, and (iv) they
believed the proposed Reorganization would benefit the Acquired Portfolios and
their shareholders. These benefits included potential economies of scale, such
as lower per share professional, registration and other non-management expenses;
greater portfolio trading efficiencies, such as quantity discounts, better
securities execution and reduced portfolio volatility resulting from shareholder
purchase and redemption activity; and potentially broader portfolio
diversification.
The Board of Directors reviewed the terms of the proposed Reorganization,
drafts of this Combined Proxy Statement/Prospectus and also considered the
compatibility of the investment objectives, policies and restrictions of the
Acquired Portfolios and the Capital Builder Fund. The Directors noted that the
Portfolios would be provided with an opinion of the Trust's counsel with respect
to the tax treatment of the Reorganization.
The Board of Directors also reviewed the expected costs of the
Reorganization. In this regard, the Board noted that each Portfolio would be
responsible for payment of its own expenses in connection with the
reorganization, estimated to be approximately $2,500 with respect to each
Acquired Portfolio and $2,500 with respect to the Capital Builder Fund, and that
the Capital Builder Fund would bear all share registration expenses in
connection with the Reorganization.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under Federal and state law, the Trust's
Board of Directors unanimously determined that the proposed Reorganization was
in the best interests of the Acquired Portfolios, that the interests of existing
shareholders of the Trust would not be diluted as a result of the transaction,
and that the Board should recommend approval of the Plan by shareholders of the
Acquired Portfolios at the Meeting.
CAPITALIZATION: Shortly before the date of the meeting the Trust expects that
the Capital Builder Fund will acquire the assets of Conley Partners Limited
Partnership, a private investment partnership with investment objectives similar
to Capital Builder Fund. While the tables below assume the completion of the
acquisition of such assets, that acquisition is subject to the approving vote of
the Limited Partners of Conley Partners Limited Partnership. There can be no
assurance such approving vote will be obtained.
<PAGE>
The following table shows (1) the capitalization (adjusted net assets) of
the Conley Partners Limited Partnership as of December 31, 1994 (adjusted for
partners capital withdrawals and purchase on January 1, 1995), (2) the
capitalization of Capital Builder Fund immediately before the exchange and (3)
the pro forma initial capitalization of the Capital Builder Fund after giving
effect to the proposed exchange at net asset value:
Conley
Partners Capital Pro Forma
Limited Builder Initial
Partnership (1) Fund (2) Capitalization
--------------- --------- --------------
Total Net Assets $2,818,437 $ - $ 2,818,437
Shares of Authorized Capital Stock - 50,000,000 50,000,000
Shares of Outstanding Capital Stock - - 281,844
Net Asset Value Per Share - - $ 10.00
(1) Conley Partners Limited Partnership has no partner units or limited
partner units.
(2) Initial capitalization to come from exchange of capital stock for net
assets of Conley Partner Limited Partnership.
The following table shows pro forma capitalization of (1) the pro forma initial
capitalization of the Capital Builder Fund after the exchange described above,
(2) the capitalization, at net asset value at December 31, 1994, of the three
additional funds (as adjusted for planned liquidation of securities) to be
combined with Capital Builder Fund following the exchange with Conley Limited
Partners Partnership and (3) the pro forma combined capitalization of the
Capital Builder Fund after giving effect to all proposed exchanges at net asset
value.
Pro Forma Asset Pro Forma
Initial Allocation Balanced Value Combined
Capitalization Portfolio Portfolio Portfolio Capitalization
------------- --------- --------- -------- -----------
Total Net Assets $ 2,818,437 $ 3,567,628 $4,691,380 $3,253,798 $14,331,243
Shares of Authorized
Capital Stock 50,000,000 10,000,000 10,000,000 10,000,000 50,000,000
Shares of Outstanding
Capital Stock 281,844 402,348 453,780 330,781 1,433,124
Net Asset Value
Per Share $ 10.00 $ 8.87 $ 10.34 $ 9.84 $ 10.00(3)
(3) Assumes that all transactions occurred on the same date.
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES: Consummation of the Reorganization is subject
to the condition that the Trust receive an opinion from Cline, Williams, Wright,
Johnson & Oldfather to the effect that for federal income tax purposes: (i) the
transfer of all of the assets and liabilities of the Acquired Portfolios to the
Capital Builder Fund in exchange for shares of the Capital Builder Fund and the
distribution to shareholders of the Acquired Portfolios of the shares of the
Capital Builder Fund so received, as described in the Plan, will constitute a
reorganization within the meaning of Section 368(a)(10(C) or Section
368(a)(10)(D) of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) in accordance with Sections 361(a), 361(c)(1) and 357(a) of the Code no
gain or loss will be recognized by the Acquired Portfolios as a result of such
transactions; (iii) in accordance with Section 354(a)(1) of the Code no gain or
loss will be recognized by the shareholders of the Acquired Portfolios or
Capital Builder Fund on the distribution of shares of the Capital Builder Fund
to shareholders of the Acquired Portfolios in exchange for shares of the
Acquired Portfolios; (iv) in accordance with Section 358(a)(1) of the Code the
basis of the Capital Builder Fund shares received by a shareholder of an
Acquired Portfolio will be the same as the basis of the shareholder's shares
immediately before the Effective Time of the Reorganization; (v) in accordance
with Section 362(b) of the Code the basis to the Capital Builder Fund of the
assets of the Acquired Portfolios received pursuant to such transactions will be
the same as the basis of the assets in the hands of the Acquired Portfolios
immediately before such transactions; (vi) in accordance with Section 1223(1) of
the Code a shareholder's holding period for shares of the Capital Builder Fund
will be determined by including the period for which the shareholder held the
shares of the Acquired Portfolio exchanged therefor, provided such shares of the
Acquired Portfolio were held as a capital asset; and (vii) in accordance with
Section 1223(2) of the Code the Capital Builder Fund's holding period with
respect to the assets received in the Reorganization will include the period for
which such assets were held by the Acquired Portfolios.
The Trust has not sought a tax ruling from the Internal Revenue Service
("IRS"). The opinion of counsel is not binding on the IRS and does not preclude
the IRS from adopting a contrary position. Shareholders should consult their own
advisers concerning the potential tax consequences to them, including state and
local income tax consequences.
Both the Capital Builder Fund and the Acquired Portfolios have conformed
or will conform their operations to the requirements of Subchapter M of the
Code, and as a result, do not bear any corporate level Federal or state income
tax.
THE BOARD OF DIRECTORS, INCLUDING ALL
"NONINTERESTED" DIRECTORS, RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE PLAN OF REORGANIZATION
ADDITIONAL INFORMATION ABOUT THE TRUST
The Trust is registered as an open-end management investment company under
the 1940 Act. Currently, the Trust maintains nine separate investment
portfolios.
The Trust is organized as a Minnesota corporation and, as such, is subject
to the provisions of its Articles and Bylaws and to the Minnesota Business
Corporation Law. Shares of the Trust have a per share par value of $.001; are
entitled to one vote for each full share held and fractional votes for
fractional shares held; will vote in the aggregate and not by class or series
except as otherwise required by law or the Trust's governing instruments or when
class voting is permitted by the Board of Directors;
<PAGE>
and are entitled to participate equally in dividends and distributions declared
with respect to each Portfolio and in the net distributable assets of each
Portfolio on liquidation. In addition, shares of the Trust have no pre-emptive
rights and only such conversion and exchange rights as the Board of Directors
may grant at its discretion. When issued for payment as described in their
respective prospectuses, shares of the Trust are fully paid and non-assessable
by the Trust.
The foregoing is only a summary of certain attributes of the Trust and its
shares. Shareholders may obtain copies of the Trust's Articles and Bylaws and
the Minnesota General Corporation Law from the Trust upon written request at its
principal office.
Information about the Capital Builder Fund and the Acquired Portfolios is
included in the Prospectuses accompanying this Combined Proxy
Statement/Prospectus as Exhibit D, which are incorporated by reference herein.
Additional information about the Capital Builder Fund and the Acquired
Portfolios is included in the respective Statements of Additional Information
which have been filed with the SEC. Copies of the Acquired Portfolios' and
Capital Builder Fund's Statements of Additional Information may be obtained
without charge by writing to SMITH HAYES Financial Services Corp., 500 Centre
Terrace, 1225 L Street, Lincoln, Nebraska 68508 or calling the toll-free number
1 (800) 279-7437. The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, as
applicable, and, in accordance with such requirements files proxy materials,
reports and other information with the SEC. These materials can be inspected and
copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street N.W., Washington, D.C. 20549, at the offices of SMITH HAYES Financial
Services Corp. listed above and at the SEC's Regional Offices in Denver,
Colorado, at 1801 California Street, Suite 4800, Denver, CO 80202-2648. Copies
of such materials can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549, at prescribed rates.
OTHER BUSINESS
The Trust's Board of Directors knows of no other business to be brought
before the Meeting. However, if any other matters come before the Meeting, it is
the intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
LEGAL MATTERS
Certain legal matters concerning the issuance of Shares in the
Reorganization and certain tax matters will be passed upon for the Trust by
Cline, Williams, Wright, Johnson & Oldfather, 1900 FirsTier Bank Building, 13th
& M Streets, Lincoln, Nebraska 68508. Cline, Williams, Wright, Johnson &
Oldfather acts as legal counsel to Consolidated Investment Corporation, the
Trust, the Adviser and the Distributor.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning 1 (800) 279-7437.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
REQUEST FOR A STATEMENT OF ADDITIONAL INFORMATION
If you would like a Statement of Additional Information relating to the
proposed Reorganization calling for the exchange all substantially all of the
assets of the Acquired Portfolios for shares of the Capital Builder Fund, kindly
print your name and address below and mail this request to:
SMITH HAYES Financial Services Corporation
500 Centre Terrace
1225 L Street
Lincoln, NE 68508
A statement of Additional Information can also be obtained by calling
1-800-279-7437.
- ------------------------------------------------------------
Name
- -------------------------------------------------------------
Address
- -------------------------------------------------------------
City, State
- -------------------------------------------------------------
Zip Code
<PAGE>
FORM OF PROXY
SMITH HAYES Trust, Inc.
This Proxy is solicited on behalf of the Board of Directors
for the Special Meeting of Shareholders
-----------------, 1995
The undersigned hereby appoints Thomas C. Smith, Jean B. Norris and each
of them, proxies, with full power of substitution, to vote all shares of the
undersigned at the Special Meeting of Shareholders of SMITH HAYES Trust, Inc. to
be held at SMITH HAYES Financial Services Corporation, 500 Centre Terrace, 1225
L Street, Lincoln, Nebraska, on -------------, 1995 at 8:00 a.m. or at any
adjournment thereof.
ALL SHAREHOLDERS
1. Election of Directors
|_| For all nominees listed |_| Withhold authority to
below (except as marked vote for all nominees listed
to the contrary)
Thomas C. Smith, John H. Conley, Thomas R. Larsen, Thomas D. Potter,
Dale C. Tinstman
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME.
2. Ratification of the selection of Deloitte & Touche LLP as independent
auditors for the Trust.
|_| For |_| Against |_| Abstain
3. Approval of Amendment of Articles of Incorporation to permit classes of
shares and to redesignate each Trust Portfolio as a "Fund."
|_| For |_| Against |_| Abstain
SHAREHOLDERS OF ASSET ALLOCATION PORTFOLIO, BALANCED PORTFOLIO AND VALUE
PORTFOLIO ONLY
4. Approval of Plan of Reorganization for combining the Asset Allocation
Portfolio, Balanced Portfolio and Value Portfolio into the Trust's
Capital Builder Fund.
|_| For |_| Against |_| Abstain
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
(Please sign and date this Proxy below).
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR all proposals. All other matters shall be voted upon by the proxies as
they deem in the best interests of the Trust.
The undersigned acknowledge receipt with this proxy of the Notice of Meeting and
Combined Proxy Statement/Prospectus dated ------------------, 1995.
Date -----------------------, 1995
- -------------------------------------------------------------
- -------------------------------------------------------------
Signature(s) of Shareholder(s)
PLEASE SIGN this proxy exactly as your name appears hereon. If held jointly,
both should sign. When signing as attorney, executor, administrator, trustee,
guardian, custodian, please indicate the capacity.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY.
I plan to attend the Meeting. |_| No |_| Yes
<PAGE>
Exhibit A
PLAN OF REORGANIZATION
This Plan of Reorganization dated as of the 20th day of December 1994,
(the "Plan") sets forth the procedures and actions necessary to reorganize the
series designated Asset Allocation Portfolio, Balanced Portfolio and Value
Portfolio (collectively the "Portfolios") of the SMITH HAYES Trust, Inc. (the
"Trust") into the Trust's series designated Capital Builder Fund.
WHEREAS, on December 20, 1994, the Board of Directors of the Trust
approved this Plan in substantially this form providing for the reorganization
of the Portfolios with and into the series designated the Capital Builder Fund
and found that such transactions were in the best interests of shareholders.
NOW, THEREFORE, in consideration of these premises, the Board of Directors
does hereby set forth the Plan of Reorganization necessary to consummate the
transaction.
ARTICLE I. THE REORGANIZATION
Section 1.01. Upon the terms and subject to the conditions hereof, and in
accordance with the Business Corporation Law of the State of Minnesota (the
"MBCL"), Portfolios shall be reorganized with and into the series designated
Capital Builder Fund (the "Reorganization") following the satisfaction or waiver
of the conditions set forth in Article III hereof. Following the Reorganization,
the Portfolios shall be deemed to have redeemed all of their shares and shall
cease separate existence as a registered management investment company under
Subchapter M of the Internal Revenue Code (the "Code").
Section 1.02. The Reorganization shall be consummated by filing with the
Secretary of State of Minnesota Articles of Amendment and such documents in such
form as required by, and executed in accordance with, the relevant provisions of
the MBCL. The time of filing such documents with the Secretary of State of
Minnesota or such other times as determined by the Board of Directors shall be
the "Effective Time" for the Reorganization, but for accounting, purposes, the
Reorganization shall occur at 12:01 a.m. on the later of July 1, 1995, or the
Effective Time.
Section 1.03. The Reorganization of the Portfolios into the Capital
Builder Fund shall have the effect of a reorganization of corporations under the
Code, except that any liability, obligation or penalty assumed by Capital
Builder Fund relating to or arising from the Portfolios shall be satisfied first
out of the assets of the respective Portfolios before recourse to any other
assets of the Capital Builder Fund.
Section 1.04. At the Effective Time of the Reorganization all property of
every description, and all interests, rights, privileges and powers of the
Portfolios, subject to all liabilities of the Portfolios, whether accrued,
absolute, contingent or otherwise (such assets subject to such liabilities are
herein referred to as the "Assets") will be transferred and conveyed by the
Portfolios to the Capital Builder Fund and will be assumed by the Capital
Builder Fund, such that at and after the Effective Time of the Reorganization,
the Assets (including liabilities) of the Portfolios will become Assets of the
Capital Builder Fund.
<PAGE>
Section 1.05. The Articles of Incorporation and Bylaws of the SMITH HAYES
Trust, Inc. shall remain in effect at the Effective Time as the Articles of
Incorporation and Bylaws of SMITH HAYES Trust, Inc., except to the extent
amended to provide that the names of the existing series shall be amended to
substitute the word "Fund" for the word "Portfolio" in all designations, to
reclassify the shares of the Portfolios as Capital Builder Fund shares and to
increase the number of shares authorized for issuance within each designation as
the Board of Directors in its discretion may determine is necessary and
appropriate.
Section 1.06. In exchange for the transfer of assets described in Section
1.04, each share and each fractional share of Portfolios' common stock (the
"Shares") issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Reorganization and without any action on the part of the holder
thereof, be converted into fully paid and non-assessable Capital Builder Fund
shares and/or fractions thereof of the Trust equal to the net asset value of the
shares of the Portfolios so held, as described in Article V of the Articles of
Incorporation of the Trust, as supplemented by any resolutions of the Board of
Directors of the Trust establishing any other series of shares.
Section 1.07. At the Effective Time of the Reorganization, each
shareholder of the Portfolios will have the right to receive any unpaid
dividends or other distributions which were declared before the Effective Time
of the Reorganization with respect to shares held by the shareholder immediately
prior to the Effective Time of the Reorganization. To facilitate the foregoing
issuance, the Trust will establish open accounts in the name of each holder of
shares representing the number of shares of the Portfolios owned by each such
shareholder as a result of the Reorganization.
ARTICLE II. TRANSFER OF SHARES
Section 2.01. (a) CONLEY SMITH, Inc. is hereby designated to act as
transfer agent for the Trust in connection with the Reorganization. At the
Effective Time, ownership of the Portfolios' shares by each registered holder
thereof, as evidenced by a book entry on the books of registry maintained by the
transfer agent, will become ownership of a number of Capital Builder Fund
shares, identically registered, without additional notice to such registered
holder.
(b) After the Effective Time, there shall be no transfers on the stock
transfer books of Portfolios' shares. Any such purported transfer shall be
deemed a transfer of Capital Builder Fund shares to which such shares have been
converted.
ARTICLE III. CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
Section 3.01. The consummation of the Reorganization is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) This Plan shall have been adopted by the affirmative vote of the
shareholders of the Portfolios by the requisite vote in accordance
with applicable law;
(b) No statute, rule, regulation, executive order, decree or injunction
shall be enacted, entered, promulgated or enforced by any court or
governmental authority which prohibits or restricts the consummation
of the Reorganization;
<PAGE>
(c) No suit, action, claim, proceeding or investigation before any
court, arbiter or administrative government or regulatory body,
United States or foreign government, shall have been threatened
or shall have been commenced and be pending against the Trust or
any of its respective affiliates, associates, officers or
directors seeking to prevent or delay the transactions
contemplated by, or challenging any of the terms or provisions
of, the Plan or seeking damages in connection therewith;
(d) All approvals, consents, authorizations, orders and waivers from
governmental and regulatory agencies and third parties required
to consummate the transactions contemplated hereby (including the
order of the Securities and Exchange Commission declaring
effective the Post-Effective Amendment to the Trust's
Registration Statement on Form N-1A or Form N-14, registering the
Capital Builder Fund shares under the Securities Act of 1933),
which, either individually or in the aggregate, if not obtained
would preclude the Reorganization from occurring without a
violation of law or would have a material adverse effect on the
financial condition, results of operations or business of either
party taken as a whole following the Reorganization shall have
been obtained;
(e) The Trust will have received an opinion of Cline, Williams,
Wright, Johnson & Oldfather to the effect that (i) the shares of
the Capital Builder Fund issued pursuant to this Plan will, when
issued in accordance with the provisions hereof, be legally
issued, fully paid and non-assessable; and (ii) the
reorganization will not give rise to the recognition of income,
gain or loss for Federal income tax purposes to the Portfolios,
the Capital Builder Fund or their respective shareholders.
ARTICLE IV. TERMINATION; AMENDMENT
Section 4.01. This Plan may be terminated and the Reorganization
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding the approval thereof of the Portfolios, upon order of the Board
of Directors of the Trust.
Section 4.02. This Plan may be amended by action taken by the Board of
Directors of the Trust at any time before or after approval of this Plan by the
respective shareholders thereof but, after any such approval, no amendment shall
be made which adversely affects the right of such shareholders hereunder without
the approval of such shareholders in the same manner as required for approval of
this Plan. This Plan may not be amended except by an instrument in writing,
signed on behalf of the Board of Directors of the Trust.
Adopted this 20th day of December, 1994 by the Board of Directors.
SMITH HAYES Trust, Inc.
By -----------------------------------
/s/ Thomas C. Smith
Thomas C. Smith
President
Attest: /s/ Jean B. Norris
Jean B. Norris
Secretary
<PAGE>
Exhibit B
SMITH HAYES Trust, Inc.
ARTICLES OF AMENDMENT
SMITH HAYES Trust, Inc., a Minnesota corporation having its principal
office in the City of Lincoln, Nebraska (the "Corporation"), hereby adopts these
Articles of Amendment to the Articles of Incorporation pursuant to Chapter
302A.131-139 of the Minnesota Business Corporation Act.
Upon effectiveness of these Articles of Amendment:
(a) All the assets and liabilities of the Corporation's Asset Allocation
Portfolio, Balanced Portfolio and Value Portfolio shall be conveyed, transferred
and delivered to the account of the Corporation's series designated Capital
Builder Fund, and shall thereupon become and be assets and liabilities belonging
to the Capital Builder Fund;
(b) All of the issued and outstanding shares of the Asset Allocation
Portfolio, Balanced Portfolio and Value Portfolio, without the need of any
further act or deed, will be automatically reclassified into a number of full
and fractional, issued and outstanding, shares of the Corporation's Common
Stock, designated Capital Builder Fund shares equal to the aggregate net asset
value of the Asset Allocation, Balanced and Value Portfolios divided by the net
asset value per share of the Capital Builder Fund on a pro forma basis and as
more fully set forth in the Plan of Reorganization attached hereto as Exhibit A.
(c) The Articles of Incorporation of the Corporation and all previous
Certificates of Designation and Redesignation are hereby amended to reflect the
reclassification of all of the shares of the Corporation's Common Stock
designated (i) Asset Allocation Portfolio shares, (ii) Balanced Portfolio shares
and (iii) Value Portfolio shares as shares of the Corporation's Common Stock
designated Capital Builder Fund shares;
(d) The designation of all series of shares containing the word
"Portfolio" shall be redesignated by substituting the word "Fund" for the word
"Portfolio" and increasing the number of shares authorized for issuance in each
series thereby resulting in the Common Stock of the Corporation being designated
in series and allocated as authorized for issuance as follows:
Capital Builder Fund shares 50,000,000
Institutional Money Market Fund shares 100,000,000
Money Market Fund shares 100,000,000
Convertible Fund shares 50,000,000
Nebraska Tax-Free Fund shares 50,000,000
Government Quality Bond Fund shares 50,000,000
Small Cap Fund shares 50,000,000
The remaining 550,000,000 shares of the Corporation's Common Stock shall be
undesignated and reserved for future issuance.
<PAGE>
(e) Article 5 of the Articles of Incorporation is hereby amended by
adding to the existing Article 5 the following:
Shares of each series may be further divided by resolution of the
Board of Directors into one or more classes. Each such class shall
be clearly identified and distinguished from each other class by
such names as the Board of Directors may determine from time to time
as a convenient and proper method for identifying such shares in a
Registration Statement filed with the Securities and Exchange
Commission covering the offer and sale of such shares to public. Any
such class or classes of shares may have such designations,
preferences, rights, limitations or restrictions as shall be set
forth in the resolution of the Board of Directors establishing the
same. The Board of Directors of the Corporation shall have the power
and authority to designate or redesignate any unissued shares of any
class or any series from time to time by setting or changing the
preferences, conversion rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions
of redemption of such unissued shares to the extent expressed in a
resolution or resolutions providing for such action.
This amendment shall not increase the authorized capital stock of the
Corporation. The amendment ONLY reclassifies and renames the designations but
does not amend the description or the rights of any class of stock as set forth
in the Articles.
This amendment has been duly authorized by the Board of Directors of the
Corporation and approved by the stockholders of the Corporation entitled to vote
thereon.
These Articles of Amendment shall be effective as of 12:01 a.m.,
- ------------------, 1995.
IN WITNESS WHEREOF, SMITH HAYES Trust, Inc. has caused these Articles
of Amendment to be signed in its name and on its behalf by its President, and
attested by its Secretary, on the --------day of ------------------, 1995.
ATTEST: SMITH HAYES TRUST, INC.
By: By:
- -------------------------------- ------------------------------------
Jean B. Norris Thomas C. Smith
Secretary Chairman and President
<PAGE>
EXHIBIT C
----------
May 22, 1994
SMITH HAYES Trust, Inc.
500 Centre Terrace
1225 "L" Street
Lincoln, NE 68501
RE Plan of Reorganization for Combining the SMITH HAYES Trust,
Inc. Asset Allocation Portfolio, Balanced Portfolio and
Value Portfolio (the "Acquired Portfolios") into the
SMITH HAYES Trust, Inc. Capital Builder Fund
Dear Sirs:
We have been asked to give our opinion, in accordance with Article III,
Section 3.01(e) of the Plan of Reorganization (the "Plan") relating to the
above-described transaction (the "Reorganization"), as to certain Federal income
tax consequences of consummating the transactions contemplated in the Plan.
BACKGROUND
SMITH HAYES Trust, Inc. ("Trust") is a Minnesota corporation consisting
of multiple investment portfolios, including the Acquired Portfolios identified
above (the "Transferor Funds") and the Capital Builder Fund (the "Surviving
Fund"). The Transferor Fund and the Surviving Fund are sometimes referred to
herein collectively as "Funds." The Trust, as well as each of the "Funds", is
registered under the Investment Company Act of 1940, as amended, as an open-end
investment company of the management type.
It is proposed that all the assets and liabilities of the Transferor
Funds be transferred to the Surviving Fund. As consideration for such transfer,
the Surviving Fund is issuing to the Transferor Funds a number of full and
fractional shares of common stock in the Surviving Fund equal to the net asset
value of the shares outstanding of the respective Transferor Funds at the
Effective Time of the Reorganization.
<PAGE>
SMITH HAYES Trust, Inc.
May 22, 1995
Page 2
Immediately after the transfer, the Surviving Fund shares issued to the
Transferor Funds are to be distributed to the shareholders of the Transferor
Funds in liquidation of the Transferor Funds, and the Transferor Funds are to
cease operations. Each Transferor Fund shareholder is receiving shares of the
Surviving Fund in proportion to the shareholding in each Transferor Fund
immediately before the Reorganization. The outstanding shares of the Transferor
Funds are to be cancelled, and the Transferor Fund are to be terminated.
ASSUMPTIONS
For purposes of this opinion, we have made several assumptions:
First, that each of the Funds qualified as a "regulated investment
company" under Part I of Subchapter M of Subtitle A, Chapter 1, of the Internal
Revenue Code of 1986, as amended (the "Code"), for its most recently ended
fiscal year and will continue to so qualify for its current fiscal year;
Second, that the Surviving Fund is acquiring at least 90% of the fair
market value of the net assets and at least 70% of the fair market value of the
gross assets held by each Transferor Fund immediately prior to the transaction,
treating any assets used to make other than regular and normal distributions or
redemptions as unacquired assets;
Third, that the shareholders of the Transferor Funds have no plan or
intention to dispose of a number of shares of the Surviving Fund received by
them as a result of the transaction which would result in their owning in the
aggregate shares of the Surviving Fund having a fair market value that is less
than 50% of the fair market value of the Transferor Funds' shares outstanding
immediately before the transaction (including any Transferor Funds' shares
redeemed in anticipation of the transaction);
Fourth, that the Surviving Fund has no plan or intention to reacquire
any of their shares issued in the transaction, except for redemptions in the
ordinary course of business as a regulated investment company;
Fifth, that the Surviving Fund has no plan or intention to sell or
otherwise to dispose of any of the assets of the Transferor Funds acquired in
the transaction, except for dispositions made in the ordinary course of
business;
Sixth, that the liabilities of the Transferor Funds assumed by the
Surviving Fund and the liabilities to which the transferred assets of the
Transferor Funds are subject were incurred by the Transferor Funds in the
ordinary course of business;
<PAGE>
SMITH HAYES Trust, Inc.
May 22, 1995
Page 3
Seventh, that the transaction serves a business purpose or purposes of
the Funds and that following the transaction the Surviving Fund will continue
the historic business of the Transferor Funds or use a significant portion of
the Transferor Funds' historic business assets in a business;
Eighth, that there is no intercorporate indebtedness existing between
the Surviving Fund and the Transferor Funds that was issued, acquired or will be
settled at a discount;
Ninth, that the Surviving Fund does not own, directly or indirectly,
nor has it owned during the past five years, directly or indirectly, any stock
of the Transferor Fund;
Tenth, that the Transferor Funds are not under the jurisdiction of a
court in a case under Title 11 of the United States Code or a receivership,
foreclosure or similar proceeding in any Federal or State court; and
Eleventh, that the Plan substantially in the form included as an
exhibit to the registration statement of the Trust, on Form N-14 under the
Securities Act of 1933 (the "Registration Statement") has been or will be duly
authorized by the Trust.
The opinions set forth below are subject to the approval of the Plan by
the shareholders of the Transferor Funds, to the proper submission and filing of
appropriate documents with the appropriate government agencies and to the
satisfaction of the terms and conditions set forth in the Plan.
CONCLUSIONS
Based upon the Code, applicable Treasury Department regulations in
effect as of the date hereof, current published administrative positions of the
Internal Revenue Service contained in revenue rulings and procedures, and
judicial decisions, and upon the information, representations and assumptions
contained herein and in the documents provided to us by you, it is our opinion
for Federal income tax purposes that:
(i) the transfer of all of the assets and liabilities of the
Transferor Funds to the Surviving Fund in exchange for shares of the
Surviving Fund and distribution to shareholders of the Transferor Funds
of the shares the shares of the Surviving Fund so received, as
described in the Plan, will constitute a reorganization within the
meaning of Code section 368(a)(1)(C) or 368(a)(1)(D);
(ii) in accordance with sections 361(a), 361(c)(1) and 357(a)
of the Code, no gain or loss will be recognized by any Transferor Fund
as a result of such transactions;
(iii) in accordance with section 1032(a) of the Code, no gain
or loss will be recognized by the Surviving Fund as a result of such
transactions;
<PAGE>
SMITH HAYES Trust, Inc.
May 22, 1995
Page 4
(iv) in accordance with section 354(a)(1) of the Code, no
gain or loss will be recognized by the shareholders of any of the Funds
on the distribution to them by a Transferor Fund of shares of the
Surviving Fund in exchange for their shares of such Transferor Fund;
(v) in accordance with section 358(a)(1) of the Code, the
basis of the Surviving Fund shares received by a shareholder of a
Transferor Fund will be the same as the basis of the shareholder's
Transferor Fund shares immediately before the transactions;
(vi) in accordance with section 362(b) of the Code, the basis
to the Surviving Fund of the assets of a Transferor Fund received
pursuant to the transactions will be the same as the basis of those
assets in the hands of such Transferor Fund immediately before the
transactions;
(vii) in accordance with section 1223(1) of the Code, a
shareholder's holding period for Surviving Fund shares will be
determined by including the period for which the shareholder held
Transferor Fund shares exchanged therefor, provided that the
shareholder held such Transferor Fund shares as a capital asset; and
(viii) in accordance with section 1223(2) of the Code, the
Surviving Fund's holding period with respect to any asset acquired from
a Transferor Fund will include the period for which such asset was held
by such Transferor Fund.
We express no opinion relating to any Federal income tax matter except
on the basis of the documents and assumptions described above. In issuing our
opinion, we have relied solely upon existing provisions of the Code, existing
and proposed regulations thereunder, and current administrative rulings and
court decisions. Such laws, regulations, administrative rulings and court
decisions are subject to change at any time. Any such change could affect the
validity of the opinion set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the caption
"Federal Income Tax Consequences" in the Combined Proxy Statement/Prospectus
constituting a part of the Registration Statement.
Very truly yours,
/s/ Cline, Williams, Wright,
Johnson & Oldfather
CLINE, WILLIAMS, WRIGHT,
JOHNSON & OLDFATHER
<PAGE>
Exhibit D
Prospectus of Asset Allocation Portfolio,
Balanced Portfolio, Value Portfolio
and Capital Builder Fund
<PAGE>
Exhibit D-1
PROSPECTUS
SMITH HAYES Trust, Inc.
500 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 "Portfolios"). This Prospectus relates to
the six Portfolios described below. Each Portfolio is diversified, has its own
investment objectives and policies designed to meet different investment goals
and each is managed by its own Portfolio Manager.
Asset Allocation Portfolio has an investment objective of total return ( a
combination of capital gains, dividends and interest) and preservation of
capital.
Value Portfolio's investment objective is to seek maximum total return, which
includes capital appreciation and investment income.
Small Cap Portfolio has an investment objective of long-term capital
appreciation.
Balanced Portfolio has the dual investment objectives of current income and
capital appreciation, consistent with conservation of principal.
Convertible Portfolio has as its investment objective the preservation of
capital while maximizing total return (a combination of capital gains, interest
and dividends).
Government/Quality Bond Portfolio has as its investment objective income with
capital appreciation consistent with preservation of capital.
Shares of the Portfolios 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 Portfolios 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 Portfolios dated as of the date of this Prospectus is
available free of charge by writing to SMITH HAYES Trust, Inc., 500 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 October 28, 1994.
<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 "Portfolios" or individually a
"Portfolio"). Each Portfolio has different investment objectives and designed to
meet different investment needs.
Asset Allocation Portfolio has an investment objective of total return (a
combination of capital gains, dividends and interest) and preservation of
capital. The Portfolio will invest in stocks, bonds and money market instruments
with allocations among those investments based on the Portfolio Manager's
proprietary formula.
Value Portfolio's investment objective is to seek maximum total return, which
includes capital appreciation and investment income. The Portfolio will follow a
strategy of investing in securities believed by the Portfolio Manager to have an
above average potential for maximum total return. While current dividends or
interest income may be considered, such dividends and interest are not the
primary factors in selection of securities.
Small Cap Portfolio has an investment objective of long-term capital
appreciation. The Portfolio 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 Portfolio in the aggregate
normally between $350 million to $600 million.
Balanced Portfolio has the dual investment objectives of current income and
capital appreciation, consistent with conservation of principal. The Portfolio
will invest in common stock, fixed-income securities and money market
instruments.
Convertible Portfolio has as its investment objective the preservation of
capital while maximizing total return (a combination of capital gains, interest
and dividends). The Portfolio will primarily invest in convertible corporate
debt securities and/or convertible preferred stock.
Government/Quality Bond Portfolio has as its investment objective income
with capital appreciation consistent with preservation of capital. The
Portfolio 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 Advisor and Administrator
The Trust is managed by SMITH HAYES Portfolio Management, Inc., a wholly
owned subsidiary of Consolidated Investment Corporation. SMITH HAYES Portfolio
Management, Inc. acts as the Trust's investment adviser ("Adviser") and as the
Trust's administrator ("Administrator"). Each Portfolio pays SMITH HAYES
Portfolio Management, Inc., a monthly fee for advisory and administrative
services rendered. While the charges to be incurred by the Trust for advisory
services are higher than the
<PAGE>
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. See
"Management-Investment Adviser and Administrator" and "Management-Portfolio
Brokerage."
The Adviser has entered into Sub-Investment Advisory Agreements with various
other investment advisers ("Portfolio Managers") to assist in rendering
investment advisory services to the Trust. Each Portfolio Manager renders
services the Portfolios, but will be compensated solely be the Adviser. See
"Management - Portfolio Managers.
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 Trust's shares, not to
exceed .50%, (.40% in the case of the Government/Quality Bond Portfolio),
annually of the Portfolio's average net assets. See "Distribution of Portfolio
Shares."
Purchase of Shares
Shares of the Portfolios are offered to the public at the next determined net
asset value after receipt of an order by the Distributor, without a sales
charge. The minimum initial investment in the Trust is $1,000, and the minimum
initial investment in any one Portfolio is $500.
Subsequent investments can be made in any amount.
Certain Risk Factors to Consider
An investment in any of the Portfolios 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 Portfolio will achieve its objective. Some or all of the Portfolios, to the
extent set forth under "Investment Objectives 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 Objectives 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 Portfolios should be directed to the Trust at
one of the telephone numbers set forth on the cover page of this Prospectus.
<PAGE>
Redemptions
Shares of any Portfolio 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 Portfolio 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."
Expenses
The Trust offers shares of the Portfolios without and 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 Portfolios 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 Portfolios
will bear, whether directly or indirectly, through an investment in the
Portfolios. For more complete descriptions of the various costs and expenses,
see "Management - Investment Adviser and Administrator", and "Management -
Expenses," Special Investment Methods - Portfolio Turnover," and "Distribution
of Portfolio Shares."
Annual Operating Expenses
The table below provides information regarding expenses for the Portfolios of
the Trust based on and expressed as annual percentages of average net assets for
the period July 1, 1993 to June 30, 1994.
Asset Government/
Allocation Value Small Cap Balanced Convertible Quality Bond
Management Fees 1.1875% 1.1875% 1.1875% 1.1875% 1.1875% .7875%
12b-1 Fees .50% .50% .50% .50% .50% .40%
Other Expenses .27% .29% .22% .22% .37% .18%
Total Portfolio
Operating
Expenses 1.96% 1.98% 1.91% 1.91% 2.06% 1.37%
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 $20 $20 $19 $19 $21 $14
3 years $62 $62 $60 $60 $65 $43
5 years $105 $107 $103 $103 $111 $75
10 years $229 $231 $224 $224 $239 $165
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 Portfolio outstanding throughout the periods indicated, has been audited
by KPMG Peat Marwick, LLP, independent certified public accountants, to the
extent of their 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 Portfolios is also contained in
the Trust's Annual Financial Statement.
Asset Allocation Portfolio
Years Ended June 30, 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
1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $12.33 11.61 10.96 10.09 10.12 10.22 10.00
------ ----- ----- ----- ----- ----- -----
Income (loss) from
investment operations:
Net investment income 0.07 0.11 0.12 0.24 0.50 0.26 0.11
Net realized and
unrealize (loss)
on investments (0.15) 1.00 0.78 1.14 - (0.09) 0.35
----- ---- ---- ---- ----- ----- ----
Total income (loss)
from
investment operations (0.08) 1.11 0.90 1.38 0.50 0.17 0.46
------ ---- ---- ---- ----- ---- ----
Less distributions:
Dividends from net
investment income (0.07) (0.11) (0.12) (0.34) (0.48) (0.21) (0.11)
Distributions from
capital gains (1.10) (0.28) (0.13) (0.17) (0.05) (0.06) (0.13)
----- ----- ----- ----- ------ ----- ------
Total distributions (1.17) (0.39) (0.25) (0.51) (0.53) (0.27) (0.24)
------ ------ ------ ------ ------ ------ ------
End of period $11.08 12.33 11.61 10.96 10.09 10.12 10.22
====== ===== ===== ===== ===== ===== =====
Total return (0.66%) 9.51% 8.19% 12.95% 4.93% 3.45%* 8.18%*
======= ===== ===== ====== ===== ====== ======
Ratios/Supplemental data:
Net assets, end of period
$5,343,084 6,433,995 6,937,275 6,470,722 7,978,665 9,927,514 7,975,709
Ratio of expenses to
average net assets 1.96% 1.93% 2.15% 2.39% 2.17% 2.39%* 2.40%*
Ratio of net income
to average net assets 0.64% 0.91% 1.04% 2.05% 4.20% 5.46%* 2.55%*
Portfolio turnover rate 117.77% 40.53% 19.42% 48.30% 28.70% 0.00% 17.40%
*Annualized for those periods less than twelve months in duration.
<PAGE>
Small Cap Portfolio
Value Portfolio
Years Ended June 30, 1994 and 1993 for the Small Cap Portfolio and Years
Ended June 30, 1994, 1993, 1992, 1991 and the Periods from
December 20, 1988(commencement of operations) to June 30, 1990
for the Value Portfolio
Small Cap Value Portfolio
------------- -------------------------------
1994 1993 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $11.77 10.00 11.92 10.24 9.35 9.75 10.00
------ ----- ----- ------ ---- ---- -----
Income (loss) from investment operations:
Net investment income (0.07) (0.05) (0.06) 0.02 0.00 0.14 0.10
Net realized and unrealized gain (loss)
on investments 0.20 1.83 (0.57) 1.68 0.90 (0.25) (0.27)
---- ---- ------ ---- ---- ------ ------
Total income (loss) from investment
operations 0.13 1.78 (0.63) 1.70 0.90 (0.11) (0.17)
---- ---- ------ ---- ---- ------ ------
Less distributions:
Dividends from net
investment income - - - (0.02)(0.01) (0.29) (0.08)
Distributions from
capital gains (0.31) (0.01) - - - - -
End of period $11.59 11.77 11.29 11.92 10.24 9.35 9.75
====== ===== ===== ===== ===== ==== ====
Total return 1.21% 17.80% (5.29)% 16.60% 9.67%(2.42)%(3.06)%*
===== ====== ====== ====== ===== ====== =======
Ratios/Supplemental data:
Net assets, end of period
$7,218,944 3,137,762 5,286,311 6,168,798 5,138,910 3,983,877 3,401,696
Ratio of expenses to
average net assets 1.91% 2.18% 1.98% 1.97% 2.35% 2.46% 1.48%*
Ratio of net income to
average net assets (0.60%)(0.87%)(0.48)% 0.18%(0.03)% 1.70% 1.39%*
Portfolio turnover rate 75.23% 47.55% 68.07% 62.24%113.56%31.78% 5.40%
*Annualized for those periods less than twelve months in duration.
<PAGE>
Balanced Portfolio
Years Ended June 30, 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
1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $12.23 11.10 10.72 10.77 10.43 9.89 10.00
------ ----- ----- ----- ----- ---- -----
Income (loss) from investment operations:
Net investment income 0.20 0.34 0.36 0.37 0.41 0.21 0.19
Net realized and
unrealized gain
(loss) on investments (0.43) 1.13 0.38 0.02 0.37 0.51 (0.12)
----- ----- ---- ---- ---- ----- ----
Total income (loss)
from
investment operations (0.23) 1.47 0.74 0.39 0.78 0.72 0.07
------ ---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.20) (0.34) (0.36) (0.34) (0.38) (0.18) (0.18)
Distributions from
capital gains (0.54) - - (0.10) (0.06) - -
- ------ ------ - -
Total distributions (0.74) (0.34) (0.36) (0.44) (0.44) (0.18) (0.18)
------ ------ ------ ------ ------ ------ ------
End of period $11.26 12.23 11.10 10.72 10.77 10.43 9.89
====== ===== ===== ===== ===== ===== ====
Total return (1.99%) 13.16% 6.81% 4.84% 7.94% 14.62%* 0.74%*
======= ====== ===== ===== ===== ======= ======
Ratios/Supplemental data:
Net assets, end of period
$6,623,374 6,991,590 7,386,180 6,122,831 4,729,885 3,795,271 3,080,116
Ratio of expenses to
average net assets 1.91% 1.89% 2.13% 2.31% 2.22% 2.40%* 2.41%*
Ratio of net income to
average net assets 1.65% 2.59% 3.20% 3.95% 4.07% 4.22%* 3.84%*
Portfolio turnover rate 24.17% 24.72% 40.63% 31.70% 55.20% 3.20% 51.20%
*Annualized for those periods less than twelve months in duration.
<PAGE>
Convertible Portfolio
Years Ended June 30, 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
1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $12.58 10.76 9.96 9.86 9.68 9.24 10.00
------ ----- ---- ---- ---- ---- -----
Income (loss) from investment operations:
Net investment income 0.29 0.33 0.31 0.40 0.39 0.23 0.22
Net realized and
unrealized gain
(loss) on investments (0.53) 2.16 0.80 (0.06) 0.16 0.43 (0.76)
------ ---- ---- ------ ---- ---- ----
Total income (loss)
from
investment operations (0.24) 2.49 1.11 0.34 0.55 0.66 (0.54)
------ ---- ---- ---- ----- ---- -----
Less distributions:
Dividends from net
investment income (0.29) (0.33) (0.31) (0.21) (0.37) (0.22) (0.22)
Distributions from
capital gains (0.36) (0.34) - (0.03) - - -
---- ----- ---- ----- ----- ---- -----
Total distributions (0.65) (0.67) (0.31) (0.24) (0.37) (0.22) (0.22)
------ ------ ------ ------ ------ ------ ------
End of period $11.69 12.58 10.76 9.96 9.86 9.68 9.24
====== ===== ===== ==== ==== ==== ====
Total return (2.26%) 24.06% 10.95% 5.09% 5.74% 14.36%*(10.87%)*
======= ====== ====== ===== ===== ======= ========
Ratios/Supplemental data:
Net assets, end of period
$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 2.06% 2.13% 2.48% 2.79% 2.57% 2.57%* 2.52%*
Ratio of net income to
average net assets 2.27% 2.91% 2.85% 3.48% 3.73% 4.73%* 4.58%*
Portfolio turnover rate 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 Portfolio
Years Ended June 30, 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
1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $11.17 10.93 10.42 10.31 10.56 10.01 10.00
------ ----- ----- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income 0.54 0.64 0.73 0.57 0.57 0.32 0.22
Net realized and
unrealized gain
(loss) on investments (0.75) 0.43 0.60 0.11 (0.16) 0.49 0.01
----- ------ ---- ---- ---- ----- ----
Total income (loss)
from
investment operations (0.21) 1.07 1.33 0.68 0.41 0.81 0.23
------ ---- ---- ---- ----- ---- ----
Less distributions:
Dividends from net
investment income (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 (0.75) (0.83) (0.82) (0.57) (0.66) (0.26) (0.22)
------ ------ ------ ------ ------ ------ ------
End of period $10.21 11.17 10.93 10.42 10.31 10.56 10.01
====== ===== ===== ===== ===== ===== =====
Total return (2.00%)11.00% 12.79% 8.91% 5.27% 16.46%* 3.68*
====== ====== ====== ===== ===== ======= =====
Ratios/Supplemental data:
Net assets, end of period
$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 1.37% 1.38% 1.50% 1.58% 1.61% 1.51%* 1.55%*
Ratio of net income to
average net assets 4.94% 6.25% 6.64% 6.92% 7.11% 7.26%* 6.62%*
Portfolio turnover rate218.11% 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 Portfolio 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
Portfolio'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-rated securities and convertible securities in which some or all of the
Portfolios may invest.
Asset Allocation Portfolio
Investment Objective. The Asset Allocation Portfolio has an investment
objective of total return (a combination of capital gains, dividends and
interest) and preservation of capital.
Investment Policies and Techniques. Ordinarily, the Asset Allocation
Portfolio invests in U.S. Treasury Bills or U.S. Government backed money market
instruments, long- or intermediate-term U.S. Treasury Bonds and/or common stocks
within the Standard & Poor's 500 Stock Index. It is a fundamental policy of the
Asset Allocation Portfolio that no more than five percent of the Portfolio's
total assets will be invested in any one stock and no more than ten percent will
be invested in any one industry.
The Adviser, through the Portfolio Manager, seeks to identify relatively
undervalued investment assets from among the three general categories of
investment securities, that is common stocks, U.S. Government Securities and
money market instruments, by periodic application of a proprietary valuation
formula called Capital Return Time ("CRT"). CRT is an expression of the number
of years that will be required to realize a 100% hypothetical return on an
initial investments, made at the time of the computation, based upon a
calculation of return that takes into account earnings per share and dividends
at historical growth rates (in the case of stocks) and yield to maturity (in the
case of debt instruments). CRT is computed for selected securities within each
asset category and averaged to determine the CRT for each such category. Asset
categories with a short CRT compared to other asset categories are regarded by
the Portfolio Manager as relatively undervalued based on the Portfolio Manager's
forecast of the time required for an investment in each category of assets to
return the original amount invested. Generally, the categories of securities
offering the shortest CRT are considered the most attractive, and securities
within those categories are considered for purchase. The Portfolio Manager may
invest the Portfolio solely in the securities of one of the foregoing categories
or in more than one such category depending upon the CRT for each category.
Securities are selected for purchase within a category, and allocations are made
between categories, at the discretion of the Portfolio Manager.
<PAGE>
Value Portfolio
Investment Objective. The Value Portfolio's (formerly Opportunity Portfolio)
investment objective is to seek maximum total return, which includes capital
appreciation and investment income.
Investment Policies and Techniques. The Value Portfolio will attempt to
achieve its objective by investment primarily in securities with low
price-earnings ratios, as compared to the price-earnings ratio of the S&P 500,
and that have sustained either a significant decline in price followed by a
period of stabilization or an extended period of under performance (total
return) relative tot he S&P 500. Dividend or interest income, although
considered, is not the primary factor in the selection of securities by the
Portfolio.
The Portfolio may invest substantially all of its assets in common stock or
other equity or debt securities of all types. The Portfolio will normally invest
substantially all of its assets in common stock or securities of a similar
nature, such as convertible preferred stocks or convertible debentures. If the
market conditions, in the Portfolio Manager's judgment, are unfavorable for
investments in common stock or securities having characteristics similar to
common stock, the Portfolio may choose temporarily to take defensive positions
by investing all or part of its assets in U.S. Government Securities, corporate
debt securities or money market interments. Corporate debt securities without
equity features purchased by the Portfolio will be of investment grade (a rating
of BBB or higher by Standard & Poor's Corporation). Securities rated BBB are
defined to have speculative characteristics. The Portfolio may invest up to 100%
of its assets in corporate debt securities with equity features (convertible
debt or debt with attached warrants) which have a lower rating or are not rated.
Fulfillment of the Portfolio's objective will normally be sought through the
long-term holdings of securities. It is not the Portfolio's policy to engage in
portfolio transactions with the objective of seeking profits from short-term
trading. Securities would normally be purchased with the view toward holding
them for a period of one to three years, and the annual portfolio turnover rate
is not expected to exceed 100%. Nevertheless, the Portfolio have no minimum
period for which any security must be held and is sensitive to volatile market
conditions. Accordingly, the Portfolio stands ready to realize short-term gains
and/or losses when it is believed desirable to carry out its investment
objective. Such sales may cause a high rate of portfolio turnover which, if it
occurs, will increase the Portfolio's brokerage expenses.
The Portfolio may utilize repurchase agreements and may lend its investment
securities for short periods to broker dealers, commercial banks and other
financial institutions so long as the loans are secured by collateral (cash or
U.S. Government obligations) having a value at all time equal to 100% of the
market value of the securities loan plus accrued interest.
<PAGE>
Small Cap Portfolio
Investment Objective. The Small Cap Portfolio's investment objective is
long-term Capital Appreciation.
Investment Policies and Techniques. The Small Cap Portfolio 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 Portfolio in the aggregate normally between $350 million
and $600 million. Market capitalization, for purposes of this policy, is
determined by multiplying the market value of a Trust'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 Portfolio 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 Portfolio will be conservatively managed under an investment
strategy that is referred to as "growth at a discount." The Portfolio 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.
Balanced Portfolio
Investment Objective. The Balanced Portfolio has the dual investment
objectives of current income and capital appreciation, consistent with the
conservation of principal.
Investment Policies and Techniques. It is intended that the assets of the
Balanced Portfolio will be invested on the basis of combined considerations of
risk, income, capital appreciation and protection of capital value. The
Portfolio may invest in a combination of equity and fixed income securities and
cash or Money Market Instruments which includes virtually any type or class of
securities, including bonds, debentures, preferred stocks, and senior securities
convertible into common stock. The mix of securities in the Portfolio will be
determined on the basis of existing and anticipated market conditions. The
Portfolio Manager determines the percentage to be invested in equity securities
through an analysis of a combination of fundamental and technical factors. The
primary fundamental factors include price-earnings ratio, market-to-book-value
ratio, dividend yield, the ratio of equity yields to fixed income yields and the
ratio of earnings growth to dividend growth. The primary technical factors
include price-earnings momentum, advance-decline ratio, call-put premium ratio
and short interest ratio. The relative percentages of each type of security
(stocks, bonds and Money Market Instruments) in the Portfolio may be expected to
fluctuate. The Balanced Portfolio may invest up to 100% of its assets in fixed
income securities and/or cash and/or Money Market Instruments, but no more than
65% or its assets in equity
<PAGE>
securities. All investments (excluding options and futures contracts) must
generate interest or dividend income at the time of purchase. To pay redemption
request and Portfolio expenses, at least five percent of the Portfolio's total
assets will normally be held in cash or Money Market Instruments.
Investments in long-term debt securities will be limited to U.S. Government
obligations and U.S. Government agency securities and those securities rated at
the time of purchase within the four highest investment grades assigned by
Moody's Investors Service, Inc. ("Moody's) (Aaa, Aa, A or Baa) or Standard &
Poor's Corporation ("Standard & Poor's") (AAA, AA, A, or BBB). Securities rated
Baa by Moody's and BBB by Standard & Poor's have speculative characteristics.
For an explanation of Moody's and Standard & Poor's ratings, see Appendix A to
the Statement of Additional Information.
Balanced Portfolio may write listed covered call options on the
securities in its portfolio, purchase exchange listed put and call options,
and enter into closing purchase and sale transactions with respect
thereto. See "Special Investment Methods - Options Transactions."
Convertible Portfolio
Investment Objective. The Convertible Portfolio's 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.
Investment Policies and Techniques. In seeking to accomplish its objective,
the Portfolio 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 Portfolio 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
Portfolio's assets that may be invested in debt securities in a particular
ratings category, except that the Convertible Portfolio will not acquire any
security rated below C. In an attempt to earn additional income on its
portfolio, the Portfolio may write covered call options n securities the
Portfolio holds or has an immediate right to acquire upon conversion or exchange
of securities held by the Portfolio. See "Special Investment Methods - Options
Transactions." The Portfolio's investment in convertible securities offers the
potential for capital appreciation through the conversion feature of such
securities, which enable the Portfolio to benefit from increases in the market
prices of the underlying common stock. However, the Portfolio's emphasis on
convertible securities will also necessarily result in fluctuations in the net
asset value and yield of the Portfolio 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 rise.
<PAGE>
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 interments 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., 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 Portfolio but are reflected in the net asset value of
the Portfolio's shares and the Portfolio's effective yield.
As of September 30, 1994, the Convertible Portfolio had 11%, 7%, and 2% of
its net assets in vested in convertible debt securities rated B+, B and B- by
Moody's.
In selecting the Portfolio'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 Portfolio provisions,
responsiveness to changes in interest rates, business conditions, and
liquidation value related to the market price of the security. The Portfolio
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 Portfolio 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 Portfolio 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 Portfolio is not required to immediately
sell securities for the purpose of assuring that 65% to its total assets are
invested in convertible securities.
<PAGE>
The Portfolio 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 Portfolio's 10% limitation on investments in illiquid
securities. See "Special Investment Methods - Investment Restrictions."
The Portfolio 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 Portfolio
will be listed on national securities exchanges. See "Special Investment Methods
- - Options Transactions."
The Portfolio 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 n 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 Portfolio 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 Portfolio 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
Portfolio's securities would be reduced by a gain in the short sale transaction.
Conversely, any increase in the value of the Portfolio's securities would be
reduced by a loss in the short sale transaction. The Portfolio 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.
<PAGE>
Government/Quality Bond Portfolio
Investment Objective. The investment objective of the
Government/Quality Bond Portfolio is income and capital appreciation,
consistent with preservation of capital.
Investment Policies and Techniques. The Portfolio 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 n value during periods of
declining interest rates. Except for temporary defensive investment situations
when the Portfolio will invest in Money Market Instruments, the Portfolio 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 Portfolio'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 Portfolios 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 Portfolios 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.
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.
<PAGE>
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 Portfolio 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
Portfolios to reinvest such prepayments, presumably at a lower invest 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.
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, 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 Portfolios may enter into repurchase agreements on U.S. Government
Securities for temporary defensive purposes. A repurchase agreement involves the
purchase by a Portfolio 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
Portfolio will seek to sell the collateral, which action could involve costs or
delays. In such case, the Portfolio'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 Portfolio
would suffer a loss. As a fundamental policy that may not be changed without the
vote of a majority of the Portfolio's shares, no Portfolio will cause more than
10% of the value of its total assets to be invested, collectively, in Portfolio
repurchase agreements maturing in more than seven days and other illiquid
securities.
Options Transactions
Writing Covered Options. The Balanced Portfolio and Convertible Portfolio 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, a Portfolio 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, a
Portfolio becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price if the option is
exercised.
The Portfolios may write only "covered" options. This means that so long as a
Portfolio 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). A Portfolio 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 Portfolios receives premiums from writing call
or put options, which it retains whether or not the options are exercised. By
writing a call option, a Portfolio might lose the potential for gain on the
underlying security while the option is open, and by writing a put option a
Portfolio might become obligated to purchase the underlying security for more
than its current price upon exercise.
<PAGE>
Purchasing Options. The Balanced Portfolio and Convertible Portfolio 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 a Portfolio may sell the underlying security at the
put exercise price, regardless of a decline in the underlying security's market
price. Any loss to a Portfolio is limited to the premium paid for, and
transactions 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 a Portfolio
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.
A Portfolio 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 Portfolio 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 Portfolio purchases put options on
underlying securities they own.
The Balanced Portfolio may also purchase call options solely for the purpose
of hedging against an increase in prices of securities that the Portfolio
ultimately wants to buy. Such protection is provided during the life of the call
option because the Portfolio may buy the underlying security at the call
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. By using call options in this manner, a Portfolio
will reduce any profit it might have realized had it bought the underlying
secretary at the time it purchased the call option by the premium paid for the
call option and by transaction costs.
Portfolios 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 Portfolio's ability to
purchase or sell options on a particular security. It is possible that the
Portfolio and other clients of the Adviser may be considered to be a group of
investors acting in concert. Thus the number of options which one Portfolio may
write may be affected by other Portfolios and by other investment advisory
clients, if any, of the Adviser or Portfolio Managers.
<PAGE>
Options on Stock Index Contracts
The Convertible Portfolio 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 Portfolio may use such index options in connection with their
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 Portfolio 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, each Portfolio will be
requires 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. No Portfolio will not
purchase or sell options on index contracts if (a) as a result the sum of the
initial margin deposit on that Portfolio's existing futures and related options
positions and premiums paid for options on futures contracts would exceed 5% of
the Portfolio'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
Portfolio'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
Portfolio's ability to terminate options positions at a time when the Portfolio
Manager deems it desirable to do so. Although a Portfolio 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 Portfolio will be
able to effect closing transactions at any particular time or at an acceptable
price. The Portfolio's transactions involving options on index contracts will be
concluded only on recognized exchanges.
A Portfolio'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, then may be an imperfect correlation between the
change in the value of the options and of the Portfolio's securities.
Additional information with respect to stock index contracts and options on
such contract 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 if 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 its 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");
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(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 Portfolios (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 Portfolio in shares of a money market mutual Portfolio
indirectly result in the investor paying not only the advisory fee and related
fees charged by the Portfolio, but also the advisory fees and related fees
charged by the adviser and other entities providing services to the money market
mutual Portfolio.
Borrowing
A Portfolio may borrow money from banks for temporary or emergency purposes
in an amount of up to 10% of the value of the Portfolio's total assets. Interest
paid by a Portfolio on borrowed Portfolios would decrease the net earnings of
the Portfolio. None of the Portfolios will purchase portfolio securities while
outstanding borrowings exceed 5% of the value of the Portfolio's total assets.
Each of the Portfolios 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 Portfolio without the approval of a
majority of the Portfolio's shares.
Portfolio Turnover
While it is not the policy of any of the Portfolios to trade actively for
short-term (less than six months) profits, each Portfolio 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 Portfolio 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." Since inception the portfolio turnover rate
has not exceeded 100% for any of the Portfolios except the Value Portfolio (in
1992), Asset Allocation Portfolio (in 1994) and the Government/Quality Bond
Portfolio (in 1994, 1993, 1992, 1991 & 1990). The turnover rate will not be a
factor when management deems portfolio changes appropriate.
<PAGE>
Investment Restrictions
Each of the Portfolios 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 Portfolio 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
Portfolio, except the Small Cap Portfolio, if as a result more than 5% of the
value of the total assets of that Portfolio would then be invested in the
securities of a single issuer (other than U.S. Government obligations); (3) with
respect to the Small Cap Portfolio, the Small Cap Portfolio 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 Portfolio holding more than 5% of its assets in
such security; (4) with respect to all Portfolios, no security can be purchased
by any Portfolio 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 Portfolio; 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 Portfolio will invest more
than 5% of its total assets in restricted securities; (6) no Portfolio 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 Portfolio 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 Portfolio if the actions proposed to be
taken affects that Portfolio.
The Investment Adviser has also agreed to certain additional investment
policies in order to qualify the shares of some of the Portfolios in various
states. These policies, which are not fundamental and affect only the Asset
Allocation Portfolio and Government/Quality Bond Portfolio are that: neither of
the Portfolios may invest in shares of any other open end investment company;
neither of the Portfolios may write puts and calls on securities unless (i) the
security underlying the put or call is within the investment policy of the
Portfolio, (ii) the option is issued by the Options Clearing Corporation and
(iii) the aggregate value of securities underling the puts or calls determined
as of the date the options are sold shall not exceed 25% of the net assets of
any such Portfolio; and neither of the Portfolios may buy or sell puts or calls
on securities and stock index futures unless aggregate premiums paid on all such
options which are held at any time do not exceed 20% of any such Portfolio's
total net assets and the aggregate margin deposits required on such futures or
options held at any time do not exceed 5% of the Portfolio's total assets.
<PAGE>
MANAGEMENT
Board of Directors
As in all corporations, the Trust's Board of Directors has the primary
responsibility for over seeing the overall management of the Trust. The Board of
Directors meets periodically to review the activities of the Trust, and the
Adviser and the Portfolio Managers and to consider policy matters relating to
the Trust.
Investment Adviser and Administrator
SMITH HAYES Portfolio Management, Inc. has been retained under and Investment
Advisory Agreement with the Trust to act as the Trust's Adviser subject to the
authority of the Board of Directors. SMITH HAYES Portfolio Management, Inc.
which was incorporated in January, 1998, has provided investment management
oversight and administrative services to the Trust since its inception. SMITH
HAYES Portfolio Management, Inc., is a wholly owned subsidiary of Consolidated
Investment Corporation, which is engaged through its subsidiaries in various
aspects of the financial services industry. Thomas C. Smith and the estate of
Thomas D. Hayes each own 40% of the outstanding stock of Consolidated Investment
Corporation. Mr. Smith is an officer and director of the Trust. The address of
the Adviser is 500 Centre Terrace, 1225 L Street, Lincoln, Nebraska 68508.
The Adviser furnishes each of the Portfolio with investment advice and, in
general, supervises the management and investment programs of the Portfolios.
The Adviser furnishes at its own expense all necessary administrative services,
office space, equipment, and clerical personnel for servicing the investments of
the Portfolios, and investment advisory facilities and executive and supervisory
personnel for managing the investment and effecting the securities transactions
of the Portfolios. 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 Agreements, the Adviser receives a monthly fee computed separately for
each Portfolio at an annual rate of 1.00% of the daily average net asset value
of the Portfolios except for the Government/Quality Bond Portfolio for which the
Adviser receives a monthly fee computed at an annual rate of .6% of its daily
average net asset value.
SMITH HAYES Portfolio Management, Inc., has also been retained as the Trust's
Administrator under an Administrative 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 an administration fee, computed separately for each
Portfolio and paid monthly, at an annual rate of .1875% of the daily average net
assets.
<PAGE>
Portfolio Managers
The Adviser has entered into a Sub-Investment Advisory Agreements with
various other registered investment advisers to assist in advising the
Portfolios. The Portfolio Managers provide investment advice solely with respect
to specific Portfolios. The Adviser is solely responsible for and will pay the
Portfolio Managers' advisory fees based upon the average net assets values of
the Portfolios for which they render advisory services.
Renaissance Investment Management ("Renaissance"), 1700 Young Street,
Cincinnati, Ohio 45210, provides advisory services for the Asset Allocation
Portfolio. Renaissance was incorporated in 1978 and is wholly owned by its
cofounders, President and Managing Director, Frank W. Terrizzi, and Chairman of
the Board and Managing Director, S. William Miller. Messrs. Terrizzi and Miller
have over 50 years combined experience in the investment industry including
employment with The Central Trust Co. of Cincinnati, Ohio and with Scudder,
Stevens & Clark, Cincinnati, Ohio. Michael E. Schroer, Senior Vice President,
Director of Research is the Portfolio Manager with day-to-day responsibilities
for managing the Asset Allocation Portfolio. Mr. Schroer has been with
Renaissance since 1984 and has an MBA in finance from the University of Indiana
and has managed the Portfolio since its inception. As of June 30, 1994
Renaissance had over $1.5 billion under management and clients in 35 states. In
return for the investment advisory services rendered to the Asset Allocation
Portfolio, Renaissance is paid by the Adviser a monthly fee at an annual rate of
.75% of the first $1,000,000, and .50% over $1,000,000 of the daily average net
assets of the Portfolio.
Cashman, Farrell and Associates ("Cashman"), 1235 Westlakes Drive,
Berwyn, Pennsylvania 19312, provides advisory services for the Value
Portfolio.
Cashman, which was organized as a Pennsylvania partnership in 1980, is
principally owned and operated by Daniel V. Cashman, James H. Farrell, Jr.,
Richard J. Seiwell, Edward T. Moynahan, Jr., Donna L. Cashman. John Thompson, is
the Portfolio Manager with day-to-day responsibilities for managing the Value
Portfolio. He has been with Cashman for the last five years and has managed the
Portfolio from its inception. As of the summer of 1994, Cashman had in excess of
$3 billion under management. Cashman provides discretionary asset management of
stocks and bonds for corporate, public, Taft-Hartley and charitable clients.
Cashman also advises the Cashman, Farrell Value Fund, Inc. a diversified,
open-end management investment company organized in 1987. In return for the
investment advisory services rendered to the Value Portfolio, Cashman is paid by
the Adviser a monthly fee at an annual rate of .75% on the first $1,000,000 and
.50% over $1,000,000 of average daily net assets of the Portfolio.
Crestone Capital Management, Inc. ("Crestone"), 7720 East Belleview Avenue,
Suite 220, Englewood, Colorado 80111, provides advisory services for the Small
Cap Portfolio. 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 Portfolio 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 40 clients and $87 million
under management. In return for the investment advisory services rendered to the
Small Cap Portfolio, 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 Portfolio.
Swanson Capital Management, Inc. ("Swanson"), 505 East Huron Street,
Suite 201, Ann Arbor, Michigan 48104, provides advisory services to the
Balanced Portfolio.
Swanson was founded by its President and owner, Stephen A. Swanson, in 1973.
The firm presently manages over $180 million in assets for clients in more than
30 states. Mr. Swanson, and Kevin McVeigh comprise the Investment Policy
Committee and total more than 32 years of investment experience. Comparing
equity market valuations to historical norms, Swanson employs a conservative,
top-down approach to timely tactical asset allocation. The firm's disciplined
approach utilizes analysis of valuation factors, operating momentum and
demonstrated growth in determining sector emphasis and security selection.
Swanson is paid by the Adviser a monthly fee at an annual rate of .75% of the
first $1,000,000 and .50% over $1,000,000 of the daily net assets of the
Portfolio.
Calamos Asset Management, Inc. ("Calamos"), 1111 East Warrenville Road,
Naperville, Illinois 60563-1448, provides advisory services for the
Convertible Portfolio.
Calamos is wholly owned by its President and Chief Investment Officer, John
P. Calamos. Mr. Calamos has over 22 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 $25 million. Calamos has
over $1.1 billion under management excluding the CFS Investment Trust. In return
for their investment advisory services rendered to the Convertible Portfolio,
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
Portfolio.
Bear Stearns Asset Management ("Bear Stearns"), 245 Park Avenue, New York,
New York 10167, provides advisory services for the Government/Quality Bond
Portfolio. Bear Stearns Asset Management, a division of Bear, Stearns and Co.
Inc., was founded in 1970 and today provides services to institutional and
individual accounts representing over $6.5 billion in assets. Bear Stearns
presently acts as a sub adviser to Government Securities Income Trust, an open
end diversified management investment company. All investment decisions are made
by committee. In return for the investment advisory services rendered to the
Government/Quality Bond Portfolio, Bear Stearns is paid monthly by the Adviser
fees at an annual rate of .375% of the first $3,000,000, .325% on the next
$7,000,000 and .275% of the balance of the daily average net assets of the
Portfolio.
<PAGE>
Expenses
The expenses paid by each Portfolio 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 Portfolio 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 Portfolio will be allocated among the
Portfolios on a pro rata basis at the time such expenses are accrued. Each
Portfolio 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.
Portfolio Brokerage
The primary consideration in effecting transactions for each Portfolio 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 Portfolios'
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 Portfolios may be effected through SMITH HAYES, which also
acts as the Distributor of the Trust's shares (see "Distribution of Portfolio
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 Portfolios intends to comply
with Section 17(e)(1) of the Investment Trust Act of 1940, as amended.
DISTRIBUTION OF PORTFOLIO 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
<PAGE>
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 Portfolio shares.) Reimbursement to SMITH HAYES is computed
separately for each Portfolio and may not exceed .5% per annum of the average
daily net assets of the Portfolio, except the Government/Quality Bond Portfolio
which reimburses SMITH HAYES at a rate not to exceed .40% 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 Portfolio 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 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 Portfolios.
SMITH HAYES reserves the right to reject any purchase order. Shares of the
Portfolios are offered to the public without a sales charge 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.
500 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 Portfolios 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.
<PAGE>
2. Instruct the bank to wire the specific amount of immediately available
Portfolios 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
Company 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.
Minimum Investment
A minimum initial aggregate investment of $1,000 in the Trust is required.
The minimum initial investment in any on Portfolio 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 Portfolio, 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 Portfolios, 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;
<PAGE>
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 Portfolios 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 Portfolio 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 Portfolios 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 for a Portfolio on days when no Portfolio shares
are tendered for redemption and no order for Portfolio shares is received. The
calculation is made as of the close of the Exchange (currently 4:00 p.m., New
York time) after the Portfolios have declared any applicable dividends.
The net asset value per share for each of the Portfolios is determined by
dividing the value of the securities owned by the Portfolio plus any cash and
other assets (including interest accrued and dividends declared but not
collected) less all liabilities by the number of Portfolio shares outstanding.
For the purposes of determining the aggregate net assets of the Portfolios, 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
<PAGE>
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 securities traded on other
over-the-counter markets for which market quotations are readily available are
valued at the mean between the bid and asked prices. If the Portfolio 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. Portfolio 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 Portfolio 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 Portfolios may
utilize a pricing service, bank, or broker-dealer experienced in such matters to
perform any of the above-described functions.
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 Portfolio will be payable in
additional shares of the Portfolio 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 Portfolios 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 Portfolio 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 Portfolio. The Trust intends to
qualify each Portfolios as a "regulated investment company" as defined in the
Internal Revenue Code. The requirements for qualification may cause a Portfolio
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 Portfolio Provided certain
distribution requirements are met, a qualified Portfolio 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.
<PAGE>
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.
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 each designated
Asset Allocation Portfolio shares, Value Portfolio shares, Balanced Portfolio
shares, Convertible Portfolio shares, Government/Quality Bond Portfolio shares
and ten million shares designated Small Cap Portfolio 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 Portfolios.
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 Portfolio has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the
Portfolio'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 Portfolio, the shares of the affected
Portfolio vote as a separate series. An examples of such an issue would be a
fundamental investment restriction pertaining to only one Portfolio. In voting
on the Investment Advisory Agreement or any Sub-Investment Advisory Agreement,
approval of such an agreement by the shareholders of a particular Portfolio
would make that agreement effective as to that Portfolio whether or not it had
been approved by the shareholders of the other Portfolios.
<PAGE>
Shareholders Meeting
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 Trust
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.
Allocation of Income and Expenses
The assets received by the Trust for the issue or sale of shares of each
Portfolio, and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are allocated to such Portfolio, and constitute the
underlying assets of such Portfolio. The underlying assets of each Portfolio are
required to be segregated on the books of account, and are to be charged with
the expenses in respect to such Portfolio 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 Portfolio shall be allocated among the
Portfolios based upon the relative net assets of the Portfolios at the time such
expenses were accrued.
Transfer Agent, Dividend Disbursing Agent and Custodian
Union Bank and Company, Lincoln Nebraska, serves as Custodian for the
Company'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 Portfolios.
Yield and Performance Comparisons
Advertisements and other sales literature for the Portfolios may refer to
"total return". Total return is the percentage change between the public
offering price of a Portfolio 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
Portfolio'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.
<PAGE>
The Portfolios 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.
Fur purposes of computing yield, realized and unrealized capital gains and
losses are not included.
Performance of the Portfolios 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 Portfolios using a different method of calculating performance.
Report to Shareholders
The Company will issue semi-annual reports which will include a list of
securities by Portfolio 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 KPMG Peat Marwick, LLP, Two Central Park Plaza,
Suite 1501, Omaha, Nebraska, independent certified public accountants.
<PAGE>
SMITH HAYES Trust, Inc. Date -----------------
500 Centre Terrace, 1225 L Street, Lincoln, NE 68508 Account #--------------
|_| ASSET ALLOCATION PORTFOLIO |_| VALUE PORTFOLIO
|_| SMALL CAP PORTFOLIO |_| BALANCED PORTFOLIO
|_| CONVERTILBE PORTFOLIO |_| GOV'T QUALITY PORTFOLIO
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.
|_| 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.)
- ---------------------------- ---------------------------------------------
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>
TABLE OF CONTENTS
Introduction...................................................... 1
Financial Highlights.............................................. 4
Investment Objectives and Policies................................ 9
Asset Allocation Portfolio..................................... 9
ValuePortfolio................................................. 9
Small Cap Portfolio............................................ 10
Balanced Portfolio............................................. 11
Convertible Portfolio.......................................... 12
Government/Quality Bond Portfolio.............................. 14
Special Investment Methods........................................ 14
Management........................................................ 22
Distribution of Portfolio Shares.................................. 25
Purchase of Shares................................................ 26
Redemption of Shares.............................................. 27
Valuation of Shares............................................... 28
Dividends, Distributions and Taxes................................ 28
General Information............................................... 29
INVESTMENT ADVISER,
ADMINISTRATOR,
TRANSFER AGENT AND
DIVIDEND PAYING AGENT
SMITH HAYES Portfolio Management, 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>
Exhibit D-2
PROSPECTUS
Capital Builder Fund
200 Centre Terrace
1225 L Street
Lincoln, Nebraska 68508
(402) 476-3000
1-(800)-279-7437
The Capital Builder Fund (the "Fund") is a diversified open-end management
company organized as a series of the SMITH HAYES Trust, Inc. (the "Trust") The
Trust is a Minnesota Corporation offering its shares in series, each series
operating as separate investment management companies with their own investment
objectives and policies. This Prospectus relates only to the Fund.
The primary investment objective of the Fund is to seek long-term
capital appreciation with a secondary objective of providing current income. The
Fund invests in a diversified portfolio of common and preferred stocks,
convertible securities, U.S. Government Securities, repurchase agreements,
mortgage backed securities, corporate debt securities and money market
instruments. At least 65% of the Fund's total assets will be invested in common
and preferred stocks and securities convertible in to common stocks. In making
selections for the Fund, the adviser will utilize an investment approach based
on fundamental analysis incorporating a value and growth philosophy. See
"Investment Objective and Policies."
Shares of the Fund 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 Fund 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 Fund dated as of the date of this Prospectus is available
free of charge by writing to the Fund, 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 April 6, 1995.
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
INTRODUCTION
The Fund is a diversified open-end management investment company organized
as a series of the Trust. 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 Capital Builder 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 Advisor 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 .50%
annually of the Fund's average net assets. See "Distribution of Portfolio
Shares."
Purchase of Shares
Shares of the Fund are offered to the public at the next determined net asset
value after receipt of an order by the Distributor, without a sales charge. The
minimum initial investment in the Fund is $1,000, and 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.
Shareholder Inquiries
Any questions or communications regarding a shareholder account should be
directed to the Fund or your investment executive or other broker-dealer.
General inquiries regarding the Fund should be directed to one of the telephone
numbers set forth on the cover page of this Prospectus.
<PAGE>
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 $500 as a result of redemptions or transfers.
See "Redemption of Shares-Involuntary Redemption."
Expenses
The payments made by the Fund under the 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 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 Portfolio 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.
Management Fees
Investment Advisory Fees .75%
Administration Fees .25%
-----
Total Management Fees 1.00%
12b-1 Fees .50%
Other Expenses .25%
----
Total Fund Operating Expenses 1.75%
====
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
$18 $55 $95 $207
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>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objectives
The primary investment objective of the Fund is to seek long-term capital
appreciation with a secondary objective of providing current income. The Fund
invests in a diversified portfolio of common and preferred stocks, securities
convertible in common stocks, U.S. Government Securities, repurchase agreements,
mortgage backed securities, corporate debt securities and money market
instruments. At least 65% of the Fund's total assets will be invested in common
and preferred stocks and securities convertible into common stocks. In making
selections for the Fund, the Adviser will utilize an investment approach based
on fundamental analysis incorporating a value and growth philosophy.
Investment Policies and Techniques
The Adviser will maintain a portfolio of securities broadly diversified
among industries and companies so as to reduce its exposure to certain
investment and market risks. Stock selection criteria are value and
growth-oriented with an emphasis on price in relation to either earnings, cash
flow, or book value. Generally, the Advisers look for companies that are selling
at a discount relative to their peer group and/or relative to the market as a
whole. Dividend or interest income, although considered, is not the primary
factor in the selection of securities by the Fund.
The Fund will be growth oriented and invest its assets primarily in common
stock. If the market condition, in the Advisers' judgment, is unfavorable for
investments in common stock the Fund may choose temporarily to take defensive
positions by investing all or part of its assets in U.S. Government securities,
corporate debt securities or money market instruments. Corporate debt securities
purchased by the Fund will be of investment grade rated BBB-Baa or better by
Standard & Poor's ("S&P") or by Moody's Investors Service ("Moody's").
In the event that the rating of an investment grade security is lowered to
below investment grade, the Investment Adviser will assess the creditworthiness
of the issuer, evaluate the likelihood of the security's being upgraded to
investment grade or being further down-graded and may choose to hold or sell the
security as appropriate.
The Fund may also write listed covered call options on the securities in
its portfolio, purchase exchange listed put and call options, and enter into
closing purchase and sale transactions with respect thereto. See "Special
Investment Methods - Options Transactions."
Portfolio Turnover
While it is not the policy of the Fund to trade actively for short-term
(less than six months) profits, the Fund will dispose of securities without
regard to the time they have been held when such action appears advisable to the
Adviser, subject to, among other factors, the constraints imposed on regulated
investment companies by Subchapter M of the Internal Revenue Code. See
"Dividends and Taxes." In the case of the Fund, frequent changes will result in
increased brokerage and other costs. In
<PAGE>
conjunction with the objective of long-term capital appreciation, the turnover
in the Fund is not expected to exceed 50% annually.
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 investment objectives of the Fund described above are fundamental and
may not be changed without shareholder approval. The investment policies and
techniques employed in pursuit of the Fund's objectives described above are
considered non-fundamental and do not require shareholder approval to be
changed. In view of the risks inherent in all investments in securities, there
is no assurance that these objectives will be achieved.
SPECIAL INVESTMENT METHODS
The Fund 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
The Fund 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.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Student Loan Marketing
Association and the Federal Home Loan Banks, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Fund will invest in the obligations of such
agencies or instrumentalities only when the Adviser believes that the credit
risk is minimal.
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
<PAGE>
rise, the value of the securities falls; conversely, as interest rates fall, the
market value of such securities rises.
Repurchase Agreements
The Fund may also enter into repurchase agreements on U.S. Government
Securities to invest cash awaiting investment and/or for temporary defensive
purposes. A repurchase agreement involves the purchase by the 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 investment 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.
Mortgage-Backed Securities
Mortgage loans made by banks, savings and loans institutions, and other
lenders are often assembled into pools which are issued and guaranteed by an
agency or instrumentality of the U.S. Government, though not necessarily backed
by the full faith and credit of the U.S. Government itself. Pools are also
created directly by banks, savings and loans and other mortgage lenders with
mortgage loans that have been made by these institutions. Interest in such loans
are described as "Mortgage-Backed Securities". These include securities issued
by the Government National Mortgage Association ("GNMA"), Federal Home Loan
Mortgage Corporation ("FHLMC"), and the Federal National Mortgage Association
("FNMA"). The Fund may invest in U.S. Government mortgage-related securities
representing undivided ownership interests in pools of mortgage loans, including
GNMA, FHLMC, FNMA Certificates and loans issued directly by banks, savings, and
loans and other mortgage lenders. All mortgage backed securities purchased by
the Fund will have investment grade BBB or Baa by S&P's or Moody's or be of
comparable grade and none will be "interest only" or "principal only".
Options Transactions
The Fund may write covered 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.
The 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
<PAGE>
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.
The 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 a portfolio 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 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."
Convertible Securities
The Fund may invest in convertible securities which are rated investment
grade BBB/Baa or better by S&P or by Moody's. In the event that the rating of an
investment grade security is lowered to below investment grade, the Investment
Adviser will assess the creditworthiness of the issuer, evaluate the likelihood
of the security's being upgraded to investment grade or being further
down-graded and may choose to hold or sell the security as appropriate.
Convertible Securities are equity type 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.
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. Holders of convertible securities have a claim on the
assets of the issuer prior to the common stockholders but may be subordinated to
holders of similar non-convertible securities of the same issuer. The interest
income and dividends from convertible bonds and preferred
<PAGE>
stocks provide a stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of the
underlying common stock. The value of a convertible security viewed without
regard to its conversion feature (i.e., strictly on the basis of its yield) is
sometimes referred to as its "investment value." The investment value of the
convertible security will typically fluctuate inversely with changes in
prevailing interest rates. However, at the same time, the convertible security
will be influenced by its "conversion value," which is the market value of the
underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying
common stock.
If, because of a low price of the common stock, the conversion value is
substantially below the investment value of the convertible security, the price
of the convertible security is governed principally by its investment value. If
the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be
principally influenced by its conversion value. A convertible security will sell
at a premium over its conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding a fixed income
security.
Money Market Instruments
The Fund may invest in money market instruments which 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 $10,000,000 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;
<PAGE>
(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
ownershiprestrictions of the Investment Company Act of 1940).
See "Investment Policies and Restrictions" in the Statement
of Additional Information.
Investment by the Fund in shares of a money market mutual fund indirectly
results 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
The 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
the Fund on borrowed funds would decrease the net earnings of the Fund. The Fund
will not purchase portfolio securities while outstanding borrowings exceed 5% of
the value of the Fund's total assets. The Fund 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.
Temporary Defensive Positions
The Fund may deviate from its fundamental and non-fundamental investment
policies during periods of adverse or abnormal market, economic, political and
other circumstances requiring immediate action to protect assets. In such cases,
the Fund may invest up to 100% of its assets in U.S. Government Securities
investment grade corporate debt securities, rated BBB, Baa or better by S&P or
by Moody's and any Money Market Instrument described above.
Investment Restrictions
The Fund 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) the Fund may not purchase any securities which would, at the time
of purchase, cause 25% or more of the value of its total assets to be invested
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; (2) the Fund may not purchase a security of any one issuer, if
at the time of purchase, such investment would result in the Fund holding more
than 5% of the value of its total assets in such security or hold more than 10%
of the outstanding voting securities of such issuer, except that up to 25% of
the value of the Fund's total assets may be invested without regard to such
limitations. Additional investment restrictions are set forth in the Statement
of Additional Information.
<PAGE>
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 designed by the
Fund as fundamental policies in the Statement of Additional Information, may not
be changed without the approval of a "majority" of the Fund's shares
outstanding, defined as the lesser of: (a) 67% of the votes cast at a meeting of
shareholders for the Fund at which more than 50% of the shares are represented
in person or by proxy, or (b) a majority of the outstanding voting shares of the
Fund. The Adviser may also agree to certain additional non-fundamental
investment policies from time to time in order to qualify the shares of the Fund
in various states.
MANAGEMENT
Board of Directors
As in all corporations, the Trust's Board of Directors has the primary
responsibility for over seeing 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 inception. CSI is
a wholly owned subsidiary of Consolidated Investment Corporation, which is
engaged through its subsidiaries in various aspects of the financial services
industry. Thomas C. Smith is a controlling person of Consolidated Investment
Corporation and Mr. Smith is an officer and director of the Trust. John H
Conley, the Fund's Portfolio Manager, owns 5% of the voting stock of
Consolidated Investment Corporation. The address of the Adviser is 200 Centre
Terrace, 1225 L Street, Lincoln, Nebraska 68508.
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 investment 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 and pays the
advisory fee to Conley. Under the Investment Advisory Agreement, the Adviser
receives a monthly fee computed separately for the Fund at an annual rate of
.75% of the daily average net asset value of the Fund.
<PAGE>
John H. Conley, President of the Adviser, and will have the day-to-day
responsibility of managing the 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 advisery business to CSI on or
about April 7, 1995. At the time of the transfer of the investment advisery
business to CSI, Mr. Conley managed over $40 million in assets.
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.
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 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. Fund
transactions 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 Fund 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 PORTFOLIO 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 for the Fund may not exceed 0.50% 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 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. SMITH HAYES reserves the right to reject any purchase order. Shares of
the Fund are offered to the public without a sales charge at the net asset value
per share next determined following receipt of an order by SMITH HAYES.
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
<PAGE>
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 (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.
Acquiring Shares in Exchange for Securities
Shares may also be purchased by transferring to the Fund marketable
securities for which market quotations are readily available and which are
acceptable to the Fund. The minimum value of securities or securities and cash
accepted is $5,000. Investors contemplating an exchange of securities for shares
should contact the Fund before delivering a purchase application or any
securities in certificate form to determine specific procedures and to determine
whether the securities are acceptable to the Fund. Exchanging securities for
Fund shares may result in a tax consequence to the investor and investors are
encouraged to consult with their tax advisor regarding the Federal, State and or
local tax consequences of such transactions.
<PAGE>
Minimum Investment
A minimum initial aggregate investment of $1,000 is required. 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 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 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 $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 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 portfolio 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 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 Fund, cash and receivables 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 securities traded on other over-the-counter markets for which
market quotations are readily available are 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. Portfolio 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 Fund may utilize a pricing service, bank, or broker-dealer
experienced in such matters to perform any of the above-described functions.
<PAGE>
DIVIDENDS AND TAXES
Dividends
All net investment income dividends and net realized capital gains with
respect to the shares of the 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.
The Fund 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
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, 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 50,000,000 shares in a series
designated Capital Builder 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
<PAGE>
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 nine other series.
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 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 Meeting
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.
<PAGE>
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 portfolio 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 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.
Total Return 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
share 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 the S&P 500 Index.
Report 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>
SMITH HAYES TRUST, Inc. Date -----------------
500 Centre Terrace, 1225 L Street, Lincoln, NE 68508 ount #-------------------
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>
TABLE OF CONTENTS
Introduction..................................... 3
Annual Operating Expenses........................ 4
Investment Objective
and Policies..................................... 5
Special Investment Methods....................... 6
Management....................................... 11
Distribution of Portfolio Shares................. 13
Purchase of Shares............................... 13
Redemption of Shares............................. 15
Valuation of Shares.............................. 16
Dividends and Taxes.............................. 17
General Information.............................. 17
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 the Fund 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.
CAPITAL BUILDER
FUND
PROSPECTUS
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
April 6, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
June -----, 1995
SMITH HAYES Trust, Inc.
Acquisition of the assets of its
ASSET ALLOCATION PORTFOLIO,
BALANCED PORTFOLIO AND
VALUE PORTFOLIO
By and in exchange for the shares of its
CAPITAL BUILDER FUND
This Statement of Additional Information (the "Statement") relates to the
proposed transfer of all or substantially all of the assets of certain existing
portfolios of SMITH HAYES Trust, Inc. (the "Trust") to the Capital Builder Fund
(the "Fund") of the Trust in exchange for shares of the Fund. The Statement is
not a prospectus and is meant to be read in conjunction with the Combined Proxy
Statement/Prospectus dated the date hereof that this Statement accompanies.
Statements of Additional Information relating to the Trust, dated October 28,
1994 and April 6, 1995, are attached as Appendix I and Appendix II to this
Statement of Additional Information and are incorporated herein by reference.
<PAGE>
TABLE OF CONTENTS
The Reorganization.........................................................B-3
Financial Statements.......................................................B-3
Pro Forma Financial Information............................................B-4
Appendix I - Statement of Additional Information relating to Acquired
Portfolios
Appendix II - Statement of Additional Information relating to Capital Builder
Fund
<PAGE>
THE REORGANIZATION
The shareholders of the Asset Allocation Portfolio, Balanced Portfolio and
Value Portfolio (collectively, the "Acquired Portfolios") are being asked to
approve a Plan of Reorganization (the "Plan"). Under the Plan, substantially all
of the assets of the Acquired Portfolios will be acquired by the Fund in
exchange for shares of the Fund. The Trust, an open-end management investment
company organized as a Minnesota corporation, was formed in 1988. The Fund was
recently created but has not commenced offering shares of the Fund to the
public.
For detailed information about the Plan and the proposed Reorganization,
shareholders should refer to the Combined Proxy Statement/Prospectus. For
further information about the Trust or the Fund, shareholders should refer to
the Trust's Prospectuses dated October 28, 1994 and April 6, 1995, that are
attached to the Combined Prospectus/Proxy Statement as Exhibit D and the Trust's
Statements of Additional Information dated October 28, 1994 (Appendix I) and
April 6, 1995 (Appendix II).
FINANCIAL STATEMENTS
The Trust hereby incorporates by reference the information in the Trust's
Semiannual Financial Report dated December 31, 1994 which is delivered herewith.
The Trust also incorporates by reference the financial statements of Conley
Partners Limited Partnership, and Independent Auditors' Report with respect
thereto, appearing in the Statement of Additional Information relating to the
Trust's Form N-14 Registration Statement, File No. 33-92012, which statements
and report are delivered herewith.
<PAGE>
SMITH HAYES TRUST, INC. CAPITAL BUILDER FUND
(FORMERLY CONLEY PARTNERS LIMITED PARTNERSHIP AND SMITH HAYES TRUST, INC.
ASSET ALLOCATION, VALUE, AND BALANCED PORTFOLIOS)
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
The following pro forma statement of assets and liabilities is based upon the
assumption that Conley Partners Limited Partnership and the three identified
portfolios of the SMITH HAYES Trust, Inc. were all acquired through exchange of
Capital Builder Fund shares on December 31, 1994. The information includes pro
forma adjustments as explained in the notes to the pro forma statement of assets
and liabilities.
The pro forma financial statements should be read in conjunction with the notes
thereto and other financial information included in this filing and incorporated
by reference herein.
<PAGE>
<TABLE>
<CAPTION>
SMITH HAYES TRUST, INC.
LIMITED
CAPITAL BUILDER FUND
PRO FORMA STATEMENT OF ASSETS AND
LIABILITIES
DECEMBER 31, 1994
(UNAUDITED)
HISTORICAL PRO FORMA SMITH HAYES TRUST, INC.
CONLEY CONLEY -------------------------------------------------------- PRO FORMA
PARTNERS PARTNERS ASSET PRO FORMA CAPITAL
LIMITED PRO FORMA LIMITED ALLOCATION BALANCED VALUE PRO FORMA COMBINED BUILDER
PARTNERSHIP ADJUSTMENTS PARTNERSHIP PORTFOLIO PORTFOLIO PORTFOLIO ADJUSTMENTS PORTFOLIOS FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities,
at market value $2,643,821 - 2,643,821 3,493,915 4,001,845 3,191,188 (10,686,948)(C) - 2,643,821
Cash equivalents 297,971 (212,845)(A) 85,126 264,509 1,001,346 86,032 10,672,448 (C)12,024,335 12,109,461
Accrued interest and
dividends receivable 12,504 - 12,504 33,401 54,760 4,080 - 92,241 104,745
Receivable for securities sold - - - - - 369,449 - 369,449 369,449
Receivable for portfolio shares
sold - - - 50 1,169 1,086 - 2,305 2,305
Other assets 83,440 - 83,440 - - - - - 83,440
Organizational expenses, net - 5,000 (B) 5,000 - - - - - 5,000
--------- --------- --------- --------- --------- -------- ---------- ---------- ---------
Total asset 3,037,736 (207,845) 2,829,891 3,791,875 5,059,120 3,651,835 (14,500) 12,488,330 15,318,221
--------- --------- --------- --------- --------- -------- ---------- ---------- ---------
LIABILITIES:
Accrued expenses, including
investment management and service
fees and distribution expense
reimbursement payable to
adviser/administrator
and distributor 11,454 - 11,454 7,935 9,912 7,443 - 25,290 36,744
Payable for portfolios shares
redeemed - - - 212,712 354,728 382,794 - 950,234 950,234
------ ------- ------ ------- ------- ------- --------- -------- --------
Total liabilities 11,454 - 11,454 220,647 364,640 390,237 - 975,524 986,978
------ ------- ------ ------- ------- ------- --------- -------- --------
Net assets applicable to
outstanding capital stock $3,026,282 (207,845) 2,818,437 3,571,228 4,694,480 3,261,598 (14,500) 11,512,806 14,331,243
========== ========= ========= ========= ========= ========= ========= ========== ==========
<FN>
See accompanying notes to financial statements.
Pro Forma adjustments:
(A) To reflect net partner withdrawals on January 1, 1995.
(B) To reflect organization costs pertaining to creation of Capital Builder
Fund.
(C) To reflect liquidation of investments prior to exchange less cost of
disposal.
</FN>
</TABLE>
<PAGE>
SMITH HAYES TRUST, INC. CAPITAL BUILDER FUND
(FORMERLY CONLEY PARTNERS LIMITED PARTNERSHIP AND SMITH HAYES TRUST, INC.
ASSET ALLOCATION, VALUE, AND BALANCED PORTFOLIOS)
PRO FORMA STATEMENTS OF OPERATIONS
The pro forma statements of operations reflect the assumed results for the year
ended June 30, 1994 (fiscal year of Capital Builder Fund) and the six months
ended December 31, 1994, as if the exchange had been consummated at the
beginning of the year or period. The pro forma statements of operations are not
necessarily indicative of the financial results that would have occurred had the
exchange been effective as of the beginning of the year or period, and should
not be viewed as indicative of operations in future periods.
The pro forma financial statements should be read in conjunction with the notes
thereto and other financial information included in this filing and incorporated
by reference herein.
<PAGE>
<TABLE>
<CAPTION>
SMITH HAYES TRUST, INC.
CAPITAL BUILDER FUND
PRO FORMA STATEMENT OF
OPERATIONS
SIX MONTHS ENDED DECEMBER 31,
1994
(UNAUDITED) HISTORICAL PRO FORMA
CONLEY CONLEY PRO FORMA
PARTNERS PARTNERS PRO FORMA CAPITAL
LIMITED PRO FORMA LIMITED COMBINED BUILDER
PARTNERSHIP ADJUSTMENTS PARTNERSHIP PORTFOLIOS FUND
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $28,827 - 28,827 83,673 112,500
Interest 18,943 - 18,943 212,590 231,533
------- ------- ------ ------- --------
Total investment income 47,770 - 47,770 296,263 344,033
------- ------- ------ ------- --------
EXPENSES:
Investment advisery and
administration fees 15,602 - 15,602 80,814 96,416
Distribution expenses - 7,801 (A) 7,801 40,364 48,165
Custodial fees - - - 5,970 5,970
Other operating expenses 7,801 (3,901)(B) 3,900 17,049 20,949
Amortization expenses 300 200 (C) 500 - 500
------- ------- ------ ------- --------
Total expenses 23,703 4,100 27,803 144,197 172,000
------- ------- ------ ------- --------
Net investment income 24,067 (4,100) 19,967 152,066 172,033
------- ------- ------ ------- --------
REALIZED AND UNREALIZED GAIN
(LOSS)ON INVESTMENTS:
Net realized gain 171,853 - 171,853 491,541 663,394
------- ------- ------- ------- --------
Net unrealized depreciation
Beginning of period 328,106 - 328,106 784,908 1,113,014
End of period 141,663 - 141,663 342,479 484,142
------- ------- ------ ------- --------
Net unrealized
depreciation (186,443) - (186,443) (442,429) (628,872)
------- ------- ------ ------- --------
Net realized and
unrealized gain on investments (14,590) - (14,590) 49,112 34,522
------- ------- ------ ------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 9,477 (4,100) 5,377 201,178 206,555
======== ======= ====== ======= =======
<FN>
See accompanying notes to financial statements.
Pro Forma adjustments:
(A) To reflect distribution expense of .50% per annum of
average net assets.
(B) To reflect change in other expenses from .50% to .25%
per annum of average net assets.
(C) To reflect $500 of amortization on organization costs pertaining to creation
of Capital Builder Fund and eliminate $300 of amortization on
organization costs pertaining to creation of Conley Partners Limited
Partnership.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMITH HAYES TRUST, INC.
ASSET ALLOCATION, BALANCED, AND VALUE PORTFOLIOS
COMBINED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)
HISTORICAL
----------------------------------------
PRO
ASSET FORMA
ALLOCATION BALANCED VALUE COMBINED PRO FORMA COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIOS ADJUSTMENT PORTFOLIOS
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $26,996 24,395 32,282 83,673 - 83,673
Interest 90,616 119,252 2,722 212,590 - 212,590
------- ------- ------ ------- ------- -------
Total investment income 117,612 143,647 35,004 296,263 - 296,263
------- ------- ------ ------- ------- -------
EXPENSES:
Investment advisery and administration fees 29,193 37,072 29,702 95,967 (15,153) (A) 80,814
Distribution expenses 12,273 15,593 12,498 40,364 - 40,364
Custodial fees 2,328 1,486 2,156 5,970 - 5,970
Other operating expenses 5,676 5,221 6,152 17,049 - 17,049
------- ------- ------ ------- ------- -------
Total expenses 49,470 59,372 50,508 159,350 (15,153) 144,197
------- ------- ------ ------- ------- -------
Net investment income (loss) 68,142 84,275 (15,504) 136,913 15,153 152,066
------- ------- ------ ------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain 148,063 199,051 144,427 491,541 - 491,541
------- ------- ------ ------- ------- -------
Net unrealized depreciation
Beginning of period 117,050 252,523 415,335 784,908 - 784,908
End of period (49,173) 171,702 219,950 342,479 - 342,479
------- ------- ------ ------- ------- -------
Net unrealized depreciation (166,223) (80,821) (195,385) (442,429) - (442,429)
------- ------- ------ ------- ------- -------
Net realized and unrealized
gain (loss) on investments (18,160) 118,230 (50,958) 49,112 - 49,112
------- ------- ------ ------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS $49,982 202,505 (66,462) 186,025 15,153 201,178
RESULTING FROM OPERATIONS ======= ======= ======== ======= ======= =======
<FN>
See accompanying notes to financial statements.
Pro Forma adjustment:
(A) To reflect change in investment advisor fee from 1.1875% to 1.00% per annum
of average net assets, which is a reduction of $4,609 for the Asset Allocation
Portfolio, a reduction of $5,854 for the Balanced Portfolio and a reduction
of $4,690 for the Value Portfolio.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMITH HAYES TRUST, INC.
CAPITAL BUILDER FUND
PRO FORMA STATEMENT OF
OPERATIONS
YEAR ENDED JUNE 30, 1994
(UNAUDITED)
HISTORICAL PRO FROMA
CONLEY CONLEY PRO FORMA
PARTNERS PARTNERS PRO FORMA CAPITAL
LIMITED PRO FORMA LIMITED COMBINED BUILDER
PARTNERSHIP ADJUSTMENTS PARTNERSHIP PORTFOLIOS FUND
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $57,552 - 57,552 287,987 345,539
Interest 29,553 - 29,553 214,221 243,774
------- ------- ------ ------- -------
Total investment income 87,105 - 87,105 502,208 589,313
------- ------- ------ ------- -------
EXPENSES:
Investment advisery and
administration fees 38,236 - 38,236 192,884 231,120
Distribution expenses - 19,118 (A) 19,118 96,229 115,347
Custodial fees - - - 11,416 11,416
Other operating expenses 16,751 (8,376) (B) 8,375 38,332 46,707
Amortization expenses 1,200 (200) (C) 1,000 - 1,000
------- ------- ------ ------- -------
Total expenses 56,187 10,542 66,729 338,861 405,590
------- ------- ------ ------- -------
Net investment income 30,918 (10,542) 20,376 163,347 183,723
------- ------- ------ ------- -------
REALIZED AND UNREALIZED GAIN
(LOSS)ON INVESTMENTS:
Net realized gain 32,907 - 32,907 1,896,675 1,929,582
------- ------- ------ ------- -------
Net unrealized depreciation
Beginning of period 403,432 - 403,432 3,246,165 3,649,597
End of period 328,106 - 328,106 784,908 1,113,014
-------- ------- ------- --------- ---------
Net unrealized
depreciation (75,326) - (75,326)(2,461,257)(2,536,583)
-------- ------- ------- --------- ---------
Net realized and
unrealized loss
on investments (42,419) - (42,419) (564,582) (607,001)
-------- ------- ------- --------- ---------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (11,501) (10,542) (22,043) (401,235) (423,278)
========== ========= ======== ======== =========
<FN>
See accompanying notes to financial statements.
Pro Forma adjustments:
(A) To reflect distribution expense of .50% per annum of
average net assets.
(B) To reflect change in other expenses from .50% to .25%
per annum of average net assets.
(C) To reflect $1,000 of amortization on organization costs pertaining to
creation of Capital Builder Fund and eliminate $1,200 of amortization on
organization costs pertaining to creation of Conley Partners Limited
Partnership.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SMITH HAYES TRUST, INC.
ASSET ALLOCATION, BALANCED, AND VALUE PORTFOLIOS
COMBINED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1994
(UNAUDITED)
HISTORICAL
--------------------------------------------
ASSET PRO FORMA
ALLOCATION BALANCED VALUE COMBINED PRO FORMA COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIOS ADJUSTMENTS PORTFOLIOS
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $128,606 72,688 86,693 287,987 - 287,987
Interest 29,756 179,950 4,515 214,221 - 214,221
-------- ------- ------ ------- -------- --------
Total investment income 158,362 252,638 91,208 502,208 - 502,208
-------- ------- ------ ------- -------- --------
EXPENSES:
Investment advisery and administration fees 72,484 84,464 72,102 229,050 (36,166)(A) 192,884
Distribution expenses 30,422 35,488 30,319 96,229 - 96,229
Custodial fees 3,667 3,312 4,437 11,416 - 11,416
Other operating expenses 12,758 12,376 13,198 38,332 - 38,332
-------- ------- ------ ------- -------- --------
Total expenses 119,331 135,640 120,056 375,027 (36,166) 338,861
-------- ------- ------- ------- -------- --------
Net investment income (loss) 39,031 116,998 (28,848) 127,181 36,166 163,347
-------- ------- ------- ------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain 1,051,128 502,539 343,008 1,896,675 - 1,896,675
--------- ------- ------- --------- -------- ---------
Net unrealized depreciation
Beginning of period 1,225,866 1,013,495 1,006,804 3,246,165 - 3,246,165
End of period 117,050 252,523 415,335 784,908 - 784,908
--------- ------- ------- --------- -------- ---------
Net unrealized depreciation (1,108,816) (760,972) (591,469)(2,461,257) - (2,461,257)
--------- ------- ------- --------- -------- ---------
Net realized and unrealized
loss on investments (57,688) (258,433) (248,461) (564,582) - (564,582)
--------- ------- ------- --------- -------- ---------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(18,657) (141,435) (277,309) (437,401) 36,166 (401,235)
========= ========= ========= ======= ====== ========
<FN>
See accompanying notes to financial statements.
Pro Forma adjustment:
(A) To reflect change in investment advisor fee from 1.1875% to 1.00% per annum
of average net assets, which is a reduction of $11,445 for the Asset
Allocation Portfolio, a reduction of $13,336 for the Balanced
Portfolio and a reduction of $11,385 for the Value Portfolio.
</FN>
</TABLE>
<PAGE>
APPENDIX I
SMITH HAYES TRUST, INC.
ASSET ALLOCATION PORTFOLIO
VALUE PORTFOLIO
BALANCED PORTFOLIO
SMALL CAP PORTFOLIO
CONVERITBLE PORTFOLIO
GOVERNMENT QUALITY BOND PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
October 28, 1994
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 October 28,
1994 and should be read in conjunction therewith. A copy of the Prospectus may
be obtained from the Trust at 500 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 six series
designated: Asset Allocation Portfolio, Small Cap Portfolio, Value Portfolio
(formerly Opportunity Portfolio), Balanced Portfolio, Convertible Portfolio and
Government/Quality Bond Portfolio (sometimes referred to herein as a "Portfolio"
or, collectively, as the "Portfolios"). The shareholders of the Opportunity
Portfolio approved changing the name of the Portfolio to Value Portfolio at the
shareholder meeting of the Trust on December 18, 1993. The investment objectives
and policies of the Portfolios are set forth in the Prospectus. Certain
additional investment information is set forth below.
Repurchase Agreements.
All of the Portfolios may invest in repurchase agreements on U. S.
Government Securities. The Portfolios' 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 Portfolio
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.
In the fiscal year ending June 30, 1994, the Asset Allocation Portfolio
had a portfolio turnover rate of 117.77% compared to 40.53% for the period
ending June 30, 1993. The increase in portfolio turnover was due to the
Portfolio Manager's investment philosophy which resulted in asset allocation
shifts between equity and debt positions. At June 30, 1994 the Asset Allocation
Portfolio was invested essentially 50% in common stock and 50% in U.S. Treasury
Notes.
Investment Restrictions.
In addition to the investment objectives and policies set forth in the
Prospectus, the Trust and each of the Portfolios 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 Portfolio'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 Portfolio'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 Portfolio's outstanding shares.
<PAGE>
...Unless otherwise specified below, none of the Portfolios 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 Portfolio 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.
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 Portfolio shall not exceed
10% of the value of the total assets of such Portfolio.)
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 Portfolio's
total assets. None of the Portfolios will purchase securities while outstanding
borrowing exceeds 5% of the value of the Portfolio's total assets. None of the
Portfolios 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 Portfolio may make short sales or maintain short positions
if at all times when a short position is open the Portfolio 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 Portfolio's net assets (taken at current value) will be held as
collateral for such short sales at any one time.
<PAGE>
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 Portfolio may make margin deposits in connection with futures contracts.
10. Write, purchase or sell puts, calls or combinations thereof, except
that Balanced Portfolio and Convertible Portfolio may write covered call
options; Balanced Portfolio and Convertible Portfolio may purchase put options
on stocks; and Convertible Portfolio may purchase put options on stock index
contracts.
11. Purchase or retain the securities of any issuer if, to the Portfolio'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 Portfolio may purchase put options on stock index
contracts.
14. Purchase or sell real estate or real estate mortgage loans, except
that the Portfolios 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 Portfolios may purchase or sell securities of
companies investing in the foregoing.
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 Portfolio's net assets in restricted
securities or more than 10% of the Portfolio'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.
<PAGE>
None of the Portfolios 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 Asset Allocation Portfolio, Balanced Portfolio and Government/Quality
Bond Portfolio 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 Portfolio's net assets. For purposes of
calculating this percentage, no more than 1% of the value of the Portfolio's net
assets may be in warrants which are not listed on the New York or American Stock
Exchange and warrants acquired by the Portfolio 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 Trust as follows:
Name, Position with Trust and Address and Principal Occupation Last Five Years
*THOMAS C. SMITH, Chairman, President, Chief Executive Officer
and Treasurer; 500 Centre Terrace, 1225 "L" Street, Lincoln,
Nebraska 68501
Chairman and President, SMITH HAYES Portfolio Management, Inc.; Chairman
and President, SMITH HAYES Financial Services Corporation, 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, Lincoln,
Nebraska 68502
President and Chief Operating Officer, Lincoln Mutual Life
Insurance Company, Lincoln, Nebraska; December, 1987 - December,
1988
DALE C. TINSTMAN, Director; Suite 706, 121 South 13th Street,
Lincoln, Nebraska 68508
Financial and Investment Consultant; Chairman of University of
Nebraska Foundation; Director and Consultant of IBP, Inc. (meat
packing and agribusiness), Lincoln, Nebraska
*Interested director of the Trust by virtue of his affiliation with SMITH HAYES
Portfolio Management, Inc., as defined under the Investment Company Act of 1940.
<PAGE>
Name, Position with Trust and Address and Principal Occupation Last Five Years
THOMAS R. LARSEN, C.P.A., Director; 6211 "O" Street, Lincoln,
Nebraska 68510
Certified Public Accountant and Chairman, Larsen Bryant & Porter
P.C., Lincoln, Nebraska
JEAN M. BECKER, Vice President and Secretary; 500 Centre Terrace,
1225 "L" Street, Lincoln, Nebraska 68501
Vice President and Secretary of SMITH HAYES Portfolio Management,
Inc., Lincoln, Nebraska; Operations Manager of SMITH HAYES Trust,
Inc., Lincoln, Nebraska
The addresses of the directors and officers of the Trust are that of the Trust
unless otherwise indicated.
INVESTMENT ADVISORY AND OTHER SERVICES
General
The investment adviser for the Portfolios is SMITH HAYES Portfolio
Management, Inc., (the "Adviser" or "SMITH HAYES"). Renaissance Investment
Management, Incorporated, Swanson Capital Management Inc., Crestone Capital
Management, Inc., Cashman Farrell and Associates, Calamos Asset Management,
Inc., and Bear Stearns Asset Management, a division of Bear Stearns & Co., Inc.,
act as the Portfolio Managers to the Portfolios ("Portfolio Managers"). The
Adviser also acts as the administrator ("Administrator") and SMITH HAYES
Financial Services Corporation acts as the Trust's distributor ("Distributor").
The Adviser 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 500 Centre Terrace, 1225 L
Street, Lincoln, Nebraska, 68508. The Portfolio Managers' addresses are:
Renaissance Investment Management
1700 Young Street
Cincinnati, Ohio 45210
Crestone Capital Management
7720 East Belleview Avenue
Suite 220
Englewood, Colorado 80111
Cashman, Farrell and Associates
1235 Westlakes Drive
Berwyn, Pennsylvania 19312
Swanson Capital Management, Inc.
505 East Huron Street
Suite 201
Ann Arbor, Michigan 48104
<PAGE>
Calamos Asset Management, Inc.
1111 East Warrenville Road
Naperville, Illinois 60563-1448
Bear, Stearns Asset Management
Bear, Stearns & Co., Inc.
245 Park Avenue
New York, New York 10167
Control of the Adviser and the Distributor
The Adviser is a wholly owned subsidiary of Consolidated Investment
Corporation, a Nebraska corporation, which is engaged through its subsidiaries
in various aspects of the financial services industry. Thomas C. Smith and the
estate of Thomas D. Hayes own 40% and 40%, respectively, of the outstanding
stock of Consolidated Investment Corporation.
Control of Portfolio Managers
Renaissance Investment Management is wholly owned by S. William Miller
and Frank W. Terrizzi. Crestone Capital Management is controlled by Kirk
McCowan and Norwest Bank, N.A. Minnesota. Cashman Farrell and Associates is
a partnership consisting of Daniel V. Cashman, James H. Farrell, Jr., Richard
J. Seiwell, Edward T. Moynahan, Jr., Donna L. Cashman and Kristine P.
Boysen. Swanson Capital Management, Inc. is wholly owned by Stephen A.
Swanson. Calamos Asset Management, Inc. is wholly owned by John P. Calamos.
Bear, Stearns Asset Management is a division of Bear, Stearns & Co., Inc.
Investment Advisory Agreements and Administration Agreement
SMITH HAYES acts as the investment adviser and administrator to the Trust
under an Investment Advisory Agreement ("Advisory Agreement") and the
Administration Agreement (the "Administration Agreement") and the Portfolio
Managers advise the various Portfolios pursuant to Sub-Investment Advisory
Agreements ("Sub-Advisory Agreements") between them and the Adviser. 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, Administration Agreement and Sub-Advisory
Agreements for all Portfolios except the Value Portfolio and the Small Cap
Portfolio were approved by the shareholders on June 23, 1989. The Advisory
Agreement, Administration Agreement and Sub-Advisory Agreement for the Value
Portfolio were approved by its shareholders on June 11, 1990. The Advisory
Agreement, Administration Agreement and Sub-Advisory Agreement for the Small Cap
Portfolio 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 approved 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 15, 1994.
<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 Portfolio 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 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 Portfolios approves
a Sub-Advisory Agreement, the Sub-Advisory Agreement shall continue in effect
with respect to such approving Portfolio whether or not the shareholders of any
other Portfolio approve such Sub-Advisory Agreement.
Pursuant to the Advisory Agreement, all the Portfolios except the
Government/Quality Bond Portfolio pay the Adviser a monthly advisory fee equal
on an annual basis to 1% of each Portfolio's average daily net assets. The
Government/Quality Bond Portfolio 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, 1992, June 30, 1993 and June 30,
1994 the Trust paid the Advisor $280,275, $342,260 and $396,475 respectively for
advisory and administration services rendered to all the Portfolios allocated
among them as follows:
7/1/91 to 7/1/92 to 7/1/93 to
6/30/92 6/30/93 6/30/94
Asset Allocation Portfolio $81,411 $79,961 $72,484
Balanced Portfolio 82,613 87,578 84,464
Convertible Portfolio 17,462 25,023 32,863
Government/Quality Bond Portfolio 48,465 64,681 74,363
Value Portfolio 50,324 66,890 72,102
Small Cap Portfolio N/A 18,127 60,199
------- ------- --------
$280,275 $342,260 $396,475
<PAGE>
Of these amounts, pursuant to the Sub-Advisory Agreements, the Adviser
paid the respective Portfolio Managers for the Portfolios $149,243, $159,582 and
$180,517 allocated among the Portfolios as follows:
7/1/91 to 7/1/92 to 7/1/93 to
6/30/92 6/30/93 6/30/94
Asset Allocation Portfolio $44,984 $36,161 $33,005
Balanced Portfolio 40,995 39,370 38,059
Convertible Portfolio 10,365 13,044 16,342
Government/Quality Bond Portfolio 25,473 29,971 32,180
Value Portfolio 27,426 30,678 32,847
Small Cap Portfolio N/A 10,358 28,084
------- ------- --------
$149,243 $159,582 $180,517
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 Portfolios, which have now ceased operations.
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 Portfolio'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
Portfolio and paid monthly, at an annual rate of .1875% of the daily average net
assets of the Trust.
Under the Advisory Agreement, the Adviser provides each Portfolio with
advice and assistance in the selection and disposition of that Portfolio'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 Portfolios' investments. The Portfolio Managers do not provide any
administrative services for the Portfolios 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 Asset
Allocation Portfolio, and the Government/ Quality Bond Portfolio, to the extent
that these Portfolios' share of annual operating expenses, excluding interest,
taxes, 12(b)-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 each Portfolio.
<PAGE>
Custodian
The Custodian for the Trust and each of the Portfolios is Union Bank and
Trust Company ("Union"), 3643 South 48th, Lincoln, Nebraska 68506. Union, as
Custodian, holds all of securities and cash owned by the Portfolios.
DISTRIBUTION PLAN
Rule 12b-1(b) under the Investment Company Act of 1940 provides that any
payments made by the Portfolios 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 Portfolios 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 Portfolios' shares.
In addition, Rule 12b-1(b)(1) requires that such plan be approved by a
majority of a Portfolio'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:
(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 Portfolio.
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
<PAGE>
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, each of
the Portfolios pays a fee to the Distributor computed and paid monthly at an
annual rate of up to .50% (.40% for the Government/Quality Bond Portfolio) of
such Portfolio's average daily net assets in order to reimburse the Distributor
for its actual expenses incurred in the distribution and promotion of such
Portfolio'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
Portfolios 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
Portfolios 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% (.40% to the Government/Quality Bond Portfolio) of
the average daily net assets of the Portfolios which is attributable to shares
sold by such investment executive.
Under the Distribution Plan, the Trust paid the Distributor a total of
$173,390 for the fiscal year ended June 30, 1994 allocated among the existing
Portfolios as follows:
7/1/93 to
6/30/94
Asset Allocation Portfolio $30,422
Balanced Portfolio 35,488
Convertible Portfolio 13,854
Government/Quality Bond
Portfolio 37,751
Value Portfolio 30,319
Small Cap Portfolio 25,556
--------
$173,390
Of the total amount paid to the Distributor pursuant to the Distribution Plan in
these periods, the Distributor retained or paid to its agents $172,465. The
Distributor paid the balance to Walnut Street Securities and Bear Stearns & Co.,
Inc. pursuant to selling agreements between the Distributor and such persons for
distribution services. 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's 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.
<PAGE>
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 Portfolios, 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
Portfolios. 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 Portfolios
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
Portfolio'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 Portfolio Managers with research services which the
Portfolio Managers anticipate will be useful to them. The recipient Portfolio
Manager will authorize the Portfolio 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 Portfolios 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 Portfolios 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 Portfolios 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, 1992, June 30, 1993 and June 30,
1994, the Trust's Portfolios incurred $40,472, $65,889, and $100,359
respectively of brokerage commissions, allocated among the Portfolios and paid
to the Distributor, SMITH HAYES Financial Services Corp. ("SHFSC") as follows:
<TABLE>
7/1/91 to Paid To 7/1/92 to Paid To 7/11/93 to Paid To
6/30/92 SHFSC 6/30/93 SHFSC 6/30/94 SHFSC
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation $4,819 $4,819 $10,864 $10,864 $20,315 $20,315
Balanced 10,262 10,262 8,057 8,057 12,433 12,433
Convertible 8,498 8,498 12,783 12,783 12,987 12,987
Government/Quality
Bond 0 0 0 0 0 0
Value 16,893 13,558 13,152 9,871 13,332 11,799
Small Cap N/A N/A 21,033 21,033 41,292 41,292
------- ------ ------ ------ ------- ------
$40,472 $37,137 $65,889 $62,608 $100,359 $98,826
</TABLE>
Of the aggregate brokerage commissions incurred in the fiscal year ending
June 30, 1994, $98,826 or 98% were paid to SMITH HAYES Financial Services Corp.,
the Trust's Distributor, which is an affiliate of the Trust's Adviser and the
remaining brokerage commissions were paid to eight unaffiliated broker dealers.
Of the aggregate dollar amount of transactions involving payment of commissions,
98% were effected through the Distributor in the fiscal year ending June 30,
1994. 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 Portfolio 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
Portfolios 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
<PAGE>
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
Portfolio involved is concerned. At the same time, however, it is believed that
the ability of the Portfolio to participate in volume transactions will
sometimes produce better execution prices.
Option Trading Limits
The writing by the Portfolios 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 Portfolio may
write may be affected by options written by the other Portfolios and by other
investment advisory clients of the Adviser or the Portfolio Managers. An
exchange may order the liquidations 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 Portfolio
as of September 30, 1994
Portfolio Name & Address Shares % Ownership
---------- -------------- ------ ----------
Small Cap UBATCO & Company 238,279.523 37.09%
Union Bank and Trust Company
Trust Department-nominee name
4732 Calvert Street
Lincoln, NE 68506
Including
Linweld Inc. Profit 42,395.192 6.60%
Sharing/401K Plan
1225 "L" Street
Suite 600
Lincoln, NE 68501
<PAGE>
Convertible The Eihusen 13,619.272 5.02%
Portfolio Chief Foundation, Inc.
Old West Hwy 30
P.O. Box 2078
Grand Island, NE 68802
Value T-L Irrigation Company Profit 27,193.746 6.07%
Portfolio Sharing Plan
Leroy Thom & James Thom
Trustees
P.O. Box 1047
Hastings, NE 68902
As a group, the officers and directors of the Fund owned 0, 91.409,
2,436.899, 2,388.595, 4,037.391 and 2,615.095 shares of the Asset Allocation,
Balanced, Convertible, Government/Quality Bond, Value and Small Cap Portfolios
respectively, which constituted .0%, .02%, .90%, .30%, .90% and .41%,
respectively of these Portfolios' outstanding shares. Officers and directors of
the Fund as a group owned 166,151.169 shares of the outstanding shares of all
Portfolios, including, shares of the Trust's Money Market Portfolio,
Institutional Money Market Portfolio and Nebraska Tax Free Portfolio which
constituted .59% of all such outstanding shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of Portfolio shares
is summarized in the Prospectus in the text following the headings "Purchase of
Shares--"Valuation of Shares." The net asset value of each Portfolio'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 Portfolio shares
are tendered for redemption and no order for Portfolio 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 Portfolio invests fluctuate in
value, and hence the net asset value per share of each Portfolio also
fluctuates. An example of how the net asset value per share for all Portfolios
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 Portfolios of securities owned by
them is not reasonably practicable, or it is not reasonably practicable for the
Portfolios 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.
<PAGE>
TAX STATUS
The Fund has qualified and intends to continue to its Portfolios 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 Portfolio 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 Portfolio's
gross income. This restriction may limit the extent to which a Portfolio 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 Portfolio. 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 Portfolio 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 Portfolio
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 Portfolios in
advertisements or in reports and other communications to shareholders. For this
purpose, yield is calculated by dividing a Portfolios's net investment income
per share for the base period which is 30 days or one month, by the Portfolio's
maximum offering purchase price on the last day of the period and annualizing
the result. The Portfolio's net investment income changes in response to
fluctuations in interest rates and in the expenses of the Portfolio.
Consequently, any given quotation should not be considered as representative of
what the Portfolio's yield may be for any specified period in the future.
Yield information may be useful in reviewing a Portfolio's performance and
for providing a basis for comparison with other investment alternatives.
However, a Portfolio'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 Portfolio's net asset value over the period
for which yield has been calculated, which, when combined, will indicate a
Portfolio'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.
<PAGE>
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 Portfolio 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 Portfolio's
performance. In considering such yields or total returns, investors should
recognize that the performance of securities in which the Portfolio may invest
does not reflect the Portfolio'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 Portfolio. 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 Portfolio for the 30-day period
ending June 30, 1994 was 5.74%.
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 Portfolios 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 Portfolios for the one, inception
to date and five years ended on June 30, 1994 are as follows:
Inception to
1 year 5 years Date
------ --------------
Asset Allocation Portfolio -.66% 6.88% 6.72%
Balanced Portfolio -1.99% 6.04% 6.28%
Convertible Portfolio -2.26% 8.37% 7.08%
Government Quality Bond -2.00% 7.06% 7.56%
Portfolio
Value Portfolio -5.29% NA 3.38%
Small Cap Portfolio 1.21% NA 9.21%
<PAGE>
FINANCIAL STATEMENTS
The Trust hereby incorporates by reference the information in the Trust's
Annual Financial Report dated June 30, 1994, attached hereto.
AUDITORS
On July 15, 1994, the Board of Directors, including all disinterested
directors, unanimously approved the appointment of KPMG Peat Marwick, LLP, Two
Central Park Plaza, Suite 1501, Omaha, Nebraska 68102 as the Trust's
accountants.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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>
APPENDIX B
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS
Stock Index Futures Contracts
Convertible Portfolio 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 Portfolio 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
Portfolio will gain $500 x (154-150) or $2,000. If a Portfolio 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
Portfolio 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 Portfolio upon entering into stock index futures contracts. Upon
entering into a contract, the Portfolio 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 Portfolio 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
Portfolio 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
<PAGE>
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 Portfolio 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 Portfolio 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 Portfolio would be required to
make a variation margin payment to the broker equal to the decline in value.
The Portfolio intends to use stock index futures contracts and related
options for hedging and not for speculation. Hedging permits the Portfolio to
gain rapid exposure to or protect itself from changes in the market. For
example, the Portfolio 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 Portfolio 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 Portfolio may enter into contracts with respect to any stock index or
sub-index. To hedge a Portfolio's portfolio successfully, however, the Portfolio
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
Portfolio's portfolio securities.
Options on Stock Index Futures and on Stock Indexes
Convertible Portfolio 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 Portfolio 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
Portfolio 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 Portfolio 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
Portfolio than using a futures contract, such as when there is no movement in
the level of the stock index.
<PAGE>
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 Portfolios 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>
APPENDIX II
SMITH HAYES Trust, Inc.
Capital Builder Fund
STATEMENT OF ADDITIONAL INFORMATION
April 6, 1995
Table of Contents
Page
Investment Objectives, Policies and Restrictions .......................2
Directors and Executive Officers .......................................4
Investment Advisory and Other Services .................................5
Distribution Plan ..................................................... 6
Portfolio Transactions and Brokerage
Allocations ...................................................8
Capital Stock and Control ..............................................9
Net Asset Value and Public Offering Price ..............................9
Redemption ............................................................10
Tax Status ............................................................10
Calculation of Performance Data .......................................11
Auditors ..............................................................11
Appendix A - Ratings of Corporate
Obligations and Commercial Paper ............................A-1
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Prospectus dated April 6,
1995, and should be read in conjunction there with. 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 "Fund") are offered in
series. This Statement of Additional Information only relates to the Capital
Builder Fund (referred to herein as a "Fund").
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.
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 Fund is subject to certain investment restrictions, as set forth
below, which may not be changed without the vote of a majority of the 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 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 Fund's outstanding shares.
Unless otherwise specified below, the Fund will not:
1. Invest more than 5% of its assets in the securities of any one
issuer with regard to 75% of the value of its assets (other than
securities of the U.S. Government or its agencies or
instrumentalities), up to 25% may be invested without such
limitations.
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 Fund may not own more than 15%
of any class of securities or more than 10% of the outstanding
voting securities of an issuer.
<PAGE>
3. Invest 25% or more of the value of its 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.
4. Invest more than 5% of the value of its 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
the Fund shall not exceed 10% of the value of the total assets
of the Fund).
5. Issue any senior securities (as defined in the Investment
Company Act of 1940, as amended), except to the extent that
using options 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. The Fund will not purchase
securities while outstanding borrowing exceeds 5% of the value
of the Fund's total assets. The Fund will not borrow money for
leverage purposes.
7. Mortgage, pledge or hypothecate its assets except in an amount
not exceeding 10% of the value of its 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.
9. Purchase any securities on margin except to obtain such
short-term credits as may be necessary for the clearance of
transactions.
10. Purchase or retain the securities of any issuer if, to the
Fund's knowledge, those officers or directors of the Fund or its
affiliates or of its investment adviser who individually own
beneficially more than 0.5% of the outstanding securities of
such issuer, or together own more than 5% of such outstanding
securities.
11. Invest for the purpose of exercising control or management.
12. Purchase or sell commodities or commodity futures contracts.
13. Purchase or sell real estate or real estate mortgage loans,
except that the Fund may invest in securities secured by real
estate or interests therein or issued by companies that invest
in real estate or interest therein.
14. Purchase or sell oil, gas or other mineral leases, rights or
royalty contracts, except that the Fund may purchase or sell
securities of companies investing in the foregoing.
<PAGE>
15. 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.
16. Act as an underwriter of securities of other issuers.
17. 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 illiquid assets, such as securities with no readily
available market quotation.
18. 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.
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>
<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;
Chairman and 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), Lincoln, 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
Jean B. Norris, Vice President and Secretary; Vice President and Secretary, CONLEY- SMITH,
200 Centre Terrace, 1225 L Street, Lincoln, Inc., Omaha, Nebraska; Vice President and Secretary
Nebraska 68508 .of Lancaster Administrative Services, Inc., Lincoln,
Nebraska; Operations Manager of SMITH HAYES
Trust, 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
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
General
The investment adviser for the Fund is CONLEY-SMITH, Inc. ("CSI")
(formerly SMITH HAYES Portfolio Management, Inc. the "Adviser"). Lancaster
Administrative Services, Inc. ("LAS") acts as the administrator
("Administrator") and SMITH HAYES Financial Services Corporation acts as the
Fund's distributor ("Distributor"). The adviser, administrator and distributor
act as such pursuant to written agreements which are periodically reviewed and
approved by the directors or the shareholders of the Fund. The Adviser's address
is 444 Regency Parkway, Suite 202, Omaha, Nebraska, 68114 and the address of the
LAS is 200 Centre Terrace, 1225 L Street, Lincoln, Nebraska, 68508.
Control of the Adviser, Administrator and the Distributor
The adviser, administrator and distributor are wholly owned
subsidiaries of Consolidated Investment Corporation, ("Consolidated") a Nebraska
corporation, which is engaged through its subsidiaries in various aspects of the
financial services industry. As a result of his ownership of 77%, Thomas C.
Smith has a controlling interest of the outstanding stock of Consolidated
Investment Corporation. John H. Conley, President of the adviser, as a result of
his ownership of 5% also has a controlling interest in Consolidated.
Investment Advisory Agreement and Administration Agreement
CSI acts as the investment adviser to the Fund under an Investment
Advisory Agreement ("Advisory Agreement"). LAS successor to the transfer agent
and administrative services functions of the adviser will act as the Fund's
Administrator under the Transfer Agent and Administrative Services Agreement
(the "Administration Agreement"). The Advisory Agreement, and Administration
Agreement were 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 Fund) on
April 18, 1995.
<PAGE>
The Advisory Agreement and Administration Agreement terminate
automatically in the event of their assignment. In addition, the Advisory
Agreement and the Administration Agreement are terminable at any time, without
penalty, by the Board of Directors of the Fund or by vote of a majority of the
Fund'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 Fund.
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 vote of a
majority of the outstanding voting securities of the Fund, 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 person 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 .75% of the Fund's average daily net
assets. 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
Fund. The Adviser is obligated to pay the salaries and fees of any affiliates of
the Adviser serving as officers or directors of the Fund.
Pursuant to the Administration Agreement, the Administrator acts as
transfer agent and provides, or contracts with others to provide, the Fund 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 .25% of the daily average net assets of
the Fund.
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 Fund is Union Bank and Trust Company ("Union"),
3643 South 48th, Lincoln, Nebraska 68506. Union, as Custodian, holds all of
securities and cash owned by the Fund.
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 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 Fund and who have no direct
or indirect
<PAGE>
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 Fund pursuant to the plan or any related
agreement shall provide to the Fund'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 Fund who are not interested persons of the Fund 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 Fund may rely upon Rule 12b-1(b) only
if the selection and nomination of the Fund's disinterested directors are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the Fund 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 Fund and its shareholders. The Board of Directors
has concluded that there is a reasonable likelihood that the Distribution Plan
will benefit the Fund 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 an annual rate
of up to .50% of 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.
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
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 .50% of the average daily net assets of the Fund which is attributable to
shares sold by such investment executive. Thomas C. Smith, a director and
officer of the Trust, controls the Distributor and as a result has a financial
interrest in the Distribution Plan.
<PAGE>
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 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 enable 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 Fund 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.
<PAGE>
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
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 n 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
sometime produce better execution prices.
Option Trading Limits
The writing by the Fund 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 the Fund may
write may be affected by options written by the other Funds and by other
investment advisory clients of the Adviser. An exchange may order the
liquidations 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 Fund will exceed applicable limitations.
CAPITAL STOCK AND CONTROL
A complete description of the rights and characteristics of the Fund's
capital stock is included in the Prospectus.
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 heading "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's 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,
President's Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving
and Christmas.
<PAGE>
The portfolio securities in which the Fund invests fluctuate in value,
and hence the net asset value per share of the Fund also fluctuates. An example
of how the net asset value per share for the Fund 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 Fund of securities owned
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 Fund has qualified and intends to continue as a "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, the Fund must, among other things, receive at least 90% of
its gross income each year from dividends, interest, gains from the sale or
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 the Fund's gross income. This
restriction may limit the extent to which the 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 the 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 options for purposes of the
diversification test, and the extent to which the Fund could buy or sell 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 the 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 under reporting
of certain income. These certifications are contained in the purchase
application enclosed with the Prospectus.
<PAGE>
CALCULATIONS OF PERFORMANCE DATA
From time to time the Fund 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 a 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 investment alternatives. However, the
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 fund securities of the respective investment
companies when comparing investment alternatives.
In connection with the quotations of yields in advertisements described
above, the Fund 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.
AUDITORS
On April 18, 1995, 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.
APPENDIX A
RATINGS OF CORPORATE OBLIGATIONS,
COMMERCIAL PAPER, AND PREFERRED STOCK
Ratings of Corporate Obligations
Moody's Investors Services, 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.
A-1
<PAGE>
Those securities in the A and Baa groups which Moody's believes possess the
strongest investment attributes are designed by the symbols A-a 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 and
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 rate 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 payments.
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.
A-2
<PAGE>
Moody's Investors Services, 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, 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 an 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
and 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.
A-3
<PAGE>
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.
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 Services, 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.
A-4
<PAGE>
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.
A-5
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. 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 (Exhibit 1 hereto), Article XIII of the Bylaws of Registrant
(Exhibit 2 hereto) and to Section 10 of the Distribution Agreement (Exhibit 7
hereto) for additional indemnification provisions. In addition to the
indemnification provisions contained in the Company's Articles and Bylaws, there
are also indemnification and hold harmless provisions contained in the
Investment Advisory Agreement, Distribution Agreement, Administration Agreement
and Custodian Agreement.
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.
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 prohibits 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
<PAGE>
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 16. EXHIBITS
* 1 Articles of Incorporation
* 2 Bylaws of Company
4 Form of Plan of Reorganization (included as Exhibit A to
Combined Proxy Statement/Prospectus)
* 6 Management and Investment Advisory Agreement--
Capital Builder Fund
* 7 Form of Distribution Agreement
* 9 Custodian Agreement
* 10 Rule 12b-1 Distribution Plan
11 Opinion and Consent of Messrs. Cline, Williams, Wright,
Johnson & Oldfather
12 Tax opinion of Cline, Williams, Wright, Johnson &
Oldfather (included as Exhibit "C" to Combined Proxy
Statement/Prospectus)
** 13 Administration Agreement
14 Consent of KPMG Peat Marwick LLP
16 Power of Attorney (included in signature page)
17 Rule 24f-2 declaration (included in facing page)
------------------
* Incorporated herein by reference to the Company's Registration
Statement on Form N-1A, File No.33-19894. Copies of these
documents are submitted supplementally to facilitate staff review.
** To be filed by amendment.
<PAGE>
Item 17. Undertakings
(1) The undersigned Company agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Act, the reoffering
prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Company agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
[This Space Left Blank Intentionally]
<PAGE>
POWER OF ATTORNEY
We, the undersigned officers and directors of SMITH HAYES Trust, Inc.,
hereby severally constitute Thomas C. Smith and Jean B. Norris, and each of them
as true and lawful attorneys with full power to sign for us and in our names, in
the capacities indicated below any and all amendments to the Form N-14
Registration Statement of SMITH HAYES Trust, Inc. to be filed with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or either of them, to
any and all amendments to said Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant in the City of Lincoln, State of
Nebraska, on the 25th day of May, 1995.
SMITH HAYES Trust,
Inc.
By:---------------------------------
Thomas C. Smith, Chairman
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities indicated on May 25,
1995.
Signature Title
- --------- -------
Chairman, President, Principal Executive
Officer, Principal Financial and
- ------------------------------------- Accounting Officer and Treasurer
Thomas C. Smith
- ------------------------------------- Director
Thomas D. Potter
- ------------------------------------- Director
Thomas R. Larsen
- ------------------------------------- Director
Dale C. Tinstman
<PAGE>
POWER OF ATTORNEY
We, the undersigned officers and directors of SMITH HAYES Trust, Inc.,
hereby severally constitute Thomas C. Smith and Jean B. Norris, and each of them
as true and lawful attorneys with full power to sign for us and in our names, in
the capacities indicated below any and all amendments to the Form N-14
Registration Statement of SMITH HAYES Trust, Inc. to be filed with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or either of them, to
any and all amendments to said Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant in the City of Lincoln, State of
Nebraska, on the 25th day of May, 1995.
SMITH HAYES Trust, Inc.
By:----------------------------
/s/ Thomas C. Smith
Thomas C. Smith, Chairman
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities indicated on May 25,
1995.
Signature Title
Chairman, President, Principal Executive
Officer, Principal Financial and
/s/ Thomas C. Smith Accounting Officer and Treasurer
- --------------------------
Thomas C. Smith
/s/ Thomas D. Potter Director
- ----------------------------
Thomas D. Potter
/s/ Thomas R. Larsen Director
- -----------------------------
Thomas R. Larsen
/s/ Dale C. Tinstman Director
- -------------------------------
Dale C. Tinstman
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. ___ |_|
Post-Effective Amendment No. ___ |_|
------------------------------
SMITH HAYES Trust, Inc.
-------------------------
(Exact Name of Registrant as Specified in Charter)
EXHIBIT VOLUME
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit No. Description Numbering System
* 1 Articles of Incorporation
* 2 Bylaws of Company
4 Form of Plan of Reorganization (included
as Exhibit A to Combined Proxy
Statement/Prospectus)
* 6 Management and Investment Advisory
Agreement--Capital Builder Fund
* 7 Form of Distribution Agreement
* 9 Custodian Agreement
* 10 Rule 12b-1 Distribution Plan
11 Opinion and Consent of Messrs. Cline,
Williams, Wright, Johnson & Oldfather
12 Tax opinion of Cline, Williams, Wright,
Johnson & Oldfather (included as Exhibit _
"C" to Combined Proxy Statement/Prospectus)
** 13 Administration Agreement
14 Consent of KPMG Peat Marwick LLP
16 Power of Attorney (included in signature page)
17 Rule 24f-2 declaration (included in facing page)
- ------------------
* Incorporated herein by reference to the Company's Registration
Statement on Form N-1A, File No. 33-19894. Copies of these documents
are submitted supplementally to facilitate staff review.
** To be filed by amendment.
<PAGE>
May 25, 1995
Board of Directors
SMITH HAYES Trust, Inc.
500 Centre Terrace
1225 "L" Street
Lincoln, NE 68508
RE: FORM N-14 REGISTRATION STATEMENT -- ACQUISITION
OF ASSETS OF CERTAIN PORTFOLIOS
Gentlemen:
Our opinion has been requested with respect to the shares of common
stock designated Capital Builder Fund shares, $.001 par value per share (the
"shares"), of the SMITH HAYES Trust, Inc. (the "Fund"), which are being
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, by Form N-14 Registration Statement in connection with the
acquisition of the assets of certain existing portfolios of the Fund.
We have examined the Fund's Articles of Incorporation and Bylaws,
reviewed certain minutes of corporate proceedings, and have made such additional
factual and legal inquiry as we deemed necessary under the circumstances. Based
upon the foregoing, it is our opinion that:
1. The Fund is a duly and validly organized corporation
presently existing in good standing under the laws of the
State of Minnesota.
2. The issuance and sale of the shares have been duly and validly
authorized by the necessary corporate action; and said shares,
upon delivery in the manner contemplated in the Plan of
Reorganization, will be duly authorized, validly issued and
outstanding, fully paid, and nonassessable shares of common
stock of the Fund.
We consent to the use of this opinion as an exhibit to the Fund's Form
N-14 Registration Statement and further consent to the reference of our firm
under the heading "Legal Matters" in the Combined Proxy Statement/Prospectus
forming a part thereof.
Very truly yours,
/s/ Donald F. Burt
DONALD F. BURT
For the Firm
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
SMITH HAYES Trust, Inc.
and
The Partners
Conley Partners Limited Partnership:
We consent to the use of our report of SMITH HAYES Trust, Inc., dated
July 22, 1994, incorporated by reference herein in this Form N-14 Registration
Statement of SMITH HAYES Trust, Inc.
We also consent to the use of our report of Conley Partners Limited
Partnership, dated January 11, 1995, incorporated by reference herein in this
Form N-14 Registration Statement of SMITH HAYES Trust, Inc.
KPMG PEAT MARWICK LLP
Omaha, Nebraska
May 26, 1995
<PAGE>
