Lancaster Funds
CAPITAL BUILDER
CONVERTIBLE
SMALL CAP
GOVERNMENT/QUALITY BOND
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
December 31, 1998
CAPITAL BUILDER FUND
Percent
of Net Market
Shares Common Stock 93.82% Assets Value
------ ------------------- ------ -----
Computer Related 3.13%
----------------
9,000 First Data Corp. $285,188
Direct Marketing 0.27%
----------------
10,000 Sitel Corp.* 24,375
Electrical Equipment 3.72%
--------------------
7,000 Gillette Corp. 338,188
Entertainment/Leisure 7.29%
---------------------
14,000 Harley-Davidson, Inc. 663,250
Financial Services 15.25%
------------------
6,000 Chase Manhattan Corp. 408,375
9,000 Federal Home Loan Mortgage Corp. 579,938
10,000 Wells Fargo & Co. 399,375
-------
1,387,688
Food/Beverage/Tobacco 0.80%
---------------------
1,500 Whole Foods Market* 72,563
Food Processing 4.50%
---------------
13,000 ConAgra, Inc. 409,500
Household Products/Housewares 6.94%
-----------------------------
9,000 Libbey, Inc. 260,438
9,000 Newell Co. 371,250
-------
631,688
Insurance 4.32%
---------
6,000 MBIA, Inc. 393,375
1
<PAGE>
LANCASTER FUNDS
Schedule of Investments (Continued)
CAPITAL BUILDER FUND
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- ------- ------------------------------ ---------- -------
Iron/Steel 0.66%
----------
17,250 Kentucky Electric Steel, Inc.* $60,375
Linen Supply & Related Items 2.53%
----------------------------
8,000 Unitog Co. 230,000
Machine Diversified 2.33%
-------------------
12,500 Thermo Electron Corp.* 211,719
Manufacturing 10.06%
-------------
5,500 General Electric Co.* 561,344
14,000 Pall Corp. 354,375
-------
915,719
Office/Business 5.08%
---------------
7,000 Pitney-Bowes, Inc. 462,438
Pharmaceutical/Medical 4.87%
----------------------
3,000 Merck & Co. 443,063
Pipelines 5.02%
---------
8,000 Enron Corp. 456,500
Real Estate 4.07%
-----------
13,000 Simon Property Group, Inc. 370,500
Rental 1.91%
------
10,000 Aaron Rents, Inc. 151,250
1,500 Aaron Rents, Inc.- Class A 22,406
------
173,656
Resturant/Food Service 4.63%
----------------------
5,500 McDonald's Corp. 421,438
2
<PAGE>
LANCASTER FUNDS
Schedule of Investments (Continued)
CAPITAL BUILDER FUND
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- ------- ------------------------------ ---------- -------
Retail Store 2.60%
------------
5,000 Payless Shoesource, Inc.* $236,875
Utilities-Electric 3.81%
------------------
10,000 CalEnergy Co., Inc.* 346,875
-------
TOTAL COMMON STOCK 8,534,973
Closed-End Management Company 4.14%
-----------------------------
19,999 Global Health Sciences Fund 376,243
-------
Total Investment in Securities (Cost $6,061,796) 97.96% $8,911,216
Cash equivalents 2.09% 191,775
Other assets, less liabilities (0.05%) (4,401)
------- -------
TOTAL NET ASSETS 100.00% $9,098,590
======= ==========
*Indicates nonincome-producing security.
3
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
CONVERTIBLE FUND
Principal Market
Amount Convertible Debentures 57.66% Value
------ ---------------------- ------ -----
$65,000 AES Trust 4.5% 8/15/05 $69,875
100,000 Affiliated Computer Services 4% 3/15/05 120,500
60,000 Alpharma 5.75% 4/01/05 80,925
60,000 Bankatlantic BNC 5.625% 12/01/07 46,200
105,000 Clear Channel Communictions, Inc. 2.625% 4/01/03 112,481
170,000 Costco Co. 0% 8/19/17 141,525
65,000 Athena Neurosciences, Inc. 4.75% 2/15/02 76,538
55,000 Family Golf Centers 5.75% 10/15/04 51,081
35,000 Financial Federal Corp. 4.5% 5/01/05 34,913
95,000 Fidelity National Financial 0% 2/15/09 67,331
45,000 Hilton Hotels, Inc. 5% 5/15/6 40,556
80,000 Interpublic Group 1.8% 9/16/04 89,200
160,000 Jacor Comm, Inc. 0% 2/09/18 77,400
65,000 Marriot International, Inc. 0% 3/25/11 42,088
65,000 Marriot International, Inc. 0% 3/25/11 41,925
150,000 Network 0% 2/13/18 90,938
140,000 Office Depot, Inc. 0% 12/11/07 118,125
40,000 Omnicom Group 4.25% 1/03/07 53,600
60,000 Petsmart 6.75% 11/01/04 89,700
70,000 Rite Aid Corp. 5.25% 9/15/02 103,513
50,000 Res-Care Inc. 12/01/04 69,188
50,000 Rouse Corp. 5.75% 7/23/02 51,688
60,000 System & Company 5% 10/15/04 48,300
75,000 Thermo Industry 4% 1/15/05 61,219
60,000 Thomas Nelson 4.75% 11/03/99 60,600
270,000 Whole Foods Market 0% 3/02/18 97,875
------
Total Convertible Debentures $1,937,284
4
<PAGE>
LANCASTER FUNDS
Schedule of Investments (Continued)
CONVERTIBLE FUND
Percent
Of Net Market
Shares Common Stock 9.89% Assets Value
------ ------------------ ------ -----
Building Materials/Cons 2.02%
-----------------------
2,364 Masco Corp. $67,965
Computer Related 2.63%
----------------
2,050 Oracle Corp.* 88,406
Electronics 2.09%
-----------
1,150 Motorola, Inc. 70,222
Insurance 1.97%
---------
675 Loews Corp 66,319
Publishing/Printing 1.18%
-------------------
600 Gannett Co. 39,713
Preferred Stock 26.36%
Financial Services 11.57%
------------------
720 Finova Finance Trust 5.5% Conv Pfd 53,505
1,025 Life RE Capital Trust II 6.0% Conv Pfd 76,875
3,000 National Australia Bank 7.875% Conv Pfd 83,625
1,200 Newell Financial Trust I 63,000
1,300 Owens Crng Cap LLC 64,513
2,000 Lincoln National Corp Conv Pfd 47,125
------
388,643
Food Processing
1,600 Suiza Cap Trust II 2.07% 69,400
Industrial Services 8.18%
-------------------
7,000 Kaufman & Broadman Homes 63,000
1,500 QualComm Financial Trust 5.75% Conv Pfd 66,000
920 Royal Caribbean Cruises 7.25% Conv Pfd 105,800
600 Mediaone Group, Inc. 39,900
------
274,700
5
<PAGE>
LANCASTER FUNDS
Schedule of Investments (Continued)
CONVERTIBLE FUND
Percent
Of Net Market
Shares Preferred Stock (Continued) Assets Value
- ----------- ---------------------------------- --------- -------
Utilities-Electric 2.90%
------------------
915 Houston Industries, Inc. $97,329
Insurance 1.64%
---------
2,500 Royal Group Tech-Decs 55,000
------
Total Investment in Securities (Cost $2,882,791) 93.91% $3,154,981
Cash equivalents 2.22% 74,732
Other assets, less liabilities 3.87% 129,905
----- -------
TOTAL NET ASSETS 100.00% $3,359,618
======= ==========
* Indicates nonincome-producing security.
6
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
CRESTONE SMALL CAP FUND
Percent
of Net Market
Shares Common Stock 95.81% Assets Value
------ ------------------- ------ -----
Auto/Truck/Parts 3.13%
----------------
4,725 Keystone Automotive Industries, Inc.* $98,930
3,025 Pep Boys 47,455
------
146,385
Commercial Services 3.73%
-------------------
4,125 AC Nielson Corp.* 116,531
3,925 Intl Telecomm Data Systems* 57,894
------
174,425
Communications Software 1.44%
-----------------------
2,500 True North Communications 67,188
Computer Related 9.13%
----------------
3,300 Ciber, Inc.* 92,194
1,900 Quadramed Corp.* 38,950
4,525 Systems & Computer* 62,219
1,875 Smart Modular Technologies* 52,031
3,775 Sykes Enterprises, Inc.* 115,138
1,400 Computer Task Group, Inc.* 37,975
1,000 Zebra Technologies* 28,750
------
427,257
Data Processing/Management 2.95%
--------------------------
2,950 Acxion Corp* 91,450
960 National Data Corp. 46,740
------
138,190
Distributions Wholesale 4.84%
-----------------------
2,400 AGL Resources 55,350
5,300 SCP Pool Corp* 80,163
2,300 United Stationers* 59,800
1,800 VWR Scientific Products 31275
-----
226,588
7
<PAGE>
LANCASTER FUNDS
Schedule of Investments (Continued)
CRESTONE SMALL CAP FUND
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
------ ------------------- ------ -----
Electrical Equipment 1.68%
--------------------
3,125 Brooks Automation, Inc.* $45,703
1,500 Cohu, Inc. 33,000
------
78,703
Electronics 2.17%
-----------
700 Alpha Industries, Inc. 25,200
1,200 Harman International 45,750
775 SDL, Inc.* 30,709
------
101,659
Entertainment/Leisure 0.48%
---------------------
2,700 Sodak Gaming, Inc.* 22,444
Environmental Control 2.72%
---------------------
4,699 Tetra Tech, Inc.* 127,167
Food Processing 4.29%
---------------
1,300 Corn Products International, Inc. 39,488
2,725 Fresh Del Monte Produce, Inc.* 59,098
3,400 Michael Foods, Inc. 102,000
-------
200,586
Financial Services 9.12%
------------------
2,050 Commercial Federal Corp. 47,534
3,475 Downey Financial Concepts Corp.* 88,395
2,050 Bancwest Corp. 98,400
1,950 GBC Bancorp 50,213
2,250 WestAmerica BanCorp 82,688
2,165 Webster Finance Corp. 59,402
------
426,632
Insurance 1.26%
---------
3,350 HCC Insurance Holding, Inc. 59,044
Manufacturing 2.63%
-------------
4,600 Rayovac Corp.* 122,763
8
<PAGE>
LANCASTER FUNDS
Schedule of Investments (Continued)
CRESTONE SMALL CAP FUND
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
------ ------------------- ------ -----
Medical Supplies/Services 13.37%
-------------------------
4,250 American Retire Corp* $66,672
1,950 Barr Laboratories* 93,600
2,800 HBO & Co. 80,325
1,675 Henry Schein, Inc.* 74,956
4,025 Maxxim Medical, Inc.* 119,744
7,975 Phycor, Inc.* 54,330
5,300 Stericycle, Inc.* 85,463
1,350 Trigon Healthcare, Inc.* 50,372
------
625,462
Oil Company Exploration/Production 1.42%
----------------------------------
3,290 Basin Exploration, Inc.* 41,331
2 EEX Corp.* 14
4,000 Ocean Energy, Inc.* 25,250
------
66,595
Packaging/Container 2.57%
-------------------
5,175 Ivex Packaging Corp.* 120,319
Publishing/Printing 3.37%
-------------------
3,050 Valassis, Inc.* 157,456
Real Estate 1.93%
-----------
4,825 Sunstone Hotel Investors, Inc. 45,536
1,950 Felcor Lodging Trust, Inc. 44,972
------
90,508
Recreation 1.14%
----------
2,700 Family Golf Centers, Inc.* 53,325
Restaurant/Food Service 5.37%
-----------------------
1,400 CEC Entertainment* 38,850
1,853 CKE Restaurants, Inc. 54,548
5,875 Foodmaker, Inc.* 129,617
4,675 Rainforest Cafe, Inc.* 28,342
------
251,357
9
<PAGE>
LANCASTER FUNDS
Schedule of Investments (Continued)
CRESTONE SMALL CAP FUND
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
------ ------------------- ------ -----
Retail/Apparel 0.91%
--------------
2,100 Oshkosh B'Gosh, Inc. $42,394
Retail Store 7.22%
------------
3,850 Central Garden & Pet Co.* 55,344
3,325 Guitar Center, Inc.* 81,878
4,600 Musicland Stores* 68,713
8,675 Cash America International, Inc. 131,752
-------
337,687
Telecommunications 3.02%
------------------
3,225 Comsat Corp. 116,100
1,200 Mastec, Inc.* 25,200
------
141,300
Transportation 0.48%
--------------
700 Motivepower Industries* 22,531
Trucking and Leasing 1.35%
--------------------
2,250 Swift Transportation Co., Inc.* 63,065
Utilities-Electric
1,200 Cilcorp, Inc. 4.09% 73,425
6,300 El Paso Electric Company* 55,125
1,650 Sierra Pacific Resources 62,700
------
191,250
Total Investment in Securities (Cost $3,913,669) 95.81% $4,482,280
Cash equivalents 3.23% 151,143
Other assets, less liabilities 0.96% 44,835
------ --------
TOTAL NET ASSETS 100.00% $4,678,258
======= =========
*Indicates nonincome-producing security.
10
<PAGE>
LANCASTER FUNDS
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
GOVERNMENT\QUALITY BOND FUND
Percent
Principal of Net Market
Amount U.S. Government Securities Assets Value
- ------------ -------------------------------------- --------- ---------
$107,760 Government National Mtg. Assn. 7.5% Due 1/15/24 55.71% $111,095
96,314 Government National Mtg. Assn. 11.5% Due 10/15/10 108,203
31,114 Government National Mtg. Assn. 9.5% Due 9/15/21 33,575
43,137 Government National Mtg. Assn. 7.5% Due 5/15/23 44,473
9,215 Government National Mtg. Assn. 9.5% Due 9/15/19 9,944
1,944 Government National Mtg. Assn. 10% Due 5/15/19 2,123
6,969 Government National Mtg. Assn. 10% Due 5/15/20 7,608
57,733 Government National Mtg. Assn. 10% Due 12/15/18 63,020
------
Total U.S. Government Securities 380,041
Treasury Bonds 9.78%
50,000 U.S.Treasury Bond 10.75% Due 8/15/05 66,695
Corporate Bonds 16.46%
100,000 Banc One Corporation 8.74% Due 9/15/03 112,276
-------
Total Investment in Securities (Cost $533,796) 81.95% $559,012
Cash equivalents 17.05% 116,269
Other assets, less liabilities 1.00% 6,848
----- -----
TOTAL NET ASSETS 100.00% $682,129
======= ========
11
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statement of Assets and Liabilities
December 31, 1998
(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 $6,061,794, $2,882,790, $3,913,664 and
$533,796, respectively) $8,911,216 3,154,981 4,482,280 559,012
Cash equivalents 191,775 74,732 151,143 116,269
Accrued interest and dividends receivable 7,063 21,168 5,457 7,796
Receivable for investment securities sold - 116,295 131,635 -
Organizational costs, net of accumulated
amortization 1,788 217 119 8
------ ---- ---- -
Total assets 9,111,842 3,367,393 4,770,634 683,084
---------- ---------- ---------- -------
Liabilities:
Accrued expenses, including investment
management and distribution expense payable to
adviser, administrator and distributor 13,042 4,725 6,108 955
Payable for securities purchased - - 85,971 -
Payable for fund shares redeemed 210 3,050 297 -
---- ------ ---- ------
Total liabilities 13,252 7,775 92,376 955
------- ------ ------- ---
Net assets applicable to outstanding
capital stock 9,098,590 3,359,618 4,678,258 682,129
========== ========== ========== =======
Net assets are represented by:
Capital stock outstanding, at par 709 257 392 66
Additional paid-in capital 6,196,885 3,074,444 6,209,874 871,164
Accumulated undistributed net investment
income (loss) (10,081) 96 (146,991) 272
Accumulated undistributed net realized
gain (loss) on investments 61,655 12,631 (1,953,633) (214,589)
Unrealized appreciation 2,849,422 272,191 568,616 25,216
---------- -------- -------- ------
Total net assets applicable to
shares outstanding 9,098,590 3,359,618 4,678,258 682,129
========== ========== ========== =======
Shares outstanding and net asset value per share
Investor shares of capital stock outstanding 672,794 238,493 302,835 62,793
Net asset value per share- Investor Shares $12.84 $13.07 $11.90 $10.31
====== ====== ====== ======
Select shares of capital stock outstanding 35,524 18,530 89,093 3,355
Net asset value per share- Select Shares $12.90 $13.07 $12.07 $10.31
====== ====== ====== ======
See accompanying notes to financial statements.
</TABLE>
12
<PAGE>
LANCASTER FUNDS
Statement of Operations
Six Months Ended December 31, 1998
(Unaudited)
Capital Crestone Government/
Builder Convertible Small Cap Quality
Fund Fund Fund Bond Fund
----------- --------- ---------- ---------
Investment income:
Dividends $73,786 $31,017 $29,135 $ -
Interest 4,161 34,520 34,771 26,199
------ ------- ------- ------
Total investment income 77,948 65,537 63,906 26,199
------- ------- ------- ------
Expenses :
Investment advisory fees 33,098 12,542 32,006 2,496
Administration fees 11,033 4,181 10,669 1,040
Distribution expenses- Investor 20,871 7,782 10,607 992
Custodial fees 2,148 1,334 10,157 811
Auditing and tax accounting fees 3,821 3,145 4,136 3,406
Other operating expenses 2,587 4,018 2,829 1,529
------ ------ ------ -----
Total expenses 73,558 33,000 70,403 10,275
------- ------- ------- ------
Net investment income (loss) 4,390 32,537 (6,497) 15,924
====== ======= ======= ======
Realized and unrealized gain (loss)
on investments :
Net realized gain (loss) 129,363 (52,759) (2,189,266) 11,928
-------- -------- ----------- ------
Net unrealized appreciation
Beginning of period 3,059,864 391,691 1,415,928 30,496
End of period 2,849,422 272,191 568,616 25,216
---------- -------- -------- ------
Net unrealized depreciation (210,443) (119,501) (847,312) (5,280)
Net realized and
unrealized gain (loss)
on investments (81,080) (172,259) (3,036,578) 6,648
-------- --------- ----------- -----
Net increase (decrease) in net assets
resulting from operations ($76,690) ($139,722) ($3,043,075$22,572
========= ========== ==================
See accompanying notes to financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statement of Changes in Net Assets
Six Months Ended December 31, 1998 and
the Year Ended June 30, 1998
Capital Builder Fund Convertible Fund
----------------------------- -------------------------------
Period Ended Year Ended Period Ended Year Ended
Dec. 31, 1998 June 30, 1998 Dec. 31, 1998 June 30, 1998
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Operations:
<S> <C> <C> <C> <C>
Net investment income (loss) $4,390 ($13,051) $32,537 $52,762
Net realized gain (loss) on investments 129,363 1,558,675 (52,759) 622,372
Unrealized appreciation (depreciation) (210,443) 1,323 (119,501) (9,899)
--------- ------ --------- -------
Net increase (decrease) in net assets
resulting from operations (76,690) 1,546,947 (139,723) 665,235
-------- ---------- --------- -------
Distributions to shareholders from:
Net investment income - Investor Shares - - 30,100 46,569
Net investment income - Select Shares - 2,043 2,954 5,672
Net realized gain- Investor Shares 569,810 1,281,467 369,812 216,835
Net realized gain- Select Shares 30,475 85,799 28,623 13,925
------- ------- ------- ------
Total Distribution 600,285 1,369,309 431,489 283,001
-------- ---------- -------- -------
Capital share transactions:
Proceeds from sales 150,640 992,560 21,798 401,748
Payment for redemptions (1,007,739) (2,721,086) (209,051) (239,162)
Reinvestment of net investment
income and net realized gain distributions
at net asset value 586,900 1,330,217 430,826 281,651
-------- ---------- -------- -------
Total increase (decrease) from capital
share transactions (270,198) (398,309) 243,573 444,237
--------- --------- -------- -------
Total increase (decrease) in net assets (947,173) (220,671) (327,639) 826,471
Net Assets:
Beginning of period 10,045,763 10,266,434 3,687,257 2,860,786
----------- ----------- ---------- ---------
End of period $9,098,590 $10,045,763 $3,359,618 $3,687,257
=========== ============ =========== ==========
See accompanying notes to financial statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Statement of Changes in Net Assets
Six Months Ended December 31, 1998 and
the Year Ended June 30, 1998
Government/Quality
Crestone Small Cap Bond
------------------------------ ----------------------------
Period Ended Year Ended Period Ended Year Ended
Dec. 31, 1998 June 30, 1998 Dec. 31, 1998 June 30, 1998
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Operations:
<S> <C> <C> <C> <C>
Net investment income (loss) ($6,497) ($140,493) $15,924 $63,801
Net realized gain (loss) on investments (2,189,265) 2,982,911 11,928 36,818
Unrealized appreciation (depreciation) (847,312) (1,151,583) (5,280) 5,144
--------- ----------- ------- -----
Net increase/(decrease) in net assets
resulting from operations (3,043,075) 1,690,835 22,572 105,763
----------- ---------- ------- -------
Distributions to shareholders from:
Net investment income- Investor Shares - - 14,754 60,790
Net investment income- Select Shares - - 840 2,849
Net realized gain- Investor Shares 5,562 1,492,781 - -
Net realized gain- Select Shares 1,637 2,615,367 - -
------ ---------- ------- -----
Total Distribution 7,199 4,108,148 15,594 63,639
------ ---------- ------- ------
Capital share transactions:
Proceeds from sales 814,136 3,502,885 3,119 35,817
Payment for redemptions (8,316,353) (10,290,099) (245,081) (1,720,862)
Reinvestment of net investment
income and net realized gain distributions
at net asset value 6,962 3,969,950 14,682 58,197
------ ---------- ------- ------
Total decrease from capital
share transactions (7,495,255) (2,817,264) (227,280) (1,626,848)
----------- ----------- --------- -----------
Total decrease in net assets (10,545,529) (5,234,577) (220,302) (1,584,724)
Net Assets:
Beginning of period 15,223,787 20,458,364 902,431 2,487,155
----------- ----------- -------- ---------
End of period $4,678,258 15,223,787 682,129 902,431
=========== =========== ======== =======
See accompanying notes to financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998 and the Years Ended June 30, 1998
and 1997 and the Period from August 24, 1995 (commencement of
operations) to June 30, 1996
Capital Builder Fund - Investor Shares (a)
Period Ended
Dec. 31, 1998 1998 1997 Period Ended
(Unaudited) June 30, 1996
Net asset value: ----------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Beginning of period $13.71 $13.63 $11.98 $10.00
------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (0.01) (0.02) 0.13 0.04
Net realized and unrealized gain (loss)
on investments (0.12) 2.10 2.53 1.98
------ ---- ---- ----
Total income (loss) from
investment operations (0.13) 2.08 2.66 2.02
------ ---- ---- ----
Less Distributions:
Dividends from net investment income 0.00 (0.01) (0.13) (0.04)
Dividends from capital gains (0.74) (2.00) (0.88) 0.00
------ ------ ------ ----
End of period $12.84 $13.71 $13.63 $11.98
======= ======= ======= ======
Total return: 0.61% (b) 16.68% 23.52% 24.14% (b)
===== ====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's omitted) $8,641 $9,425 $9,994 $8,529
Ratio of expenses to average net assets 1.69% (b) 1.70% 1.84% 1.82% (b)
Ratio of net income to average net assets 0.70% (b) (0.15%) 1.06% 0.42% (b)
Portfolio turnover rate 3.33% 26.29% 22.80% 31.35%
(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>
16
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998
Year Ended June 30, 1998 and the Period from
October 1, 1996 ( commencement of class shares) to June 30, 1997
Capital Builder Fund - Select Shares (a)
Period Ended Period Ended
Dec. 31, 1998 1998 June 30, 1997
-------------- --------- ------------
(Unaudited)
Net asset value:
<S> <C> <C> <C>
Beginning of period $13.73 $13.63 $12.47
------ ------ ------
Income from investment operations:
Net investment income 0.02 0.05 0.00
Net realized and unrealized gain
on investments 0.00 2.10 1.23
---- ---- ----
Total income from
investment operations 0.02 2.15 1.23
---- ---- ----
Less Distributions:
Distributions from net investment income 0.00 (0.05) (0.07)
----- ------ ------
Distributions from capital gains (0.85) (2.05) (0.07)
------ ------ ------
End of period (b) $12.90 $13.73 $13.63
======= ======= ======
Total return: (b) 1.19% (d) 17.21% 9.62% (c)
===== ====== =====
Ratios/Supplemental data:
Net assets, end of period $458,186 $621,097 $272,010
Ratio of expenses to average net assets 1.19% (d) 1.20% 0.96% (d)
Ratio of net income to average net assets 0.57% (d) 0.35% 0.81% (d)
Portfolio turnover rate 3.33% 26.29% 22.80%
(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.
See accompanying notes to financial statements.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998 and the
Years Ended June 30, 1998, 1997, 1996, 1995, and 1994
Convertible Fund - Investor Shares (a)
----------------------------------------------------------------
Period Ended
Dec. 31,1998 1998 1997 1996 1995 1994
---------------- ------ ---- ---- ---- ----
Net asset value: (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $15.53 $13.82 $13.20 $11.97 $11.69 $12.58
------ ------ ------ ------- ------- ------
Income (loss) from investment operations:
Net investment income 0.14 0.23 0.26 0.33 0.30 0.29
Net realized and unrealized gain
(loss) on investments (0.74) 2.77 2.10 1.73 1.01 (0.53)
------ ---- ---- ----- ----- ------
Total income (loss) from
investment operations (0.60) 3.00 2.36 2.06 1.31 (0.24)
------ ---- ---- ---- ---- ------
Less Distributions:
Dividends from net investment income (0.15) (0.22) (0.26) (0.33) (0.30) (0.29)
Dividends from capital gains (1.71) (1.02) (1.48) (0.50) (0.73) (0.36)
Total Distributions (1.86) (1.29) (1.74) (0.83) (1.03) (0.65)
------ ------ ------ ------ ------ ------
End of period $14.27 $15.53 $13.82 $13.20 $11.97 $11.69
======= ======= ======= ======= ======= ======
Total return: (6.82%) 22.60% 19.51% 17.60% 14.09% (2.26%)
======= ====== ====== ====== ====== =======
Ratios/Supplemental data:
Net assets, end of period (000's omitted) $3,115 3,435 2,861 1,802 1,765 2,708
Ratio of expenses to average net assets 2.01% (b) 1.91% 1.93% 1.93% 2.25% 2.06%
Ratio of net income to average net assets 1.91% (b) 1.54% 1.95% 2.53% 2.58% 2.27%
Portfolio turnover rate 42.37% 90.62% 100.15% 79.30% 51.31% 65.76%
(a) All capital shares issued and outstanding as of September 30, 1996 were
reclassified as Investor Shares.
(b) Annualized for those periods less than one year.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998 and the
Year Ended June 30, 1998 and the Period from June 16, 1997
(commencement of class shares) to June 30, 1997
Convertible Fund - Select Shares (a)
Period Ended
Dec. 31, 1998 1998 1997
Net asset value: (Unaudited)
Beginning of period $15.53 $13.83 $13.75
------ ------ ------
Income (loss) from investment operations:
<S> <C> <C> <C>
Net investment income 0.17 0.30 0.01
Net realized and unrealized gain (loss)
on investments (0.74) 2.77 0.17
------ ---- ----
Total income (loss) from
investment operations (0.57) 3.07 0.18
------ ---- ----
Less Distributions:
Dividends from net
investment income (0.18) (0.45) (0.10)
------ ------ ------
Dividends from capital gains (1.71) (0.92) 0.00
------ ------ ----
Total Distributions (1.89) (1.37) (0.10)
------ ------ ------
End of period $13.07 (b) $15.53 (b) $13.83 (b)
======= ======= =======
Total return: (6.33%)(b)(d) 23.06% (b) 1.25% (b)(c)
======= ====== =====
Ratios/Supplemental data:
Net assets, end of period $241,807 $252,648 $57,682
Ratio of expenses to average net assets 1.51% (d) 1.41% 1.41% (d)
Ratio of net income to average net assets 2.41% (d) 2.04% 3.11% (d)
Portfolio turnover rate 42.37% 90.62% 22.80%
(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.
See accompanying notes to financial statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998
Year Ended June 30, 1998 and the Period from
June 16, 1997 (commencement of class shares) to June 30, 1997
Crestone Small Cap Fund - Investor Shares (a)
------------------------------------------------------------------
Period Ended
Dec.31, 1998 1998 1997 1996 1995 1994
-------------- ----- ---- ---- ---- ----
Net asset value: (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $13.91 $16.14 $15.27 $13.49 $11.59 $11.77
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss (0.01) (0.15) (0.12) (0.10) (0.08) (0.07)
Net realized and unrealized gain
(loss) on investments (1.99) 1.37 2.45 2.91 2.34 0.20
------ ----- ----- ----- ----- ----
Total income (loss) from investment (2.00) 1.22 2.33 2.81 2.26 0.13
------ ----- ----- ----- ----- ----
operations
Distribution from capital gains (0.01) (3.45) (1.46) (1.03) (0.36) (0.31)
------ ------ ------ ------ ------ ------
End of period $11.90 $13.91 $16.14 $15.27 $13.49 $11.59
====== ====== ====== ====== ====== ======
Total return: (28.39%)(b) 7.83% 15.93% 22.33% 20.33% 1.21%
======== ===== ====== ====== ====== =====
Ratios/Supplemental data:
Net assets, end of period (000's omitted)$3,603 $6,086 $7,840 $16,327 $9,590 $7,219
Ratio of expenses to average net assets 1.90% (b) 1.75% 1.87% 1.75% 1.93% 1.91%
Ratio of net income to average net assets(0.04%)(b) (0.99%) (1.02%) (0.67%) (0.60%) (0.60%)
Portfolio turnover rate 97.06% 164.41% 226.30% 150.05% 86.50% 75.23%
(a) All capital shares issued and outstanding as of September 30, 1996 were
reclassified as Investor Shares.
(b) Annualized for those periods less than one year.
See accompanying notes to financial statements.
</TABLE>
20
<PAGE>
<TABLE>
C
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998
Year Ended June 30, 1998 and the Period from
June 16, 1997 (commencement of class shares) to June 30, 1997
Crestone Small Cap Fund- Select Shares (a)
Period Ended
Dec. 31, 1998 1998 1997
Net asset value: (Unaudited)
<S> <C> <C> <C>
Beginning of period $14.05 $16.20 $15.44
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) 0.01 (0.08) (0.08)
----- ------ ------
Net realized and unrealized gain
(loss) on investments (1.98) 1.37 2.26
------ ---- ----
Total income (loss) from
investment operations (1.97) 1.29 2.18
------ ---- ----
Distributions from capital gains (0.01) (3.44) (1.42)
====== ====== ======
End of period $12.07 (b) $14.05 (b) $16.20 (b)
------- ------- -------
Total return: (27.69%)(b)(d) 8.35% (b) 16.04% (b)(c)
======== ===== ======
Ratios/Supplemental data:
Net assets, end of period $1,075,168 $9,137,961 $12,618,836
Ratio of expenses to average net assets 1.40% (d) 1.25% 1.18% (d)
Ratio of net income to average net assets 0.10% (d) (0.49%) (0.48%)(d)
Portfolio turnover rate 97.06% 164.41% 226.30%
(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.
See accompanying notes to financial statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998
Years Ended June 30, 1998, 1997, 1996, 1995, and 1994
Government/Quality Bond Fund - Investor Shares (a)
---------------------------------------------------------------
Period Ended Dec. 31998998 1997 1996 1995 1994
-------------------------- ---- ---- ---- ----
Net asset value: (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $10.29 $10.19 $10.15 $10.43 $10.21 $11.17
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income 0.20 0.49 0.53 0.55 0.60 0.54
Net realized and unrealized gain
(loss) on investments 0.02 0.10 0.06 (0.28) 0.22 (0.75)
Total income (loss) from
investment operations 0.22 0.59 0.59 0.27 0.82 (0.21)
----- ----- ----- ----- ----- ------
Less Distributions:
Dividends from net investment income (0.20) (0.49) (0.55) (0.55) (0.60) (0.54)
Distribution from capital gains 0.00 0.00 0.00 0.00 0.00 (0.21)
----- ----- ----- ----- ----- ------
Total Distributions (0.20) (0.49) (0.55) (0.55) (0.60) (0.75)
------ ------ ------ ------ ------ ------
End of period $10.31 $10.29 $10.19 $10.15 $10.43 $10.21
====== ====== ====== ====== ====== ======
Total return: 5.02% (b) 7.26% 6.37% 2.83% 9.42% (2.00%)
===== ===== ===== ===== ===== =======
Ratios/Supplemental data:
Net assets, end of period (000's omitted) $648 $863 $2,443 $3,525 $4,694 $8,832
Ratio of expenses to average net assets 2.48% (b) 1.65% 1.49% 1.42% 1.47% 1.37%
Ratio of net income to average net assets 3.82% (b) 4.69% 5.13% 5.21% 5.86% 4.94%
Portfolio turnover rate 0.00% 0.00% 8.70% 36.11% 9.33% 218.11%
(a) All capital shares issued and outstanding as of September 30, 1996 were
reclassified as Investor Shares. (b) Annualized for those periods less than one
year.
See accompanying notes to financial statements.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998 and the
Year Ended June 30, 1998 and the Period from
June 16, 1997 (commencement of class shares) to June 30, 1997
Government/Quality Bond Fund-Select Shares
Period Ended
Dec. 31, 1998 1998 1997
---------------- ------- ----
Net asset value: (Unaudited)
<S> <C> <C> <C>
Beginning of period $10.30 $10.19 $10.49
------ ------ ------
Income (loss) from investment operations:
Net investment income 0.21 0.51 0.01
---- ---- ----
Net realized and unrealized gain (loss)
on investments 0.02 0.24 (0.04)
---- ---- ------
Total income (loss) from
investment operations 0.23 0.75 (0.03)
---- ---- ------
Distributions from net income (0.22) (0.64) (0.27)
------ ------ ------
End of period $10.31 (b) $10.30 (b) $10.19 (b)
======= ======= =======
Total return: 5.14% (b)(d) 7.59% (b) (0.30%)(b)(c)
===== ===== =======
Ratios/Supplemental data:
Net assets, end of period $34,612 $39,497 $44,398
Ratio of expenses to average net assets 2.23% (d) 1.40% 0.96% (d)
Ratio of net income to average net assets 4.07% (d) 4.94% 4.52% (d)
Portfolio turnover rate 0.00% 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.
</TABLE>
23
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
December 31, 1998
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.
24
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
2. Summary of Significant Accounting Policies (Continued)
At December 31, 1998, the cost of investment securities is identical for
financial reporting and income tax purposes.
The Capital Builder and Convertible Funds may write covered call put
options or purchase exchange-traded call put options.
At December 31, 1998, the funds authorized to write or purchase option
contracts had no options outstanding nor were any written or purchased
during the six months 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.
Federal Income Taxes
It is the policy of each fund to comply with requirements of the Internal
Revenue Code (the 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 $273,000 available for federal
income tax purposes at December 31, 1998. The loss begins expiring in 2004.
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.
25
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
2. Summary of Significant Accounting Policies (Continued)
Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
Cash Equivalents
Cash equivalents consist of money market funds which declare dividends
daily. As of December 31, 1998, the average yield on such funds was
approximately 5.00%.
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, 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 $80,143, $26,923, and $40,252,
respectively, for such services. Of the amount paid to the Distributor,
$38,293 was retained by them for sales of the Trust's shares made by their
agents and brokers. The distributor also received $607 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.
26
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
3. Related Party Transactions (Continued)
At December 31, 1998, 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 $5,583 $1,861 $3,564 $11,008
Convertible Fund 2,104 701 1,312 4,117
Crestone Small Cap Fund 2,934 978 1,519 5,431
Government/Quality
Bond Fund 352 147 140 639
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, 1998, no expense reimbursement
was required.
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
$2,108 for their brokerage services during the six months ended December
31, 1998.
Purchases of securities and proceeds from sales of securities during the
six months ended December 31, 1998, were as follows for each fund:
Purchases of Proceeds
Securities from Sales
Capital Builder Fund $474,757 $1,205,997
Convertible Fund 1,351,308 1,669,694
Crestone Small Cap Fund 6,840,662 13,938,958
Government/Quality Bond Fund - 175,886
27
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
4. Securities Transactions (Continued)
At December 31, 1998, 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 $3,211,247 $361,8245
Convertible Fund 396,410 124,219
Crestone Small Cap Fund 734,238 165,622
Government/Quality Bond Fund 25,396 180
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.
Transactions in the capital stock of each fund for the six months ended
December 31, 1998, were as follows:
Capital Capital
Builder Builder
Fund Fund
Investor Shares Select Shares
Transactions in shares:
Shares sold 8,482.216 2,707.145
Shares redeemed (67,236.500) (14,310.382)
Reinvested distributions 44,088.856 1,899.039
----------- -----------
Net (decrease) (14,665.428) (9,704.198)
=============== ===========
28
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
5. Capital Share Transactions (Continued)
Convertible Convertible
Fund Fund
Investor Shares Select Shares
Transactions in shares:
Shares sold 1,361.529 194.541
Shares redeemed (14,698.819) (354.791)
Reinvested distributions 30,616.756 2,422.059
---------- ------------
Net increase 17,279.466 2,261.809
========== ==========
Crestone Crestone
Small Cap Small Cap
Fund Fund
Investor Shares Select Shares
Transactions in shares:
Shares sold 2,589.386 63,679.022
Shares redeemed (137,786.169) (625,186.904)
Reinvested distributions 463.078 140.369
------- -------
Net decrease (134,733.705) (561,367.513)
=============== ============
Government/ Government/
Quality Bond Quality Bond
Fund Fund
Investor Shares Select Shares
Transactions in shares:
Shares sold 93.131 205.459
Shares redeemed (22,483.837) (767.753)
Reinvested distributions 1,342.521 81.482
-------------- --------
Net decrease (21,048.185) (480.812)
=========== ===========
At December 31, 1998, 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 36,628 $470,303
Capital Builder Fund Select Shares 7,083 91,368
Convertible Fund Select Shares 4,497 58,772
Crestone Small Cap Fund Select Shares 7,454 89,973
Government/Quality Bond Fund Select Shares 132 1,365
29
<PAGE>
- --------------------------------------------------------------------------------
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
SEMI-ANNAUL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<PAGE>
NEBRASKA TAX FREE FUND
Schedule of Investments
December 31, 1998
Percent
Principal of Net Market
Amount Tax-Exempt Securities- 96.06% Assets Value
------ ----------------------------- ------ -----
Education 10.87%
$500,000 Nebraska Educational Finance Authority Revenue Bonds
Series 1995 (Midland Lutheran College) 6.25% Due 6/15/18 $529,240
300,000 Nebraska Higher Education Loan Program Junior
Subordinate Bonds, Series A-6, 6.40% Due 6/1/13 333,414
100,000 Nebraska Educational Finance Authority Revenue Bonds
Series 1995 (Concordia Teacher's College) 5.90% Due 12/15/15 103,920
200,000 Nebraska Educational Finance Authority Revenue Bonds
Series 1995 (Midland Lutheran College) 6.25% Due 6/15/15 206,870
100,000 Nebraska Educational Finance Authority Revenue Bonds
Series 1994 (Dana College Project) 6.75% Due 6/1/14 112,235
-------
1,285,679
Electrical, Water, Sewer 5.39%
300,000 City Of Grand Island, Sewer System Revenue Bonds
Series 1994, 6.00% Due 4/1/14 325,365
100,000 City Of Hastings, Nebraska Combined Utility Revenue Bonds
Series 1994, 6.875% Due 10/15/14 102,675
200,000 City Of Kearney, Nebraska Combined Utilities Revenue
Refunding Bonds, Series 1994, 6.10% Due 6/1/14 209,320
-------
637,360
General Obligation 16.72%
50,000 Boyd County Nebraska School District No. 38 (Spencer-Naper)
General Obligation Bonds, 5.85% Due 6/15/13 51,509
1
<PAGE>
NEBRASKA TAX FREE FUND
Schedule of Investments (Continued)
December 31, 1998
Percent
Principal of Net Market
Amount General Obligation (Continued) Assets Value
------ ----------------------------- ------ -----
$400,000 Dawson County Sanitary & Improvement Dist #1 Refunding
Bond, Series 1997, IBP 5.65% Due 2/1/22 $426,416
150,000 Douglas County School District No. 66
5.00% Due 12/1/17 149,738
150,000 Douglas County School District No. 010
(Elkhorn Public Schools) Refunding Bonds 154,404
Series 1995 6.40% Due 12/15/08
100,000 Douglas County School District No. 010
(Elkhorn Public Schools) Refunding Bonds 102,982
Series 1994 6.60% Due 12/15/10
100,000 Douglas County School District No. 010
(Elkhorn Public Schools) Refunding Bonds 103,121
Series 1994 6.75% Due 12/15/14
100,000 Douglas County Sanitary & Improvement District No. 257
General Obligation Refunding Bond (Ramble Ridge) 103,240
6.25% Due 5/15/09
100,000 Keith County School District No. 001
(Ogallala Public Schools) School Building Bonds
Series 1994B 6.30% Due 11/15/09 102,467
235,000 Lancaster County School District 001 (Lincoln)
Lease Purchase 4.15% Due 10/26/00 235,000
100,000 Lincoln-Lancaster County Public Building Commission
Series 1994 6.20% Due 10/15/11 106,287
2
<PAGE>
NEBRASKA TAX FREE FUND
Schedule of Investments (Continued)
December 31, 1998
Percent
Principal of Net Market
Amount General Obligation (Continued) Assets Value
------ ----------------------------- ------ -----
$100,000 City Of North Platte Various Purpose Bonds
Series 1995 6.20% Due 3/15/15 $103,034
175,000 Saunders County School District 107 (Cedar Bluffs)
Public Schools 6.35% Due 7/1/14 177,538
150,000 Western Nebraska Community College Certificates
Of Participation Lease Rentals 6.55% Due 10/15/13 160,397
-------
1,976,133
Housing 11.59%
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 1996 Series A, 5.95% Due 3/1/27 100,000
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
250,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1995 Series B, 6.40% Due 9/1/26 250,000
425,000 Nebraska Investment Finance Authority Single Family Housing
Revenue Bonds 1994 Series D-1, 7.30% Due 9/1/26 425,000
1,370,000
3
<PAGE>
NEBRASKA TAX FREE FUND
Schedule of Investments (Continued)
December 31, 1998
Percent
Principal of Net Market
Amount Power Assets Value
------ ----------------------------- ------ -----
7.85%
$100,000 McCook Public Power District Electric System Revenue
And Refunding Bonds 6.75% Due 12/15/09 $102,967
200,000 Municipal Energy Agency Of Nebraska Power System
Revenue Refunding Bonds 1992 Series A 6.00% Due 4/1/17 214,508
325,000 Nebraska Public Power District Electric System Revenue
Bonds Series 5.00% Due 7/1/04 345,335
150,000 Nebraska Public Power District Electric System Revenue
Bonds Series 1992 A 6.25% Due 1/1/02 163,731
100,000 Omaha Public Power District Electric System Revenue
Bonds Series 1997A 4.30% Due 2/1/00 101,168
-------
927,709
Hospital 22.16%
250,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
5.00% Due 12/15/17 251,065
150,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
5.10% Due 7/1/04 156,776
275,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.) 290,474
5.375% Due 11/15/15
100,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.) 107,996
5.85% Due 11/15/03
4
<PAGE>
NEBRASKA TAX FREE FUND
Schedule of Investments (Continued)
December 31, 1998
Percent
Principal of Net Market
Amount Hospital (Continued) Assets Value
------ ----------------------------- ------ -----
$125,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
6% Due 11/15/15 $136,898
100,000 Douglas County Hospital Authority No. 2 Revenue Bonds
Health Care Facilities (Catholic Health Care Corp.)
6.25% Due 11/15/22 107,689
100,000 Gage County Hospital Authority No. 1 Hospital Revenue Bonds
Beatrice Community Hospital And Health Care Project
6.75% Due 10/1/07 113,356
200,000 Gage County Hospital Authority No. 1 Hospital Revenue Bonds
Beatrice Community Hospital And Health Care Project
6.75% Due 10/1/14 231,275
100,000 Kearney County Nebraska Hospital Authority No. 1 Revenue
Bonds, Series 1993 (Bethpage Mission of the Great Plains, Inc.)
5.90% Due 6/1/07 101,062
200,000 Lancaster County Nebraska Hospital Authority Hospital
Revenue Bonds Series 1992 A (Sister's Of Charity Health Care
Systems, Inc.) 6.25% Due 5/15/12 221,360
250,000 Madison County Hospital Authority #1 Revnue
Faith Regional Health 5.35% Due 7/1/18 258,115
200,000 Nebraska Investment Finance Authority State Revolving Fund
Revenue Bonds Series 1997A (Catholic Health Initiatives)
5.125% Due 12/1/17 204,364
150,000 Nebraska Investment Finance Authority Hospital Revenue
Bonds (Great Plains Regional Medical Center Project)
6.50% Due 5/15/14 167,892
5
<PAGE>
NEBRASKA TAX FREE FUND
Schedule of Investments (Continued)
December 31, 1998
Percent
Principal of Net Market
Amount Hospital (Continued) Assets Value
- --------- --------------------------------- -------- -------
$200,000 Nebraska Investment Finance Authority Hospital Revenue
Bonds (Nebraska Methodist Healthcare System)
6.55% Due 3/1/99 $201,142
70,000 Nebraska Investment Finance Authority Hospital Revenue
Bonds (Foundation Educational Building Fund)
7.00% Due 11/1/09 70,000
------
2,619,464
Various Revenues 21.48%
150,000 District Energy Corporation Facility Revenue Bonds
Series 1993 (City-County Building And County Correctional
Family Project) 5.50% Due 7/1/13 152,457
50,000 Lincoln-Lancaster County Public Building Commission Tax
Supported Lease Rental Revenue Building Bonds Series 1996
6.10% Due 10/15/99 50,704
250,000 City Of Lincoln Parking Revenues Bonds Series 1994 C
6.10% Due 8/15/09 264,210
100,000 City Of Lincoln Parking Revenues Bonds Series 1994 C
6.15% Due 8/15/11 105,807
490,000 Nebraska Juvenile Services, Detention Facility Lease
Revenue Bonds, Series 1997 6.375% Due 6/1/17 550,109
100,000 Nebraska Investment Finance Authority State Revolving
Revenue Bonds, Series 1998 4.60% Due 7/01/08 101,810
100,000 Nebraska Investment Finance Authority State Revolving
Revenue Bonds, Series 1998 4.70% Due 7/01/09 101,901
6
<PAGE>
NEBRASKA TAX FREE FUND
Schedule of Investments (Continued)
December 31, 1998
Percent
Principal of Net Market
Amount Various Revenues (Continued) Assets Value
- ---------- --------------------------------- ------- --------
$100,000 Nebraska Investment Finance Authority State Revolving
Revenue Bonds, Series 1998 4.80% Due 7/01/10 $101,756
100,000 Nebraska Investment Finance Authority State Revolving
Revenue Bonds, Series 1998 4.90% Due 7/01/11 101,777
100,000 Nebraska Investment Finance Authority
Revenue Bonds, Series A 5.85% Due 9/1/17 100,000
230,000 Nebraska Investment Finance Authority
Revenue Bonds, Series E 6.25% Due 9/1/28 230,000
200,000 Nebraska Public Gas Agency Gas Supply System Revenue
Bonds, Series A 5.65% Due 4/1/06 213,192
200,000 Nebraska Public Gas Agency Gas Supply System Revenue
Bonds, Series A 6.25% Due 4/1/05 214,894
250,000 Omaha River Development Revenue Bond 251,355
4.5% Due 12/01/07 -------
2,539,972
---------
Total Investment in Securities (Cost $10,855,532) 96.06% $11,356,318
Cash equivalents 2.71% 320,813
Other Assets, less Liabilities 1.23% 144,612
----- -------
TOTAL NET ASSETS 100.00% $11,821,743
======= ===========
7
<PAGE>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
Statement of Assets and Liabilities
December 31, 1998
(Unaudited)
Assets:
Investments in securities, at market value (cost $10,855,532) $11,356,318
Cash equivalents 320,813
Accrued interest and dividends receivable 152,056
Organizational costs, net of accumulated amortization 300
Total assets $11,829,487
Liabilities:
Accrued expenses, including investment
management and distribution expense payable to
adviser, administrator and distributor 7,744
Net assets applicable to outstanding capital stock $11,821,743
===========
Net assets are represented by:
Capital stock outstanding, at par $1,173
Additional paid-in capital 11,702,231
Accumulated undistributed net investment income 25,357
Accumulated undistributed net realized gain on investments (407,804)
Unrealized appreciation 500,786
Total amount representing net assets applicable to
1,173,429 outstanding shares of $0.001 par value
common stock (50,000,000 shares authorized) $11,821,743
===========
Net asset value per share $10.07
See accompanying notes to financial statements.
8
<PAGE>
<PAGE>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1998
(Unaudited)
Investment Interest Income: $335,163
-------
Expenses:
Investment advisory fees 9,240
Administration fees 7,700
Distribution expenses 15,400
Custodial fees 2,792
Auditing and tax accounting fees 3,799
Other operating expense 2,138
-----
Total expenses 41,069
-------
Net investment income 294,094
Realized and unrealized gain on
investments:
Net realized gain 4,729
-------
Net unrealized appreciation
Beginning of period 354,030
End of period 500,786
-------
Net unrealized appreciation 146,756
-------
Net realized and unrealized
gain on investments 151,485
-------
Net increase in net assets resulting
from operations $445,579
=======
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
Nebraska Tax-Free Fund
Statement of Changes in Net Assets
Six Months Ended December 31, 1998 and Year Ended June 30, 1998
Period Ended Year Ended
Dec.31, 1998 June 30, 1998
-------------- ---------------
(Unaudited)
From Investment Operations:
<S> <C> <C>
Net investment income $294,094 $525,736
Net realized gain on investments 4,729 4,650
Unrealized appreciation on investments 146,756 77,160
-------- ------
Net increase in net assets resulting from operations 445,579 607,546
-------- -------
Dividends paid to shareholders from net investment income: 291,295 521,287
-------- -------
Capital share transactions:
Proceeds from shares sold (105,994 and 286,828 shares) 1,064,310 2,854,515
Distributions reinvested (18,600 and 31,469 shares) 186,343 312,492
Payment for redemptions (188,474 and 183,982 shares) (1,896,592) (1,827,054)
----------- -----------
Net increase (decrease) from capital share transactions
((63,880) and 134,315 shares) (645,939) 1,339,953
--------- ---------
Total increase (decrease) in net assets (491,655) 1,426,212
Net Assets:
Beginning of period 12,313,398 10,887,186
=========== ==========
End of period $11,821,743 $12,313,398
============ ===========
See accompanying notes to financial statements.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
NEBRASKA TAX-FREE FUND
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998 and the Years
Ended June 30, 1998, 1997, 1996, 1995 and for the Period from
July 2, 1993 (commencement of operations) to June 30, 1994
Period Ended
Dec. 31,1998 1998 1997 1996 1995 1994
-------------- ------- ----- ---- ---- ----
(unaudited)
Net asset value:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $9.95 $9.87 $9.63 $9.71 $9.42 $10.00
----- ----- ----- ----- ----- ------
Income (loss) from investment operations:
Net investment income 0.24 0.48 0.48 0.49 0.48 0.50
Net realized and unrealized gain
(loss) on investments 0.12 0.08 0.24 (0.08) 0.29 (0.63)
----- ----- ----- ------ ----- ------
Total income (loss) from
investment operations 0.36 0.56 0.72 0.41 0.77 (0.13)
----- ----- ----- ----- ----- ------
Less Distributions:
Dividends from net investment income (0.24) (0.48) (0.49) (0.49) (0.48) (0.45)
------ ------ ------ ------ ------ ------
End of period (1) $10.07 $9.95 $9.86 $9.63 $9.71 $9.42
====== ===== ===== ===== ===== =====
Total return: (1) 7.2% * 5.8% 7.1% 4.3% 8.5% (1.6%)*
==== ==== ==== ==== ==== ======
Ratios/Supplemental data:
Net assets, end of period (000's omitted) $11,822 12,313 10,887 9,704 10,524 8,894
Ratio of expenses to average net assets 0.67% * 0.68% 0.67% 0.76% 0.71% 0.41% *
Ratio of net income to average net assets 4.78% * 4.86% 4.95% 4.96% 5.15% 4.99% *
Portfolio turnover rate 8.60% 12.35% 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, 1998
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 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, 1998, 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 $413,000 available for federal income tax purposes at December
31, 1998. The loss begins expiring in 2003.
Distributions to Shareholders: Dividends to shareholders are recorded on the
ex-dividend date.
Cash Equivalents: Cash equivalents consist of money market funds which
declare dividends daily. As of December 31, 1998, the average yield on
such tax-free funds was approximately 2.10%
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 $9,240, $7,700, and $15,400, respectively, for
such services. Of the amount paid to the Distributor, $9,496 was retained by
them for the sale of shares made by their agents and brokers. The
Distributor also received $2,198 and retained $1,460 (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, 1998 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 $5,625 for their
brokerage services during the six months ended December 31, 1998.
At December 31, 1998, 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 $128,482.
4. Securities Transactions
The Fund made purchases and sales of investment securities of $1,000,975 and
$1,430,837, respectively, during the six months ended December 31, 1998.
At December 31, 1998, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities were $501,004 and
$218, respectively.
4. Business Changes
The Board of Directors of the Fund has recently reviewed and unanimously
endorsed a proposal for the reorganization of the Nebraska Tax-Free Fund.
The proposal calls for the acquisition of the Fund by the Nebraska Municipal
Fund, a Series of Ranson Managed Portfolios. The transaction is subject to
approval of final documents and conditions by the Fund's directors and
shareholders.
14
<PAGE>
- --------------------------------------------------------------------------------
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<PAGE>
LANCASTER FUNDS
Institutional Money Market
Statement of Net Assets
December 31, 1998
(Unaudited)
Par Value Description Yield at Time of Amortized
Purchase Cost
- ---------------- -------------------- ---------------- -----------
Certificates of Deposit -- 100%
$95,000 First National Bank, 6.00% $95,000
Lewellen Nebraska, due 3/23/99
95,000 Curtis State Bank, 5.75% 95,000
Curtis Nebraska, due 3/16/99
95,000 First National Bank, 6.00% 95,000
Holdrege Nebraska, due 5/10/99
95,000 Burlington Credit Union, 6.00% 95,000
Lincoln Nebraska, due 8/11/99 ------
Total (cost $380,000) $380,000
--------
Government Securities -- .8%
3,203 Goldman Sachs MM 3,203
Total 3,203
Total Investments -- 100.8% (cost $383,203) 383,203
-------
Excess of other Assets over Total Liabilities -- (0.8%)
(Includes $14,780 payable to investment advisor, administrator and (3,203)
distributor and $230 dividends payable to shareholders)
Net Assets -- 100%
Applicable to 380,000 outstanding shares of $0.001
par value common stock (100,000,000 shares authorized) $380,000
========
Net Asset Value:
Offering and redemption price per share $1.00
=====
See accompanying notes to financial statements.
1
<PAGE>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1998
(Unaudited)
Investment Interest Income: $1,013,210
---------
Investment advisory fees 19,079
Administration fees 22,894
Distribution expenses 38,120
Custodial fees 8,229
Other expenses 11,236
------
Total expenses 99,558
------
Net investment income $913,652
=======
2
<PAGE>
Institutional Money Market
Statement of Changes in Net Assets
Six Months Ended December 31, 1998 and Year Ended June 30, 1998
Period Ended Year Ended
Dec. 31, 1998 June 30, 1998
(Unaudited)
From Investment Operations: -------------- -----------
Net investment income
distributed to shareholders $913,652 $2,247,148
From Share Transactions:
(at constant net asset value of $1 per share)
Shares sold 29,004,658 89,998,583
Shares issued in reinvestment of
dividends from net investment income 979,549 2,042,769
-------- ---------
29,984,207 92,041,352
Shares redeemed 70,525,114 93,963,962
----------- ----------
Total decrease in net assets (40,540,907) (1,922,610)
Net Assets:
Beginning of period 40,920,907 42,843,517
----------- ----------
End of period $380,000 $40,920,907
========= ===========
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
LANCASTER FUNDS
INSTITUTIONAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Six Months Ended December 31, 1998 and the
Years ended June 30, 1998, 1997, 1996, 1995, and 1994
Period Ended
Dec. 31,1998 1998 1997 1996 1995 1994
----------------- ------ ---- ---- ---- ----
(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 0.024 0.050 0.050 0.052 0.054 0.040
Less Distributions:
Dividends from net investment income (0.024) (0.050) (0.050) (0.052) (0.054) (0.040)
------- ------- ------- ------- ------- -------
End of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Yield: 4.50% 4.96% 4.81% 5.02% 5.63% 4.52%
===== ===== ===== ===== ===== =====
Effective Yield: 4.59% 5.07% 4.92% 5.14% 5.79% 4.62%
===== ===== ===== ===== ===== =====
Ratios/Supplemental data:
Net assets, end of period (000's) $380 $40,921 $42,844 $66,763 $24,337 $28,009
Ratio of expenses to average net assets 0.52% * 0.52% 0.58% 0.57% 0.54% 0.61%
Ratio of net income to average net assets 4.79% * 5.05% 4.95% 5.17% 5.42% 4.05%
----- ----- ----- ----- ----- -----
* Annualized for those periods less than one year.
See accompanying notes to financial statements.
</TABLE>
4
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
December 31, 1998
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.
Distributions to Shareholders: Dividends to shareholders are accrued
and declared daily from net investment income. Payments or reinvestments
of dividends are made monthly.
5
<PAGE>
LANCASTER FUNDS
Notes to Financial Statements
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 $19,079, $22,894, and $38,120, 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 $440 for brokerage services during the
six months ended December 31, 1998.
At December 31, 1998, the directors, officers, and employees of the Company,
the Adviser, Administrator, Distributor and their immediate families held
380,000 shares of the Fund, which constituted 100% of the Fund's outstanding
shares.
3. Business Changes
Effective December 28, 1998, the Fund is no longer available for sale to new
shareholders. Assets currently held in the Fund are owned by one shareholder
to accommodate the maturity of bank certificates of deposit in the near
future.
6
