Lancaster Funds
CAPITAL BUILDER
CONVERTIBLE
SMALL CAP
GOVERNMENT/QUALITY BOND
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
TABLE OF CONTENTS
Schedule of Investments
Capital Builder Fund............................ 1
Convertible Fund................................ 4
Crestone Small Cap Fund......................... 7
Government/Quality Bond Fund.................... 12
Statement of Assets and Liabilities................ 13
Statement of Operations............................ 14
Statements of Changes in Net Assets
Capital Builder Fund............................ 15
Convertible Fund................................ 15
Crestone Small Cap Fund......................... 16
Government/Quality Bond Fund.................... 16
Financial Highlights
Capital Builder Fund............................ 17
Convertible Fund................................ 19
Crestone Small Cap Fund......................... 21
Government/Quality Bond Fund.................... 23
Notes to Financial Statements...................... 25
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
CAPITAL BUILDER FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK 93.19% ASSETS VALUE
------ ------------ ------ ------ -----
COMPUTER RELATED 2.67%
----------------
9,000 First Data Corporation $263,250
DIRECT MARKETING 0.93%
----------------
10,000 Sitel Corporation* 91,250
ELECTRICAL EQUIPMENT 4.51%
--------------------
4,424 Gillette Corporation 444,336
ELECTRONICS 3.19%
-----------
10,937 Molex, Inc. 314,439
ENTERTAINMENT/LEISURE 3.89%
---------------------
14,000 Harley-Davidson, Inc. 383,250
FINANCIAL SERVICES 11.38%
------------------
3,000 Chase Manhattan Corporation 328,500
10,800 Federal Home Loan Mortgage Corporation 452,925
1,000 Wells Fargo & Company 339,438
-------
1,120,863
FOOD PROCESSING 4.33%
---------------
13,000 ConAgra, Inc. 426,563
HOUSEHOLD PRODUCTS/HOUSEWARES 8.64%
-----------------------------
9,000 Libbey, Inc. 340,875
12,000 Newell Company 510,000
-------
850,875
INSURANCE 4.07%
---------
6,000 MBIA Incorporated 400,875
*Indicates nonincome-producing security
1
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
CAPITAL BUILDER FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------ -------------------------- ------ ------
IRON/STEEL 2.95%
----------
17,250 Kentucky Electric Steel, Inc.* $92,719
12,000 Worthington Industries, Inc. 198,000
-------
290,719
LINEN SUPPLY & RELATED ITEMS 1.81%
----------------------------
8,000 Unitog Company 178,000
MACHINE DIVERSIFIED 3.39%
-------------------
7,500 Thermo Electron Corporation* 333,750
MANUFACTURING 8.15%
-------------
7,000 General Electric Company 513,625
14,000 Pall Corporation 289,625
-------
803,250
METALS/MINING 0.04%
-------------
207 Valmont Industries 4,037
OIL COMPANY-INTERGRATE 2.36%
----------------------
6,000 Unocal Corporation 232,875
OFFICE/BUSINESS 5.43%
---------------
5,950 Pitney-Bowes, Inc. 535,128
PHARMACEUTICAL/MEDICAL 5.39%
----------------------
5,000 Merck & Company 531,250
PIPELINES 4.22%
---------
10,000 Enron Corporation 415,625
PUBLISHING/PRINTING 3.99%
-------------------
7,000 Belo A.H. Corporation Series A 392,875
REAL ESTATE 4.31%
-----------
13,000 Simon Property Group Inc.. 424,938
*Indicates nonincome-producing security
2
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
CAPITAL BUILDER FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------ ------------------------- --------- ------
RESTURANT/FOOD SERVICE 3.15%
----------------------
6,500 McDonald's Corporation $310,375
RETAIL STORE 3.41%
------------
5,000 Payless Shoesource* 335,625
TELECOMMUNICATION EQUIPMENT 0.98%
---------------------------
4,000 Andrew Corporation* 96,000
------
TOTAL COMMON STOCK 9,180,148
CLOSED-END MANAGEMENT COMPANY 4.47%
-----------------------------
22,851 Global Health Sciences Fund 440,421
-------
Total Investment in Securities (Cost $7,119,707) 97.66% $9,620,569
Cash Equivalents 2.92% 287,387
Other Assets, less Liabilities (0.58%) (57,054)
------- --------
TOTAL NET ASSETS 100.00% $9,850,902
======= ==========
*Indicates nonincome-producing security
3
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
CONVERTIBLE FUND
PRINCIPAL MARKET
AMOUNT CONVERTIBLE DEBENTURES - 52.13% VALUE
------ ------------------------------- -----
$60,000 Alaska Air 6.875% 6/15/14 $68,775
90,000 Automatic Data Processing 0% 2/20/12 71,213
35,000 Alza Corporation 5% 5/1/6 36,881
65,000 Baker Hughes, Inc. 0% 5/5/8 55,819
65,000 Capstar 4.75% 10/15/4 64,756
55,000 Seacor 5.375% 11/15/6 64,075
60,000 CUC International 3% 2/15/2 74,925
50,000 EMC Corporation 3.25% 3/15/02 67,688
32,000 Engle Homes 7% 3/1/3 42,080
45,000 Hilton Hotels, Inc. 5% 5/15/6 49,050
75,000 Jacor Comm, Inc. 0% 6/12/11 55,031
60,000 Kent Electric 4.5% 9/1/4 48,750
57,000 Loews 3.125% 9/15/7 56,430
65,000 Marriot International, Inc. 0% 3/25/11 42,169
50,000 Masco, Inc. 5.25% 2/15/12 59,500
65,000 Marriot International, Inc. 0% 3/25/11 42,006
65,000 Michael's 6.75% 1/15/3 63,700
85,000 Motorola, Inc. 0% 6/27/13 64,494
60,000 Mascotech, Inc. 4.5% 12/15/03 52,200
50,000 National Data 5% 11/1/3 47,563
50,000 Omnicom 4.25% 1/3/7 68,250
36,000 Pennzoil Company 4.75% 10/1/3 48,150
70,000 Rite Aid 5.25% 9/15/2 75,950
20,000 Robbins & Meyer 6.5% 9/1/3 30,450
50,000 Rouse Corporation 5.75% 7/23/2 57,313
95,000 RPM, Inc. 0% 9/30/12 46,194
60,000 System & Company 5% 10/15/4 69,375
55,000 Standard Commercial Corporation 7.25% 3/31/07 49,363
70,000 Thermo Europe 4.25% 1/1/03 81,550
140,000 USF&G, Inc. 0% 3/3/9 98,525
------
TOTAL CONVERTIBLE DEBENTURES $1,752,225
4
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS (CONTINUED)
CONVERTIBLE FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK 17.43% ASSETS VALUE
------ ------------------- ------ -----
AIRLINES 1.03%
--------
375 UAL Coporation* $34,688
COMPUTER RELATED 1.52%
----------------
1,350 Stratus Corporation* 51,047
COSMETICS/PERSONAL CARE 2.13%
-----------------------
3,575 American Safety Razor* 71,500
FINANCIAL SERVICES 4.74%
------------------
1,435 Community First Bankshares 76,414
1,625 Lehman Brothers Holdings 82,869
------
159,283
FOOD/BEVERAGE/TOBACCO 2.48%
---------------------
1,400 Dean Foods Company 83,300
INDUSTRIAL SERVICES 2.52%
-------------------
1,435 Southdown, Inc. 84,665
PUBLISHING/PRINTING 1.10%
-------------------
600 Gannett Company 37,088
RETAIL STORE 1.91%
------------
3,000 Fingerhut Companies 64,125
PREFERRED STOCK 23.40%
-----------------------
FINANCIAL SERVICES 13.03%
------------------
780 American Bankers Insurance 72,833
500 Ahmanson Co Pfd Series B 68,750
1,600 Best Buy 6.5% Pfd 79,000
720 Finova Finance Trust 50,400
300 First Union Real Estate 16,050
3,000 National Australia Bank 85,313
* Indicates nonincome-producing security.
5
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS (CONTINUED)
CONVERTIBLE FUND
PERCENT
OF NET MARKET
SHARES PREFERRED STOCK (CONTINUED) ASSETS VALUE
------- ------------------------------- ----------- ---------
FINANCIAL SERVICES (CONTINUED)
--------------------------------
1,000 Vorondo Realty Trust $66,000
-------
438,346
INDUSTRIAL SERVICES 8.61%
-------------------
1,000 AES Trust I 71,750
1,000 Fort James Corporation 55,750
1,100 Quality Community Financial Trust* 52,525
920 Royal Caribbean Cruises 78,258
975 Security Capital Industry 31,078
------
289,361
INSURANCE 1.76%
---------
2,500 Royal Group Tech-Decs* 59,063
------
Total Investment in Securities (Cost $2,669,127) 92.96%$3,124,691
Cash Equivalents 6.53% 219,377
Other Assets, less Liabilities 0.51% 17,299
----- ------
TOTAL NET ASSETS 100.00%$3,361,367
======= ==========
* Indicates nonincome-producing security.
6
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
CRESTONE SMALL CAP FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK 94.20% ASSETS VALUE
------ ------------------- ------ -----
AEROSPACE/DEFENSE 1.55%
-----------------
10,815 Orbital Sciences Corporation* $321,746
AUTO/TRUCK/PARTS 2.68%
----------------
13,900 Keystone Automotive* 330,125
9,535 Leasing Solutions* 227,648
-------
557,773
CIRCUITS 1.79%
--------
13,040 Intergrated Circuit* 371,640
COMMERCIAL SERVICES 1.24%
-------------------
10,625 AC Neilson Corporation* 258,984
COMMUNICATIONS SOFTWARE 1.04%
-----------------------
11,200 Inter-Tel Inc. & Sub 217,000
COMPUTER RELATED 16.34%
----------------
29,825 Accelr8 Technology Corporation* 805,275
9,200 Computer Horizions* 414,000
5,955 Ciber, Inc.* 345,390
10,900 Computer Products, Inc.* 246,613
8,460 Metro Information Services* 234,765
8,395 Quadramed Corporation* 230,863
15,300 SEEC, Inc.* 247,669
13,100 SPR, Inc* 222,700
17,935 STB Systems, Inc* 394,570
7,250 Computer Task Group* 257,828
-------
3,399,673
DATA PROCESSING/MANAGEMENT 1.36%
--------------------------
13,550 Inspire Insurance Solutions* 282,856
7
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS (CONTINUED)
CRESTONE SMALL CAP FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
- --------- -------------------------- --------- ------
DISTRIBUTION/WHOLESALE 2.50%
----------------------
17,300 CHS Electron, Inc. $296,263
11,600 SCP Pool Corporation* 223,300
-------
519,563
ELECTRONICS 3.07%
-----------
8,460 Exar Corporation* 139,590
12,800 Power-One, Inc.* 176,000
17,275 Zygo Corporation* 323,906
-------
639,496
ENVIRONMENTAL CONTROL 1.07%
---------------------
11,093 Tetra Tech, Inc. 221,860
FINANCIAL SERVICES 14.81%
------------------
11,900 American Capital Strategies 215,688
7,610 Billing Information Concepts* 365,280
7,700 Downey Financial Concepts* 218,969
10,330 Friedman, Billings, Ramsey Group, Inc.* 185,294
12,500 Franchise Mortgage Acceptance* 229,688
18,865 Haven Bancorp, Inc. 424,463
18,340 Imperial Credit Industries* 375,970
11,485 People's Bank 436,430
18,850 Medallion Financial Corporation 414,700
3,220 Webster Finance Corporation 214,130
-------
3,080,612
INVESTMENT COMPANIES 1.08%
--------------------
11,100 Consolidated Capital* 225,469
MACHINARY/EQUIPMENT 0.73%
-------------------
19,550 The Middleby Group* 152,734
8
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS (CONTINUED)
CRESTONE SMALL CAP FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
- --------- -------------------------- --------- ------
MANUFACTURING 4.27%
-------------
14,265 NS Group, Inc.* $244,288
13,100 Rayovac Corporation* 252,175
13,600 Titanium Corporation* 392,700
-------
889,163
FIELD SERVICES 1.06%
--------------
4,400 Stolt Comex Seaway 220,000
MEDICAL SUPPLIES/SERVICES 9.07%
-------------------------
13,200 Cerner Corporation* 278,850
13,050 FPA Medical Managment* 243,056
16,145 Graham-Field Health* 269,420
21,235 Lifecore Biomedical* 464,516
17,600 Specialty Care Network* 239,800
14,980 Trigon Healthcare* 391,353
-------
1,886,995
OIL COMPANY EXPLORATION/PRODUCTION 3.24%
----------------------------------
14,500 Basin Exploration* 257,375
9,600 KCS Energy, Inc. 199,200
11,900 Sndyer Oil Corporation 217,175
-------
673,750
OIL/GAS DRILLING 4.60%
----------------
43,700 Abacan Resources* 68,281
5,970 Atwood Oceanics, Inc.* 282,829
12,475 Callon Petroluem Company* 203,109
11,030 Marine Drilling Company* 228,876
42,900 National Energy Group* 174,281
-------
957,376
OIL FIELD MACHINE & EQUIPMENT 0.94%
-----------------------------
14,000 IRI International* 196,000
9
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS (CONTINUED)
CRESTONE SMALL CAP FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
- --------- -------------------------- --------- ------
PACKAGING/CONTAINER 1.40%
-------------------
12,160 Ivex Packaging Corporation* $291,840
PIPELINES 1.20%
---------
11,310 Western Gas Resources 250,234
PUBLISHING/PRINTING 3.81%
-------------------
7,900 Mail-Well* 319,950
12,775 Valassis, Inc.* 472,675
-------
792,625
REAL ESTATE 1.01%
-----------
14,315 Imperial Credit Community Mortgage 209,357
RESTURANT/FOOD SERVICE 3.52%
----------------------
12,398 Schlotzsky's, Inc.* 181,321
14,000 Foodmaker, Inc.* 210,875
14,800 Showbiz Pizza Time* 340,400
-------
732,596
RETAIL/APPAREL 3.47%
--------------
8,150 The Dress Barn* 242,606
7,300 Oshkosh B'Gosh, Inc. 240,900
6,375 Stage Stores, Inc.* 238,266
-------
721,772
RETAIL STORE 1.02%
------------
14,240 Funco, Inc.* 211,820
TELECOMMUNICATIONS 2.07%
------------------
13,230 Dycom Industries* 285,272
21,960 General Communications, Inc.* 145,485
-------
430,757
10
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS (CONTINUED)
CRESTONE SMALL CAP FUND
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
- --------- -------------------------- --------- ------
TRANSPORTATION 3.07%
--------------
12,625 Covenant Transport* $192,531
13,200 Jevic Transport, Inc. * 212,850
9,720 Simon Transportation* 233,280
-------
638,661
WHOLESALE SPECIAL LINE 1.19%
----------------------
12,425 Cellstar Corporation 246,941
-------
Total Investment in Securities (Cost $18,305,699) 94.20% $19,599,293
Cash Equivalents 4.38% 910,512
Other Assets, less Liabilities 1.42% 296,283
----- -------
TOTAL NET ASSETS 100.00% $20,806,088
======= ===========
*Indicates nonincome-producing security
11
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
GOVERNMENT\QUALITY BOND FUND
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT U.S. GOVERNMENT SECURITIES ASSETS VALUE
- ---------- ------------------------------------- -------- ------
$314 Federal National Mtg. Assn. 6% Due 10/1/99 75.76% $311
------
151,608 Government National Mtg. Assn. 7.5% Due 1/15/24 155,256
102,409 Government National Mtg. Assn. 11.5% Due 10/15/10 115,307
54,941 Government National Mtg. Assn. 9.5% Due 9/15/21 59,440
70,423 Government National Mtg. Assn. 7.5% Due 5/15/23 72,118
14,258 Government National Mtg. Assn. 9.5% Due 9/15/19 15,426
2,870 Government National Mtg. Assn. 10% Due 5/15/19 3,127
24,896 Government National Mtg. Assn. 10% Due 5/15/20 27,122
119,984 Government National Mtg. Assn. 10% Due 12/15/18 130,708
250,000 U.S.Treasury Bonds10.75% Due 8/15/05 325,195
-------
Total U.S. Government Securities 904,010
CORPORATE BONDS 18.34%
100,000 Bankamerica Corporation 8.375% Due 3/15/02 107,590
100,000 Banc One Corporation 8/74% Due 9/15/03 111,264
-------
218,854
Total Investment in Securities (Cost $1,067,489) 94.10% $1,122,864
Cash Equivalents 4.34% 51,835
Other Assets, less Liabilities 1.56% 18,610
----- ------
TOTAL NET ASSETS 100.00% $1,193,309
====== ==========
12
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statement of Assets and Liabilities
December 31, 1997
(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 $7,119,707, 2,669,127, 18,305,699, and
1,067,489, respectively) $9,620,569 3,124,691 19,599,293 1,122,864
Cash equivalents 287,387 219,377 910,512 51,835
Accrued interest and dividends receivable 10,593 24,668 6,870 19,830
Receivable for investment securities sold - - 390,334 -
Receivable for fund shares sold - - 27,611 127
Organizational costs, net of accumulated amortization 4,095 - - -
--------- --------- ---------- ---------
Total assets 9,922,645 3,368,736 20,934,619 1,194,656
--------- --------- ---------- ---------
Liabilities:
Accrued expenses, including investment
management and distribution expense payable to
adviser, administrator and distributor (note 3) 13,782 7,369 39,386 1,347
Payable for fund shares redeemed 57,961 - 89,145 -
--------- --------- ---------- ---------
Total liabilities 71,742 7,369 128,531 1,347
--------- --------- ---------- ---------
Net assets applicable to outstanding capital stock 9,850,902 3,361,367 20,806,088 1,193,309
========= ========= ========== =========
Net assets are represented by:
Capital stock outstanding, at par (note 5) 721 284 2,027 139
Additional paid-in capital 7,211,537 2,837,570 20,265,027 1,392,529
Accumulated undistributed net
investment income (loss) (716) 289 (246,641) 68
Accumulated undistributed net realized
gain (loss) on investments 138,498 67,661 (507,919) (254,802)
Unrealized appreciation (note 4) 2,500,862 455,564 1,293,594 55,375
--------- --------- ---------- ---------
Total net assets applicable to shares outstanding $9,850,902 3,361,367 20,806,088 1,193,309
========= ========= ========== =========
Shares outstanding and net asset value per share
Investor shares of capital stock outstanding 745,639 222,264 562,628 111,094
Net asset value per share - Investor Shares $12.47 $14.13 $13.37 $10.30
========= ========= ========== =========
Select shares of capital stock outstanding 43,952 15,626 986,412 4,722
Net asset value per share - Select Shares $12.51 $14.13 $13.47 $10.31
========= ========= ========== =========
See accompanying notes to financial statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statement of Operations
Six Months Ended December 31, 1997
(Unaudited)
Capital Crestone Government/
Builder Convertible Small Cap Quality
Fund Fund Fund Bond Fund
Investment income:
<S> <C> <C> <C> <C>
Dividends $72,348 $20,123 $26,327 $ -
Interest 11,968 37,701 31,379 54,772
------- ------- ------- -------
Total investment income 84,316 57,824 57,705 54,772
------- ------- ------- -------
Expenses (note 3):
Investment advisory fees 38,359 11,798 82,542 5,135
Administration fees 12,786 3,933 27,514 2,140
Distribution expenses - Investor Class (note 6) 24,573 7,559 20,342 2,072
Custodial fees 2,120 1,563 17,349 1,080
Auditing and tax accounting fees 3,126 2,550 4,195 2,828
Blue Sky Registration fees 336 311 775 107
Legal fees 197 63 444 31
Other operating expenses 4,157 2,422 8,248 1,118
------- ------- ------- -------
Total expenses 85,654 30,198 161,409 14,512
------- ------- ------- -------
Net investment income (loss) (1,338) 27,626 (103,704) 40,260
------- ------- ------- -------
Realized and unrealized gain (loss)
on investments (note 4):
Net realized gain 1,164,595 226,209 2,089,224 8,534
------- ------- ------- -------
Net unrealized appreciation (depreciation)
Beginning of period 3,058,541 401,590 2,567,511 25,352
End of period 2,500,862 455,564 1,293,594 55,375
Net unrealized appreciation (depreciation) (557,679) 53,974 (1,273,917) 30,023
------- ------- ------- -------
Net realized and unrealized gain
on investments 606,916 280,183 815,307 38,556
------- ------- ------- -------
Net increase in net assets
resulting from operations $605,578 $307,808 $711,603 $78,816
======= ======= ======== =======
See accompanying notes to financial statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statements of Changes in Net Assets
Six Months Ended December 31, 1997 and the
Year Ended June 30, 1997
Capital Builder Convertible Fund
------------------------------- -------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
Dec. 31, 1997 June 30, 1997 Dec. 31, 1997 June 30, 1997
(Unaudited) (Unaudited)
Operations: ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C>
Net investment income (loss) ($1,338) $95,780 $27,626 $46,320
Net realized gain on investments 1,164,595 459,954 226,208 112,462
Unrealized appreciation (depreciation) (557,679) 1,377,300 53,974 294,650
----------- ---------- --------- --------
Net increase in net assets
resulting from operations 605,578 1,933,034 307,808 453,432
----------- ---------- --------- --------
Distributions to shareholders from:
Net investment income (loss)
Investor Shares (3,993) 96,553 42,139 47,520
Select Shares - 788 3,495 382
Net realized gains-Investor Shares 1,285,460 637,685 198,629 268,230
Net realized gains-Select Shares 85,799 - 13,926 13
----------- ---------- --------- --------
Total distributions 1,367,266 735,026 258,188 316,145
----------- ---------- --------- --------
Capital share transactions: (note 5)
Proceeds from sales 682,790 1,882,626 290,690 807,510
Payment for redemptions (1,665,115) (2,069,290) (97,037) (200,965)
Reinvestment of net investment
income and net realized gain distributions
at net asset value 1,328,482 726,551 257,309 315,128
----------- ---------- --------- --------
Total increase from capital
share transactions 346,156 539,887 450,962 921,673
----------- ---------- --------- --------
Total increase (decrease) in net assets (415,532) 1,737,895 500,581 1,058,960
Net assets:
Beginning of period 10,266,434 8,528,539 2,860,786 1,801,826
----------- ---------- --------- --------
End of period $9,850,902 $10,266,434 $3,361,367 $2,860,786
See accompanying notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statements of Changes in Net Assets
Six Months Ended December 31, 1997 and the
Year Ended June 30, 1997
Crestone
Small Cap Government/Quality
Fund Bond Fund
----------------------------- -------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
December 31, 1997 June 30, 1997 December 31, 1997 June 30, 1997
(Unaudited) (Unaudited)
Operations: --------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
Net investment income (loss) ($103,704) ($142,936) $40,260 $139,678
Net realized gain (loss) on investments 2,089,224 1,699,641 8,534 (38,250)
Unrealized appreciation (depreciation) (1,273,917) 1,311,326 30,023 71,258
----------- ---------- ------- --------
Net increase in net assets
resulting from operations 711,603 2,868,031 78,816 172,686
----------- ---------- ------- --------
Distributions to shareholders from:
Net investment income-Investor Shares - - 38,307 143,641
Net investment income-Select Shares - - 1,666 1,142
Net realized gains - Investor Shares 1,492,780 779,224 - -
Net realized gains - Select Shares 2,615,367 969,425 - -
----------- ---------- ------- --------
Total distributions 4,108,148 1,748,649 39,973 144,783
----------- ---------- ------- --------
Capital share transactions: (note 5)
Proceeds from sales 2,038,552 16,118,563 32,699 228,936
Payment for redemptions (2,264,234) (14,811,156) (1,400,965) (1,423,269)
Reinvestment of net investment
income and net realized gain distributions
at net asset value 3,969,950 1,704,197 35,576 128,629
----------- ---------- ------- --------
Total increase (decrease) from capital
share transactions 3,744,269 3,011,604 (1,332,689) (1,065,704)
----------- ---------- ------- --------
Total increase (decrease) in net assets 347,725 4,130,986 (1,293,846) (1,037,801)
Net assets:
Beginning of period 20,458,364 16,327,378 2,487,155 3,524,956
----------- ---------- ------- --------
End of period $20,806,089 $20,458,364 $1,193,309 $2,487,155
=========== ========== ========= ==========
See accompanying notes to financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE YEAR ENDED JUNE 30,
1997 AND THE PERIOD FROM AUGUST 24, 1995 (COMMENCEMENT OF
OPERATIONS) TO JUNE 30, 1996
CAPITAL BUILDER FUND - INVESTOR SHARES (A)
--------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1996
(UNAUDITED)
NET ASSET VALUE:
<S> <C> <C> <C>
Beginning of period $13.63 $11.98 10.00
------ ------ -----
Income from investment operations:
Net investment income 0.00 0.13 0.04
Net realized and unrealized gain
on investments 0.84 2.53 1.98
---- ---- ----
Total income from
investment operations 0.84 2.66 2.02
---- ---- ----
Less Distributions:
Dividends from net investment income 0.00 (0.13) (0.04)
Dividends from capital gains (2.00) (0.88) 0.00
------ ------ ----
End of period $12.47 $13.63 11.98
====== ====== =====
TOTAL RETURN 12.90%(b) 23.52% 24.14%(b)
====== ====== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $9,301,063 $9,994,424 8,528,539
Ratio of expenses to average net assets 1.70%(b) 1.84% 1.82%(b)
Ratio of net income(loss) to average net assets (0.05)%(b) 1.06% 0.42%(b)
Portfolio turnover rate 20.71% 22.80% 31.35%
Average Commission Rate (c) $0.0695 $0.0922 N/A
(A) ALL CAPITAL SHARES ISSUED AND OUTSTANDING AS OF SEPTEMBER 30, 1996 WERE
RECLASSIFIED AS INVESTOR SHARES.
(B) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
(C) COMPUTED BY DIVIDING THE TOTAL AMOUNT OF COMMISSIONS PAID BY THE TOTAL
NUMBER OF SHARES PURCHASED AND SOLD DURING THE PERIOD FOR WHICH THERE
WAS A COMMISSION CHARGED.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
17
<PAGE>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE PERIOD FROM MARCH 3,
1997 (COMMENCEMENT OF CLASS SHARES) TO JUNE 30, 1997
CAPITAL BUILDER FUND - SELECT SHARES (A)
--------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997
(UNAUDITED)
NET ASSET VALUE: --------------- --------------
Beginning of period $13.63 $12.47
------ ------
Income from investment operations:
Net investment income 0.03 0.00
Net realized and unrealized gain
on investments 0.85 1.23
---- ----
Total income from
investment operations 0.88 1.23
---- ----
Distributions from capital gains (2.00) (0.07)
------ ------
End of period (b) $12.51 $13.63
====== ======
TOTAL RETURN (B) 12.82%(d) 9.62%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $549,839 $272,010
Ratio of expenses to average net assets 1.20%(d) 0.96%(d)
Ratio of net income to average net assets 0.46%(d) 0.81%(d)
Portfolio turnover rate 20.71% 22.80%
Average Commission Rate (e) $0.0695 $0.0922
(A) COMMENCING OCTOBER 1, 1996, THE FUND BEGAN OFFERING SELECT SHARES.
(B) EXCLUDES MAXIMUM SALES CHARGE OF 3.9%.
(C) TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
(D) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
(E) COMPUTED BY DIVIDING THE TOTAL AMOUNT OF COMMISSIONS PAID BY THE TOTAL
NUMBER OF SHARES PURCHASED AND SOLD DURING THE PERIOD FOR WHICH THERE WAS A
COMMISSION CHARGED.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE
YEARS ENDED JUNE 30, 1997, 1996, 1995, 1994, AND 1993
CONVERTIBLE FUND - INVESTOR SHARES (A)
---------------------------------------------------------------------------------------------
SIX MONTHS ENDED
DEC. 31, 1997 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
(UNAUDITED)
-----------
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $13.82 $13.20 11.97 11.69 12.58 10.76
------ ------ ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income 0.21 0.26 0.33 0.30 0.29 0.33
Net realized and unrealized
gain (loss) on investments 1.29 2.10 1.73 1.01 (0.53) 2.16
---- ---- ---- ---- ------ ----
Total income (loss) from
investment operations 1.50 2.36 2.06 1.31 (0.24) 2.49
---- ---- ---- ---- ------ ----
Less distributions:
Dividends from net
investment income (0.21) (0.26) (0.33) (0.30) (0.29) (0.33)
Distributions from capital gains (0.98) (1.48) (0.50) (0.73) (0.36) (0.34)
------ ------ ------ ------ ------ ------
Total distributions (1.19) (1.74) (0.83) (1.03) (0.65) (0.67)
------ ------ ------ ------ ------ ------
End of period $14.13 $13.82 13.20 11.97 11.69 12.58
====== ====== ===== ===== ===== =====
TOTAL RETURN 21.54%(c) 19.51% 17.60% 14.09% (2.26%) 24.06%
===== ====== ====== ====== ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $3,140,596 2,860,786 1,801,826 1,764,967 2,708,104 2,368,876
Ratio of expenses to
average net assets 1.95%(c) 1.93% 1.93% 2.25% 2.06% 2.13%
Ratio of net income to
average net assets 1.74%(c) 1.95% 2.53% 2.58% 2.27% 2.91%
Portfolio turnover rate 41.27% 100.15% 79.30% 51.31% 65.76% 69.72%
Average Commission Rate (b) $0.1645 $0.1206 N/A N/A N/A N/A
(A) ALL CAPITAL SHARES ISSUED AND OUTSTANDING AS OF SEPTEMBER 30, 1996 WERE
RECLASSIFIED AS INVESTOR SHARES.
(B) COMPUTED BY DIVIDING THE TOTAL AMOUNT OF COMMISSIONS PAID BY THE TOTAL
NUMBER OF SHARES PURCHASED AND SOLD DURING THE PERIOD FOR WHICH THERE
WAS A COMMISSION CHARGED.
(C) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
19
<PAGE>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE PERIOD FROM JUNE 16, 1997
(COMMENCEMENT OF CLASS SHARES) TO JUNE 30, 1997
CONVERTIBLE FUND - SELECT SHARES (A)
-------------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997
(UNAUDITED)
NET ASSET VALUE:
Beginning of period $13.83 $13.75
------ ------
Income (loss) from investment operations:
Net investment income 0.24 0.01
Net realized and unrealized
gain (loss) on investments 1.27 0.17
---- ----
Total income (loss) from
investment operations 1.51 0.18
---- ----
Less distributions:
Dividends from net
investment income (0.24) (0.10)
Distributions from capital gains (0.97) 0.00
------ ----
Total distributions (1.21) (0.10)
------ ------
End of period $14.13(b) $13.83(b)
TOTAL RETURN 21.94%(b)(c) 1.25%(b)(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $220,771 57,682
Ratio of expenses to
average net assets 1.45%(c) 141%(d)
Ratio of net income to
average net assets 2.25%(c) 3.11%(d)
Portfolio turnover rate 41.27% 22.80%
Average Commission Rate (b) $0.1645 $0.1206
(A) COMMENCING OCTOBER 1, 1996, THE FUND BEGAN OFFERING SELECT SHARES.
(B) EXCLUDES MAXIMUM SALES CHARGE OF 3.9%.
(C) TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THEYEAR.
(C) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
(D) COMPUTED BY DIVIDING THE TOTAL AMOUNT OF COMMISSIONS PAID BY THE
TOTAL NUMBER OF SHARES PURCHASED AND SOLD DURING THE PERIOD FOR WHICH THERE
WAS A COMMISSION CHARGED.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE
YEARS ENDED JUNE 30, 1997, 1996, 1995, 1994 AND 1993
CRESTONE SMALL CAP FUND - INVESTOR SHARES (A)
-----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- ------------ ------------- ------------- ------------- -------------
(UNAUDITED)
-----------
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $16.14 $15.27 13.49 11.59 11.77 10.00
------ ------ ----- ----- ----- -----
Income from investment operations:
Net investment loss (0.11) (0.12) (0.10) (0.08) (0.07) (0.05)
Net realized and unrealized gain
on investments 0.62 2.45 2.91 2.34 0.20 1.83
---- ---- ---- ---- ---- ----
Total income from
investment operations 0.51 2.33 2.81 2.26 0.13 1.78
---- ---- ---- ---- ---- ----
Distributions from capital gains (3.28) (1.46) (1.03) (0.36) (0.31) (0.01)
------ ------ ------ ------ ------ ------
End of period $13.37 $16.14 15.27 13.49 11.59 11.77
====== ====== ===== ===== ===== =====
TOTAL RETURN 7.26%(c) 15.93% 22.33% 20.33% 1.21% 17.80%
==== ====== ====== ====== ===== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $7,519,826 7,839,528 16,327,378 9,589,788 7,218,944 3,137,762
Ratio of expenses to
average net assets 1.79%(c) 1.87% 1.75% 1.93% 1.91% 2.18%
Ratio of net income to
average net assets (1.26%(c) (1.02%) (0.67%) (0.60%) (0.60%) (0.87%)
Portfolio turnover rate 105.44% 226.30% 150.05% 86.50% 75.23% 47.55%
Average Commission Rate (b) $0.0623 $0.0592 N/A N/A N/A N/A
(A) ALL CAPITAL SHARES ISSUED AND OUTSTANDING AS OF SEPTEMBER 30, 1996 WERE
RECLASSIFIED AS INVESTOR SHARES.
(B) COMPUTED BY DIVIDING THE TOTAL AMOUNT OF COMMISSIONS PAID BY THE TOTAL
NUMBER OF SHARES PURCHASED AND SOLD DURING THE PERIOD FOR WHICH THERE WAS A
COMMISSION CHARGED.
(C) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION. SEE
ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
21
<PAGE>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE PERIOD
FROM OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS) TO
JUNE 30, 1997
CRESTONE SMALL CAP FUND
SELECT SHARES (A)
------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997
------------- -------------
(UNAUDITED)
NET ASSET VALUE:
Beginning of period $16.20 $15.44
------ ------
Income from investment operations:
Net investment income (0.07) (0.08)
Net realized and unrealized gain
on investments 0.62 2.26
---- ----
Total income from
investment operations 0.55 2.18
---- ----
Distributions from capital gains (3.28) (1.42)
------ ------
End of period $13.47(b) $16.20(b)
TOTAL RETURN 7.72%(b)(d) 16.04%(b)(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $13,286,262 $12,618,836
Ratio of expenses to average net assets 1.29%(d) 1.18%(d)
Ratio of net income to average net assets (0.76%)(d) (0.48%)(d)
Portfolio turnover rate 105.44% 226.30%
Average Commission Rate (e) $0.0623 $0.0592
(A) COMMENCING OCTOBER 1, 1996, THE FUND BEGAN OFFERING SELECT SHARES.
(B) EXCLUDES MAXIMUM SALES CHARGE OF 3.9%.
(C) TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
(D) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
(E) COMPUTED BY DIVIDING THE TOTAL AMOUNT OF COMMISSIONS PAID BY THE TOTAL
NUMBER OF SHARES PURCHASED AND SOLD DURING THE PERIOD FOR WHICH THERE WAS A
COMMISSION CHARGED.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE
YEARS ENDED JUNE 30, 1997, 1996, 1995, 1994, AND 1993
GOVERNMENT/QUALITY BOND FUND - INVESTOR SHARES (A)
-------------------------------------------------------------------------------------------
SIX MONTHS ENDED
DEC. 31, 1997 1997 1996 1995 1994 1993
------------- ---- ---- ---- ---- ----
(UNAUDITED)
-----------
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $10.19 $10.15 10.43 10.21 11.17 10.93
------ ------ ----- ----- ----- -----
Income (loss) from
investment operations:
Net investment income 0.35 0.53 0.55 0.60 0.54 0.64
Net realized and unrealized
gain (loss) on investments 0.11 0.06 (0.28) 0.22 (0.75) 0.43
---- ---- ------ ---- ------ ----
Total income (loss) from
investment operations 0.46 0.59 0.27 0.82 (0.21) 1.07
---- ---- ---- ---- ------ ----
Less distributions:
Dividends from net
investment income (0.35) (0.55) (0.55) (0.60) (0.54) (0.64)
Distributions from capital gains 0.00 0.00 0.00 0.00 (0.21) (0.19)
---- ---- ---- ---- ------ ------
Total distributions (0.35) (0.55) (0.55) (0.60) (0.75) (0.83)
------ ------ ------ ------ ------ ------
End of period $10.30 $10.19 10.15 10.43 10.21 11.17
====== ====== ===== ===== ===== =====
TOTAL RETURN 8.92%(b) 6.37% 2.83% 9.42% (2.00%) 11.00%
===== ===== ===== ===== ======= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,144,641 2,442,757 3,524,956 4,693,924 8,832,147 9,709,386
Ratio of expenses to
average net assets 1.72%(b) 1.49% 1.42% 1.47% 1.37% 1.38%
Ratio of net income to
average net assets 4.75%(b) 5.13% 5.21% 5.86% 4.94% 6.25%
Portfolio turnover rate 0.00% 8.70% 36.11% 9.33% 218.11% 175.95%
(A) ALL CAPITAL SHARES ISSUED AND OUTSTANDING AS OF SEPTEMBER 30, 1996 WERE
RECLASSIFIED AS INVESTOR SHARES.
(B) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
23
<PAGE>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE PERIOD FROM JUNE
16, 1997 (COMMENCEMENT OF CLASS SHARES) TO JUNE 30, 1997
GOVERNMENT/QUALITY BOND FUND
SELECT SHARES (A)
-------------------------------------------
SIX MONTHS ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997
(UNAUDITED)
----------- -------------
NET ASSET VALUE:
Beginning of period $10.19 $10.49
------ ------
Income (loss) from investment operations:
Net investment income 0.37 0.01
Net realized and unrealized
gain (loss) on investments 0.11 (0.04)
---- ------
Total income (loss) from
investment operations 0.48 (0.03)
---- ------
Less distributions:
Dividends from net
investment income (0.37) (0.27)
------ ------
End of period $10.30(b) $10.19(b)
TOTAL RETURN 8.92%(b)(d) (0.30)(b)(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $48,668 44,398
Ratio of expenses to
average net assets 1.47%(d) 0.96%(d)
Ratio of net income to
average net assets 5.00%(d) 4.52%(d)
Portfolio turnover rate 0.00% 8.70%
(A) COMMENCING OCTOBER 1, 1996, THE FUND BEGAN OFFERING SELECT SHARES.
(B) EXCLUDES MAXIMUM SALES CHARGE OF 1.5%.
(C) TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
(D) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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
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.
25
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
At December 31, 1997, 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 increased 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 decreased by the premium originally paid.
At December 31, 1997, the funds authorized to write option contracts had no
such option contracts outstanding nor were any written during the year then
ended.
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.
26
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
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. The Government/Quality Bond Fund has unused
capital loss carry forwards of approximately $270,000 available for federal
income tax purposes at December 31, 1997.
The loss begins expiring in 2003.
Internal Revenue Code requirements regarding distributions may differ from
amounts determined under generally accepted accounting principles. These
book/tax differences are either temporary or permanent in nature. To the
extent these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate, in the
period that the differences arise.
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.
27
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
3. CONTINUED
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, Investor shares of 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 $137,834, $46,373, and $54,546,
respectively, for such services. Of the amount paid to the Distributor,
$52,624 was retained by them for sales of the Trust's shares made by their
agents and brokers. The distributor also received $3,359 as its portion of
the sales charges paid by purchasers of the Select shares of the funds.
Such sales charges are not an expense of the Funds and hence are not
reflected in the accompanying statement of operations.
At December 31, 1997, 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 $6,355 $2,118 $4,011 $12,484
Convertible Fund 5,160 687 1,299 7,146
Crestone Small Cap Fund 32,458 4,348 3,184 39,989
Government/Quality
Bond Fund 653 272 263 1,188
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, 1997, no expense reimbursement
was required.
28
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
4. SECURITIES TRANSACTIONS
In addition to the amounts paid by the funds under the adviser,
administrative and distribution plans, the funds 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
$11,622 for their brokerage services during the six months ended December
31, 1997.
Purchases of securities and proceeds from sales of securities during the
six months ended December 31, 1997, were as follows for each fund:
Purchases of Proceeds
Securities from Sales
------------ -----------
Capital Builder Fund $1,926,292 $2,483,937
Convertible Fund 1,134,737 1,074,603
Small Cap Fund 21,758,908 22,862,515
Government/Quality Bond Fund - 1,214,500
At December 31, 1997, 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 $2,748,557 $247,695
Convertible Fund 500,054 44,490
Small Cap Fund 2,668,850 1,375,256
Government/Quality Bond Fund 57,373 1,998
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
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. Market shares are currently not offered by the funds.
Effective October 1, 1996, the Funds offer shares in two classes: Investor
and Select. All outstanding shares were reclassified to Investor Shares on
September 30, 1996. Investor shares are sold without a sales load, but with
a Rule 12b-1 fee. Select shares are sold with a front-end sales load of up
to 3.90%. Select shares do not incur a Rule 12b-1 fee.
29
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
5. CONTINUED
Transactions in the capital stock of each fund for the six months ended
December 31, 1997, were as follows:
Capital Capital
Builder Builder
Fund Fund
Investor Shares Select Shares
------------- ---------------
Transactions in shares:
Shares sold 25,455.833 23,237.514
Shares redeemed (114,700.626) (4,633.226)
Reinvested distributions 101,474.857 5,389.172
------------ ---------
Net increase 12,230.064 23,993.460
============= ==========
Convertible Convertible
Fund Fund
Investor Shares Select Shares
------------- ---------------
Transactions in shares:
Shares sold 9,069.475 10,173.434
Shares redeemed (6,636.393) -
Reinvested distributions 17,110.443 1,242.560
---------- ----------
Net increase 19,543.525 11,415.994
========== ===========
Crestone Crestone
Small Cap Small Cap
Fund Fund
Investor Shares Select Shares
------------- ---------------
Transactions in shares:
Shares sold 22,274.837 91,911.827
Shares redeemed (53,401.218) (78,911.723)
Reinvested distributions 107,981.909 194,276.888
----------- -----------
Net increase 76,855.528 207,276.992
============ ===========
30
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
5. CONTINUED
Government/ Government/
Quality Bond Quality Bond
Fund Fund
Investor Shares Select Shares
------------- ---------------
Transactions in shares:
Shares sold 2,188.667 977.544
Shares redeemed (134,046.064) (772.786)
Reinvested distributions 3,295.471 161.898
-------------- ---------
Net increase (decrease) (128,561.926) 355.656
============= =========
At December 31, 1997, 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 Investor Shares 43,978.404 $548,411
Capital Builder Fund Select Shares 5,485.839 68,628
Convertible Fund Select Shares 3,299.979 46,629
Crestone Small Cap Fund Select Shares 10,128.967 136,437
Government/Quality Bond Fund Select Shares 465.586 4,800
31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
SEMI-ANNAUL REPORT
DECEMBER 31, 1997
<PAGE>
Schedule of Investments........................ 1
Statement of Assets and Liabilities............ 8
Statement of Operations........................ 9
Statements of Changes in Net Assets............ 10
Financial Highlights........................... 11
Notes to Financial Statements.................. 12
<PAGE>
NEBRASKA TAX FREE FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITIES- 93.18% ASSETS VALUE
------ ----------------------------- ------ -----
EDUCATION 7.51%
$50,000 Lancaster County School District 001
General Obligation Bonds Series 1993 6.00% Due 1/15/12 $51,000
300,000 Nebraska Higher Education Loan Program Junior
Subordinate Bonds, Series A-6, 6.40% Due 6/1/13 322,095
100,000 Nebraska Educational Finance Authority Revenue Bonds
Series 1995 (Concordia Teacher's College) 5.90% Due 12/15/15 104,253
200,000 Nebraska Educational Finance Authority Revenue Bonds
Series 1995 (Midland Lutheran College) 6.25% Due 6/15/15 208,755
100,000 Nebraska Educational Finance Authority Revenue Bonds
Series 1994 (Dana College Project) 6.75% Due 6/1/14 111,824
-------
797,927
ELECTRICAL, WATER, SEWER 5.95%
300,000 City Of Grand Island, Sewer System Revenue Bonds
Series 1994, 6.00% Due 4/1/14 318,342
100,000 City Of Hastings, Nebraska Combined Utility Revenue Bonds
Series 1994, 6.875% Due 10/15/14 104,643
200,000 City Of Kearney, Nebraska Combined Utilities Revenue
Refunding Bonds, Series 1994, 6.10% Due 6/1/14 209,640
-------
632,625
GENERAL OBLIGATION 23.72%
50,000 Boyd County Nebraska School District No. 38 (Spencer-Naper)
General Obligation Bonds, 5.85% Due 6/15/13 51,846
1
<PAGE>
NEBRASKA TAX FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITIES (CONTINUED) ASSETS VALUE
- --------- ------------------------------------------- -------- ---------
GENERAL OBLIGATION (CONTINUED)
$120,000 Colfax County Nebraska School District No. 2 (Schuyler)
General Obligation Bonds, Series 1993, 5.65% Due 12/15/09 $120,000
150,000 Colfax County Nebraska School District No. 2 (Schuyler)
General Obligation Bonds, Series 1993, 5.75% Due 12/15/11 150,000
400,000 Dawson County Sanitary & Improvement Dist #1 Refunding
Bond, Series 1997, IBP 5.65% Due 2/1/22 420,195
200,000 Douglas County School District No. 017
(Millard Public Schools) Refunding Bonds 203,750
Series 1996A 4.65% Due 10/1/01
100,000 Douglas County Nebraska Sanitary & Improvement
District No.. 257 Refunding Bonds (Ramble Ridge) 6.25% 104,232
Due 5/15/09
150,000 Douglas County School District No. 010
(Elkhorn Public Schools) Refunding Bonds 156,470
Series 1995 6.40% Due 12/15/08
100,000 Douglas County School District No. 010
(Elkhorn Public Schools) Refunding Bonds 104,554
Series 1994 6.60% Due 12/15/10
100,000 Douglas County School District No. 010
(Elkhorn Public Schools) Refunding Bonds 104,833
Series 1994 6.75% Due 12/15/14
2
<PAGE>
NEBRASKA TAX FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITIES (CONTINUED) ASSETS VALUE
- --------- ------------------------------------------- -------- ---------
GENERAL OBLIGATION (CONTINUED)
$100,000 Keith County School District No. 001
(Ogallala Public Schools) School Building Bonds
Series 1994B 6.30% Due 11/15/09 $103,829
350,000 Lancaster County School District 001 (Lincoln)
Lease Purchase 4.15% Due 10/26/00 350,000
100,000 Lincoln-Lancaster County Public Building Commission
Series 1994 6.20% Due 10/15/11 106,750
100,000 Morrill County Nebraska School District No. 021
(Bayard) 5.80% Due 5/15/06 100,000
100,000 City Of North Platte Various Purpose Bonds
Series 1995 6.20% Due 3/15/15 104,271
175,000 Saunders County School District 107 (Cedar Bluffs)
Public Schools 6.35% Due 7/1/14 180,543
150,000 Western Nebraska Community College Certificates
Of Participation Lease Rentals 6.55% Due 10/15/13 161,401
-------
2,522,674
HOUSING 17.46%
150,000 Nebraska Investment Finance Authority Hospital Revenue
Bonds (Great Plains Regional Medical Center Project) 165,425
6.50% Due 5/15/14
200,000 Nebraska Investment Finance Authority Hospital Revenue
Bonds (Nebraska Methodist Healthcare System) 206,426
6.55% Due 3/1/99
3
<PAGE>
NEBRASKA TAX FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
PERCENT
PRINCIPAL OF NET
AMOUNT TAX-EXEMPT SECURITIES (CONTINUED) ASSETS MARKET
VALUE
- --------- ------------------------------------------- -------- ---------
HOUSING (CONTINUED)
$75,000 Nebraska Investment Finance Authority Hospital Revenue
Bonds (Foundation Educational Building Fund)
7.00% Due 11/1/09 $75,000
210,000 Nebraska Investment Finance Authority Multi-Family Revenue
Bonds (Waterbrook Apt. Project) 5.60% Due 4/1/07 210,000
100,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1995 Series A, 6.15% Due 3/1/09 100,000
100,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1995 Series A, 6.20% Due 9/1/10 100,000
185,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1994 Series A-1, 6.30% Due 3/1/17 185,000
100,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1996 Series A, 5.95% Due 3/1/27 100,000
250,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1995 Series B, 6.40% Due 9/1/26 250,000
465,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1994 Series D-1, 7.30% Due 9/1/26 465,000
1,856,851
POWER 5.44%
100,000 McCook Public Power District Electric System Revenue
And Refunding Bonds 6.75% Due 12/15/09 104,745
4
<PAGE>
NEBRASKA TAX FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
PERCENT
PRINCIPAL OF NET
AMOUNT TAX-EXEMPT SECURITIES (CONTINUED) ASSETS MARKET
VALUE
- --------- ------------------------------------------- -------- ---------
POWER (CONTINUED)
$200,000 Municipal Energy Agency Of Nebraska Power System
Revenue Refunding Bonds 1992 Series A 6.00% Due 4/1/17 $211,160
150,000 Nebraska Public Power District Electric System Revenue
Bonds Series 1992 A 6.25% Due 1/1/12 161,840
100,000 Omaha Public Power District Electric System Revenue
Bonds Series 1997A 4.30% Due 2/1/00 100,970
-------
578,715
TRANSPORTATION 0.94%
100,000 Omaha Nebraska Airport Authority Facilities Revenue
Refunding Bonds Series 1993 5.50% Due 1/1/13 100,257
HOSPITAL 12.86%
150,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
5.85% Due 11/15/03 156,086
100,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
5.85% Due 11/15/03 107,296
125,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
5.85% Due 11/15/03 133,663
100,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
5.85% Due 11/15/03 106,502
5
<PAGE>
NEBRASKA TAX FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT TAX-EXEMPT SECURITIES (CONTINUED) ASSETS VALUE
- --------- ------------------------------------------- -------- ---------
HOSPITAL (CONTINUED)
100,000 Gage County Hospital Authority No. 1 Hospital Revenue Bonds
Beatrice Community Hospital And Health Care Project
6.75% Due 10/1/07 $112,072
200,000 Gage County Hospital Authority No. 1 Hospital Revenue Bonds
Beatrice Community Hospital And Health Care Project
6.75% Due 10/1/07 229,118
100,000 Kearney County Nebraska Hospital Authority No. 1 Revenue
Bonds, Series 1993 (Bethpage Mission of the Great Plains, Inc.)
5.90% Due 6/1/07 102,518
200,000 Lancaster County Nebraska Hospital Authority Hospital
Revenue Bonds Series 1992 A (Sister's Of Charity Health Care
Systems, Inc.) 6.25% Due 5/15/12 221,180
200,000 Nebraska Investment Finance Authority State Revolving Fund
Revenue Bonds 1998, 5.125% Due 12/1/17 198,952
1,367,387
VARIOUS REVENUES 19.30%
150,000 District Energy Corporation Facility Revenue Bonds
Series 1993 (City-County Building And County Correctional
Family Project) 5.50% Due 7/1/13 154,762
250,000 City Of Lincoln Parking Revenues Bonds Series 1994 C
6.10% Due 8/15/09 265,362
100,000 City Of Lincoln Parking Revenues Bonds Series 1994 C
6.15% Due 8/15/11 106,311
6
<PAGE>
NEBRASKA TAX FREE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
PERCENT
PRINCIPAL OF NET
AMOUNT TAX-EXEMPT SECURITIES (CONTINUED) ASSETS MARKET
VALUE
- --------- ------------------------------------------- -------- ---------
VARIOUS REVENUES (CONTINUED)
50,000 Lincoln-Lancaster County Public Building Commission Tax
Supported Lease Rental Revenue Building Bonds Series 1996
6.10% Due 10/15/99 $50,988
00,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1997 Series A, 5.85% Due 9/1/17 100,000
35,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1995 Series E, 6.25% Due 9/1/28 235,000
00,000 Nebraska Public Gas Agency Gas Supply System Revenue
Bonds, Series A 6.25% Due 4/1/5 214,020
00,000 Nebraska Public Gas Agency Gas Supply System Revenue
Bonds, Series A 5.65% Due 4/1/6 210,714
75,000 City Of Omaha Auditorium Facilities Corporation (Omaha
Civic Project) Series 1996 4.35% Due 8/15/00 176,902
90,000 Nebraska Juvenile Services, Detention Facility Lease
Revenue Bonds, Series 1997 6.375% Due 6/1/17 538,153
-------
2,052,212
Total Investment in Securities (Cost $9,532,416) 93.18% $9,908,648
Cash Equivalents 7.49% 796,129
Other Assets, less Liabilities (0.67%) (71,493)
------- --------
TOTAL NET ASSETS 100.00% $10,633,284
======= ===========
7
<PAGE>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
(UNAUDITED)
ASSETS:
Investments in securities, at market value (cost $9,532,416) $9,908,648
Cash equivalents 796,129
Accrued interest and dividends receivable 136,579
-------------
Total assets 10,841,356
-------------
LIABILITIES:
Accrued expenses, including investment management,
administration and distribution expense reimbursements
payable to the adviser, administrator and distributor (note 3) 7,863
Payable for securities purchased 200,208
-------------
Total Liabilities 208,071
-------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $10,633,284
=============
NET ASSETS ARE REPRESENTED BY:
Capital stock outstanding, at par $1,066
Additional paid-in capital 10,645,220
Accumulated undistributed net investment income 23,300
Accumulated undistributed net realized loss on investments (412,534)
Unrealized appreciation (note 4) 376,232
-------------
Total amount representing net assets applicable to
1,066,054 outstanding shares of $.001 par value
common stock (50,000,000 shares authorized) $10,633,284
=============
Net asset value per share $9.97
See accompanying notes to financial statements.
8
<PAGE>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
INVESTMENT INTEREST INCOME: $293,095
----------
EXPENSES (NOTE 3):
Investment advisory fees 7,876
Administration fees 6,563
Distribution expenses 13,127
Custodial fees 2,215
Other operating expenses 7,256
----------
Total expenses 37,036
----------
Net investment income 256,059
----------
REALIZED LOSS AND UNREALIZED APPRECIATION
ON INVESTMENTS (NOTE 4):
Net realized gain 4,650
----------
Net unrealized appreciation
Beginning of period 276,870
End of period 376,232
----------
Net unrealized appreciation 99,362
----------
Net realized and unrealized gain on investments 104,012
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $360,071
==========
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended December
31, 1997 and the Year Ended June 30, 1997
Six Months Ended Year Ended
Dec. 31, 1997 June 30, 1997
(Unaudited)
Operations: ------------ ----------------
<S> <C> <C>
Net investment income $256,059 $484,521
Net realized gain (loss) on investments 4,650 (30,380)
Unrealized appreciation (depreciation) on investments 99,362 279,032
---------- ----------
Net increase in net assets resulting from operations 360,071 733,173
---------- ----------
Dividends paid to shareholders from net investment income: 250,866 486,874
---------- ----------
Capital share transactions:
Proceeds from shares sold (86,887 and 334,533 shares) 865,538 3,277,247
Distributions reinvested (14,809 and 29,522 shares) 146,574 288,578
Payment for redemptions (138,636 and 269,196 shares) (1,375,219) (2,628,675)
---------- ----------
Net increase (decrease) from capital share transactions
((36,940) and 94,859 shares) (363,107) 937,150
---------- ----------
Total increase (decrease) in net assets (253,902) 1,183,449
Net assets:
Beginning of period 10,887,186 9,703,737
---------- ----------
End of period $10,633,284 $10,887,186
========== ==========
See accompanying notes to financial statements.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND
THE YEARS ENDED JUNE 30, 1997, 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 YEAR ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C>
Beginning of period $9.87 $9.63 $9.71 $9.42 $10.00
----- ----- ----- ----- ------
Income (loss) from investment operations:
Net investment income 0.24 0.48 0.49 0.48 0.50
Net realized and unrealized gain
(loss) on investments 0.10 0.24 (0.08) 0.29 (0.63)
---- ---- ------ ---- ------
Total gain (loss) from
investment operation 0.34 0.72 0.41 0.77 (0.13)
---- ---- ---- ---- ------
Less distributions from net
investment income (0.24) (0.49) (0.49) (0.48) (0.45)
------ ------ ------ ------ ------
End of period (1) $9.97 $9.87 $9.63 $9.71 $9.42
===== ===== ===== ===== =====
TOTAL RETURN (1) 7.0%* 7.1% 4.3% 8.5% (1.6%)*
==== ==== ==== ==== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $10,663,284 10,887,186 9,703,737 10,523,865 8,893,922
Ratio of expenses to average net assets 0.71%* 0.67% 0.76% 0.71% 0.41%*
Ratio of net income to average net assets 4.93%* 4.95% 4.96% 5.15% 4.99%*
Portfolio turnover rate 5.83% 19.76% 17.53% 34.96% 7.45%
* Annualized for those periods less than twelve months in duration.
(1) Excludes maximum sales charge of 3.90%
See accompanying notes to financial statements.
</TABLE>
11
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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, 1997, 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. There will be no net
12
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
realized gain distributions until the net realized loss carry forwards have
been offset or expired. The Fund has unused capital loss carry forwards of
approximately $417,000 available for federal income tax purposes at December
31, 1997. The loss begins expiring in 2003.
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 $7,876, $6,563, and $13,127, respectively, for
such services. Of the amount paid to the Distributor, $9,142 was retained by
them for the sale of shares made by their agents and brokers. The
Distributor also received $2,588 and retained $1,795 (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 Fund and hence are not
reflected in the accompanying statement of operations.
13
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
3. CONTINUED
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, 1997 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 $7,150 for their
brokerage services during the six months ended December 31, 1997.
At December 31, 1997, the directors, officers, and employees of the Trust,
the Adviser, Administrator and Distributor and their immediate families held
12,759 shares at a value of $127,206.
4. SECURITIES TRANSACTIONS
The Fund made purchases and sales of investment securities of $593,500 and
$824,518, respectively, during the six months ended December 31, 1997.
At December 31, 1997, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities were $376,503 and
$271, respectively.
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
<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, 1997
(UNAUDITED)
YIELD AT
PAR TIME OF AMORTIZED
VALUE DESCRIPTION PURCHASE COST
- ---------------- ------------------------------------- -------- ----------
CERTIFICATES OF DEPOSIT -- 1.0%
$95,000 First National Bank, 5.70% $95,000
Lewellen, Nebraska, due 5/23/98
95,000 First Bank & Trust Company,
Cozad, Nebraska, due 6/16/98 5.85% 95,000
95,000 Curtis State Bank,
Curtis Nebraska, due 3/16/98 6.00% 95,000
95,000 First National Bank
Holdrege Nebraska, due 8/10/98 5.85% 95,000
95,000 Burlington Credit Union,
Lincoln Nebraska, due 8/12/98 6.22% 95,000
-------------
Total (cost $475,000) 475,000
-------------
GOVERNMENT SECURITIES -- 16.2%
1,000,000 Farm Credit, due 1/21/98 996,957
1,000,000 Federal Home Loan, due 2/13/98 993,328
3,000,000 Federal Home Loan, due 1/7/98 2,997,569
1,500,000 Federal Home Loan Mortgage, due 1/7/98 1,498,614
953,310 Goldman Sachs MM 953,310
-------------
Total (cost $7,439,778) 7,439,778
-------------
1
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1997 (CONTINUED)
TRUST CERTIFICATES -- U.S. GOVERNMENT GUARANTEED STUDENT LOANS -- 83.5%
40,000,000 Mid-America Student Finance Trust, due
1/26/98 to 12/16/98 (cost $40,000,000) 5.81%* $40,000,000
-------------
TOTAL INVESTMENTS -- 98% 47,914,778
EXCESS OF OTHER ASSETS OVER TOTAL LIABILITIES -- 0% (Includes $16,024 payable to
investment adviser, administrator and
distributor and $195,516 dividends payable to shareholders) (4,738)
-------------
NET ASSETS -- 100%
Applicable to 47,910,040 outstanding shares of $.001
par value common stock (100,000,000 shares authorized) $47,910,040
=============
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.
2
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1997
(Unaudited)
Investment Interest Income $1,172,663
---------
Expenses (note 2):
Investment advisory fees 21,047
Administration fees 25,256
Distribution fee 42,101
Custodial fees 9,811
Other expenses 7,017
---------
Total expenses 105,233
---------
Net Investment Income $1,067,430
=========
See accompanying notes to financial statements.
3
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended December 31, 1997 and Year Ended June 30, 1997
Six Months Ended Year Ended
Dec. 31, 1997 June 30, 1997
(Unaudited)
From Investment Operations: -------------- --------------
Net investment income
distributed to shareholders $1,067,430 $2,403,181
========= =========
From Share Transactions:
(at constant net asset value of $1 per share)
Shares sold 45,980,622 69,935,250
Shares issued in reinvestment of
dividends from net investment income 935,262 2,122,027
---------- ----------
46,915,883 72,057,277
Shares redeemed 41,849,361 95,976,861
---------- ----------
Total increase (decrease) in net assets
derived from share transactions 5,066,523 (23,919,584)
Net Assets:
Beginning of period 42,843,517 66,763,101
---------- ----------
End of period $47,910,040 $42,843,517
========== ==========
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS Six Months Ended December 31, 1997 and the Years
Ended June 30, 1997, 1996, 1995 and 1994 and the
Period from November 12, 1992 (commencement of operations) to June 30, 1993
Six Months Ended Year Ended Year Ended Year Ended Year Ended Period Ended
Dec. 31, 1997 June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993
(Unaudited)
Net asset value: ---------------- ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ---- ----- ---- ----- ----
Income from investment operations,
Net investment income 0.260 0.050 0.052 0.054 0.040 0.009
Less distributions,
Dividends from net investment income (0.260) (0.050) (0.052) (0.054) (0.040) (0.009)
----- ---- ----- ---- ----- ----
End of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ==== ==== ==== ==== =====
Yield 5.19%* 4.81% 5.02% 5.63% 4.52% 4.28%*
====== ==== ==== ==== ==== =====
Effective yield 5.37%* 4.92% 5.14% 5.79% 4.62% 4.37%*
====== ==== ==== ==== ==== =====
Ratios/Supplemental data:
Net assets, end of period (000's) $47,910 $4,284 $66,763 $24,337 $28,009 $14,855
Ratio of expenses to average net assets 0.50%* 0.58% 0.57% 0.54% 0.61% 0.68%*
Ratio of net income to average net assets 5.10%* 4.95% 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>
5
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
USE OF ESTIMATES: In preparing the financial statements in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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 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 accrues 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.
6
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
1. CONTINUED
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, 1997, 17 banks have entered into repurchase
agreements for an aggregate total of $90,000,000.
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.
7
<PAGE>
LANCASTER FUNDS
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
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 $21,047, $25,256, and $42,101, 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 $351 for brokerage services during the
six months ended December 31, 1997.
At December 31, 1997, the directors, officers, and employees of the Company,
the Adviser, Administrator, Distributor and their immediate families held
1,682,451 shares of the Fund, which constituted 3.51% of the Fund's
outstanding shares.
8
