STRATUS FUND, INC.
Growth Portfolio
Government Securities Portfolio
Capital Appreciation Portfolio
Intermediate Government Bond Portfolio
Annual Report
June 30, 1996
<PAGE>
Shareholder Letter............................. 1
Comparison Graphs
Growth Portfolio........................... 3
Government Securities Portfolio............ 3
Capital Appreciation Portfolio............. 4
Intermediate Government Bond Portfolio..... 4
Independent Auditors' Report................... 5
Schedule of Investments
Growth Portfolio........................... 6
Government Securities Portfolio............ 10
Capital Appreciation Portfolio............. 11
Intermediate Government Bond Portfolio..... 14
Statement of Assets and Liabilities............ 15
Statement of Operations........................ 16
Statements of Changes in Net Assets
Growth Portfolio........................... 17
Government Securities Portfolio............ 17
Capital Appreciation Portfolio............. 18
Intermediate Government Bond Portfolio..... 18
Financial Highlights
Growth Portfolio........................... 19
Government Securities Portfolio............ 20
Capital Appreciation Portfolio............. 21
Intermediate Government Bond Portfolio..... 22
Notes to Financial Statements.................. 23
<PAGE>
Stratus Fund, Inc.
Dear Shareholders:
The economy is growing at a somewhat faster pace than expected at the
beginning of the year. Domestic Product for the 1st Quarter of 1996 recorded
growth of 2.2% as compared to 1.5% forecast. Momentum continued in the second
quarter and based upon recent economic indicators, 3.5% to 4.0% GDP gains could
result for the quarter just completed. Despite these upward revisions and
continuing signs of strength, the consensus forecast calls for economic slowing
during the second half of 1996.
Against this economic back drop, the stock and bond markets have acted
independently and gone their separate ways. Faster economic growth has led to
significantly higher interest rates than existed at the beginning of 1996. For
example, the 30 year U.S. Treasury Bond began the year yielding 6.06%. On June
30, 1996 that same bond yielded 6.89%. This resulted in flat to negative returns
for bonds and bond funds so far in 1996.
The short end of the yield curve has not changed as much; however,
forecasts for short term interest rates have shifted 180 degrees. At the
beginning of the year, and much of the first quarter, the bond market expected
the economy to remain weak and expected the Federal Reserve Board to continue
easing resulting in lower short term interest rates. At the end of the second
quarter, psychology had shifted as to when the Fed would tighten and force rates
up and whether the rate hike would be 25 or 50 basis points.
The stock market continued to perform quite well during the first half
of 1996 despite fighting the head wind of higher interest rates. Stocks were
helped significantly by the unprecedented inflows of cash earmarked for common
stocks and particularly stock mutual funds. Over $25 billion flowed into stock
mutual funds in January and February. The Standard and Poor's 500 Index achieved
a total rate of return of 10.1%, including reinvestment of dividends, for the
first six months of 1996. The Dow Jones Industrial Index stood at 5654 on June
30, not too far below the all time high of 5778 established during mid-May.
The two bond funds, managed by Stratus, performed similarly to other
bond funds with the same investment objective. The Stratus Government Securities
Fund achieved a total rate of return of 3.7% this past fiscal year, while the
Stratus Intermediate Government Bond Portfolio appreciated 4.1%. For comparison
purposes, the Merrill Lynch U.S. Treasury Intermediate Term Index grew by 4.9%
during the recently completed fiscal year.
<PAGE>
The strategy employed by the Intermediate Government Bond Portfolio is
to buy only U.S. Treasury Obligations or money market instruments that invest
exclusively in U.S. Treasury Obligations. As a normal operating practice,
the Intermediate Government Bond Portfolio invests in a 1-5 year ladder of
maturities.
The strategy for the Government Securities Portfolio is essentially the
same regarding the use of high quality government securities. It differs in that
bonds as long as ten years may be used and the average maturity will generally
be greater. Emphasis will be on total return as opposed to income generation and
the average maturity will vary with existing and anticipated interest rates.
This fund has the ability to invest in non-U.S. Government Obligations.
The two Stratus funds investing in common stocks completed a very
successful fiscal year which also ended June 30, 1996. The sizable rally in
the stock market allowed each fund to post very good results. The buoyant
stock market allowed each of the stock funds to achieve returns in excess of
20%.
The Stratus Growth Fund, formerly known as the Equity Income Fund,
provided a total return of 22.6% for the fiscal year. The strategy employed
in this fund is to invest primarily in large capitalization stocks with an
emphasis on growth companies. The transition toward a greater portion of
stocks demonstrating steady, consistent growth is causing above-average
turnover at this time and may continue for a while.
The Capital Appreciation Fund invests in smaller capitalized stocks
demonstrating favorable stock price momentum. The most recently completed
quarter was an excellent one for the type of stocks used in this fund. As a
result, the performance of this fund has improved significantly. The 14.2% gain
over the last six months contributed substantially to the fund out pacing the
market over the past year. The Stratus Capital Appreciation Fund achieved a
26.0% gain for the past fiscal year. This stock fund, with its higher beta,
should remain the more volatile of our two Stratus stock funds.
We value highly your continued relationship with the Stratus Family of
Funds. Please call us with any questions or comments you may have.
July 12, 1996
<PAGE>
[GRAPHIC OMITTED]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
GROWTH PORTFOLIO AND THE S&P 500 INDEX
AVG. ANNUAL RETURN 06/30/96 VALUE
1 YEAR 22.58% EQUITY INCOME $14,754.25
INCEPTION 15.32% S&P 500 $15,644.50
[GRAPHIC OMITTED]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
GOVERNMENT SECURITIES PORTFOLIO AND THE MERRILL
LYNCH U.S. TREASURY INTER-TERM INDEX
AVG. ANNUAL RETURN 06/30/96 VALUE
1 YEAR 3.68% GOVERNMENT SECURITIES $10,918.07
INCEPTION 3.27% MERRILL LYNCH U.S. TREASURY
INTER-TERM BOND $11,194.76
Past performance is not predictive of future performance.
Equity Income Portfolio for the period October 8, 1993 (inception) through
June 30, 1996.
Government Securities Portfolio for the period October 8, 1993 (inception)
through June 30, 1996.
<PAGE>
[GRAPHIC OMITTED]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
CAPITAL APPRECIATION PORTFOLIO AND THE S&P 500 INDEX
AVG. ANNUAL RETURN 06/30/96 VALUE
1 YEAR 26.04% CAPITAL APPRECIATION $14,510.60
INCEPTION 11.27% S&P 500 $16,895.65
[GRAPHIC OMITTED]
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
INTERMEDIATE GOVERNMENT BOND PORTFOLIO AND THE MERRILL
LYNCH U.S. TREASURY INTER-TERM INDEX
AVG. ANNUAL RETURN 06/30/96 VALUE
1 YEAR 4.13% INTERMEDIATE GOVERNMENT BOND $13,532.93
5 YEAR 6.19% MERRILL LYNCH U.S. TREASURY
INCEPTION 6.07% INTER-TERM BOND $14,372.51
Past performance is not predictive of future performance.
Capital Appreciation Portfolio for the period January 4, 1993 (inception)
through June 30, 1996.
Intermediate Government Bond Portfolio for the period May 15, 1991 (inception)
through June 30, 1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Stratus Fund, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of Stratus Fund, Inc. (comprised respectively of the
Growth (formerly Equity Income), Government Securities, Capital Appreciation,
and Intermediate Government Bond Portfolios) as of June 30, 1996, the related
statements of operations and changes in net assets and the financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended June 30, 1995,
and financial highlights for the years ended June 30, 1995, 1994, 1993, and 1992
for the Intermediate Government Bond Portfolio, for the years ended June 30,
1995 and 1994 and the period from January 4, 1993 (commencement of operations)
to June 30, 1993 for the Capital Appreciation Portfolio, for the year ended June
30, 1995 and the period from October 8, 1993 (commencement of operations) to
June 30, 1994 for the Growth and Government Securities Portfolios were audited
by other auditors whose report dated July 21, 1995, expressed an unqualified
opinion on such statements and such financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
aforementioned portfolios constituting Stratus Fund, Inc. as of June 30, 1996,
the results of its operations, the changes in its net assets, and the financial
highlights for the year then ended, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Lincoln, Nebraska
July 22, 1996
<PAGE>
STRATUS FUND, INC.
Schedule of Investments
June 30, 1996
GROWTH PORTFOLIO
Percent
of Net Market
Shares Common Stock 90.20% Assets Value
- --------------------------------------------------------------------------------
Chemicals 6.81%
------------------------------------------------
8,000 Air Product & Chemical, Inc. $ 462,000
4,000 Dupont (E.I.) De Nemours & Company 316,500
14,000 Morton International, Inc. 521,500
12,000 Nalco Chemical Company 378,000
----------
1,678,000
----------
Commercial Services 1.79%
------------------------------------------------
15,000 Olsten Corporation 440,625
----------
Computers 7.64%
------------------------------------------------
8,000 Cisco Systems, Inc.* 453,000
4,000 International Business Machines Corporation 396,000
4,000 Microsoft Corporation* 480,500
14,000 Oracle Corporation* 552,125
----------
1,881,625
----------
Cosmetics/Personal Care 1.77%
------------------------------------------------
7,000 Gillette Company 436,625
----------
Electrical Equipment 3.99%
------------------------------------------------
11,000 AMP, Inc. 441,375
6,000 Emerson Electric Company 542,250
----------
983,625
----------
Electronics 8.00%
------------------------------------------------
8,000 General Electric Company 692,000
4,000 Hewlett-Packard, Inc. 398,500
6,000 Intel Corporation 440,625
7,000 Motorola, Inc. 440,125
----------
1,971,250
----------
* Indicates nonincome-producing security.
<PAGE>
STRATUS FUND, INC.
Schedule of Investments (Continued)
GROWTH PORTFOLIO
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
Entertainment/Leisure 2.11%
------------------------------------------------
18,000 Carnival Corporation Class A $ 519,750
----------
Financial Services 3.38%
------------------------------------------------
6,000 Barnett Bank, Inc. 366,000
10,476 Mercantile Bancorporation 466,182
----------
832,182
----------
Food/Beverage/Tobacco 8.49%
------------------------------------------------
10,000 Coca Cola Company 488,750
16,000 Pepsico, Inc. 566,000
14,000 Sara Lee Corporation 453,250
17,000 Sysco Corporation 582,250
----------
2,090,250
----------
Forest Products/Paper 2.20%
------------------------------------------------
7,000 Kimberly-Clark Corporation 540,750
----------
Household Products/Ware 2.06%
------------------------------------------------
6,000 Colgate-Palmolive Company 508,500
----------
Insurance 3.88%
------------------------------------------------
10,000 American General Corporation 363,750
6,000 American International Group, Inc. 591,750
----------
955,500
----------
<PAGE>
STRATUS FUND, INC.
Schedule of Investments (Continued)
GROWTH PORTFOLIO
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- --------------------------------------------------------------------------------
Machine/Tools 1.87%
------------------------------------------------
10,000 Dover Corporation $ 461,250
----------
Manufacturing 1.99%
------------------------------------------------
12,000 Tyco International, Ltd. 489,000
----------
Metals/Mining 1.86%
------------------------------------------------
8,000 Aluminum Company of America 459,000
----------
Office/Business 1.96%
------------------------------------------------
9,000 Xerox Corporation 481,500
----------
Oil/Gas 10.22%
------------------------------------------------
4,000 Atlantic Richfield Company 474,000
6,300 Exxon Corporation 547,313
4,000 Mobil Corporation 448,500
15,000 Questar Corporation 510,000
3,500 Royal Dutch Petroleum Company (ADR) 538,125
----------
2,517,938
----------
Pharmaceutical/Medical 6.22%
------------------------------------------------
10,000 Johnson & Johnson 495,000
7,000 Lilly (Eli) & Company 455,000
9,000 Merck & Company, Inc. 581,625
----------
1,531,625
----------
Publishing/Printing 1.77%
------------------------------------------------
6,000 Reuters Holdings PLC (ADR) 435,000
----------
<PAGE>
STRATUS FUND, INC.
Schedule of Investments (Continued)
GROWTH PORTFOLIO
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- --------------------------------------------------------------------------------
Restaurant/Food Service 1.90%
------------------------------------------------
10,000 McDonald's Corporation $ 467,500
----------
Retail/Retail Store 4.11%
------------------------------------------------
15,000 Pep Boys-Manny Moe & Jack 510,000
15,000 Walgreen Company 502,500
----------
1,012,500
----------
Utilities 6.18%
------------------------------------------------
17,000 Allegheny Power System, Inc. 524,875
20,000 Kansas City Power & Light Company 550,000
20,000 PacifiCorp 445,000
----------
1,519,875
----------
Principal
Amount U.S. Government Securities 4.02%
- ------------ ------------------------------------------
1,000,000 U.S. Treasury Bill, due 9/12/96 989,820
----------
Total Investment in Securities (cost $19,683,951) 94.22% 23,203,690
Cash Equivalents 4.38% 1,079,274
Other Assets, Less Liabilities 1.40% 345,019
------ ----------
NET ASSETS 100.00% $24,627,983
======= ==========
See accompanying notes to financial statements.
<PAGE>
STRATUS FUND, INC.
Schedule of Investments
June 30, 1996
GOVERNMENT SECURITIES PORTFOLIO
Principal Percent of Market
Amount Net Assets Value
- --------------------------------------------------------------------------------
U.S. Government Securities 89.08%
------------------------------------------
1,000,000 Federal Farm Credit Bank, 5.87%, due 1/21/03 $ 950,463
500,000 Federal Farm Credit Bank, 6.05%, due 3/10/03 472,813
300,000 Federal Home Loan Bank, 7.70%, due 8/26/96 301,012
750,000 Federal National Mortgage Assn., 6.05%, due 1/12/98 749,180
1,000,000 Federal National Mortgage Assn., 6.20%, due 6/06/00 985,000
2,000,000 Federal National Mortgage Assn., 6.35%, due 6/10/051,912,500
700,000 United States Treasury Note, 7.25%, due 11/15/96 704,375
1,500,000 United States Treasury Note, 5.625%, due 10/31/97 1,493,438
2,000,000 United States Treasury Note, 7.125%, due 10/15/98 2,040,000
2,000,000 United States Treasury Note, 6.375%, due 7/15/99 2,003,437
1,000,000 United States Treasury Note, 7.75%, due 11/30/99 1,041,406
2,000,000 United States Treasury Note, 6.375%, due 1/15/00 1,999,375
2,000,000 United States Treasury Note, 5.75%, due 10/31/00 1,947,500
2,000,000 United States Treasury Note, 5.50%, due 12/31/00 1,927,187
2,000,000 United States Treasury Note, 6.50%, due 5/31/01 2,000,312
----------
20,527,998
----------
Total Investment in Securities (cost $20,810,534) 89.08% 20,527,998
Cash Equivalents 9.48% 2,183,899
Other Assets, Less Liabilities 1.44% 331,266
------ -----------
NET ASSETS 100.00% $23,043,163
======= ==========
See accompanying notes to financial statements.
<PAGE>
STRATUS FUND, INC.
Schedule of Investments
June 30, 1996
CAPITAL APPRECIATION PORTFOLIO
Percent
of Net Market
Shares Common Stock 87.12% Assets Value
- --------------------------------------------------------------------------------
Chemicals 2.42%
------------------------------------------------
3,000 Mississippi Chemical Corporation $ 60,000
-------
Commercial Services 3.73%
------------------------------------------------
1,000 Manpower, Inc. 39,250
1,900 Robert Half International, Inc. * 52,962
-------
92,212
-------
Computers 6.80%
------------------------------------------------
1,575 Cadence Design Systems, Inc. * 53,156
650 Sterling Software, Inc. * 50,050
1,700 Storage Technology Corporation * 65,025
-------
168,231
-------
Electronics 2.36%
------------------------------------------------
1,700 Checkpoint Systems, Inc. * 58,438
-------
Entertainment/Leisure 2.58%
------------------------------------------------
1,600 MGM Grand, Inc. * 63,800
-------
Environmental Control 5.46%
------------------------------------------------
2,100 US Filter Corporation * 72,975
2,100 USA Waste Services, Inc. * 62,213
-------
135,188
-------
Financial Services 2.09%
------------------------------------------------
850 First Union Corporation 51,744
-------
* Indicates nonincome-producing security.
<PAGE>
STRATUS FUND, INC.
Schedule of Investments (Continued)
CAPITAL APPRECIATION PORTFOLIO
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- --------------------------------------------------------------------------------
Grocery Store 2.52%
------------------------------------------------
1,900 Great Atlatic & Pacific Tea Company, Inc. $ 62,463
-------
Lodging 3.11%
------------------------------------------------
1,100 HFS, Inc. * 77,000
-------
Machinary/Equipment 3.25%
------------------------------------------------
1,000 Case Corporation 48,000
2,000 Giddings Lewis, Inc. 32,500
-------
80,500
-------
Medical Supplies/Services 3.90%
------------------------------------------------
1,000 Healthsouth Corporation * 36,000
1,950 U.S. Surgical Corporation 60,450
-------
96,450
-------
Metals/Mining 2.68%
------------------------------------------------
1,000 Potash Corporation of Saskatchewan, Inc. 66,250
-------
Oil/Gas 22.25%
------------------------------------------------
2,100 Baker Hughes, Inc. 69,037
1,300 Cooper Camero Corporation * 56,875
2,200 Ensco International, Inc. * 71,500
1,900 Noble Affiliates, Inc. 71,725
2,300 Reading & Bates Corporation * 50,887
4,000 Rowen Companies, Inc. * 59,000
1,150 Sonat Offshore Drilling Company 58,075
1,500 Tidewater, Inc. 65,813
950 Tosco Corporation 47,738
-------
550,650
-------
* Indicates nonincome-producing security.
<PAGE>
STRATUS FUND, INC.
Schedule of Investments (Continued)
CAPITAL APPRECIATION PORTFOLIO
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- --------------------------------------------------------------------------------
Real Estate 2.19%
------------------------------------------------
1,700 Developers Diversified Realty Corporation $ 54,188
-------
Retail/Apparel 15.98%
------------------------------------------------
1,300 Barnes & Noble, Inc. * 46,637
650 Boise Cascade Office Products Corporation * 22,506
1,300 Compusa, Inc. * 44,363
1,600 Gap, Inc. * 51,400
700 Home Depot, Inc. 37,800
1,000 Tiffany & Company 73,000
1,600 TJX Companies, Inc. 54,000
800 Tommy Hilfiger Corporation* 42,900
900 Wal-Mart Stores, Inc. 22,837
-------
395,443
-------
Telecommunications 2.92%
------------------------------------------------
2,300 LCI International, Inc.* 72,162
-------
Transportation 2.88%
------------------------------------------------
1,150 Continental Airlines Class B * 71,012
-------
Total Investment in Securities (cost $1,967,695) 87.12% 2,155,731
Cash Equivalents 12.92% 319,650
Other Assets, Less Liabilities ( .04%) ( 911)
NET ASSETS 100.00% $2,474,470
======= =========
* Indicates nonincome-producing security.
See accompanying notes to financial statements.
<PAGE>
STRATUS FUND, INC.
Schedule of Investments
June 30, 1996
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Principal Percent of Market
Amount Net Assets Value
- --------------------------------------------------------------------------------
U.S. Government Securities 93.30%
---------------------------------------------
100,000 United States Treasury Note, 4.375%, due 8/15/96 $ 99,875
400,000 United States Treasury Note, 7.00%, due 9/30/96 401,563
100,000 United States Treasury Note, 7.25%, due 11/15/96 100,625
300,000 United States Treasury Note, 6.125%, due 12/31/96 300,797
600,000 United States Treasury Note, 8.00%, due 1/15/97 607,500
100,000 United States Treasury Note, 6.25%, due 1/31/97 100,344
500,000 United States Treasury Note, 6.00%, due 8/31/97 500,313
250,000 United States Treasury Note, 7.375%, due 11/15/97 254,414
200,000 United States Treasury Note, 7.875%, due 4/15/98 205,906
950,000 United States Treasury Note, 7.125%, due 10/15/98 969,000
700,000 United States Treasury Note, 6.375%, due 1/15/99 702,078
300,000 United States Treasury Note, 6.375%, due 5/15/99 300,656
550,000 United States Treasury Note, 6.00%, due 10/15/99 544,844
400,000 United States Treasury Note, 6.375%, due 1/15/00 399,875
500,000 United States Treasury Note, 7.125%, due 2/29/00 511,328
750,000 United States Treasury Note, 6.125%, due 7/31/00 741,562
---------
6,740,680
---------
Total Investment in Securities (cost $6,755,504) 93.30% 6,740,680
Cash Equivalents 4.78% 345,362
Other Assets, Less Liabilities 1.92% 138,464
------ ---------
NET ASSETS 100.00% $7,224,506
======= =========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Statement of Assets and
Liabilities
June 30, 1996
Intermediate
Government Capital Government
Growth Securities Appreciation Bond
Assets: Portfolio Portfolio Portfolio Portfolio
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Investments in securities, at market
value (cost $19,683,951, 20,810,534,
1,967,695, and 6,755,504, respectively) $23,203,690 20,527,998 2,155,731 6,740,680
Cash equivalents 1,079,274 2,183,899 319,650 345,362
Accrued interest and
dividends receivable 38,017 347,226 2,789 146,357
Receivable for securities sold 306,415 - - -
Receivable for fund shares sold 19,589 8,449 1,957 1,998
------------ ------------ ---------- ----------
Total assets 24,646,985 23,067,572 2,480,127 7,234,397
------------ ------------ ---------- ----------
Liabilities:
Accrued expenses, including investment
management and service fees payable to
adviser and administrator (note 3) 15,206 14,831 5,657 8,194
Payable for fund shares redeemed 3,796 9,578 - 1,697
------------ ------------ ---------- ----------
Total liabilities 19,002 24,409 5,657 9,891
------------ ------------ ---------- ----------
Net assets applicable to outstanding
capital stock $24,627,983 23,043,163 2,474,470 7,224,506
============ ============ ========== ==========
Net assets are represented by:
Capital stock outstanding, at par (note 5) 1,802 2,390 188 690
Additional paid-in capital 19,924,169 23,676,703 2,186,991 7,351,799
Accumulated undistributed net
investment income (loss) 9,951 12,529 (40,954) 5,060
Accumulated undistributed net realized
gain (loss) on investments 1,172,322 (365,923) 140,209 (118,219)
Unrealized appreciation
(depreciation) (note 4) 3,519,739 (282,536) 188,036 (14,824)
------------ ------------ ---------- ----------
Total net assets applicable
to shares outstanding $24,627,983 23,043,163 2,474,470 7,224,506
============ ============ ========== ==========
Shares outstanding and net asset value per share
Shares of capital stock outstanding:
1,802,216, 2,389,775, 187,550 and 689,841,
respectively (note 5) $13.67 9.64 13.19 10.47
============ ============ ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Statement of
Operations
Year Ended June 30, 1996
Intermediate
Government Capital Government
Growth Securities Appreciation Bond
Portfolio Portfolio Portfolio Portfolio
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $391,191 - 8,060 -
Interest 73,426 1,082,840 7,685 394,848
---------- ---------- ---------- ------------
Total investment income 464,617 1,082,840 15,745 394,848
---------- ---------- ---------- ------------
Expenses (note 3):
Investment advisory fees 93,310 94,612 18,902 42,967
Administration fees 46,667 47,314 3,032 16,555
Accounting 4,460 4,860 5,160 5,160
Custodial fees - - 2,928 6,945
Securities pricing 4,032 774 2,858 -
Other operating expenses 6,097 4,221 3,025 3,804
---------- ---------- ---------- ------------
Total expenses 154,566 151,781 35,905 75,431
Less fee waiver (note 3) (21,504) (21,310) (1,440) (7,317)
---------- ---------- ---------- ------------
Net expenses 133,062 130,471 34,465 68,114
---------- ---------- ---------- ------------
Net investment income (loss) 331,555 952,369 (18,720) 326,734
---------- ---------- ---------- ------------
Realized and unrealized gain on
investments (note 4):
Net realized gain (loss) 1,539,268 (56,450) 262,607 (388)
Net unrealized appreciation
(depreciation):
Beginning of period 1,751,333 66,202 171,190 46,232
End of period 3,519,739 (282,536) 188,036 (14,824)
---------- ---------- ---------- ------------
Net unrealized appreciation
(depreciation) 1,768,406 (348,738) 16,846 (61,056)
---------- ---------- ---------- ------------
Net realized and unrealized gain
(loss) on investments 3,307,674 (405,188) 279,453 (61,444)
---------- ---------- ---------- ------------
Net increase in net assets
resulting from operations $3,639,229 547,181 260,733 265,290
========== ========== ========== ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Statements of Changes in Net Assets
Years ended June 30, 1996 and 1995
Government
Growth Securities
Portfolio Portfolio
------------------------- ------------------------
Year Ended Year Ended Year Ended Year Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net investment income $331,555 253,851 952,369 622,736
Net realized gain (loss)
on investments 1,539,268 (17,840) (56,450) (295,308)
Unrealized appreciation
(depreciation) 1,768,406 1,965,572 (348,738) 814,214
------------ ------------ ----------- -----------
Net increase in net assets
resulting from operations 3,639,229 2,201,583 547,181 1,141,642
------------ ------------ ----------- -----------
Distributions to shareholders from:
Net investment income 327,797 250,201 949,207 619,027
Net realized gains 242,886 118,377 - -
------------ ------------ ----------- -----------
Total distributions 570,683 368,578 949,207 619,027
------------ ------------ ----------- -----------
Capital share transactions:
Proceeds from sales 11,764,925 2,041,506 14,607,453 2,059,923
Payment for redemptions (3,553,648) (4,313,318) (5,841,352) (1,782,550)
Reinvestment of net investment
income and net realized gain
distributions at
net asset value 534,808 359,998 793,884 607,699
------------ ------------ ----------- -----------
Total increase (decrease)
from capital
share transactions 8,746,085 (1,911,814) 9,559,985 885,072
------------ ------------ ----------- -----------
Total increase (decrease)
in net assets 11,814,631 (78,809) 9,157,959 1,407,687
Net assets:
Beginning of period 12,813,352 12,892,161 13,885,204 12,477,517
------------ ------------ ----------- -----------
End of period $24,627,983 12,813,352 23,043,163 13,885,204
============ ============ =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Statements of Changes in Net Assets
Years ended June 30, 1996 and 1995
Intermediate
Capital Government
Appreciation Bond
Portfolio Portfolio
------------------------ -------------------------
Year Ended Year Ended Year Ended Year Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) ($18,720) (10,660) 326,734 298,292
Net realized gain (loss) on
investments 262,607 (13,631) (388) (125,724)
Unrealized appreciation
(depreciation) 16,846 198,191 (61,056) 251,507
------------ ----------- ------------ ------------
Net increase in net assets
resulting from operations 260,733 173,900 265,290 424,075
------------ ----------- ------------ ------------
Distributions to shareholders from:
Net investment income - - 325,597 301,006
Net realized gains 72,180 15,412 - -
------------ ----------- ------------ ------------
Total distributions 72,180 15,412 325,597 301,006
------------ ----------- ------------ ------------
Capital share transactions:
Proceeds from sales 1,536,363 3,759 3,719,234 400,683
Payment for redemptions (55,095) (82,828) (2,213,866) (3,045,991)
Reinvestment of net investment
income and net realized gain
distributions at
net asset value 56,061 15,412 261,014 265,902
------------ ----------- ------------ ------------
Total increase (decrease)
from capital
share transactions 1,537,329 (63,657) 1,766,382 (2,379,406)
------------ ----------- ------------ ------------
Total increase (decrease)
in net assets 1,725,882 94,831 1,706,075 (2,256,337)
Net assets:
Beginning of period 748,588 653,757 5,518,431 7,774,768
------------ ----------- ------------ ------------
End of period $2,474,470 748,588 7,224,506 5,518,431
============ =========== ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STRATUS FUND, INC.
Financial Highlights
Years ended June 30, 1996 and 1995 and the period from
October 8, 1993 (commencement of operations) to June 30, 1994
Growth
Portfolio
----------------------------------
Year Year Period
Ended Ended Ended
June 30, June 30, June 30,
1996 1995 1994
---- ---- ----
Net asset value:
Beginning of period $11.47 9.84 10.00
Income from investment operations:
Net investment income 0.23 0.22 0.19
Net realized and unrealized gain (loss)
on investments 2.36 1.72 (0.16)
---- ----- -----
Total income from
investment operations 2.59 1.94 0.03
---- ----- -----
Less distributions:
Dividends from net investment income (0.22) (0.22) (0.19)
Distributions from capital gains (0.17) (0.09) -
---- ----- -----
Total distributions (0.39) (0.31) (0.19)
---- ----- -----
End of period $13.67 11.47 9.84
=========== ========== ==========
Total return 22.6% 20.3% (.03%) *
=========== ========== ==========
Ratios/Supplemental data:
Net assets, end of period $24,627,983 12,813,352 12,892,161
Ratio of expenses to average net assets 0.71% 0.82% 0.76% **
Ratio of net income to average net assets 1.78% 2.14% 2.38% **
Portfolio turnover rate 92.72% 19.89% 10.05%
*Total return is not annualized.
**Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
<PAGE>
STRATUS FUND, INC.
Financial Highlights
Years ended June 30, 1996 and 1995 and the period from
October 8, 1993 (commencement of operations) to June 30, 1994
Government Securities
Portfolio
----------------------------------
Year Ended Year Period
Ended Ended
June 30, June 30, June 30,
1996 1995 1994
---- ---- ----
Net asset value:
Beginning of period $9.77 9.40 10.00
Income (loss) from investment operations:
Net investment income 0.49 0.45 0.27
Net realized and unrealized gain (loss)
on investments (0.13) 0.37 (0.60)
---- ---- -----
Total income (loss) from
investment operations 0.36 0.82 (0.33)
---- ----- -----
Less distributions from net investment income (0.49) (0.45) (0.27)
---- ----- -----
End of period $9.64 9.77 9.40
=========== ========== ==========
Total return 3.7% 9.0% (3.4%) *
=========== ========== ==========
Ratios/Supplemental data:
Net assets, end of period $23,043,163 13,885,204 12,477,517
Ratio of expenses to average net assets 0.69% 0.80% 0.74% **
Ratio of net income to average net assets 5.04% 4.82% 3.89% **
Portfolio turnover rate 40.61% 33.88% 17.36%
*Total return is not annualized.
**Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Financial Highlights
Years ended June 30, 1996, 1995 and 1994 and for the period from
January 4, 1993 (commencement of operations) to June 30, 1993
Capital Appreciation
Portfolio
------------------------------------------------
Year Year Year Period
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1994 1993
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period $11.23 8.95 9.40 10.00
Income (loss) from investment
operations:
Net investment loss (0.19) (0.15) (0.12) (0.04)
Net realized and unrealized
gain (loss) on investments 2.88 2.62 (0.33) (0.56)
---- ----- ----- ------
Total Income (loss) from
investment operations 2.69 2.47 (0.45) (0.60)
---- ----- ----- ------
Less distributions from capital gains (0.73) (0.19) - -
---- ----- ----- ------
End of period $13.19 11.23 8.95 9.40
========== ========== ========== ==========
Total return 26.0% 28.6% (4.8%) (6.0%) *
========== ========== ========== ==========
Ratios/Supplemental data:
Net assets, end of period $2,474,470 748,588 653,757 583,403
Ratio of expenses to average net assets 2.84% 2.69% 2.13% 2.41% **
Ratio of net loss to average net assets (1.54%) (1.59%) (1.27%) (1.04%) **
Portfolio turnover rate 179.06% 214.47% 9.09% 4.42%
*Total return is not annualized.
**Annualized for those periods less than twelve months in duration.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Financial Highlights
Years ended June 30, 1996, 1995, 1994, 1993, and 1992
Intermediate Government Bond
Portfolio
---------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, June 30, June 30, June 30, June 30,
1996 1995 1994 1993 1992
---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $10.56 10.29 10.84 10.72 10.02
Income (loss) from investment
operations:
Net investment income 0.52 0.50 0.47 0.38 0.94
Net realized and unrealized
gain (loss) on investments (0.09) 0.27 (0.55) 0.34 0.70
Total income (loss) from
investment operations 0.43 0.77 (0.08) 0.72 1.64
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income (0.52) (0.50) (0.47) (0.38) (0.94)
Distributions from capital gains - - - (0.22) -
----- ----- ----- ----- -----
Total distributions (0.52) (0.50) (0.47) (0.60) (0.94)
----- ----- ----- ----- -----
End of period $10.47 10.56 10.29 10.84 10.72
=========== ========= ========= ========= =========
Total return 4.1% 7.9% (0.8%) 8.9% 11.4%
=========== ========= ========= ========= =========
Ratios/Supplemental data:
Net assets, end of period $7,224,506 5,518,431 7,774,768 6,747,719 4,680,585
Ratio of expenses to average
net assets 1.03% 1.11% 1.05% 1.12% 1.04%
Ratio of net income to average
net assets 4.95% 4.84% 4.41% 4.58% 5.31%
Portfolio turnover rate 4.05% 27.67% 21.02% 32.39% 205.89%
See accompanying notes to financial statements.
</TABLE>
<PAGE>
STRATUS FUND, INC.
Notes to Financial Statements
June 30, 1996
1. Organization
Stratus Fund, Inc. (the Fund) is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The Fund issues its shares in series, each series representing a
distinct portfolio with its own investment objectives and policies. At June
30, 1996, the following series are presently authorized and have shares
outstanding.
Growth Portfolio (formerly Equity Income) Capital Appreciation
Portfolio
Government Intermediate Government
Securities Portfolio Bond Portfolio
2. Summary of Significant Account Policies
The following is a summary of significant accounting policies employed by
the Fund in preparing its financial statements.
Use of Estimates: In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial
statements and changes in net assets for the period. Actual results
could differ from those estimates.
Valuation of Investments
Investment securities are carried at market determined using the
following valuation methods:
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 the 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 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 noted policies at
the close of each business day.
<PAGE>
STRATUS FUND, INC.
Notes to Financial Statements
2. Continued
The Growth and Capital Appreciation Portfolios are authorized to engage in
the purchase of exchange-traded put and call options. When a call option is
purchased, an amount equal to the premium received by the Portfolio is
included by the Portfolio in the Portfolio's statement of assets and
liabilities as a liability.
The amount of the liability is subsequently marked to market to reflect the
current value of the option written. The current market value of the traded
option is the last sales price on the principal exchange on which such
options are traded, or in the absence of such a sale, at the latest ask
quotation. When an option expires on its stipulated expiration date or the
Portfolio enters into a closing purchase transaction, the Portfolio
realizes a gain (or loss if the cost of a closing transaction exceeds the
premium received when the option was sold) without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When an option is exercised, the Portfolio realizes
a gain or loss from the sale of the underlying security and the proceeds
from such sale are increased by the premium originally received.
When a put option is purchased, an amount equal to the premium paid by the
Portfolio is included by the Portfolio in the Portfolio's statement of
assets and liabilities as an asset. The amount of the asset is subsequently
marked to market to reflect the value of the option written. The current
market value of a traded option is the last sales price on the principal
exchange on which such options are traded, or in the absence of such a
sale, at the latest ask quotation. When an option expires on its stipulated
expiration date or the Portfolio enters into a closing sales transaction,
the Portfolio realizes a gain (or loss if the cost of a closing transaction
is lower than the premium paid when the option was sold) without regard to
any unrealized gain or loss on the underlying security, and the asset
related to such option is extinguished. When an option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
and the proceeds from such sale are increased by the premium originally
paid.
At June 30, 1996, the Growth and Capital Appreciation Portfolios had no
such option contracts outstanding nor were any written during the year.
At June 30, 1996, the cost of investment securities is identical for
financial reporting and income tax purposes.
Security Transactions
Security transactions are accounted for on the date securities are
purchased or sold (trade date). Dividend income is recognized on the
ex-dividend date and interest income, including amortization of premium and
discount, is accrued daily on the straight-line basis.
<PAGE>
STRATUS FUND, INC.
Notes to Financial Statements
2. Continued
Realized investment gains and losses are determined by specifically
identifying the issue sold.
Federal Income Taxes
It is the policy of each Portfolio to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute virtually all of the taxable income generated by the Portfolios
to their shareholders within the time period allowed by the Federal law.
Consequently, no liability for Federal income taxes is required. Each
Portfolio is treated as a separate entity for tax purposes, and on a
calendar basis, will distribute substantially all of its net investment
income and realized gains, if any, to avoid payment of any Federal excise
tax. There will be no net realized gain distributions until any net
realized loss carry forwards have been offset or expired. Each Portfolio
prepares its tax return on an accrual basis. The Government Securities and
Intermediate Government Bond Portfolios have unused capital loss carry
forwards of approximately $253,000 and $126,000, respectively, available
for Federal income tax purposes at June 30, 1996. The losses begin expiring
in 2001 and 2002 for the Government Securities and Intermediate Government
Bond Portfolios, respectively.
Distribution to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. In
accordance with resolutions enacted by the Board of Directors, the
Government Securities and Intermediate Government Bond Portfolios declare
dividends monthly and the Growth and Capital Appreciation Portfolios
declare dividends semi-annually. The dividends declared become payable
immediately.
Cash Equivalents
The Fund considers investments with an original maturity of three months or
less when purchased to be cash equivalents.
3. Fees, Expenses and Related Party Transactions
The Fund and each of its Portfolios have retained Union Bank and Trust
Company (UBATCO) as their exclusive investment adviser and custodian of the
Fund's assets (hereinafter, the Adviser). The agreement provides that the
Capital Appreciation Portfolio will compensate the Adviser on a performance
based scale, whereby the Portfolio will pay a fee which may be increased or
decreased by up to 1.40% of the average daily net assets during the latest
12 months (a rolling average method), depending upon the performance of
this Portfolio relative to the S&P 500. The performance based scale became
effective January 1, 1994. Prior to January 1, 1994, the fee was equal to
1.40%. For the year ended June 30, 1996, the annualized fee ranged from
.44% to 2.80%.
<PAGE>
STRATUS FUND, INC.
Notes to Financial Statements
3. Continued
Growth and Government Securities Portfolios will pay the Adviser a fee
equal to .50% per annum of its average daily net assets. The Intermediate
Government Bond Portfolio will pay an advisory fee of .65% per annum of its
average daily net assets. These Portfolios do not participate in
performance based compensation scales.
The Fund and each of its Portfolios have retained UBATCO as the custodian
of the Fund's investments. The agreement provides that the portfolios
(except Growth and Government Securities Portfolios, which pay no fee),
will pay the custodian an annual fee which is calculated and billed
quarterly. The fee calculation does not include cash equivalents. The fee
consists of an investment transaction charge of $12 for each transaction, a
fee of $100 per account, and an additional fee calculated in accordance
with the following table.
Net assets of:
$0 - $10 million 11 basis points
$10 - $20 million 6 basis points
Over $20 million 2.5 basis points
The Fund and each of its Portfolios have retained Lancaster Administrative
Services, Inc. (the Administrator) to act as their transfer agent and
administrator to provide all necessary recordkeeping and share transfer
services for the Fund. The agreement provides that each Portfolio will pay
an administrative fee to the Administrator equal to .25% per annum of
average daily net assets. From July 1, 1995 to October 31, 1995 and from
February 1, 1996 to June 30, 1996 the Administrator waived .15% of its .25%
administrative fee.
Under the terms of the advisory, custodian and administrative agreements
outlined above, the Portfolios collectively incurred $249,791, $9,873 and
$113,568 for such services during the year ended June 30, 1996.
At June 30, 1996, the following accrued investment advisory, custodial and
administrative fees were payable to the Adviser and Administrator.
Payable to Payable to
Adviser Administrator Total
Growth Portfolio $9,993 $1,999 $11,991
Government Securities Portfolio 9,445 1,889 11,334
Capital Appreciation Portfolio 2,699 193 2,892
Intermediate Government
Bond Portfolio 3,894 599 4,493
====== ====== =======
<PAGE>
STRATUS FUND, INC.
Notes to Financial Statements
3. Continued
Under the terms of the advisory agreement, the Adviser may be obligated to
reimburse a Portfolio up to the amount of the Adviser's fee paid to the
Adviser if during any year the expenses of the Portfolio, including the
Adviser's fee, exceed certain limitations. At June 30, 1996, no expense
reimbursement was required.
In addition to the amounts paid by the Portfolios under advisory,
custodian, and administration agreements, the Portfolios primarily used
SMITH HAYES Financial Services Corporation (SMITH HAYES), a company related
through common management, to affect security trades on their behalf. As is
customary in the industry, the investment 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 $7,800 for their
brokerage services during the year ended June 30, 1996.
4. Securities Transactions
Purchases of securities and proceeds from sales were as follows for each
Portfolio:
Purchases of Proceeds
Securities from Sales
---------- ---------
Growth Portfolio $23,737,936 $15,942,882
Government Securities Portfolio 15,144,595 6,965,383
Capital Appreciation Portfolio 3,165,238 1,929,736
Intermediate Government Bond Portfolio 1,812,322 248,795
=========== ===========
At June 30, 1996, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities in each Portfolio
were as follows:
Aggregate Gross Unrealized
Appreciation Depreciation Total
------------- ------------- ----------
Growth Portfolio $3,690,664 $170,925 $3,519,739
Government Securities Portfolio 59,343 341,879 (282,536)
Capital Appreciation Portfolio 242,734 54,698 188,036
Intermediate Government Bond Portfolio 29,598 44,422 (14,824)
5. Capital Share Transactions
The Fund is authorized to issue a total of 1 billion shares of common stock
in series with a par value of $.001 per share. The Board of Directors have
authorized twenty million shares to be issued in the Growth Portfolio and
ten million each in the Government Securities Portfolio, Capital
Appreciation Portfolio and Intermediate Government Bond Portfolio.
<PAGE>
STRATUS FUND, INC.
Notes to Financial Statements
5. Continued
Transactions in the capital stock of each Portfolio for the year ended June
30, 1996 were as follows:
Government
Growth Securities
Portfolio Portfolio
--------------- ---------------
Transactions in shares:
Shares sold 918,492.544 1,488,329.101
Shares redeemed (274,847.996) (601,783.839)
Reinvested dividends 41,416.926 81,386.817
------------ --------------
Net increase 685,061.474 967,932.079
=========== =============
Intermediate
Capital Government
Appreciation Bond
Portfolio Portfolio
--------------- --------------
Transactions in shares:
Shares sold 120,227.657 351,336.483
Shares redeemed (4,251.949) (208,974.422)
Reinvested dividends 4,926.296 24,716.734
------------ ------------
Net increase 120,902.004 167,078.795
=========== ===========
At June 30, 1996, directors, officers and employees of the Fund, the
Adviser and Administrator and their immediate families held the following
in each Portfolio:
Shares Value
Growth Portfolio 22,180.930 303,213
Government Securities Portfolio 33,204.499 320,091
Capital Appreciation Portfolio 5,895.991 77,768
Intermediate Government Bond Portfolio 12,743.794 133,428
========== =======
At June 30, 1996, UBATCO held, in nominee name, the following in each
Portfolio:
Shares Value
Growth Portfolio 1,795,658.914 $24,546,657
Government Securities Portfolio 2,389,775.013 23,037,431
Capital Appreciation Portfolio 187,549.542 2,473,778
Intermediate Government Bond Portfolio 685,959.271 7,181,994
============== ===========
6. Business Changes
In July 1996, the Fund filed a registration statement to establish the
International Portfolio. The International Portfolio is expected to commence
operations in October 1996.
