LANCASTER FUNDS
CAPITAL BUILDER
CONVERTIBLE
CRESTONE SMALL CAP
GOVERNMENT/QUALITY BOND
SEMI-ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
Schedule of Investments
Capital Builder Fund..................................... 1
Convertible Fund......................................... 4
Crestone Small Cap Fund.................................. 7
Government/Quality Bond Fund............................. 11
Statement of Assets and Liabilities.......................... 12
Statement of Operations...................................... 13
Statements of Changes in Net Assets
Capital Builder Fund..................................... 14
Convertible Fund......................................... 14
Crestone Small Cap Fund.................................. 15
Government/Quality Bond Fund............................. 15
Financial Highlights
Capital Builder Fund..................................... 16
Convertible Fund......................................... 17
Crestone Small Cap Fund Investor Shares.................. 18
Crestone Small Cap Fund Select Shares.................... 19
Government/Quality Bond Fund............................. 20
Notes to Financial Statements................................ 21
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31,1996
(Unaudited)
CAPITAL BUILDER FUND
PERCENT OF
NET ASSETS MARKET
SHARES COMMON STOCK 84.58% VALUE
------ ------------ ------ -----
Electrical Equipment 4.52%
-------------------- -----
6,000 Duracell International, Inc. 419,250
-------
Electronics 6.94%
----------- -----
4,000 General Electric Company 395,500
7,000 Molex, Inc.* 249,375
-------
644,875
-------
Entertainment/Leisure 3.54%
--------------------- -----
7,000 Harley-Davidson, Inc. 329,000
-------
Financial Services 8.99%
------------------ -----
3,000 Chase Manhattan Corporation 267,750
2,700 Federal Home Loan Mortgage Corporation 297,338
1,000 Wells Fargo & Company 269,750
-------
834,838
-------
Food-Processing 3.48%
--------------- -----
6,500 Conagra, Inc. 323,375
-------
Household Products/Wares 6.77%
------------------------ -----
12,000 Newell Company 378,000
9,000 Libbey, Inc* 250,875
-------
628,875
-------
Insurance 5.13%
--------- -----
9,700 Integon Corporation 172,175
3,000 MBIA, Inc.* 303,750
-------
475,925
-------
Iron/Steel 3.41%
---------- -----
17,250 Kentucky Electric Steel, Inc.* 99,188
12,000 Worthington Industries, Inc. 217,500
-------
316,688
-------
Machine-Diversified 6.22%
------------------- -----
6,100 Briggs & Stratton Corporation 268,400
7,500 Thermo Electron Corporation* 309,375
-------
577,775
-------
Manufacturing 7.30%
------------- -----
4,000 Eastman Kodak Company 321,000
14,000 Pall Corporation 357,000
-------
678,000
-------
Office/Business 3.87%
--------------- -----
6,600 Pitney-Bowes, Inc. 359,700
--------
Oil/Gas 7.27%
------- -----
7,171 Coastal Corporation 350,483
8,000 Unocal Corporation 325,000
-------
675,483
-------
Pharmaceutical/Medical 4.27%
---------------------- -----
5,000 Merck & Company, Inc. 396,250
-------
Publishing/Printing 2.63%
------------------- -----
7,000 Belo (A. H.) Corporation Series A 244,125
-------
Real Estate 4.34%
----------- -----
13,000 Simon Property Group, Inc. 403,000
-------
Restaurant/Food Service 3.17%
----------------------- -----
6,500 McDonald's Corporation 294,125
-------
Retail Store/Apparel 2.73%
-------------------- -----
5,500 Sears Roebuck & Company 253,688
-------
Total Common Stock 7,854,972
---------
CLOSED-END MANAGEMENT COMPANY 3.58%
22,851 Global Health Sciences Fund 331,340
-------
Total Investment in Securities (cost $6,187,840) 88.16% 8,186,310
Short-Term Investments 11.74% 1,093,292
Other Assets, less Liabilities .10% 6,016
------------ --------------
NET ASSETS 100.00% $9,285,618
============ ==============
*Indicates nonincome-producing security.
See accomanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(Unaudited)
CONVERTIBLE FUND
PRINCIPAL MARKET
AMOUNT CONVERTIBLE DEBENTURES 53.92% VALUE
------ ---------------------- ------ -----
45,000 ADT Operations, 0%, due 7/6/10 $29,363
25,000 All American Communications 6.50%, due 10/01/03 29,094
35,000 Alza Corporation 5.00%, due 5/1/06 34,169
40,000 Analog Devices Inc. 3.50%, due 12/01/00 55,200
35,000 Apache Corporation 6.00%, due 1/15/02 43,925
90,000 Automatic Data Processing, Inc. 0%, due 2/20/12 50,063
65,000 Baker Hughes, Inc 0%, due 5/5/08 47,938
115,000 Boston Chicken, Inc 0%, due 6/1/15 35,506
24,000 Cooper Industries, Inc. 7.05%, due 1/01/15 25,500
80,000 Fremont, Inc. 0%, due 10/12/13 48,000
42,000 Gencorp, Inc. 8.00%, due 8/1/02 47,985
35,000 Hasbro, Inc. 6.00%, due 11/15/98 46,550
45,000 Hilton Hotels, Inc 5.00%, due 5/15/06 46,350
30,000 Home Depot Corporation, 3.25%, due 10/1/01 29,363
30,000 Interpublic Group, Inc. 3.75%, due 4/1/02 31,800
75,000 Jacor Comm, Inc. 0%, due 6/12/11 33,750
45,000 Leasings Solutions, Inc. 6.875%, due 10/1/03 44,831
130,000 Marriot International, Inc 0%, due 3/25/11 73,126
60,000 Motorola, Inc. 0%, due 9/27/13 46,575
50,000 National Data Corporation, 5.00% due 11/1/03 52,250
40,000 Nabors Industrial Inc. 5.00%, due 5/15/06 49,400
100,000 New American Holdings, Inc. 0%, due 3/11/13 46,000
36,000 Pennzoil Company 4.75%, due 10/1/03 41,355
20,000 Robbins & Myers, Inc. 6.50%, due 9/1/03 22,500
35,000 Rouse Corporation 5.75%, due 7/23/02 39,200
95,000 RPM, Inc. 0%, due 9/30/12 43,225
55,000 Standard Commercial Corp., 7.25%, due 3/31/07 49,981
70,000 Thermo Electron Corporation 5.00%, due 4/15/01 86,275
140,000 USF&G. Inc. 0%, due 3/3/09 94,325
130,000 US Cellular, Inc. 0%, due 6/15/15 43,225
---------
Total Convertible Debentures $1,366,824
---------
PERCENT
OF NET MARKET
SHARES PREFERRED STOCK 34.07% ASSETS VALUE
------ ---------------------- ------ -----
Financial Services 13.03%
--------------------- -----
500 Ahmanson Co., Pfd Series D 34,875
250 Banc One Corporation, $3.50 Pfd Series C 20,750
915 Community First Bankshares, Pfd 40,489
250 Conseco, Inc. 7.00% Pfd 28,438
720 Finova Finance Trust 5.50% Pfd 37,800
760 First Chicago Corporation, $5.75 Prfd Series B 68,590
920 Nuevo Financing 5.75% Pfd 49,335
300 Penncorp Financial $3.375 Pfd 25,200
544 Travelers, Inc., $2.75 Pfd Series B 24,684
------
330,161
------
Food/Beverage/Tabacco 1.89%
--------------------- -----
7,100 RJR Nabisco Holdings Corporation, 9% Pfd Series C 47,925
------
Industrial Services 15.64%
------------------- ------
540 Ashland Inc. $3.125 Pfd 37,058
600 Cooper Industries Inc. 6.00% Pfd 11,625
650 Corning Delaware 6.00% Pfd 41,356
615 Crown Cork & Seal 4.50% Pfd 31,980
975 Security Capital Industry 7.00% Pfd 26,569
950 Southdown Inc. $2.875 due Pfd Series D 49,638
7,000 Tyco Toys Inc. $0.4125 Pfd Series C 70,875
1,350 Unocal Corporation 6.25% Pfd 76,607
1,900 USX Corp 6.75% Pfd 50,588
------
396,296
------
Oil/Gas 2.23%
------- -----
1,200 Lomak Petroleum Inc. $2.03 Series C Pfd 56,400
------
Telecommunications 1.28%
------------------ -----
1,000 US West, Inc. 7.625% Pfd 32,375
------
Total Preferred Stock $863,157
------
COMMON STOCK 7.58%
Entertainment 1.50%
------------- -----
1,151 Carnival Corporation* 37,983
-------
Manufacturing 0.74%
------------- -----
400 Lindsay Manufaturing Co. 18,700
------
Pharmaceutical/Medical 3.48%
---------------------- -----
1,400 Carter-Wallace Inc. 21,875
979 Elan Corporation* 32,552
450 Warner-Lambert Co. 33,750
------
88,177
------
Restaurant/Food Service 1.86%
----------------------- -----
2,420 Consolidated Products Inc.* 47,190
------
Total Common Stocks $192,050
------
Total Investments in Securities (Cost $2,172,961) 95.57% 2,422,031
Cash Equivalents 7.99% 202,609
Other Assets, Less Liabilities -3.56% (90,326)
----- --------
NET ASSETS 100.00% $2,534,314
===== ===========
*Indicates nonincome-producing security.
See accompanying notes to financial statements.
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(Unaudited)
SMALL CAP FUND
PERCENT OF
NET ASSETS MARKET
SHARES COMMON STOCK 98.94% VALUE
------ ------------ ------ ------
Auto/Truck/Parts 1.28%
----------------------------- ------
13,000 Ugly Duckling Corp* 253,500
-------
Commercial Services 0.99%
----------------------------- ------
9,400 F.Y.I. Inc.* 196,225
-------
Computer Related 15.81%
----------------------------- ------
6,800 Analysts International 192,100
6,000 Ciber, Inc.* 180,000
15,100 Ciprico, Inc* 220,838
10,200 Computer Products, Inc.* 198,900
9,350 Computer Task Group* 403,219
19,500 Ikos Systems, Inc.* 390,000
13,800 Information Management Res* 291,525
22,800 International, Inc* 384,750
14,600 Keane, Inc.* 463,550
29,800 Par Tech Corp* 413,475
-------
3,138,357
---------
Electrical Equipment 1.43%
----------------------------- ------
7,400 Etec Systems, Inc* 283,050
-------
Electronics 5.93%
----------------------------- ------
17,000 Actel Corp* 403,750
6,800 Harman International Ind, Inc 378,250
7,600 Zygo Corp* 395,200
-------
1,177,200
-------
Entertainment/Leisure 0.93%
----------------------------- ------
12,000 Sodak Gaming* 184,500
-------
Environmental Control 1.85%
----------------------------- ------
14,500 Tetra Technologies* 366,125
-------
Financial Services 19.95%
----------------------------- ------
20,900 Americredit Corporation * 428,450
35,700 Bank Plus Corporation * 410,550
13,050 Commonwealth Bancorp 195,750
11,600 Coast Savings Financial, Inc. * 424,850
8,800 Healthcare Financial Part* 112,200
20,900 Imperial Credit Industries, Inc. * 438,900
16,300 Imperial Credit Mortgage Holdings 387,125
7,600 Ocean Financial Corp* 193,800
25,300 Resource Bankshares 360,525
6,650 Southern Pacific Funding Corporation * 206,981
14,000 Medallion Finan Corp 213,500
12,300 Trenton Savings Bank FSB * 196,800
19,645 WFS Financial, Inc. 390,444
-------
3,959,875
-------
Machine/Tools 2.08%
----------------------------- ------
13,500 Greenfield Industry 413,438
-------
Machinary/Equipment 1.74%
----------------------------- ------
23,800 Renters Choice, Inc* 345,100
-------
Medical Supplies/Services 12.85%
----------------------------- ------
12,800 Arrow International, Inc 368,000
11,800 Express Scripts, Inc* 423,325
14,700 HCIA, Inc* 507,150
23,200 Inphynet Medical Management, Inc* 417,600
10,600 Lunar Corp* 371,000
22,100 Rotech Medical Corp* 464,100
-------
2,551,175
-------
Office/Business 1.81%
----------------------------- ------
20,200 Physicians Resource* 358,550
-------
Oil Company Exploration & Production 8.33%
----------------------------- ------
12,600 Forcenergy, Inc* 456,750
7,300 Flores & Rucks, Inc* 388,725
8,300 Nuevo Energy Company * 431,600
10,900 Vintage Petroleum, Inc. 376,050
-------
1,653,125
-------
Oil & Gas Drilling 6.84%
----------------------------- ------
45,225 Abacan Resource Corp* 392,892
19,700 Fx Energy, Inc. * 182,225
19,900 Marine Drilling Co* 391,781
17,700 Seagull Energy Corp * 389,400
-------
1,356,298
-------
Oil & Gas Field Services 5.00%
----------------------------- ------
15,800 Key Energy Group* 185,650
20,200 Pride Petroleum Services, Inc.* 469,650
12,300 3DX Technologies, Inc.* 135,300
13,000 Tuboscope Vetco International Corporation * 201,500
-------
992,100
-------
Oil Field Machinery & Equipment 1.02%
----------------------------- ------
10,900 Input/Output Inc* 201,650
-------
Real Estate 1.45%
----------------------------- ------
18,500 NHP, Inc.* 286,750
-------
Telecommunications 2.20%
----------------------------- ------
22,000 Symmetricom, Inc. * 437,250
-------
Transportation 4.49%
----------------------------- ------
12,300 Atlas Air, Inc. * 587,325
44,900 Mesa Airlines, Inc* 303,075
-------
890,400
-------
Trucking & Leasing 1.95%
----------------------------- ------
16,500 Swift Transportation Company, Inc. * 387,750
-------
Wholesale Special Line 1.01%
----------------------------- ------
11,825 United Natural Foods* 201,025
-------
Total Investment in Securities (cost $16,664,092) 98.94% 19,633,444
Cash Equilvalents 1.69% 414,595
Others Assets, Less Liabilities (.63%) (205,214)
--------- ------------
NET ASSETS 100.00% $19,842,825
========= =============
*Indicates nonincome-producing security.
See accompanying notes to financial statements
<PAGE>
SMITH HAYES TRUST, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
(Unaudited)
GOVERNMENT/QUALITY BOND FUND
PRINCIPAL MARKET
AMOUNT U.S. GOVERNMENT SECURITIES 83.26% VALUE
------ -------------------------- ------ -----
187,968 Federal Home Loan Mtg. 7.00%, due 9/1/15 186,030
150,000 Federal Home Loan Mtg. 7.00%, due 11/15/19 150,516
251,465 Federal National Mtg. Assn. 6.00%, due 10/ 01/99 245,180
232,494 Federal National Mtg. Assn. 6.50%, due 10/01/02 230,025
107,971 Government National Mtg. Assn. 11.50%, due 10/15/10 122,548
174,598 Government National Mtg. Assn. 10.00%, due 12/15/18 191,457
3,468 Government National Mtg. Assn. 10.00%, due 5/15/19 3,803
17,634 Government National Mtg. Assn. 9.50%, due 9/15/19 19,051
25,231 Government National Mtg. Assn. 10.00%, due 5/15/20 27,668
80,666 Government National Mtg. Assn. 9.50%, due 9/15/21 87,145
112,573 Government National Mtg. Assn. 7.50%, due 4/15/22 112,644
80,566 Government National Mtg. Assn. 7.50%, due 5/15/23 80,616
175,630 Government National Mtg. Assn. 7.50%, due 1/15/24 175,740
75,000 U.S. Treasury Note 6.375%, due 8/15/02 75,492
250,000 U.S. Treasury Bond 10.75%, due 8/15/05 320,742
100,000 U.S. Treasury Bond 7.125%, due 2/15/23 104,406
-------
Total U.S. Government Securities 2,133,063
-------
CORPORATE BONDS 8.46%
100,000 Bankamerica Corporation 8.375%, due 3/15/02 107,001
100,000 Banc One Corporation 8.74%, due 9/15/03 109,940
-------
Total Corporate Bonds 216,941
-------
Total Investment in Securities (cost $2,324,060) 91.72% 2,350,003
Short-Term Investments 7.18% 184,080
Other Assets, less Liabilities 1.09% 27,946
-------- -----------
NET ASSETS 100.00% $2,562,029
======== ===========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statement of Assets and Liabilities
December 31, 1996
(Unaudited)
Capital Crestone Government/
Builder Convertible Small Cap Quality
Assets: Fund Fund Fund Bond Fund
-------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Investments in securities, at market value
(cost $6,187,840, 2,172,961, 16,664,093, and
2,324,060, respectively) $8,186,310 2,422,031 19,633,444 2,350,003
Cash equivalents 1,093,292 202,609 414,595 184,080
Accrued interest and dividends receivable 15,916 14,059 15,921 30,628
Receivable for fund shares sold - 47 9,375 105
Organizational costs, net of accumulated amortization 4,789 - 381 -
-------------- ---------------- -------------- ------------
Total assets 9,300,308 2,638,746 20,073,716 2,564,816
-------------- ---------------- -------------- ------------
Liabilities:
Accrued expenses, including investment
management and distribution expense payable to
adviser, administrator and distributor (note 3) 14,690 3,439 23,862 2,787
Payable for securities purchased - 100,993 - -
Payable for Capital Gain Distribution - - 84,431 -
Payable for fund shares redeemed - - 122,597 -
-------------- ---------------- -------------- ------------
Total liabilities 14,690 104,432 230,891 2,787
-------------- ---------------- -------------- ------------
Net assets applicable to outstanding capital stock $9,285,618 2,534,314 19,842,825 2,562,029
============== ================ ============== ============
Net assets are represented by:
Capital stock outstanding, at par (note 5) 766 201 1,270 251
Additional paid-in capital 7,020,698 2,313,722 16,630,901 2,793,249
Accumulated undistributed net
investment income (loss) (28,032) 52 (253,443) (32)
Accumulated undistributed net realized
gain (loss) on investments 293,716 (28,730) 494,746 (257,382)
Unrealized appreciation (note 4) 1,998,470 249,069 2,969,351 25,943
-------------- ---------------- -------------- ------------
Total net assets applicable to shares outstanding $9,285,618 2,534,314 19,842,825 2,562,029
============== ================ ============== ============
Shares outstanding and net asset value per share
Investor shares of capital stock outstanding 765,554 201,299 581,575 250,741
Net asset value per share - Investor Shares $12.13 12.59 15.62 10.15
============== ================ ============== ============
Select shares of capital stock outstanding 688,068
Net asset value per share - Select Shares $15.64
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statement of Operations
Six Months Ended December 31, 1996
(Unaudited)
Capital Crestone Government/
Builder Convertible Small Cap Quality
Fund Fund Fund Bond Fund
------------- ----------- ------------ ------------
Investment income:
<S> <C> <C> <C> <C>
Dividends $157,395 13,993 51,547 -
Interest 17,953 34,353 22,898 98,681
------------- ----------- ------------ ------------
Total investment income 175,348 48,346 74,445 98,681
------------- ------------------------- ------------
Expenses (note 3):
Investment advisory fees 32,914 7,860 64,492 8,952
Administration fees 17,929 3,759 21,497 3,730
Distribution expenses - Investor Class (note 6) 15,014 4,112 19,732 3,733
Distribution expenses - Select Class (note 6) - - 11,010 -
Custodial fees 798 1,119 6,182 1,682
Auditing and tax accounting fees 9,789 2,044 4,596 2,026
Blue Sky Registration fees 4,417 124 1,341 127
Legal fees 3,817 814 6,856 1,595
Other operating expenses 4,983 822 11,625 562
------------- ----------- ------------ ------------
Total expenses 89,661 20,654 147,331 22,407
------------- ----------- ------------ ------------
Net investment income (loss) 85,687 27,692 (72,886) 76,274
------------- ----------- ------------ ------------
Realized and unrealized gain (loss) on investments (note 4):
Net realized gain (loss) 408,508 10,923 338,599 (32,296)
------------- ----------- ------------ ------------
Net unrealized appreciation (depreciation)
Beginning of period 1,681,241 106,940 1,256,185 (45,906)
End of period 1,998,470 249,070 2,969,351 25,943
------------- ----------- ------------ ------------
Net unrealized appreciation 317,229 142,130 1,713,166 71,849
------------- ----------- ------------ ------------
Net realized and unrealized gain
on investments 725,737 153,053 2,051,765 39,553
------------- ----------- ------------ ------------
Net increase in net assets
resulting from operations $811,424 180,745 1,978,879 115,827
============= =========== ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statements of Changes in Net Assets
The Six Months Ended December 31, 1996 and The Period from
August 24, 1995 (commencement of operations) to
June 30, 1996 for the Capital Builder Fund and
Six Months Ended December 31, 1996 and
Year Ended June 30, 1996 for the Convertible Fund
Convertible
Capital Builder Fund Fund
----------------------- ---------------------
Six Months Ended Period Ended Six Months Year Ended
Dec. 31,1996 June 30,1996 Dec. 31,1996 June 30,1996
---------- ------------ ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operations:
Net investment income $85,687 27,240 27,692 46,537
Net realized gain on investments 408,508 522,893 10,923 322,618
Unrealized appreciation(depreciation) 317,229 928,276 142,130 (72,118)
---------- ------------ ---------- ----------
Net increase in net assets
resulting from operations 811,424 1,478,409 180,745 297,037
---------- ------------ ---------- ----------
Distributions to shareholders from:
Net investment income 85,705 29,049 29,314 44,950
Net realized gains 637,685 - 267,646 73,269
---------- ------------ ---------- ----------
Total distributions 723,390 29,049 296,960 118,219
---------- ------------ ---------- ----------
Capital share transactions: (note 5)
Proceeds from sales 1,098,756 1,205,089 603,533 214,846
Net assets from limited
partnership (note 6) - 3,283,131 - -
Proceeds from fund conversion(note 6) - 5,386,699 - -
Payment for redemptions (1,144,773) (2,824,789) (51,160) (473,816)
Reinvestment of net investment
income and net realized gain
distributions at net asset value 715,062 29,049 296,330 117,011
---------- ------------ -------- --------
Total increase (decrease)
from capital
share transactions 669,045 7,079,179 848,703 (141,959)
---------- ------------ ---------- ----------
Total increase in net assets 757,079 8,528,539 732,488 36,859
Net assets:
Beginning of period 8,528,539 - 1,801,826 1,764,967
---------- ------------ ---------- ----------
End of period $9,285,618 8,528,539 2,534,314 1,801,826
========== ============ ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statements of Changes in Net Assets
Six Months Ended December 31, 1996 and Year Ended June 30, 1996
Crestone
Small Cap Government/Quality
Fund Bond Fund
----------------------- ----------------------
Six Months Ended Period Ended Six Months Year Ended
Dec. 31,1996 June 30,1996 Dec. 31,1996 June 30,1996
------------ ---------- ----------- ----------
(Unaudited) (Unaudited)
Operations:
<S> <C> <C> <C> <C>
Net investment income (loss) ($72,886) (85,392) $76,274 224,969
Net realized gain (loss)
on investments 338,599 2,574,920 (32,296) (39,002)
Unrealized appreciation (depreciation) 1,713,166 (69,786) 71,849 (42,125)
------------ ---------- ---------- ----------
Net increase in net assets
resulting from operations 1,978,879 2,419,742 115,827 143,842
------------ ---------- ---------- ----------
Distributions to shareholders from:
Net investment income - - 81,193 224,047
Net realized gains - Investor Shares 809,721 897,261 - -
Net realized gains - Select Shares 679,536 - - -
------------ ---------- ---------- ----------
Total distributions 1,489,257 897,261 81,193 224,047
------------ ---------- ---------- ----------
Capital share transactions: (note 5)
Proceeds from sales 12,785,030 6,340,187 73,896 692,600
Payment for redemptions (11,128,082) (1,997,137) (1,143,675) (1,986,710)
Reinvestment of net investment
income and net realized gain
distributions at net asset value 1,368,877 872,059 72,218 205,347
------------ ---------- ---------- ----------
Total increase (decrease)
from capital
share transactions 3,025,825 5,215,109 (997,561) (1,088,763)
------------ ---------- ---------- ----------
Total increase (decrease) in
net assets 3,515,447 6,737,590 (962,927) (1,168,968)
Net assets:
Beginning of period 16,327,378 9,589,788 3,524,956 4,693,924
------------ ---------- ---------- ----------
End of period $19,842,825 16,327,378 2,562,029 3,524,956
============ ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Period from August 24, 1995 (commencement of operations)
to June 30, 1996 and the six months ended December 31, 1996
Capital Builder Fund
------------------------------------
Six Months Ended Aug. 24, 1995 to
Dec. 31, 1996 June 30, 1996
------------- -------------
(Unaudited)
Net asset value:
Beginning of period $11.98 $10.00
------ ------
Income from investment operations:
Net investment income 0.12 0.04
Net realized and unrealized gain/loss
on investments 1.03 1.98
---- ----
Total income from
investment operations 1.15 2.02
---- ----
Less Distributions:
Dividends from net investment income (0.12) (0.04)
Dividends from capital gains (0.88) (0.04)
------ ------
End of period $12.13 $11.98 *
====== ======
Total return 19.51% * 24.14% *
====== ======
Ratios/Supplemental data:
Net assets, end of period $9,285,618 $8,528,539
Ratio of expenses to average net assets 2.05% * 1.82% *
Ratio of net income to average net assets 1.96% * 0.42% *
Portfolio turnover rate 11.45% 31.35%
*Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1996 and Years
Ended June 30, 1996, 1995, 1994, 1993, and 1992
Convertible Fund
--------------------------------------------------------------------------
Six Months Ended
Dec. 31, 1996 1996 1995 1994 1993 1992
--------- ---- ---- ---- ---- ----
(Unaudited)
Net asset value:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $13.20 11.97 11.69 12.58 10.76 9.96
------ ----- ----- ----- ----- ----
Income (loss) from investment operations:
Net investment income 0.18 0.33 0.30 0.29 0.33 0.31
Net realized and unrealized
gain (loss) on investments 0.98 1.73 1.01 (0.53) 2.16 0.80
---- ---- ---- ------ ---- ----
Total income (loss) from
investment operations 1.16 2.06 1.31 (0.24) 2.49 1.11
---- ---- ---- ------ ---- ----
Less distributions:
Dividends from net
investment income (0.19) (0.33) (0.30) (0.29) (0.33) (0.31)
Distributions from capital (1.58) (0.50) (0.73) (0.36) (0.34) 0.00
------ ------ ------ ------ ------ ----
gains
Total distributions (1.77) (0.83) (1.03) (0.65) (0.67) (0.31)
------ ------ ------ ------ ------ ------
End of period $12.59 13.20 11.97 11.69 12.58 10.76
====== ===== ===== ===== ===== =====
Total return 16.23% * 17.60% 14.09% (2.26%) 24.06% 10.95%
====== ====== ====== ======= ====== ======
Ratios/Supplemental data:
Net assets, end of period $2,534,314 1,801,826 1,764,967 2,708,104 2,368,876 1,791,325
Ratio of expenses to
average net assets 1.97% * 1.93% 2.25% 2.06% 2.13% 2.48%
Ratio of net income to
average net assets 2.65% * 2.53% 2.58% 2.27% 2.91% 2.85%
Portfolio turnover rate 40.17% 79.30% 51.31% 65.76% 69.72% 96.02%
*Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1996 and Years Ended
June 30, 1996, 1995, 1994 and 1993
Crestone Small Cap Fund - Investor Shares**
----------------------------------------------------------------------
Six Months Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1996 June 30,1996 June 30,1995 June 30,1994 June 30,1993
(Unaudited)
Net asset value:
<S> <C> <C> <C> <C> <C>
Beginning of period $15.27 13.49 11.59 11.77 10.00
------ ----- ----- ----- -----
Income from investment operations:
Net investment loss (0.07) (0.10) (0.08) (0.07) (0.05)
Net realized and unrealized gain
on investments 1.83 2.91 2.34 0.20 1.83
---- ---- ---- ---- ----
Total income from
investment operations 1.76 2.81 2.26 0.13 1.78
---- ---- ---- ---- ----
Distributions from capital gains (1.41) (1.03) (0.36) (0.31) (0.01)
------ ------ ------ ------ ------
End of period $15.62 15.27 13.49 11.59 11.77
====== ===== ===== ===== =====
Total return 17.87% * 22.33% 20.33% 1.21% 17.80%
====== ====== ====== ===== ======
Ratios/Supplemental data:
Net assets, end of period $9,083,087 16,327,378 9,589,788 7,218,944 3,137,762
Ratio of expenses to
average net assets 1.81% * 1.75% 1.93% 1.91% 2.18%
Ratio of net income to
average net assets (0.96%)* (0.67%) (0.60%) (0.60%) (0.87%)
Portfolio turnover rate 108.93% 150.05% 86.50% 75.23% 47.55%
*Annualized for those periods less than twelve months in duration.
**All capital shares issued and outstanding as of September 30, 1996 were
reclassified as Investor Shares. See accompanying notes to financial statements
</TABLE>
<PAGE>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
The Period from October 1, 1996 (commencement of cass shares)
to December 31, 1996
(unaudited)
Crestone Small Cap Fund
Select Shares**
-----------------------------
Net asset value:
Beginning of period $15.44
------
Income from investment operations:
Net investment income (0.05)
Net realized and unrealized gain
on investments 1.83
----
Total income from
investment operations 1.78
----
Distributions from Capital Gains (1.58)
------
End of period $15.64
=====
Total return 31.60% *
=====
Ratios/Supplemental data:
Net assets, end of period $10,759,738
Ratio of expenses to average net assets 1.49% *
Ratio of net income to average net assets 0.56% *
Portfolio turnover rate 31.35%
*Annualized for those periods less than twelve months in duration.
**Commencing October 1, 1996, the Fund began offering Select Shares.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1996 and Years
Ended June 30, 1996, 1995, 1994, 1993, and 1992
Government/Quality Bond Fund
---------------------------------------------------------------------------
Six Months Ended
Dec. 31, 1996 1996 1995 1994 1993 1992
--------- ---- ---- ---- ---- ----
(Unaudited)
Net asset value:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $10.15 10.43 10.21 11.17 10.93 10.42
------ ----- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income 0.27 0.55 0.60 0.54 0.64 0.73
Net realized and unrealized
gain (loss) on investments 0.08 (0.28) 0.22 (0.75) 0.43 0.60
---- ------ ---- ------ ---- ----
Total income (loss) from
investment operations 0.35 0.27 0.82 (0.21) 1.07 1.33
---- ---- ---- ------ ---- ----
Less distributions:
Dividends from net
investment income (0.28) (0.55) (0.60) (0.54) (0.64) (0.71)
Distributions from capital gains 0.00 0.00 0.00 (0.21) (0.19) (0.11)
---- ----- ---- ------ ------ ------
Total distributions (0.28) (0.55) (0.60) (0.75) (0.83) (0.82)
------ ------ ------ ------ ------ ------
End of period $10.22 10.15 10.43 10.21 11.17 10.93
====== ===== ===== ===== ===== =====
Total return 7.90% * 2.83% 9.42% (2.00%) 11.00% 12.79%
===== ===== ===== ======= ====== ======
Ratios/Supplemental data:
Net assets, end of period $2,562,029 3,524,956 4,693,924 8,832,147 9,709,386 8,112,226
Ratio of expenses to
average net assets 1.51% * 1.42% 1.47% 1.37% 1.38% 1.50%
Ratio of net income to
average net assets 5.13% * 5.21% 5.86% 4.94% 6.25% 6.64%
Portfolio turnover rate 0.00% 36.11% 9.33% 218.11% 175.95% 507.52%
*Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
December 31, 1996
(Unaudited)
1. Organization
SMITH HAYES Trust, Inc., d/b/a Lancaster Funds, (the Trust) is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The Trust issues its shares in
series, each series representing a distinct fund with its own investment
objectives and policies. These financial statements relate only to the
following funds:
Capital Builder Fund Crestone Small Cap Fund
Convertible Fund Government/Quality Bond Fund
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies employed by
the Trust in preparing its financial statements:
Use of Estimates: In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial state-
ments and changes in net assets for the period. Actual results could
differ from those estimates.
Valuation of Investments
Investment securities are carried at market determined using the following
valuation methods:
o Securities traded on a national or regional stock exchange or included
in the NASDAQ National Market System are valued at the last quoted
sales price.
o Securities not listed on an exchange or securities for which a latest
quoted sales price is not readily available and securities traded
over-the-counter but not included in the NASDAQ National Market System
are valued at the mean of the closing bid and asked prices.
o Securities including bonds or other assets for which reliable recent
market quotations are not readily available are valued at fair market
value as determined in good faith or under the direction of The Board
of Directors. Determination of fair value involves, among other
things, reference to market indices, matrices and data from
independent brokers and pricing services.
All securities are valued in accordance with the above policies at the
close of each business day.
At December 31, 1996, the cost of investment securities is identical for
financial reporting and income tax purposes.
When a call option is written on behalf of a fund, an amount equal to the
premium received by the fund is included by the fund in the fund's
statement of assets and liabilities as a liability. The amount of the
liability is subsequently marked to market to reflect the current value of
the option written. The current market value of a traded option is the
last sales price on the principal exchange on which such options are
traded, or in the absence of such a sale, at the latest ask quotation.
When an option expires on its stipulated expiration date or the fund
enters into a closing purchase transaction, the fund realizes a gain (or
loss if the cost of a closing transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. When an option is exercised, the fund realizes a gain or
loss from the sale of the underlying security and the proceeds from such
sale are decreased by the premium originally received.
When a put option is written, an amount equal to the premium paid by the
fund is included by the fund in the fund's statement of assets and
liabilities as an asset. The amount of the asset is subsequently marked to
market to reflect the current value of the option written. The current
market value of a traded option is the last sales price on the principal
exchange on which such options are traded, or in the absence of such a
sale, at the latest ask quotation. When an option expires on its
stipulated expiration date or the fund enters into a closing sales
transaction, the fund realizes a gain (or loss if the cost of a closing
transaction is lower than the premium paid when the option was sold)
without regard to any unrealized gain or loss on the underlying security,
and the asset related to such option is extinguished. When an option is
exercised, the fund realizes a gain or loss from the sale of the
underlying security and the proceeds from the sale are increased by the
premium originally paid.
At December 31, 1996, the funds authorized to write option contracts had
no such option contracts outstanding nor were any written during the year.
Security Transactions
Security transactions are accounted for on the date securities are
purchased or sold (trade date). Dividend income is recognized on the
ex-dividend date and interest income is accrued daily. Amortization of
premium and discount is accrued using both the constant yield and the
straight-line methods.
Realized investment gains and losses are determined by specifically
identifying the issue sold.
Federal Income Taxes
It is the policy of each fund to comply with requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute virtually all of the taxable income generated by the funds to
their shareholders within the time period allowed by Federal law. Each
fund is treated as a separate entity for tax purposes, and on a calendar
basis will distribute substantially all of its net investment income and
realized gains, if any, to avoid payment of any federal excise tax. The
funds will not distribute net realized losses. Distributions will be made
when capital gains have been generated to cover these losses. Each fund
prepares its tax return on an accrual basis.
Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
Cash Equivalents
The Trust considers investments with a maturity of three months or less
when purchased to be cash equivalents.
3. Related Party Transactions
The Trust and each fund have retained CONLEY SMITH, Inc. (the Adviser) as
their exclusive investment adviser. The agreement provides that each fund,
except the Government/Quality Bond Fund, will pay the Adviser a fee equal
to .75% per annum of the fund's average daily net assets. The
Government/Quality Bond Fund pays .60% per annum of its average daily net
assets.
The Trust and each fund also retained Lancaster Administrative Services,
Inc. (the Administrator) to act as its administrator and transfer agent.
The agreement provides that each fund will pay an administrative fee to
the Administrator equal to .25% per annum of its average daily net assets.
In addition to the advisory and administrative services agreements, the
Trust and each fund have retained SMITH HAYES Financial Services
Corporation (the Distributor), a company related through common ownership
and management, to act as the underwriter and distributor of the fund's
shares. Pursuant to the shareholder approved distribution plan under Rule
12b-1, each fund will reimburse the distributor for shareholder-related
expenses incurred in connection with the distribution of the fund's
shares, however, under no circumstances shall such reimbursement exceed
.50% per annum of the fund's average daily net assets (.25% for the
Government/Quality Bond Fund).
Under the terms of the advisory, administrative and distribution
agreements outlined above, the funds collectively paid $114,217, $61,163
and $45,532, respectively, for such services. Of the amount paid to the
Distributor, $42,830 was retained by them for sales of the Trust's shares
made by their agents and brokers.
At December 31, 1996, the following accrued investment management,
administrative fees and distribution expenses were payable to the Adviser,
Administrator and the Distributor:
Payable Payable Payable
to to to
Adviser Administrator Distributor Total
--------- ----------- ------------ -------
Capital Builder Fund $5,871 $1,957 $3,944 $11,772
Convertible Fund 1,580 527 1,064 3,171
Crestone Small Cap Fund 12,336 4,112 3,801 20,249
Government/Quality
Bond Fund 1,338 558 559 35,192
======== ====== ====== ========
Under the terms of the adviser agreement, the Adviser may be obligated to
reimburse a fund up to the amount of the Adviser's fee paid to the Adviser
if during any year the expenses of the fund, including the Adviser's fee,
exceed certain limitations. At December 31, 1996, no expense reimbursement
was required.
In addition to the amounts paid by the funds under the adviser,
administrative and distribution plans, the funds primarily used SMITH
HAYES Financial Services Corporation (SMITH HAYES) to affect security
trades on their behalf. As is customary in the industry, the investment
sub-advisers evaluate the pricing and ability to execute the transaction
in selecting brokers to affect trades. SMITH HAYES was paid commissions in
the amount of $21,503 for their brokerage services during the six months
ended December 31, 1996.
4. Securities Transactions
Purchases of securities and proceeds from sales during the six months
ended December 31, 1996, were as follows for each fund:
Purchases of Proceeds
Securities from Sales
------------ ------------
Capital Builder Fund $907,200 $1,249,330
Convertible Fund 1,435,924 751,943
Small Cap Fund 19,906.340 17,944,455
Government/Quality Bond Fund - 945,140
=========== ===========
At December 31, 1996, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities in each fund were as
follows:
Aggregate Gross
Unrealized
Appreciation Depreciation
----------- ----------
Capital Builder Fund $2,145,431 $146,961
Convertible Fund 280,307 31,237
Small Cap Fund 3,454,530 485,179
Government/Quality Bond Fund 48,006 22,063
=========== ======
5. Capital Share Transactions
The Trust is authorized to issue a total of one billion shares of common
stock in series with a par value of $.001 per share. The Board of
Directors have authorized fifty million shares to be issued in each fund.
Transactions in the capital stock of each fund for the year ended December
31, 1996, were as follows:
Capital
Builder Convertible
Fund Fund
Transactions in shares: ----------- ----------
Shares sold 87,962.308 44,849.103
Shares redeemed (93,417.676) (3,832.583)
Reinvested distributions 59,193.873 23,744.410
---------- ----------
Net increase 53,738.505 64,760.930
========== ==========
Crestone Crestone
Small Cap Small Cap
Fund Fund
Investor Shares Select Shares
Transactions in shares: -------------- -------------
Shares sold 169,729.687 661,004.106
Shares redeemed (698,237.600) (22,214.251)
Reinvested distributions 41,032.223 49,227.782
------------ -------------
Net increase (decrease) (487,475.690) 688,017.637
============= ===========
Government/
Quality Bond
Fund
Transactions in shares: ----------
Shares sold 7,173.636
Shares redeemed (110,732.538)
Reinvested distributions 7,052.584
-------------
Net decrease (96,506.318)
============
At December 31, 1996, directors, officers and employees of the Trust, the
Adviser, Administrator and Distributor and their immediate families held
the following in each fund:
Shares Value
----------- ---------
Capital Builder Fund 37,887.096 $459,570
Convertible Fund 2,981.405 37,536
Crestone Small Cap Fund Investor Shares 8,553.853 133,611
Government/Quality Bond Fund 395.605 4,043
=========== ========
6. Business Changes
In September of 1996, management authorized the issuance of 120,000,000
shares in three classes of 40,000,000 shares each designated Select,
Investor and Market shares for each of the Funds. The Investor class shares
are offered with a 12b-1 fee and without a sales load. The Select class
shares are offered with a sales load but no 12b-1 fee.
On August 24, 1995, the Capital Builder Fund commenced operations. The net
assets of three SMITH HAYES Trust, Inc. pre-existing Funds (Asset
Allocation, Balanced, and Value Funds) were converted to cash of $5,386,699
and invested in Capital Builder. In addition, the net assets of a related
party limited partnership of $3,283,131, including securities with
unrealized appreciation of $752,965 were received by Capital Builder in a
tax-free exchange.
<PAGE>
- -------------------------------------------------------------------------------
SMITH HAYES TRUST, INC.
NEBRASKA TAX-FREE FUND
SEMI-ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
Schedule of Investments........................ 1
Statement of Assets and Liabilities............ 9
Statement of Operations........................ 10
Statements of Changes in Net Assets............ 11
Financial Highlights........................... 12
Notes to Financial Statements.................. 13
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS
December 31, 1996
(Unaudited)
PERCENT
OF NET
PRINCIPAL ASSETS MARKET
AMOUNT TAX-EXEMPT SECURITIES 97.87% VALUE
- --------------------------------------------------------------------------------
Education 8.95%
-------------------------------------------- -------
50,000 Lancaster County Schools District 001 (Lincoln
Public Schools) General Obligation Bonds, Series 1993,
6.00% due 1/15/12 $51,523
100,000 Nebraska Educational Facilities Authority Revenue
Bonds, Series 1994 (Dana College Project),
6.75% due 6/1/14 110,322
100,000 Nebraska Educational Finance Authority Revenue
Bonds, Series 1995 (Condordia Teachers
College), 5.90% due 12/15/15 98,873
200,000 Nebraska Educational Finance Authority Revenue
Bonds, Series 1995 (Midland Lutheran
College Project), 6.25% due 6/15/15 205,527
300,000 Nebraska Higher Education Loan Program, Inc.
Junior Subordinate Bonds, Series
A-6, 6.40% due 6/1/13 313,512
100,000 Nebraska State College Revenue Bonds, Series
1992, 5.00% due 6/15/97 100,443
--------
880,200
--------
Electric, Water, Sewer 8.95%
-------------------------------------------- -------
300,000 City of Grand Island, Sewer System Revenue
Bonds Series 1994, 6.00% due 4/1/14 310,044
150,000 City of Grand Island Nebraska Electric Revenue
Bonds 5.60% due 9/1/97 $151,955
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS (Continued)
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITIES (Continued) ASSETS VALUE
- ------------ ------------------------------------------ ------- ----------
Electric, Water, Sewer (Continued)
-----------------------------------
100,000 City of Hastings, Nebraska Combined Utility
Revenue Bonds Series 1994,
6.875% due 10/15/14 $111,820
100,000 City of Hastings, Nebraska Electric System
Revenue Refunding Bonds,
Series 1993, 5.00% due 1/1/08 98,011
200,000 City of Kearney, Nebraska Combined Utilities
Revenue Refunding Bonds,
Series 1994, 6.10% due 6/1/14 208,366
---------
880,196
---------
General Obligation 26.38%
-------------------------------------------- -------
50,000 Boyd County Nebraska School District No. 38
(Spencer - Naper) General Obligation Bonds,
5.85% due 6/15/13 50,261
150,000 Buffalo County Nebraska School District No.
105 (Pleasanton) General Obligation Bonds,
Series 1993, 5.95% due 12/15/07 159,302
120,000 Colfax County Nebraska School District No. 2
(Schuyler) General Obligation Bonds, Series
1993, 5.65% due 12/15/09 122,766
150,000 Colfax County Nebraska School District No. 2
(Schuyler) General Obligation Bonds, Series
1993, 5.75% due 12/15/11 153,017
100,000 Douglas County Nebraska Sanitary and
Improvement District No. 257 General Obligation
Refunding Bonds (Ramble Ridge),
6.25% due 5/15/09 104,827
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS (Continued)
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITES (Continued) ASSETS VALUE
- ----------- -------------------------------------- ------- --------
General Obligation (Continued)
----------------------------------
400,000 Douglas County Nebraska School District No.
017, (Millard Public Schools) Refunding Bonds,
Series of 1996A, 4.65% due 10/01/01 $402,300
150,000 Douglas County Nebraska School District No.
010, (Elkhorn Public Schools) General Obligation Bonds,
Series of 1995 6.40% due 12/15/08 162,394
100,000 Douglas County Nebraska School District No.
010, (Elkhorn Public Schools) General Obligation Bonds,
Series of 1994 6.60% due 12/15/10 109,084
100,000 Douglas County Nebraska School District No.
010, (Elkhorn Public Schools) General Obligation Bonds,
Series of 1994 6.75% due 12/15/14 110,508
100,000 Keith County School District 001 Nebraska,
(Ogallala Public School) General Obligation
School Building Bond, Series 1994B,
6.30% due 11/15/09 106,826
448,271 Lancaster County School District 001 (Lincoln)
Lease Purchase General Obligation Bonds,
4.15% due 10/26/00 448,270
100,000 Lincoln-Lancaster County Public Building
Commission General Obligation Bonds, Series
1994, 6.20% due 10/15/11 106,489
100,000 Morrill County Nebraska School District No.
021, (Bayard) General Obligation Bonds,
5.80% due 5/15/06 104,023
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS (Continued)
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITIES (Continued) ASSETS VALUE
- ---------- ------------------------------------------ --------- -------
General Obligation (Continued)
-----------------------------------------
100,000 City of North Platte Nebraska General
Obligation Various Purpose Bonds, Series
1995, 6.20% due 3/15/15 $105,608
175,000 Saunders County, Nebraska School District #107
Cedar Bluffs Public Schools, General Obligation Bonds,
6.35% due 7/1/14 185,493
150,000 Western Nebraska Community College
Certificates of Participation Lease Rentals,
6.55% due 10/15/13 161,952
-------
2,593,120
----------
Hospital 10.03%
-------------------------------------------- -------
100,000 Douglas County Nebraska Hospital Authority No.
2 Revenue Bonds, Health Care Facilities (Catholic
Health Care Corp. A), 5.85% due 11/15/03 105,661
125,000 Douglas County Nebraska Hospital Authority No.
2 Revenue Bonds, Health Care Facilities (Catholic
Health Care Corp. A), 6.00% due 11/15/15 129,791
100,000 Douglas County Nebraska Hospital Authority No.
1 Revenue Bonds, Health Care Facilities (Archbishop
Bergan Mercy), 6.25% due 11/15/22 102,727
100,000 Gage County Nebraska Hospital Authority No.1
Hospital Revenue Bonds, (Beatrice Community Hospital and
Health Center Project), 6.50% due 10/1/07 108,489
200,000 Gage County Nebraska Hospital Authority No.1
Hospital Revenue Bonds, (Beatrice Community Hospital and
Health Center Project), 6.75% due 10/1/14 220,861
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS (Continued)
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITIES (Continued) ASSETS VALUE
- ---------- ------------------------------------------ --------- -------
Hospital (Continued)
100,000 Kearney County Nebraska Hospital Authority No.
1 Revenue Bonds, Series 1993 (Bethpage Mission of the
Great Plains, Inc.), 5.90% due 6/1/07 $105,570
200,000 Lancaster County Nebraska Hospital Authority
Hospital Revenue Bonds, Series 1992 A (Sisters of
Charity Health Care Systems, Inc.), 6.25% due 5/15/12 213,440
--------
986,539
--------
Housing 16.90%
-------------------------------------------- -------
100,000 Nebraska Investment Finance Authority Single
Family Housing Revenue Bonds, 1996A,
5.95% due 3/01/27 100,000
150,000 Nebraska Investment Finance Authority Hospital
Revenue Bonds,(Great Plains Regional Medical Center
Project), 6.50% due 5/15/14 161,723
200,000 Nebraska Investment Finance Authority Hospital
Revenue Bonds,(Nebraska Methodist Healthcare System),
6.55% due 3/1/99 209,776
75,000 Nebraska Investment Finance Authority Revenue
Bonds, (Foundation Educational Building Fund),
7.00% due 11/1/09 75,000
100,000 Nebraska Investment Finance Authority Single
Family Housing Revenue Bonds, 1995 Series A,
6.15% due 3/1/09 100,000
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS (Continued)
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECASSETSS (Continued) ASSETS VALUE
- ------------ ----------------------------------------- --------- ------
Housing (Continued)
--------------------------
100,000 Nebraska Investment Finance Authority Single
Family Housing Revenue Bonds, 1995 Series A,
6.20% due 9/1/10 $100,000
190,000 Nebraska Investment Finance Authority Single
Family Housing Revenue Bonds, 1994 Series A-1,
6.30% due 3/1/17 190,000
250,000 Nebraska Investment Finance Authority Single
Family Housing Revenue Bonds, 1995 Series B, 6.40%
due 9/1/26 250,000
475,000 Nebraska Investment Finance Authority Single
Family Housing Revenue Bonds, 1994 Series D-1,
7.30% due 9/1/26 475,000
-------
1,661,499
---------
Power 4.86%
-------------------------------------------- -------
100,000 McCook Nebraska Public Power District Electric
System Revenue and Refunding Bonds,
6.75% due 12/15/09 110,980
200,000 Municipal Energy Agency of Nebraska Power
Supply System Revenue Refunding Bonds, 1992 Series A,
6.00% due 4/1/17 207,386
150,000 Nebraska Public Power District
Revenue Bonds, Series 1992 A, 6.25% due 1/1/12 159,146
-------
$477,512
--------
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS (Continued)
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECASSETSS (Continued) ASSETS VALUE
Transportation 1.01%
-------------------------------------------- -------
100,000 Omaha, Nebraska Airport Authority Airport
Facilities Revenue Refunding Bonds, Series 1993,
5.50% due 1/1/13 $99,049
Various Revenues 20.79%
-------------------------------------------- -------
150,000 District Energy Corporation Nebraska Facility
Revenue Bonds, Series 1993 (City-County Building
and County Correctional
Family Project), 5.50% due 7/1/13 147,606
250,000 City of Lincoln, Nebraska Parking Revenue
Bonds, Series 1994 C, 6.10% due 8/15/09 265,848
200,000 City of Omaha Auditorium Facilities Corporation
(Omaha Civic Project), Series 1996, 4.25% due 8/15/99 200,738
425,000 City of Omaha Auditorium Facilities Corporation
(Omaha Civic Project), Series 1996, 4.35% due 8/15/00 426,420
100,000 City of Lincoln, Nebraska Parking Revenue
Bonds, Series 1994 C, 6.15% due 8/15/11 105,948
200,000 Nebraska Public Gas Agency Gas Supply System
Revenue Bonds, Series A, 6.25% due 4/1/05 210,218
200,000 Nebraska Public Gas Agency Gas Supply System
Revenue Bonds, Series A, 5.65% due 4/1/06 203,884
<PAGE>
NEBRASKA TAX-FREE FUND
SCHEDULE OF INVESTMENTS (Continued)
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECASSETSS (Continued) ASSETS VALUE
- ---------- -------------------------------------------- --------- --------
Various Revenues (Continued)
----------------------------------
235,000 Nebraska Investment Finance Authority Single
Family Housing Revenue Bonds, Series 1996E,
6.25% due 9/01/28 $235,000
250,000 County of Scottsbluff, Nebraska Development
Revenue Bonds Series 1995, (Northfield Villa, Inc. - The
Residency Project), 6.90% due 4/1/20 250,000
-------
1,156,283
---------
Total Investment in Securities (cost $9,358,485) 97.87% $9,623,777
Cash Equivalents .68% 39,035
Other Assets, less Liabilities 1.45% 170,377
----- -------
NET ASSETS 100.00% $9,833,189
====== ==========
See accompanying notes to financial statements.
<PAGE>
NEBRASKA TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(UNAUDITED)
ASSETS:
Investments in securities, at market value (cost $9,358,485) $9,623,777
Cash equivalents 39,035
Receivable for investment securities sold 204,071
Accrued interest and dividends receivable 139,372
-------------
Total assets 10,006,255
-------------
LIABILITIES:
Accrued expenses, including investment management,
administration and distribution expense reimbursements
payable to the adviser, administrator and distributor (note 3) 5,924
Payable for Fund shares redeemed 167,142
-------------
Total liabilities 173,066
-------------
Net assets applicable to outstanding capital stock $9,833,189
=============
NET ASSETS ARE REPRESENTED BY:
Capital stock outstanding, at par 996
Additional paid-in capital 9,958,375
Accumulated undistributed net investment income 20,960
Accumulated undistributed net realized loss on investments (412,434)
Unrealized appreciation (note 4) 265,292
-------------
Total amount representing net assets applicable to
995,935.412 outstanding shares of $.001 par value
common stock (50,000,000 shares authorized) $9,833,189
=============
Net asset value per share $9.87
See accompanying notes to financial statements.
<PAGE>
NEBRASKA TAX-FREE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
INVESTMENT INTEREST INCOME: $276,095
----------
EXPENSES (NOTE 3):
Investment advisory fees 7,296
Administration fees 6,080
Distribution expenses 12,128
Custodial fees 2,037
Auditing and tax accounting fees 2,632
Other operating expenses 2,737
----------
Total expenses 32,910
----------
Net investment income 243,185
----------
REALIZED LOSS AND UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS (NOTE 4):
Net realized loss (25,629)
----------
Net unrealized appreciation (depreciation)
Beginning of period (2,162)
End of period 265,292
----------
Net unrealized appreciation 267,454
----------
Net realized and unrealized gain on investments 241,825
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $485,010
==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS SIX MONTHS ENDED
DECEMBER 31, 1996 AND YEAR ENDED JUNE 30, 1996
SIX MONTHS ENDED YEAR ENDED
DEC. 31, JUNE 30,
1996 1996
---- ----
(UNAUDITED)
OPERATIONS:
<S> <C> <C>
Net investment income $243,186 $523,615
Net realized loss on investments (25,629) (77,341)
Unrealized appreciation (depreciation) on investments 267,454 (4,154)
------------- -------------
Net increase in net assets resulting from operations 485,010 442,120
------------- -------------
DIVIDENDS PAID TO SHAREHOLDERS FROM NET INVESTMENT INCOME: 242,687 527,052
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold (157,608.484 and 244,434.219 1,543,908 2,401,890
shares)
Distributions reinvested (14,854.927 and 29,550.493 144,933 290,084
shares)
Payment for redemptions (184,663.162 and 349,802.221 (1,801,713) (3,427,170)
shares)
------------- -------------
Net decrease from capital share transactions
(12,199.751 and 75,817.509 shares) (112,872) (735,196)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 129,452 (820,128)
NET ASSETS:
Beginning of period 9,703,737 10,523,865
------------- -------------
End of period $9,833,189 $9,703,737
============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND YEARS ENDED
JUNE 30, 1996 AND JUNE 30, 1995 AND FOR THE PERIOD
FROM JULY 2, 1993 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1994
SIX MONTHS ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31,1996 JUNE 30,1996 JUNE 30,1995 JUNE 30, 1994
(UNAUDITED)
NET ASSET VALUE:
<S> <C> <C> <C> <C>
Beginning of period $9.63 9.71 9.42 10.00
----- ---- ---- -----
Income (loss) from investment operations:
Net investment income 0.25 0.49 0.48 0.50
Net realized and unrealized gain
(loss) on investments 0.24 (0.08) 0.29 (0.63)
---- ------ ---- ------
Total gain (loss) from investment
operations 0.49 0.41 0.77 (0.13)
---- ---- ---- ------
Less distributions from net investment
income (0.25) (0.49) (0.48) (0.45)
------ ------ ------ ------
End of period (1) $9.87 9.63 9.71 9.42
===== ==== ==== ====
TOTAL RETURN 10.1% 4.3% 8.5% (1.6%) *
===== ==== ==== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $9,833,189 9,703,737 10,523,865 8,893,922
Ratio of expenses to average net assets 0.68% * 0.76% 0.71% 0.41% *
Ratio of net income to average net assets 5.02% * 4.96% 5.15% 4.99% *
Portfolio turnover rate 14.13% 17.53% 34.96% 7.45%
*Annualized
(1) Excludes maximum sales charge of 3.90%
See accompanying notes to financial statements.
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
1. ORGANIZATION
SMITH HAYES Trust, Inc., d/b/a Lancaster Funds, (the Trust) is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. These financial statements apply only to the
Nebraska Tax-Free Fund (the Fund).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies employed by
the Fund in preparing its financial statements:
USE OF ESTIMATES: In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements and
changes in net assets for the period. Actual results could differ from those
estimates.
VALUATION OF INVESTMENTS: Fund securities are valued at fair market value as
determined in good faith or under the direction of the Board of Directors.
Determination of fair value involves, among other things, reference to
market indices, matrices and data from independent brokers and pricing
services.
All securities are valued in accordance with the above policies at the close
of each business day provided that the Fund has shareholder activity.
At December 31, 1996, the cost of investment securities is identical for
financial reporting and income tax purposes.
SECURITIES TRANSACTIONS: Securities transactions are accounted for on the
date securities are purchased or sold (trade date). Interest income is
accrued daily. Amortization of bond premium and discount is accrued daily
using both the constant yield and the straight-line methods. Realized
investment gains or losses are determined by specifically identifying the
security sold.
FEDERAL INCOME TAXES: It is the policy of the Fund to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute virtually all of its taxable income, including
any net realized gain on investments, to its shareholders. Therefore, no
Federal income tax provision is required. The Fund prepares its tax return
on an accrual basis.
DISTRIBUTIONS TO SHAREHOLDERS: Dividends to shareholders are recorded
on the ex-dividend date.
CASH EQUIVALENTS: The Trust considers investments with a maturity of three
months or less when purchased to be cash equivalents.
3. RELATED PARTY TRANSACTIONS
The Fund has retained CONLEY SMITH, Inc. (the Adviser) as its exclusive
investment adviser. The agreement provides that the Fund will pay the
Adviser a fee equal to .15% per annum of its average daily net assets.
The Fund also retained Lancaster Administrative Services, Inc. (the
Administrator), to act as its administrator and transfer agent. The
agreement provides that the Fund will pay a fee to the Administrator equal
to .125% per annum of the average daily net assets.
In addition to the advisory and administrative services agreements, the Fund
has retained SMITH HAYES Financial Services Corporation (the Distributor), a
company related through common ownership and management, to act as the
underwriter and distributor of the Fund's shares. Pursuant to the
distribution plan under Rule 12b-1, the Fund will reimburse the Distributor
for shareholder-related expenses incurred in connection with the
distribution of the Fund's shares, however under no circumstances shall such
reimbursement exceed .25% per annum of the Fund's average daily net assets.
Under the terms of the advisory, administrative and distribution agreements
outlined above, the Fund paid $7,296, $6,080, and $12,128, respectively, for
such services. Of the amount paid to the Distributor, $7,875 was retained by
them for the sale of shares made by their agents and brokers. The
Distributor also received $5,267 and retained $4,113 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the Fund
shares. Such sales charges are not an expense of the Trust and hence are not
reflected in the accompanying statement of operations.
At December 31, 1996 the Fund had accrued sales charges of $4 payable to the
Distributor.
Under the terms of the advisory agreement, the Adviser may be obligated to
reimburse the Fund up to the amount of the Adviser's fee paid to the Adviser
if during any year the expenses of the Fund, including the Adviser's fee,
exceed certain limitations. At December 31, 1996 no expense reimbursement
was required.
In addition to the amount paid by the Fund under the advisory,
administration and distribution plans, the Fund used SMITH HAYES Financial
Services Corporation (SMITH HAYES) to affect security trades on their
behalf. SMITH HAYES was paid commissions in the amount of $12,338 for their
brokerage services during the six months ended December 31, 1996.
At December 31, 1996, the directors, officers, and employees of the Trust,
the Adviser, Administrator and Distributor and their immediate families held
10,195 shares at a value of $100,622.
4. SECURITIES TRANSACTIONS
The Fund made purchases and sales of investment securities of $1,361,739 and
$1,332,561, respectively, during the six months ended December 31, 1996.
At December 31, 1996, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities were $274,472 and
$9,180, respectively.
5. BUSINESS CHANGES
In September of 1996, management authorized the issuance of 120,000,000
shares in three classes of 40,000,000 shares each designated Select,
Investor and Market shares of the Fund.
<PAGE>
- -------------------------------------------------------------------------------
SMITH HAYES TRUST, INC.
INSTITUTIONAL MONEY MARKET FUND
SEMI-ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
Statement of Net Assets........................ 1
Statement of Operations........................ 3
Statements of Changes in Net Assets............ 4
Financial Highlights........................... 5
Notes to Financial Statements.................. 6
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996
(UNAUDITED)
YIELD AT
PAR TIME OF AMORTIZED
VALUE DESCRIPTION PURCHASE COST
- ----------------- -------------------------- ----------------- ----------
CERTIFICATES OF DEPOSIT -- 1%
95,000 First National Bank, 5.70% $95,000
Lewellen, Nebraska, due 5/23/97
95,000 First Bank & Trust Company,
Cozad, Nebraska, due 6/16/97 5.45% 95,000
95,000 Curtis State Bank,
Curtis Nebraska, due 3/16/97 5.50% 95,000
First National Bank
Holdrege Nebraska, due 2/10/97 6.00% 95,000
95,000 Havelock Bank
Lincoln Nebraska, due 2/3/97 5.80% 95,000
-------------
Total (cost $475,000) 475,000
-------------
GOVERNMENT SECURITIES -- 7%
1,000,000 Fannie Mae, due 2/18/97 5.26% 993,002
1,600,000 Federal Home Loan Mtg.
Corp., due 1/16/97 5.23% 1,596,546
-------------
Total (cost $2,589,548) 2,589,548
-------------
TRUST CERTIFICATES -- U.S. GOVERNMENT
GUARANTEED STUDENT LOANS -- 90%
40,500,000 Mid-America Student Finance Trust, due
2/14/97 to 12/18/97 (cost $40,500.000) 5.54%* $40,500,000
-------------
TOTAL INVESTMENTS -- 98% 43,564,548
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1996 (CONTINUED)
(UNAUDITED)
EXCESS OF OTHER ASSETS OVER TOTAL LIABILITIES -- 2%
(Includes $22,173 payable
to investment adviser, administrator
and distributor and $204,118
dividends payable toshareholders) 1,521,880
-------------
NET ASSETS -- 100%
Applicable to 45,086,428 outstanding
shares of $.001 par value common stock
(100,000,000 shares authorized) $45,086,428
=============
NET ASSET VALUE:
Offering and redemption
price per share $1.00
=============
*Interest rate fluctuates with
3-month U.S. Treasury Bill rate, subject
to no longer than 5-day settlement.
See accompanying notes to financial statements.
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
INVESTMENT INTEREST INCOME $1,466,618
-----------
EXPENSES (NOTE 2):
Investment advisory fees 26,508
Administration fees 31,810
Distribution fee 52,908
Custodial fees 12,066
Other expenses 20,593
-----------
Total expenses 143,885
-----------
NET INVESTMENT INCOME $1,322,733
===========
See accompanying notes to financial statements.
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS SIX MONTHS ENDED
DECEMBER 31, 1996 AND YEAR ENDED JUNE 30, 1996
SIX MONTHS ENDED YEAR ENDED
DEC. 31, 1996 JUNE 30, 1996
------------- -------------
(UNAUDITED)
FROM INVESTMENT OPERATIONS:
Net investment income
distributed to shareholders $1,322,733 $1,408,128
============= =============
FROM SHARE TRANSACTIONS:
(at constant net asset value of $1 per share)
Shares sold 29,324,958 101,840,935
Shares issued in reinvestment of
dividends from net investment income 1,130,909 992,239
------------- -------------
30,455,867 102,833,174
Shares redeemed 52,132,540 60,407,009
------------- -------------
Total increase (decrease) in net assets
derived from share transactions (21,676,673) 42,426,165
NET ASSETS:
Beginning of period 66,763,101 24,336,936
------------- -------------
End of period $45,086,428 $66,763,101
============= =============
See accompanying notes to financial statements.
<PAGE>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
INSTITUTIONAL MONEY MARKET FUND
SIX MONTHS ENDED DECEMBER 31, 1996 AND THE
YEARS ENDED JUNE 30, 1996, 1995 AND 1994 AND THE
PERIOD FROM NOVEMBER 12, 1992 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1993
SIX YEAR YEAR YEAR PERIOD
MONTHS ENDED ENDED ENDED ENDED ENDED
DEC. 31,1996 JUNE 30,1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
(UNAUDITED)
NET ASSET VALUE:
Beginning of period $1.00 1.00 1.00 1.00 1.00
----- ---- ---- ---- ----
Income from investment
operations,
Net investment income 0.003 0.052 0.054 0.040 0.009
Less distributions,
Dividends from net
investment income (0.003) (0.052) (0.054) (0.040) (0.009)
------- ------- ------- ------- -------
End of period $1.00 1.00 $1.00 1.00 1.00
===== ==== ===== ==== ====
YIELD 4.85% * 5.02% 5.63% 4.52% 4.28% *
===== ===== ===== ===== =====
EFFECTIVE YIELD 4.97% * 5.14% 5.79% 4.62% 4.37% *
===== ===== ===== ===== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $45,086,428 66,763,101 24,336,936 28,008,803 14,855,439
Ratio of expenses to average
net assets 0.54% * 0.57% 0.54% 0.61% 0.68% *
Ratio of net income to average
net assets 0.50% * 5.17% 5.42% 4.05% 4.40% *
*Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
SMITH HAYES Trust, Inc., d/b/a Lancaster Funds, (the Company) is registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. These financial statements relate only to the
Institutional Money Market Fund (the Fund).
The following is a summary of significant accounting policies employed by
the Company in preparing its financial statements.
VALUATION OF INVESTMENTS: Fund securities are valued at amortized cost.
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, amortized cost
as defined is a method of valuing securities at acquisition cost, adjusted
for amortization of premium or accretion of discount rather than at their
value based on current market factors. This method of valuation is used
consistently throughout the industry by money market funds wishing to
maintain a constant net asset value per share. The Fund maintains a constant
net asset value of $1 per share.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
recorded on a trade date basis. Realized gains or losses on sales of
investments are determined by specifically identifying the issue sold. In
computing net investment income, the Fund amortizes premiums and discounts
and accrue interest income daily.
FEDERAL INCOME TAXES: It is the policy of the Fund to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to have the Fund distribute virtually all of its taxable
income generated to it's shareholders. Therefore, no liability for Federal
income taxes is required. On a calendar year basis, the Fund, will
distribute substantially all of its net investment income and realized
gains, if any, to avoid the payment of any Federal excise taxes. The Fund
prepares its tax return on an accrual basis.
DISTRIBUTIONS TO SHAREHOLDERS: Dividends to shareholders are accrued and
declared daily from net investment income. Payments or reinvestments of
dividends are made monthly.
TRUST CERTIFICATES: The trust certificates represent U. S. Government
guaranteed student loans held by Mid-America Student Finance Trust (the
Trust). The Trust invests in eligible student loans issued under the Higher
Education Act of 1965 as amended (the Act) established by the U. S.
Government to provide access to funds for students attending post-secondary
institutions. The Trust purchases the student loans from Nebraska and Iowa
banks who are eligible lenders as defined by the Act. The terms of the
loans, which vary on an individual basis, generally provide for repayment in
monthly installments over a period normally not in excess of ten years.
All of the student loans are guaranteed by various authorized guarantee
agencies who have contracts of reinsurance with the Department of Education.
These guarantees are made subject to the performance of certain loan
servicing procedures stipulated by the Act. If these due diligence
requirements are not met, the affected loans may not be covered by the
guarantees should the borrower default.
For liquidity purposes, certain banks have entered into unconditional
agreements to repurchase a predetermined amount of student loans from the
Trust upon five days written notice. The maximum amount any bank is
obligated to repurchase is five percent of the total student loans owned by
the Trust. The repurchase agreements are cancelable with 30 days advance
written notice. At December 31, 1996, 18 banks have entered into repurchase
agreements for an aggregate total of $170,000,000.
2. MANAGEMENT FEE, DISTRIBUTION EXPENSE AND TRANSACTIONS WITH AFFILIATES
The Fund has retained CONLEY SMITH, Inc. (the Adviser) as its exclusive
investment adviser. Under the terms of the agreement the adviser is paid a
monthly fee computed at an annual rate of .10% of the average daily net
assets of the Fund.
The Fund has also retained Lancaster Administrative Services, Inc. (the
Administrator), to act as its administrator and transfer agent. The
agreements provide for a fee computed and paid monthly at an annual rate of
.12% of the average daily net assets of the Fund.
The Fund has retained SMITH HAYES Financial Services Corporation (the
Distributor), a company related through common ownership and management, to
act as the underwriter and distributor of the Fund's shares. Pursuant to the
shareholder approved distribution plan under Rule 12b-1, the Fund will
reimburse the Distributor for shareholder-related expenses incurred in
connection with the distribution of the Fund's shares. Aggregate payments
cannot exceed the annual rate of .20% of the Fund's average daily net
assets.
Under the terms of the advisory, administrative and distribution agreements
outlined above, the Fund paid $26,508, $31,810 and $52,908, respectively,
for such services.
In addition to the amounts paid under the advisory, administration and
distribution plans, the Fund primarily used SMITH HAYES Financial Services
Corporation (SMITH HAYES) to affect security trades on its behalf. As is
customary in the industry, the adviser evaluates the pricing and ability to
execute the transaction in selecting brokers to affect trades. SMITH HAYES
was paid commissions in the amount of $148 for brokerage services during the
six months ended December 31, 1996.
At December 31, 1996, the directors, officers, and employees of the Company,
the Adviser, Administrator, Distributor and their immediate families held
$1,319,755 shares of the Fund, which constituted 2.93% of the Fund's
outstanding shares.
