PROSPECTUS STRATUS FUND, Inc.
Intermediate Government Bond Portfolio
Government Securities Portfolio
Growth Portfolio
Capital Appreciation Portfolio
200 Centre Terrace, 1225 "L" Street
Lincoln, Nebraska 68508
(402) 476-3000, or 1-800-279-7437
STRATUS FUND, Inc. (the "Fund"), is a Minnesota corporation offering
shares in series, each series operated as a separate diversified open-end
management investment company. This Prospectus relates to the series designated
Intermediate Government Bond Portfolio, Government Securities Portfolio, Growth
Portfolio and Capital Appreciation Portfolio (the "Portfolios"). The Portfolios
are not deposits of, or endorsed or guaranteed by, Union Bank and Trust Company
or any other bank, nor are they federally insured by the Federal Deposit
Insurance Corporation or any other federal or state agency.
Intermediate Government Bond Portfolio has an investment objective of
current income, some or all of which is exempt from state income tax, consistent
with the preservation of capital.
Government Securities Portfolio has an investment objective of current
income consistent with the preservation of capital.
Growth Portfolio (formerly referred to as Equity Income Portfolio) has
an investment objective of capital appreciation and income.
Capital Appreciation Portfolio has an investment objective of capital
appreciation.
This Prospectus concisely describes information about the Portfolios
that you ought to know before investing. Please read it carefully before
investing and retain it for future reference. A Statement of Additional
Information about the Portfolios dated as of the date of this Prospectus is
available free of charge from SMITH HAYES Financial Services Corporation, 200
Centre Terrace, 1225 "L" Street, Lincoln, Nebraska 68508, or telephone (402)
476-3000 or (800) 279-7437. The Statement of Additional Information has been
filed with the Securities and Exchange Commission and is incorporated in its
entirety by reference in this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February 15, 1996
<PAGE>
INTRODUCTION
STRATUS FUND, Inc. (the "Fund") is a Minnesota corporation, commonly
called a mutual fund. The Fund, which was organized in October, 1990, has one
class of capital stock that is issued in series, each series referred to as a
Portfolio and operated as a separate diversified open-end management investment
company. This Prospectus only relates to the series designated Intermediate
Government Bond Portfolio, Government Securities Portfolio, Growth Portfolio and
Capital Appreciation Portfolio (the "Portfolios"). For information regarding the
Fund's other Portfolios, call or write to the Fund at the address and telephone
number on the cover page of this Prospectus.
The Portfolios
The Portfolios each have their own distinct investment objectives and
policies. The following is a brief summary of their investment objectives and
policies. For a complete discussion of the investment objectives and policies
see "Investment Objectives and Policies".
Intermediate Government Bond Portfolio has an investment objective of
current income, some or all of which is exempt from state income tax, consistent
with the preservation of capital. The Portfolio will attempt to achieve its
objective by investing at least 80% of its assets in securities issued or
guaranteed by the U.S. Government, its agents or instrumentalities. The
Portfolio will maintain an average dollar weighted maturity of between three (3)
and ten (10) years.
Government Securities Portfolio has an investment objective of current
income consistent with the preservation of capital. The Portfolio will attempt
to achieve its objective by investing at least 80% of its total assets in
securities issued or guaranteed by the U. S. Government, its agents or
instrumentalities and the remainder of its assets in marketable debt obligations
rated at the time of purchase within the three highest debt ratings established
by Moody's Investment Services, Inc. ("Moody's") or Standard and Poor's
Corporation ("S&P") (Aaa, Aa, and A for Moody's and AAA, AA and A for S&P),
obligations of commercial banks, including repurchase agreements and money
market instruments.
Growth Portfolio (formerly "Equity Income Portfolio ") has an
investment objective of capital appreciation and income. The Portfolio will
attempt to achieve its objective by investing in a diversified portfolio of
common stock and securities convertible into common stock, the majority of which
will be of seasoned companies with market capitalizations of $500 million or
more. In addition, the Portfolio will maintain at least 65% of its total assets
in equity securities yielding dividends and/or interest bearing securities
convertible into common stock.
Capital Appreciation Portfolio has an investment objective of capital
appreciation. The Portfolio will attempt to achieve its objective by investing
in a diversified portfolio of common stocks and convertible securities which are
anticipated to have earnings growth above market averages.
<PAGE>
The Investment Adviser and Administrator
The Portfolios are managed by Union Bank and Trust Company of Lincoln,
Nebraska (the "Adviser"). Lancaster Administrative Services, Inc. acts as the
Fund's transfer agent and administrator ("Administrator"). The Portfolios pay
the Adviser and Administrator monthly fees for advisory services and
administrative services rendered. See "Management - Investment Adviser and
Administrator" and "Management -- Portfolio Brokerage."
The Distributor
SMITH HAYES Financial Services Corporation ("SMITH HAYES"), a wholly owned
subsidiary of Consolidated Investment Corporation, acts as the distributor
("Distributor") of the Fund's shares. See "Purchase of Shares."
Purchase of Shares
Shares of the Portfolios are offered to the public at the next
determined net asset value after receipt of an order by the Distributor without
a sales charge. See "Valuation of Shares." The minimum aggregate initial
investment in the Portfolios is $1,000 unless waived by the Fund. Subsequent
investments can be made in amounts of $1,000 or more.
Certain Risk Factors to Consider
An investment in the Portfolios is subject to certain risks, as set
forth in detail under "Investment Objectives and Policies," including, with
respect to the Growth Portfolio, those risks associated with investing in
special situations and engaging in options transactions. As with other mutual
funds, there can be no assurance that the Portfolios will achieve their
objectives.
Redemptions
Shares of the Portfolios may be redeemed at any time at their net asset
value next determined after receipt of a redemption request by the Distributor.
The Fund reserves the right, upon 30 days' written notice, to redeem a
shareholder's investment in a Portfolio if the net asset value of the shares
held by such shareholder falls below $500 as a result of redemptions or
transfers. See "Redemption of Shares - Involuntary Redemption."
Dividends
Dividends are declared at least annually (see "Dividends and Taxes")
and will be automatically reinvested unless the shareholder elects otherwise.
<PAGE>
Expenses
The Fund offers shares of the Portfolios without any sales load or
contingent sales loads on purchases, reinvestments of dividends or redemptions
and does not charge any exchange or account maintenance fees. The table below is
provided to assist the investor in understanding the various expenses that an
investor in the Portfolios will bear, whether directly or indirectly, through an
investment in the Portfolios. For more complete descriptions of the various
costs and expenses, see "Management -- Investment Adviser and Administrator" and
"Management -- Expenses."
Annual Operating Expenses
The table below provides information regarding expenses for the Portfolios
expressed as annual percentages of average daily net assets.
Intermediate Government Capital
Government Securities Growth Appreciation
Bond Portfolio Portfolio Portfolio Portfolio
--------------- ---------- --------- ------------
Management Fees
Investment Advisory Fees .65% .50% .50% 1.40%
Administration Fees .25% .25% .25% .25%
---- ---- ---- ----
Total Management Fees .90% .75% .75% 1.65%
Other Expenses .36% .20% .22% 1.19%
---- ---- ---- -----
Total Portfolio
Operating Expenses 1.26% .95% .97% 2.84%
==== === ==== ====
Commencing January 4, 1994, the Capital Appreciation Portfolio began paying
the Adviser a basic investment advisory fee of 1.40% of average annual net
assets that is adjusted upward or downward based upon the Portfolio's
performance relative to the Standard and Poor's 500 Stock Index on a 12 month
average. Depending upon performance, the fee could be up to 2.80% of average
annual net assets or as low as 0. The management fees for the Capital
Appreciation Portfolio have been restated to reflect the basic fee of 1.40%
without adjustment. The annual management fee for the fiscal year July 1, 1994
until June 30, 1995 was .34%. From January 1, 1992 until October 31, 1995 the
Administrator waived .15% of its .25% administration fee. Commencing November 1,
1995 the Administrator ceased waiving a portion of its fee, but reserves the
right to waive a similar portion of its fee in the future. The expenses have
been restated to reflect the full fee. Fees will be used by the Administrator to
enter Sub-Administration Agreements with various banks. Such fees may be rebated
to bank customers . See "Management - Investment Adviser and Administrator"
<PAGE>
Example:
You would pay these expenses on a $1,000 investment assuming (1) 5% annual
return and (2) redemption at the end of each time period.
Intermediate Government Capital
Government Securities Growth Appreciation
PERIOD Bond Portfolio Portfolio Portfolio Portfolio
1 year $13 $10 $10 $29
3 years $40 $30 $31 $88
5 years $69 $52 $54 $150
10 years $152 $116 $120 $317
The purpose of the table above is to assist investors in understanding the
various costs and expenses that an investor will bear directly or indirectly as
a result of an investment in the Portfolios. Such expenses do not include any
fees charged by Union Bank and Trust Company or any of its affiliates or other
financial institutions to customer accounts which may be invested in shares of
the Portfolios. Union Bank and Trust Company currently charges certain trust and
custodial accounts up to .75% of the average annual value of assets in such
accounts for maintaining such accounts. See "Management" for a more complete
discussion of the shareholder transaction and annual operating expenses for the
Portfolios of the Fund. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
Shareholder Inquiries
Any questions or communications regarding a shareholder account should be
directed to your SMITH HAYES investment executive or other broker-dealer.
General inquiries regarding the Portfolios should be directed to the Fund at one
of the telephone numbers set forth on the cover page of this Prospectus.
FINANCIAL HIGHLIGHTS
The following financial highlights, which provides selected data for a
share of each Portfolio outstanding throughout the periods and other information
as indicated, has been audited by KPMG Peat Marwick LLP, independent certified
public accountants, to the extent of their report appearing in the Fund's Annual
Financial Report which is contained in the Statement of Additional Information
and which is available upon request without charge as set forth on the cover
page of this Prospectus. Further information about the performance of the
Portfolios is also contained in the Fund's Annual Financial Report.
<PAGE>
FINANCIAL HIGHLIGHTS
Intermediate Government Bond Portfolio
Years Ended June 30, 1995, 1994, 1993, and 1992 and for the period from
May 15, 1991 (commencement of operations) to June 30, 1991
Net asset value: 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Beginning of period $10.29 10.84 10.72 10.02 10.00
----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment income 0.50 0.47 0.38 0.94 0.07
Net realized and unrealized
gain (loss)
on investments 0.27 (0.55) 0.34 0.70 (0.05)
---- ------ ---- ---- ------
Total income (loss) from
investment operations 0.77 (0.08) 0.72 1.64 0.02
---- ------ ---- ---- ----
Less distributions:
Dividends from net
investment income (0.50) (0.47) (0.38) (0.94) -
Distributions from capital gains - - (0.22) - -
---- ----- ------ ----- -----
Total distributions (0.50) (0.47) (0.60) (0.94) -
------ ------ ------ ------ -----
End of period $10.56 10.29 10.84 10.72 10.02
===== ===== ===== ===== =====
Total return 7.9% (.8%) 8.9% 11.4% 1.6%*
==== ===== ==== ===== =====
Ratios/Supplemental data:
Net assets, end of period $5,518,431 7,774,768 6,747,719 4,680,585 2,230,413
Ratio of expenses to
average net assets 1.11% 1.05% 1.12% 1.04% 1.46%**
Ratio of net income
to average net assets 4.84% 4.41% 4.58% 5.31% 7.41%**
Portfolio turnover rate 27.67% 21.02% 32.39% 205.89% -
*Total return is not annualized.
**Annualized for those periods less than twelve months in duration.
<PAGE>
FINANCIAL HIGHLIGHTS
Government Securities Portfolio
Growth Portfolio
Year ended June 30, 1995 and the period from October 8, 1993
(commencement of operations) to June 30, 1994
Government
Securities Growth
Portfolio Portfolio
Net asset value: 1995 1994 1995 1994
---- ---- ---- ----
Beginning of period $9.40 10.00 9.84 10.00
----- ----- ---- -----
Income (loss) from investment
operations:
Net investment income 0.45 0.27 0.22 0.19
Net realized and unrealized
gain (loss)
on investments 0.37 (0.60) 1.72 (0.16)
---- ------ ---- ------
Total income (loss) from
investment operations 0.82 (0.33) 1.94 0.03
---- ------ ---- ----
Less distributions:
Dividends from net
investment income (0.45) (0.27) (0.22) (0.19)
Distributions from
capital gains - - (0.09) -
------ ------ ------ ------
Total distributions (0.45) (0.27) (0.31) (0.19)
------ ------ ------ ------
End of period $9.77 $9.40 11.47 9.84
===== ===== ===== ====
Total return 9.0% (3.4%)* 20.3% (.03%)*
==== ====== ===== ======
Ratios/Supplemental data:
Net assets, end of period $13,885,204 12,477,517 12,813,352 12,892,161
Ratio of expenses to
average net assets 0.80% 0.74%** .82% 0.76%**
Ratio of net income to
average net assets 4.82% 3.89%** 2.14% 2.38%**
Portfolio turnover rate 33.88% 17.36% 19.89% 10.05%
*Total return is not annualized.
**Annualized for those periods less than twelve months in duration.
<PAGE>
FINANCIAL HIGHLIGHTS
Capital Appreciation Portfolio
Years Ended June 30, 1995 and 1994 and for the period from January 4,
1993 (commencement of operations) to June 30, 1993
Net asset value: 1995 1994 1993
---- ---- ----
Beginning of period $8.95 9.40 10.00
----- ---- -----
Income (loss) from investment
operations:
Net investment loss (0.15) (0.12) (0.04)
Net realized and unrealized
gain (loss) on investments 2.62 (0.33) (0.56)
------ ------ ------
Total Income (loss) from
investment operations 2.47 (0.45) (0.60)
------ ------ ------
Less distributions from capital gains (0.19) - -
------ ------ ------
End of period $11.23 8.95 9.40
====== ==== ====
Total return 28.6% (4.8%) (6.0%)*
===== ====== =======
Ratios/Supplemental data:
Net assets, end of period $748,588 653,757 583,403
Ratio of expenses to average net assets 2.69% 2.13% 2.41%**
Ratio of net loss to average net assets (1.59%) (1.27%) (1.04%)**
Portfolio turnover rate 214.47% 9.09% 4.42%
*Total return is not annualized.
**Annualized for those periods less than twelve months in duration.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Portfolios listed below are
fundamental and cannot be changed without shareholder approval in the manner
described under the caption "Special Investment Methods - Investment
Restrictions." In view of the risks inherent in all investments in securities,
there is no assurance that these objectives will be achieved. The investment
policies and techniques employed in pursuit of the Portfolios' objectives may be
changed without shareholder approval, unless otherwise noted. See "Special
Investment Methods" for definitions and discussion regarding certain types of
securities and the risks of investing in such securities.
Intermediate Government Bond Portfolio
Investment Objective
The investment objective of the Intermediate Government Bond Portfolio
is to provide current income, some or all of which is exempt from state income
tax, consistent with the preservation of capital. In order to achieve this
objective, at least 80% of the assets of the Portfolio will be invested, at the
time of purchase, in securities issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities. Additionally, the Portfolio may invest in
money market instruments. See "Special Investment Methods - Money Market
Instruments."
The Portfolio will maintain an average dollar weighted maturity with
respect to all of the debt securities in which it will invest between three (3)
and ten (10) years.
Investment Policies
In seeking to achieve its objective of current income, the Portfolio
will normally purchase securities with a view to holding them rather than
selling them to achieve short-term trading profits. However, the Portfolio
reserves the right to sell any security without regard to the length of time it
has been held if general economic, industry or securities market conditions
warrant such action. The Portfolio expects that annual portfolio turnover rate
will normally not exceed 100%. The higher the portfolio turnover rate, the
higher will be its expenditures for brokerage commissions and related
transaction costs.
The Portfolio is not a money market fund. The value of an investment in
the Portfolio will fluctuate daily as the value of the Portfolio's assets
change. The Portfolio will attempt to invest in many securities in a variety of
industries, but it cannot assure the elimination of investment and market risks
nor the attainment of its objective.
<PAGE>
Government Securities Portfolio
Investment Objective
The investment objective of the Government Securities Portfolio is to
provide current income, consistent with the preservation of capital. In order to
achieve this objective, at least 80% of the total assets of the Portfolio will
be invested in securities issued or guaranteed by the U. S. Government, its
agencies or its instrumentalities. In addition, the Portfolio will invest its
remaining assets in the following securities:
1. Domestic issues of marketable debt obligations, rated at time of
purchase within the three highest debt rating categories established by Moody's
or S&P. A description of these debt rating categories (Moody's Aaa, Aa, and A,
and S&P AAA, AA, and A) is found in Appendix A to the Statement of Additional
Information. In selecting domestic issues of marketable debt securities for the
Portfolio, the Adviser will utilize a fundamental analysis of the issuer's
financial condition and operations, including an analysis of products and
services and competition, management research and development activities. Such
issuers generally will have a debt to capital ratio of less than 60% and have
market capitalization in excess of $500,000,000.
2. Obligations of commercial banks, including negotiable certificates
of deposit, banker's acceptances and repurchase agreements on securities issued
or guaranteed by the U.S. Government. Certificates of deposit and banker's
acceptances evidence the obligation of the banking institution to repay funds
deposited with it for a specified period of time at a stated interest rate. A
repurchase agreement involves the sale of securities and an agreement by the
seller to repurchase the securities at the same price plus an amount equal to an
agreed upon interest rate within a specified time period, usually until the next
business day but occasionally for longer periods. Repurchase agreements involve
certain risks which are described in greater detail in the Statement of
Additional Information.
3. Money market instruments. See "Special Investment Methods -
Money Market Instruments."
Investment Policies
The Portfolio will not concentrate its investments in any particular
industry or group of industries. Instead, the Portfolio will invest in a number
of different industries and at no time invest 25% or more of its total assets in
any one industry or group of industries.
In seeking to achieve its objective of current income, the Portfolio
will normally purchase securities with a view to holding them rather than
selling them to achieve short-term trading profits. However, the Portfolio
reserves the right to sell any security without regard to the length of time it
has been held if general economic, industry or securities market conditions
warrant such action. The Portfolio expects that annual portfolio turnover rate
will normally not exceed 100%. The higher the Fund's portfolio turnover rate,
the higher will be its expenditures for brokerage commissions and related
transaction costs.
<PAGE>
The Portfolio is not a money market fund. The value of an investment in
the Portfolio will fluctuate daily as the value of the Portfolio's assets
change. The Portfolio will attempt to invest in many securities in a variety of
industries, but it cannot assure the elimination of investment and market risks
nor the attainment of its objective. The average dollar-weighted maturity of the
Portfolio's investments in debt instruments will normally be between three and
seven years.
Growth Portfolio
Investment Objective
The investment objective of the Growth Portfolio is capital appreciation
and income. The Growth Portfolio will seek to achieve its objectives by
investing in a diversified portfolio of common stock and convertible securities
convertible into common stock. Except during periods when the Growth Portfolio
assumes a temporary defensive position and invests in U.S. Government
securities, repurchase agreements and money market instruments, the Growth
Portfolio will have at least 65% of its total assets invested in common stock or
in securities convertible to common stock. In addition, the Growth Portfolio
will maintain at least 65% of its total assets in equity securities yielding
dividends and/or interest bearing securities convertible into common stock. The
remaining assets (up to 35% of the Portfolio) may be invested in U.S. Government
securities, put and call options, and money market instruments.
Investment Policies
The Growth Portfolio intends to invest principally in medium and large
capitalization companies (greater than $500 million market capitalization),
which, in the view of the Adviser, possess attractive growth characteristics,
market valuations and dividends. Stock market capitalizations are calculated by
multiplying the total number of common shares outstanding by the market price
per share of the stock.
The Growth Portfolio seeks to identify and invest in companies whose
earnings and dividends the Adviser believes will grow faster than inflation and
faster than the economy in general and whose growth the Adviser believes has not
yet been fully reflected in the market price of the companies' shares and which
will outperform the Standard and Poor's Equity Index on a risk adjusted basis
(an evaluation of return adjusted by a factor reflecting the volatility of the
issue versus the S & P 500 index). In seeking these investments, the Adviser
relies on a company-by-company analysis and a broader analysis of industry or
economic sector trends and considers such matters as the quality of a company's
management, the existence of a leading or dominant position in a major product
line or market and the soundness of the company's financial position. Once
companies are identified as possible investments, the Adviser applies a number
of valuation measures to determine the relative attractiveness of each company
and selects those companies whose shares are most attractively priced. The
Adviser may use options in hedging strategies designed to protect the Growth
Portfolio's holdings. See "Special Investment Methods - Options Transactions."
<PAGE>
The Growth Portfolio intends periodically to invest in special
situations. A special situation arises when, in the opinion of the Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development particularly or uniquely applicable to that company and regardless
of general business conditions or movements of the stock market as a whole.
Developments creating special situations might involve, among others, the
following: "workouts" such as liquidations, reorganizations, recapitalizations
or mergers; material litigation; technological breakthroughs; and new management
or management policies. Special situations involve a different type of risk than
is inherent in ordinary investment securities; that is, a risk involving the
likelihood or timing of specific events rather than general economic market or
industry risks. As with any securities transaction, investment in special
situations involves the risk of decline or total loss of the value of the
investment. However, the Adviser will not invest in special situations unless,
in its judgment, the risk involved is reasonable in light of the Portfolio's
investment objective, the amount to be invested and the expected investment
results.
The convertible securities in which the Growth Portfolio may invest
include convertible debt and convertible preferred stock which is rated in the
three highest ratings categories of Moody's Investors Service, Inc. ("Moody's")
and Standard and Poor's, Inc. ("S&P's") for such securities. For a description
of the Moody's and S&P's ratings see Appendix A to the Statement of Additional
Information.
When the Investment Adviser believes that prevailing market or economic
conditions warrant a temporary defensive investment position, the Growth
Portfolio may invest a portion or all of its assets in non-convertible preferred
stock, high grade non-convertible debt securities and United States Government,
state and municipal and governmental agency and instrumentality obligations, or
funds may be retained in cash or cash equivalents, such as money market mutual
fund shares. Securities issued or guaranteed by the United States Government may
include, for example, Treasury Bills, Bonds and Notes which are direct
obligations of the United States Government. Obligations issued or guaranteed by
United States Government agencies or instrumentalities may include, for example,
those of Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal
National Mortgage Association and Farmers Home Administration. Such securities
will include, for example, those supported by the full faith and credit of the
United States Treasury or the right of the agency or instrumentality to borrow
from the Treasury as well as those supported only by the credit of the issuing
agency or instrumentality. State and municipal obligations, which are typically
tax exempt, may include both general obligation and revenue obligations, issued
for a variety of public purposes such as highways, schools, sewer and water
facilities, as well as industrial revenue bonds by public bodies to finance
private commercial and industrial facilities. The Growth Portfolio was
previously named the "Equity Income Portfolio", but as of the date of this
Prospectus will be referred to as the Growth Portfolio.
<PAGE>
Capital Appreciation Portfolio
Investment Objective
The Investment Objective of the Capital Appreciation Portfolio is
capital appreciation. The Portfolio will seek to achieve this objective by
investing in a diversified portfolio of common stocks and securities convertible
into common stocks. The Adviser intends to invest principally in companies which
it believes will have earnings growth above the market averages with an emphasis
toward companies whose growth the Adviser believes has not been fully reflected
in the market price of such companies' shares. While the Portfolio may assume
from time to time temporary defensive positions and invest in U.S. Government
debt securities, repurchase agreements and money market instruments, the
Portfolio will maintain at least 65% of its total assets in common stocks or in
securities convertible into common stock at all times.
In making investment selections, the Adviser relies primarily on a
market momentum based analysis for security selection. However, securities may
also be selected for investment based upon considerations such as the quality of
a company's management, the existence of a leading or dominant position in a
major product line market and the soundness of a company's financial position.
As companies are identified as possible investments, the Adviser further
evaluates such companies by application of a number of valuation techniques to
determine the relative attractiveness of each company. Based upon these factors,
the Adviser will attempt to select those companies whose shares, in its
estimation, are most attractively priced.
The Capital Appreciation Portfolio will also periodically invest in
special situations. A special situation arises when, in the opinion of the
Adviser, the securities or particular company will, within a reasonable period
of time, be accorded market recognition at an appreciated value solely by reason
of a development particularly or uniquely applicable to that company and
regardless of general business conditions or movements of the stock market as a
whole. Developments creating special situations include recapitalizations or
mergers, material litigation, technological breakthroughs, and new management or
management policies. Special situations also involve a different type of risk
than is inherent in ordinary investment securities; that is, a risk that the
Investment Adviser may inaccurately predict the likelihood or timing of specific
events rather than general economic or industry risks and as a result fail to
achieve the investment objective. As in any securities transaction, an
investment in a special situation may result in the decline or total loss of the
value of the particular investment. The Adviser will not, however, invest in
special situations, unless, in its judgment, the risk involved is reasonable in
light of the Portfolio's investment objective, the amount to be invested and the
expected investment results.
The Capital Appreciation Portfolio may invest in convertible securities
including convertible debt and convertible preferred stock. Such convertible
debt and convertible preferred stock shall be rated BBB or higher by S&P or Baa
by Moody's. For a description of Moody's and S&P's ratings see Appendix A to the
Statement of Additional Information. Securities rated Baa by Moody's and BBB by
S&P have speculative characteristics. The Adviser may also use options and
hedging strategies designed to protect the Portfolio's holdings.
<PAGE>
SPECIAL INVESTMENT METHODS
The Portfolios may invest in U.S. Government Securities, repurchase
agreements, convertible securities, options for hedging purposes and money
market instruments. Descriptions of such securities, and the inherent risks of
investing in such securities, are set forth below.
U.S. Government Securities
The Portfolios may invest in U.S. Government Securities which are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Obligations issued by the U.S. Treasury include Treasury
Bills, Notes and Bonds which differ from each other mainly in their interest
rates and the length of their maturity at original issue. In this regard,
Treasury Bills have a maturity of one year or less, Treasury Notes have
maturities of one to ten years and Treasury Bonds generally have maturities
greater than ten years. Such Treasury Securities are backed by the full faith
and credit of the U.S. Government.
The obligations of U.S. Government agencies or instrumentalities are
guaranteed or backed in a variety of ways by the U.S. Government, its agencies
or instrumentalities. Some of these obligations, such as Government National
Mortgage Association mortgage-related securities, and obligations of the Farmers
Home Administration, are backed by the full faith and credit of the U.S.
Treasury. Obligations of the Farmers Home Administration are also backed by the
issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks and the Farmers Home Administration are backed by the discretionary
authority of the U.S. Government to purchase certain obligations of agencies or
instrumentalities. Obligations of Federal Home Loan Banks, the Farmers Home
Administration, Federal Farm Credit Banks, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation are backed by the
credit of the agency or instrumentality issuing the obligations.
As with all fixed income securities, various market forces influence
the value of such securities. There is an inverse relationship between the
market value of such securities and yield. As interest rates rise, the value of
the securities falls; conversely, as interest rates fall, the market value of
such securities rises.
Repurchase Agreements
The Government Securities, Growth and Capital Appreciation Portfolios
may enter into repurchase agreements on U.S. Government Securities for temporary
defensive purposes. A repurchase agreement involves the purchase by a Portfolio
of U.S. Government Securities with the condition that after a stated period of
time (usually seven days or less) the original seller will buy back the same
securities ("collateral") at a predetermined price or yield. Repurchase
agreements involve certain risks not associated with direct investments in
securities. In the event the original seller defaults on its obligation to
repurchase, as a result of its bankruptcy or otherwise, the Portfolio will seek
to sell the collateral, which action could involve costs or delays. In such
case, the Portfolio's ability to dispose of the collateral to recover such
investment may be restricted or delayed. While collateral will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale of collateral were less than the repurchase price, a Portfolio would suffer
a loss.
<PAGE>
Options Transactions
The Growth Portfolio and Capital Appreciation Portfolio may purchase
put options, solely for hedging purposes, in order to protect portfolio holdings
in an underlying security against a substantial decline in the market value of
such holdings ("protective puts"). Such protection is provided during the life
of the put because the Portfolio may sell the underlying security at the put
exercise price, regardless of a decline in the underlying security's market
price. Any loss to the Portfolio is limited to the premium paid for, and
transaction costs paid in connection with, the put plus the initial excess, if
any, of the market price of the underlying security over the exercise price.
However, if the market price of such security increases, the profit a Portfolio
realizes on the sale of the security will be reduced by the premium paid for the
put option less any amount for which the put is sold.
The Growth Portfolio and Capital Appreciation Portfolio may also
purchase call options solely for the purpose of hedging against an increase in
prices of securities that the Portfolio ultimately wants to buy. Such protection
is provided during the life of the call option because the Portfolio may buy the
underlying security at the call exercise price regardless of any increase in the
underlying security's market price. In order for a call option to be profitable,
the market price of the underlying security must rise sufficiently above the
exercise price to cover the premium and transaction costs. By using call options
in this manner, a Portfolio will reduce any profit it might have realized had it
bought the underlying security at the time it purchased the call option by the
premium paid for the call option and by transaction costs.
The Growth Portfolio and Capital Appreciation Portfolio may only
purchase exchange-traded put and call options. Exchange-traded options are third
party contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a continuous
liquid market while other options may not. See "Special Investment Methods -
Investment Restrictions."
Use of options in hedging strategies is intended to protect performance
but can result in poorer performance than without hedging with options, if the
Adviser is incorrect in its forecasts of the direction of stock prices.
Normally, the Portfolio will only invest in options to protect existing
positions and as a result, will normally invest no more than 10% of the
Portfolio's assets in options.
Convertible Securities
Convertible securities are securities that may be exchanged or
converted into a predetermined number of the issuer's underlying common shares
at the option of the holder during a specified time period. Convertible
securities may take the form of convertible preferred stock, convertible bonds
or debentures, or a combination of the features of these securities. The
investment characteristics of convertible securities vary widely, allowing
convertible securities to be employed for different investment objectives.
<PAGE>
Convertible bonds and convertible preferred stocks are fixed income
securities entitling the holder to receive the fixed income of a bond or the
dividend preference of a preferred stock until the holder elects to exercise the
conversion privilege. They are senior securities, and, therefore, have a claim
to assets of the issuer prior to the common stock in the case of liquidation.
However, convertible securities are generally subordinated to non-convertible
securities of the same company. The interest income and dividends from
convertible bonds and preferred stocks provide a stream of income with generally
higher yields than common stocks, but lower than non-convertible securities of
similar quality.
As with all fixed income securities, various market forces influence
the market value of convertible securities, including changes in the prevailing
level of interest rates. As the level of interest rates increases, the market
value of convertible securities tends to decline and, conversely, as interest
rates decline, the market value of convertible securities tends to increase. The
unique investment characteristic of convertible securities (the right to
exchange for the issuer's common stock) causes the market value of the
convertible securities to increase when the value of the underlying common stock
increases. However, because security prices fluctuate, there cannot be an
assurance of capital appreciation. Most convertible securities will not reflect
as much capital appreciation as their underlying common stocks. When the
underlying common stock is experiencing a decline, the value of the convertible
security tends to decline to a level approximating the yield-to-maturity basis
of straight non-convertible debt of similar quality, often called "investment
value," and may not experience the same decline as the underlying common stock.
Most convertible securities sell at a premium over their conversion
values (i.e., the number of shares of common stock to be received upon
conversion multiplied by the current market price of the stock). This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed income security with a possibility of capital appreciation
due to the conversion privilege. If this appreciation potential is not realized,
the premium may not be recovered.
Money Market Instruments
The Government Securities, Growth and Capital Appreciation Portfolios
may invest in money market instruments which include:
(i) U.S. Treasury Bills;
(ii) U.S. Treasury Notes with maturities of 18 months or less;
(iii) U.S. Government Securities subject to repurchase agreements;
(iv) Obligations of domestic branches of U.S. banks (including
certificates of deposit and bankers' acceptances with maturities of 18 months or
less) which at the date of investment have capital, surplus, and undivided
profits (as of the date of their most recently published financial statements)
in excess of $10,000,000 and obligations of other banks or savings and loan
associations if such obligations are insured by the Federal Deposit Insurance
Corporation ("FDIC") or the Federal Savings and Loan Insurance Corporation
("FSLIC");
(v) Commercial paper which at the date of investment is rated A-1 by
S&P or P-1 by Moody's or, if not rated, is issued or guaranteed as to payment of
principal and interest by companies which at the date of investment have an
outstanding debt issue rated AA or better by S&P or Aa or better by Moody's;
(vi) Short-term (maturing in one year or less) corporate obligations
which at the date of investment are rated AA or better by S&P or Aa or better by
Moody's; and
(vii) Shares of no-load money market mutual funds (subject to the
ownership restrictions of the Investment Company Act of 1940). See "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
The Intermediate Government Bond Portfolio may invest in the Money
Market Instruments described in (i), (ii), (iv) and (vii) above, provided that
investments in shares of no load money market mutual funds shall be further
invested in those money market mutual funds which invest solely in those
securities otherwise permitted for the Portfolio. Investment by a Portfolio in
shares of a money market mutual fund indirectly results in the investor paying
not only the advisory fee and related fees charged by the Portfolio, but also
the advisory fees and related fees charged by the adviser and other entities
providing services to the money market mutual fund.
Borrowing
The Portfolios may borrow money from banks for temporary or emergency
purposes in an amount of up to 10% of the value of the Portfolio's total assets.
Interest paid by a Portfolio on borrowed funds would decrease the net earnings
of that Portfolio. None of the Portfolios will purchase portfolio securities
while outstanding borrowings exceed 5% of the value of the Portfolio's total
assets. Each of the Portfolios may mortgage, pledge, or hypothecate its assets
in an amount not exceeding 10% of the value of its total assets to secure
temporary or emergency borrowing. The policies set forth in this paragraph are
fundamental and may not be changed with respect to a Portfolio without the
approval of a majority of that Portfolio's shares.
Portfolio Turnover
While it is not the policy of any of the Portfolios to trade actively
for short-term (less than six months) profits, each Portfolio will dispose of
securities without regard to the time they have been held when such action
appears advisable to the Adviser, subject to, among other factors, the
constraints imposed on regulated investment companies by Subchapter M of the
Internal Revenue Code. See "Dividends, and Taxes." In the case of each
Portfolio, frequent changes will result in increased brokerage and other costs.
The methods of calculating portfolio turnover rate are set forth in the
Statement of Additional Information under "Investment Objectives, Policies and
Restrictions - Portfolio Turnover."
<PAGE>
Investment Restrictions
The Fund has adopted certain investment restrictions applicable to the
Portfolios which are set forth in the Statement of Additional Information. Some
of these restrictions, which are fundamental and may not be changed without
shareholder approval, include the following: (1) no Portfolio will invest 25% or
more of its total assets in any one industry (this restriction does not apply to
securities of the U.S. Government or its agencies and instrumentalities and
repurchase agreements relating thereto; however, utility companies, gas,
electric, telephone, telegraph, satellite, and microwave communications
companies are considered as separate industries); (2) no security can be
purchased by a Portfolio, except the Intermediate Government Bond Portfolio if,
as a result, more than 5% of 75% of the total assets of that Portfolio would
then be invested in the securities of a single issuer (other than U.S.
Government obligations); (3) as to the Intermediate Government Bond Portfolio,
no security may be purchased by it if, as a result, more than 5% of the value of
100% of its total assets would be invested in the securities of a single issuer
(other than U.S. Government obligations); (4) no security can be purchased by a
Portfolio if as a result more than 10% of any class of securities, or more than
10% of the outstanding voting securities of an issuer, would be held by that
Portfolio; and (5) no Portfolio will cause more than 10% of the value of its
total assets to be invested collectively in repurchase agreements maturing in
more than seven days and other illiquid securities. Additional investment
restrictions are set forth in the Statement of Additional Information.
If a percentage restriction set forth under "Investment Objectives and
Policies" is adhered to at the time of an investment, a later increase or
decrease in percentage resulting from changes in values or assets will not
constitute a violation of such restriction. The foregoing investment
restrictions, as well as all investment objectives and policies designated by
the Fund as fundamental policies in the Statement of Additional Information, may
not be changed without the approval of a "majority" of a Portfolio's shares
outstanding, defined as the lesser of: (a) 67% of the votes cast at a meeting of
shareholders for a Portfolio at which more than 50% of the shares are
represented in person or by proxy, or (b) a majority of the outstanding voting
shares of that Portfolio. These provisions apply to each Portfolio if the action
proposed to be taken affects that Portfolio. The Adviser may also agree to
certain additional investment policies in order to qualify the shares of some of
the Portfolios in various states.
<PAGE>
MANAGEMENT
Board of Directors
As in all corporations, the Fund's Board of Directors has the primary
responsibility for overseeing the overall management of the Fund. The Board of
Directors meets periodically to review the activities of the Portfolios and the
Adviser and to consider policy matters relating to the Portfolios and the Fund.
Investment Adviser and Administrator
Union Bank and Trust Company has been retained under an Investment
Advisory Agreement with the Fund to act as the Portfolios' Adviser subject to
the authority of the Board of Directors. Union Bank and Trust Company was
chartered as a state bank in 1918 and through its Trust Department has been
managing investments for its trust accounts for many years; however, until the
organization of the Fund, Union had not previously advised mutual funds. Union
is substantially owned by Farmers and Merchants Investment, Inc., a Nebraska one
bank holding company, which is controlled by members of the Dunlap family, which
includes Michael S. Dunlap, an officer and director of the Fund. The address of
the Adviser is 3643 So. 48th, Lincoln, Nebraska 68506.
The Adviser furnishes the Portfolios with investment advice and, in
general, supervises the management and investment programs of the Fund. The
Adviser furnishes at its own expense all necessary administrative services:
office space, equipment, clerical personnel for servicing the investments of the
Portfolios, investment advisory facilities, executive and supervisory personnel
for managing the investments and effecting the securities transactions of the
Portfolios. In addition, the Adviser pays the salaries and fees of all officers
and directors of the Fund who are affiliated persons of the Adviser. Under the
Investment Advisory Agreement, the Adviser receives a monthly fee computed
separately on the daily average net asset value of the respective Portfolio at
an annual rate of .50% for the Government Securities and Growth Portfolios; .65%
for the Intermediate Government Bond Portfolio and 1.40% of the daily net asset
value of the Capital Appreciation Portfolio plus a performance-based adjustment
described below.
With regard to the investment advisory fee paid for the Capital
Appreciation Portfolio, the Capital Appreciation Portfolio pays the Adviser a
basic monthly management fee computed at the annual rate of 1.40% of its daily
average net asset value. In addition, the Capital Appreciation Portfolio pays
the Adviser an incentive adjustment, by which the basic fee may be increased or
decreased by up to 1.40% of the average daily net asset value during the latest
12 months (a rolling average method) of the Portfolio, depending upon the
performance of the Portfolio relative to the S&P 500. See the Statement of
Additional Information for a detailed discussion of the incentive fee. For the
period ending June 30, 1995, the Fund paid the Adviser $2,292, which when
annualized represented a fee equivalent to .34% of average annual net assets.
This basic fee is higher than that paid by most other investment companies.
<PAGE>
William S. Eastwood, CFA, Jon C. Gross, CFA, and Curtis R. LeValley are
responsible for the day-to-day management of the Portfolio's investments.
William S. Eastwood has been affiliated with Union Bank & Trust Company and the
management of the Fund and of the various common trust funds of Union Bank &
Trust Company since March of 1995. Prior to joining Union Bank & Trust, Mr.
Eastwood was statewide manager of trust investments for a regional bank. Mr.
Eastwood was responsible for the management of equity and fixed income common
funds at that bank from 1979 to 1995. Mr. Eastwood holds the Chartered Financial
Analyst (CFA) professional designation. Jon C. Gross is currently a Trust
Investment Officer/Portfolio Manager and has been affiliated with Union Bank &
Trust Company since 1988 and has been actively involved in management of the
Fund and the common and collective funds of the Bank since July, 1991. Mr. Gross
holds the Chartered Financial Analyst (CFA) professional designation. Curtis
LeValley is currently a Trust Investment Officer/Portfolio Manager and has been
affiliated with Union Bank & Trust Company since May of 1995. Prior to joining
Union Bank & Trust, Mr. LeValley managed investment accounts for high net worth
individuals. Mr. LeValley is currently enrolled in the CFA program.
Lancaster Administrative Services, Inc., has also been retained as the
Fund's Administrator under a Transfer Agent and Administrative Services
Agreement with the Fund. The Administrator provides, or contracts with others to
provide, all necessary recordkeeping services and share transfer services for
the Fund. The Administrator is entitled to receive an administration fee,
computed and paid monthly, at an annual rate of .25% of the average daily net
assets of each Portfolio. The Administrator intends to enter into
Sub-Administration Agreements with various banks and financial institutions
pursuant to which such banks and financial institutions will provide
subaccounting and other shareholder services to their customers who invest in
the Portfolios. These Sub-Administration Agreements will provide for the payment
of a fee of up to .15% of average daily net assets of the Portfolios represented
by shares held by the banks. Banks may reimburse customer accounts for such fees
if required by local trust laws.
Expenses
The expenses paid by the Portfolios are deducted from total income
before dividends are paid. These expenses include, but are not limited to, the
fees paid to the Adviser and the Administrator, taxes, interest, ordinary and
extraordinary legal and auditing fees, custodial charges, registration and blue
sky fees incurred in registering and qualifying the Portfolios under state and
federal securities laws, association fees, director fees paid to directors who
are not affiliated with the Adviser, and any other fees not expressly assumed by
the Adviser or Administrator. Any general expenses of the Fund that are not
readily identifiable as belonging to a particular Portfolio will be allocated to
the Portfolios on a pro rata basis, at the time such expenses are accrued. The
Portfolios pay their own brokerage commissions and related transactions costs.
<PAGE>
Portfolio Brokerage
The primary consideration in effecting transactions for the Portfolios
is execution at the most favorable prices. The Adviser has complete freedom as
to the markets in and the broker-dealers through or with which (acting on an
agency basis or as principal) they seek execution at the most favorable prices.
The Adviser may consider a number of factors in determining which broker-dealers
to use for the Portfolios' transactions. These factors, which are more fully
discussed in the Statement of Additional Information, include, but are not
limited to, research services, the reasonableness of commissions and quality of
services and execution. Portfolio transactions for the Portfolios may be
effected through SMITH HAYES, which also acts as the Distributor of the Fund's
shares, if the commissions, fees or other remuneration received by SMITH HAYES
are reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. SMITH HAYES has represented that, in executing portfolio
transactions for the Fund, it intends to charge commissions which are
substantially less than non-discounted retail commissions. In effecting
portfolio transactions through SMITH HAYES, the Fund intends to comply with
Section 17(e)(1) of the Investment Company Act of 1940 (the "1940 Act"), as
amended.
Banking Law Matters
Banking laws and regulations, including the Glass-Steagall Act as
currently interpreted by the Board of Governors of the Federal Reserve System,
prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or any affiliate thereof from sponsoring, organizing,
controlling, or distributing the shares of a registered, open-end investment
company continuously engaged in the issuance of its shares and prohibit banks
generally from issuing, underwriting, selling or distributing securities. The
same laws and regulations generally permit a bank or bank affiliate to act as
investment adviser, transfer agent, or custodian to an investment company and to
purchase shares of the investment company as agent for and upon the order of a
customer. Cline, Williams, Wright, Johnson & Oldfather, counsel to the Fund,
believe that the Adviser and any other bank or bank affiliate that may perform
advisory or sub-transfer agent or similar services may perform the services
described in this Prospectus for the Fund and its shareholders without violating
applicable federal banking laws or regulations.
However, judicial or administrative decisions or interpretations of, as
well as changes in, either federal or state statutes or regulations relating to
the activities of banks and their affiliates could prevent a bank or bank
affiliate from continuing to perform all or a part of the activities
contemplated by this Prospectus. If a bank or bank affiliate were prohibited
from so acting, its shareholder customers would be permitted to remain
shareholders of the Fund and an alternative means of continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the Fund might occur and a shareholder serviced by such bank or bank affiliate
might no longer be able to avail itself of their services. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
<PAGE>
Performance Information
From time to time, performance information for the Portfolios showing a
Portfolio's average annual total return, aggregate total return and/or yield may
be presented in advertisements and sales literature. Such performance figures
are based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated for the period since
the establishment of the Portfolio for which performance is being calculated.
Average annual total return is measured by comparing the value of an investment
in a Portfolio at the beginning of the relevant period to the redeemable value
of the investment at the end of the period (assuming immediate reinvestment of
any dividends or capital gains distributions). Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield will
be computed by dividing a Portfolio's net investment income per share (as
calculated on a yield to maturity basis) earned during a recent 30-day period by
that Portfolio's per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) earned on the last day
of the period and annualizing the result.
In addition, from time to time the Portfolios may present their
distribution rate in supplemental sales literature which is accompanied or
preceded by a prospectus and in its shareholder reports. Distribution rates will
be computed by dividing the distribution per share made by a Portfolio over a
12-month period by the maximum offering price per share. The calculation of
income and the distribution rate includes both income and capital gains
dividends and does not reflect unrealized gains or losses. The distribution rate
differs from the yield, because it includes capital items which are often
non-reoccurring in nature, whereas yield does not include such items.
Investors may also judge the performance of each Portfolio by comparing
its performance to the performance of other mutual funds or other mutual fund
portfolios with comparable investment objectives and policies through various
mutual fund or market indices and to data prepared by various services, which
indices or data may be published by such services or by other services or
publications. In addition to performance information, general information about
the Portfolios that appears in such publications may be included in
advertisements and reports to shareholders.
Yield and total return are functions of the type and quality of
instruments held by a Portfolio, operating expenses and market conditions.
Consequently, current yields and total return will fluctuate and are not
necessarily representative of future results. Any fees charged by the Adviser or
any of its affiliates with respect to customer accounts for investing in shares
of any of the Portfolios will not be included in performance calculations; such
fees, if charged, will reduce the actual performance by that quoted. In
addition, if the Adviser, the Administrator, or other parties providing services
to the Fund, voluntarily reduce all or part of their respective fees for a
Portfolio, the yield and total return for that Portfolio will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
<PAGE>
PURCHASE OF SHARES
General
SMITH HAYES acts as the principal distributor of the Fund's shares. The
Portfolios' shares may be purchased at the net asset value per share from
registered representatives of SMITH HAYES and from certain other broker-dealers
who have sales agreements with SMITH HAYES. The address of SMITH HAYES is that
of the Fund. Shareholders will receive written confirmation of their purchases.
Stock certificates will not be issued in order to facilitate redemptions and
transfers between the Portfolios. SMITH HAYES reserves the right to reject any
purchase order. Shares of the Portfolios are offered to the public without a
sales charge at the net asset value per share next determined following receipt
of an order by SMITH HAYES. See "Valuation of Shares."
Investors may purchase shares by completing the Purchase Application
included in this Prospectus and submitting it with a check payable to:
STRATUS FUND, Inc.
200 Centre Terrace
1225 "L" Street
Lincoln, Nebraska 68508
For subsequent purchases, the name of the account and the account
number should be included with any purchase order to properly identify your
account. Payment for shares may also be made by bank wire. To do so, the
investor must direct his or her bank to wire immediately available funds
directly to the Custodian as indicated below:
1. Telephone the Fund (402) 476-3000 and furnish the name, the account
number and the telephone number of the investor as well as the amount being
wired and the name of the wiring bank. If a new account is being opened,
additional account information will be requested and an account number will be
provided.
2. Instruct the bank to wire the specific amount of immediately
available funds to the Custodian. The Fund will not be responsible for the
consequences of delays in the bank or Federal Reserve wire system. The
investor's bank must furnish the full name of the investor's account and the
account number.
<PAGE>
The wire should be addressed as follows:
UNION BANK AND TRUST COMPANY
Lincoln, Nebraska
Fund Department, ABA #104910795
Lincoln, Nebraska 68506
Account of STRATUS FUND, Inc.
-----------------------------
FBO (Account Registration name)
#-----------------------------
3. Complete a Purchase Application and mail it to the Fund, if shares
being purchased by bank wire transfer represent an initial purchase. (The
completed Purchase Application must be received by the Fund before subsequent
instructions to redeem Fund shares will be accepted). Banks may impose a charge
for the wire transfer of funds.
Minimum Investments
Except as provided under the Automatic Investment Plan a minimum initial
aggregate investment of $1,000 is required, unless waived by the Distributor.
All investments must be made through your SMITH HAYES investment executive or
other broker-dealer.
Automatic Investment Plan
Under an automatic investment plan, money is withdrawn each month from a
shareholder's predesignated bank account for investment in a Portfolio. The
minimum investment is $50 per Portfolio. A shareholder must make an initial
investment of at least $50 in each receiving Portfolio. By investing the same
dollar amount each month, a shareholder will purchase more shares when a
Portfolio's net asset value is low and fewer shares when the net asset value is
high. This means that the shareholder's average purchase price per share can be
lower than if he or she purchased the same total number of shares in a single
transaction. While periodic investing can help build significant savings over
time, it does not assure a profit or protect against loss in a declining market.
Investor's must notify their account representative to establish an
automatic investment plan, and his or her bank must be a member of the Automated
Clearing House. The shareholder may revoke the plan at any time, but it may take
up to 15 days from the date a written revocation notice is received to terminate
the plan. Any purchases of shares made during the period shall be considered
authorized. If an automatic withdrawal cannot be made from the shareholder's
predesignated bank account to provide funds for automatic share purchases, the
shareholder's plan will be terminated.
<PAGE>
REDEMPTION OF SHARES
Redemption Procedure
Shares of the Portfolios, in any amount, may be redeemed at any time at
their current net asset value next determined after a request in good order is
received by SMITH HAYES. To redeem shares of the Portfolios, an investor must
make a redemption request through a SMITH HAYES investment executive or other
broker-dealer. If the redemption request is made to a broker-dealer other than
SMITH HAYES, such broker-dealer will wire a redemption request to SMITH HAYES
immediately following the receipt of such a request. A redemption request will
be considered to be in "good order" if made in writing and accompanied by the
following:
1. a letter of instruction or stock assignment specifying the number or
dollar value of shares to be redeemed, signed by all the owners of the shares in
the exact names in which they appear on the account, or by an authorized officer
of a corporate shareholder indicating the capacity in which such officer is
signing;
2. a guarantee of the signature of each owner by an eligible institution
which is a participant in the Securities Transfer Agent Medallion Program which
includes many U.S. commercial banks and members of recognized securities
exchanges; and
3. other supporting legal documents, if required by applicable law, in the
case of estates, trusts, guardianships, custodianships, corporations and pension
and profit-sharing plans.
Payment of Redemption Proceeds
Normally, the Fund will make payment for all shares redeemed within five
business days, but in no event will payment be made more than seven days after
receipt by SMITH HAYES of a redemption request in good order. However, payment
may be postponed or the right of redemption suspended for more than seven days
under unusual circumstances, such as when trading is not taking place on the New
York Stock Exchange. Payment of redemption proceeds may also be delayed until
the check used to purchase the shares to be redeemed has cleared the banking
system, which may take up to 15 days from the purchase date. A shareholder may
request that the Fund transmit redemption proceeds by Federal Funds bank wire to
a bank account designated on the shareholder's account application form,
provided such bank wire redemptions are in the amounts of $500 or more and all
requisite account information is provided to the Fund.
<PAGE>
Involuntary Redemption
The Fund reserves the right to redeem a shareholder's account at any time
the net asset value of the account falls below $500 as the result of a
redemption or transfer request. Shareholders will be notified in writing that
the value of their account is less than $500 and will be allowed 30 days to make
additional investments before the redemption is processed.
Automatic Withdrawal Plan
Investors who own shares of the Fund with a value of $5,000 or more may
elect to redeem a portion of their shares on a regular periodic (monthly,
quarterly or annual) basis. The minimum withdrawal amount is $100. Payment may
be made to the shareholder, a predesignated bank account, or to another payee.
Under this plan, sufficient shares are redeemed form the shareholder's
account(s) in time to send a check in the amount requested on or about the first
day of a month. Redemptions under the automatic withdrawal plan will reduce and
may ultimately exhaust the value of the designated account(s). Taxable gains or
losses may be realized when shares are redeemed under the automatic withdrawal
plan.
Purchasing additional shares concurrently with automatic withdrawals is
likely to be disadvantageous to the shareholder because to tax liabilities.
Consequently, the Portfolio will not normally accept additional purchase
payments in single amounts of less than $5,000 from a shareholder who has this
plan in effect. Any charges to operate an automatic withdrawal plan will be
assessed against the shareholder's account(s) when each withdrawal is effected.
Investor's must notify their account representative to establish an
automatic withdrawal plan. Forms must be properly completed and received at
least 30 days before the first payment date. An automatic withdrawal plan may be
terminated at any time, by written notice from the shareholder.
VALUATION OF SHARES
The Portfolios determine their net asset value on each day the New York
Stock Exchange (the "Exchange") is open for business, provided that the net
asset value need not be determined for a Portfolio on days when no Portfolio
shares are tendered for redemption and no order for Portfolio shares is
received. The calculation is made as of the close of business of the Exchange
(currently 4:00 p.m., New York time) after the Portfolios have declared any
applicable dividends.
The net asset value per share for each of the Portfolios is determined by
dividing the value of the securities owned by the Portfolio plus any cash and
other assets (including interest accrued and dividends declared but not
collected) less all liabilities by the number of Portfolio shares outstanding.
For the purposes of determining the aggregate net assets of the Portfolios, cash
and receivables will be valued at their face amounts. Interest will be recorded
as accrued and dividends will be recorded on the ex-dividend date. Securities
traded on a national securities exchange or on the NASDAQ National Market System
are valued at the last reported sale price that day. Securities traded on a
national securities exchange or on the NASDAQ National Market System for which
<PAGE>
there were no sales on that day and securities traded on other over-the-counter
markets for which market quotations are readily available are valued at the mean
between the bid and the asked prices. Portfolio securities underlying actively
traded options will be valued at their market price as determined above. The
current market value of any exchange-traded option held by a Portfolio is its
last sales price on the exchange prior to the time when assets are valued unless
the bid price is higher or the asked price is lower, in which event such bid or
asked price is used. Lacking any sales that day, the options will be valued at
the mean between the current closing bid and asked prices. Securities and other
assets for which market prices are not readily available are valued at fair
value as determined in good faith by the Board of Directors. With the approval
of the Board of Directors, the Portfolios may utilize a pricing service, bank,
or broker-dealer experienced in such matters to perform any of the
above-described functions.
DIVIDENDS AND TAXES
Dividends
All net investment income dividends and net realized capital gains
distributions with respect to the shares of any Portfolio will be payable in
additional shares of such Portfolio unless the shareholder notifies his or her
SMITH HAYES investment executive or other broker-dealer of an election to
receive cash. The taxable status of income dividends and/or net capital gains
distributions is not affected by whether they are reinvested or paid in cash.
Each of the Portfolios will pay dividends from net investment income to
its shareholders at least annually or as may be required to remain a regulated
investment company under the Internal Revenue Code (the "Code") and distribute
net realized capital gains, if any, to its shareholders on an annual basis.
Taxes
The Portfolios will each be treated as separate entities for federal
income tax purposes. The Fund intends to qualify the Portfolios as "regulated
investment companies" as defined in the Code. Provided certain distribution
requirements are met, the Portfolios will not be subject to federal income tax
on their net investment income and net capital gains that they distribute to
their shareholders.
Shareholders subject to federal income taxation will receive taxable
dividend income or capital gains, as the case may be, from distributions,
whether paid in cash or received in the form of additional shares. Promptly
after the end of each calendar year, each shareholder will receive a statement
of the federal income tax status of all dividends and distributions paid during
the year.
<PAGE>
Shareholders of the Intermediate Government Bond and the Government
Securities Portfolios may be able to exclude a portion of the dividends received
from taxable income as exempt interest income under various state income tax
rules. Shareholders should consult their tax advisers as to the extent and
availability of these exclusions.
The Fund is subject to the backup withholding provisions of the Code and
is required to withhold income tax from dividends and redemptions paid to a
shareholder at a 31% rate, if such shareholder fails to furnish the Portfolio
with a taxpayer identification number or under certain other circumstances.
Accordingly, shareholders are urged to complete and return Form W-9 when
requested to do so by the Fund.
This discussion is only a summary and relates solely to federal tax
matters. Dividends may also be subject to state and local taxation. Shareholders
are urged to consult with their personal tax advisers.
GENERAL INFORMATION
Capital Stock
The Fund is authorized to issue a total of one billion shares of common
stock, with a par value of $.001 per share. Of these shares, the Board of
Directors has authorized the issuance of shares in series designated
Intermediate Government Bond Portfolio, Government Securities Portfolio, Growth
Portfolio and Capital Appreciation Portfolio shares. Shares of the series
designated Equity Income Portfolio are referred to herein as "Growth Portfolio"
shares. The Board of Directors designated 10 million shares to each of the
Portfolios. The Board of Directors is empowered under the Fund's Articles of
Incorporation to issue other series of the Fund's common stock without
shareholder approval or to designate additional authorized but unissued shares
for issuance by one or more existing Portfolios.
All shares, when issued, will be fully paid and nonassessable and will be
redeemable and freely transferable. All shares have equal voting rights. They
can be issued as full or fractional shares. A fractional share has pro rata the
same rights and privileges as a full share. The shares possess no preemptive or
conversion rights.
Voting Rights
Each share of the Portfolios has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the Fund's
shares. On some issues, such as the election of directors, all shares of the
Fund, irrespective of series, vote together as one series. Cumulative voting is
not authorized. This means that the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, and, in such event, the holders of the remaining shares will be
unable to elect any directors.
On an issue affecting only one Portfolio, the shares of the Portfolio vote
as a separate series. Examples of such issues would be proposals to (i) change
the Investment Advisory Agreement, (ii) change a fundamental investment
restriction pertaining to only one Portfolio or (iii) change a Portfolio's
Distribution Plan. In voting on the Investment Advisory Agreement or proposals
affecting only one Portfolio, approval of such an agreement or proposal by the
shareholders of one Portfolio would make that agreement effective as to that
Portfolio whether or not the agreement or proposal had been approved by the
shareholders of the Fund's other Portfolios.
As of February 15, 1996, the Adviser held of record but not beneficially,
a substantial majority of the outstanding shares of each of the Portfolios and
therefore may be deemed to control each of the Portfolios within the meaning of
the 1940 Act.
Shareholders Meetings
The Fund does not intend to hold annual or periodically scheduled regular
meetings of shareholders unless it is required to do so. Minnesota corporation
law requires only that the Board of Directors convene shareholder meetings when
it deems appropriate. However, Minnesota law provides that if a regular meeting
of shareholders has not been held during the immediately preceding 15 months, a
shareholder or shareholders holding 3% or more of the voting shares of the Fund
may demand a regular meeting of shareholders by written notice given to the
chief executive officer or chief financial officer of the Fund. Within 30 days
after receipt of the demand, the Board of Directors shall cause a regular
meeting of shareholders to be called, which meeting shall be held no later than
90 days after receipt of the demand, all at the expense of the Fund.
In addition, the 1940 Act requires a shareholder vote for all amendments
to fundamental investment policies and restrictions, for all investment advisory
contracts and amendments thereto, and for all amendments to Rule 12b-1
distribution plans. Finally, the Fund's Articles of Incorporation provide that
shareholders also have the right to remove Directors upon two-thirds vote of the
outstanding shares and may call a meeting to remove a Director upon the
application of 10% or more of the outstanding shares. The Fund is obligated to
facilitate shareholder communications in this situation if certain conditions
are met.
Allocation of Income and Expenses
The assets received by the Fund for the issue or sale of shares of the
Portfolios, and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, are allocated to the Portfolios, and constitute
the underlying assets of the Portfolios. The underlying assets of the Portfolios
are required to be segregated on the books of account, and are to be charged
with the expenses of the Portfolios and with a share of the general expenses of
the Fund. Any general expenses of the Fund not readily identifiable as belonging
to a particular series are allocated among all series based upon the relative
net assets of each series at the time such expenses were accrued.
<PAGE>
Transfer Agent, Dividend Disbursing Agent and Custodian
Union Bank and Trust Company, Lincoln, Nebraska, serves as Custodian for
the Fund's portfolio securities and cash. The Administrator acts as Transfer
Agent and Dividend Disbursing Agent. In its capacity as Transfer Agent and
Dividend Disbursing Agent, the Administrator performs many of the clerical and
administrative functions for the Portfolios.
Reports to Shareholders
The Fund will issue semi-annual reports which will include a list of
securities of the Portfolio owned by the Fund and financial statements, which in
the case of the annual report, will be examined and reported upon by the Fund's
independent auditor.
Legal Opinion
The legality of the shares offered hereby will be passed upon, and the
opinion with respect to all tax matters will be rendered by, Messrs. Cline,
Williams, Wright, Johnson & Oldfather, 1900 FirsTier Bank Building, Lincoln,
Nebraska 68508.
Auditors
The Fund's auditors are KPMG Peat Marwick LLP, Omaha, Nebraska,
independent certified public accountants.
<PAGE>
TABLE OF CONTENTS
Introduction .............................................. 2
Annual Operating Expenses.................................. 4
Financial Highlights....................................... 5
Investment Objective
and Policies............................................... 9
Intermediate Government Bond............................ 9
Government Securities................................... 10
Growth ................................................. 11
Capital Appreciation.................................... 12
Special Investment Methods ................................ 14
Management ................................................ 19
Purchase of Shares ........................................ 23
Redemption of Shares ...................................... 25
Valuation of Shares ....................................... 26
Dividends and Taxes........................................ 27
General Information........................................ 28
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS (AND/OR IN THE STATEMENT OF ADDITIONAL INFORMATION REFERRED TO ON THE
COVER PAGE OF THIS PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY STRATUS
FUND, INC. OR SMITH HAYES FINANCIAL SERVICES CORPORATION. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
<PAGE>
STRATUS FUND, INC.
INTERMEDIATE GOVERNMENT
BOND PORTFOLIO
GOVERNMENT SECURITIES
PORTFOLIO
GROWTH PORTFOLIO
CAPITAL APPRECIATION
PORTFOLIO
PROSPECTUS
INVESTMENT ADVISER
Union Bank and Trust Company
ADMINISTRATOR,
TRANSFER AGENT AND
DIVIDEND PAYING AGENT
Lancaster Administrative
Services, Inc.
DISTRIBUTOR
SMITH HAYES Financial
Services Corporation
CUSTODIAN
Union Bank and Trust Company
Lincoln, Nebraska
<PAGE>
STRATUS FUND, Inc. Date -------------------
500 Centre Terrace, 1225 L Street, Lincoln, NE 68508 Account #---------------
In accordance with the terms and conditions set forth in this form, the current
prospectus, and my instructions below, I wish to establish a Shareholder Account
in the designated Portfolio(s) as follows:
O Intermediate Government Bond Portfolio -------------------- % or $
O Government Securities Portfolio -------------------- % or $
O Growth Portfolio -------------------- % or $
O Capital Appreciation Portfolio -------------------- % or $
ACCOUNT REGISTRATION (Please Print)
NOTE: In the case of two or more co-owners, the account will be registered "
Joint Tenants with Right of Survivorship" and not as "Tenants-in-common" unless
otherwise specified.
O Individual
- ---------------------------------------------------------- O Jt. WROS
Name of Shareholder O Corporation
O Trust
- ---------------------------------------------------------- O Other------
Name of Co-Owner (if any)
- -------------------------------------------------------------------------------
Street Address City State Zip Code
- --------------------------- Citizen of----- U.S.----- Other(specify)-----
Social Security or T.I.N. #
- --------------------------------------- --------------------------------
(Area Code) Home Telephone (Area Code) Business Telephone
DIVIDEND AND INVESTMENT OPTION (One box must be checked)
O Reinvest all dividends and capital gains distributions.
O Reinvest capital gain distributions only.
O Receive all dividends and capital gain distributions in cash.
SYSTEMATIC WITHDRAWAL PLAN
Mail a check for ----- prior to the last day of each -- O Month O Quarter O Year
First check to be mailed------------------(specify month)
SHAREHOLDER AUTHORIZATION AND CERTIFICATION
I authorize any instructions contained herein and certify under penalties of
perjury:(Strike number 2 if not true)
1. that the social security or other taxpayer identification number is correct;
2. that I am not subject to withholding either because of a failure to report
all interest or dividends or I was subject to withholding and the Internal
Revenue Service has notified me that I am no longer subject to withholding.
O Exempt from backup withholding
O Non-exempt from backup withholding
X----------------------------------- X--------------------------------------
Signature of Shareholder/or Signature of Co-Owner (if any)
Authorized Officer, if corporation
FOR DEALER ONLY (We hereby authorize Stratus Fund, Inc. as our agent in
connection with transactions under this authorization form. We guarantee the
shareholder's signature.)
- ------------------------------------ ----------------------------------------
Dealer Name (Please Print) Signature of Registered Representative
- ------------------------------------ ----------------------------------------
Home Office Address Address of Office Serving Account
- ------------------------------------ ----------------------------------------
City State Zip Code City State Zip Code
- ------------------------------------ ----------------------------------------
Authorized Signature of Dealer Branch No. Reg. Rep. No. Reg. Rep. Last Name
<PAGE>
STRATUS FUND, INC.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
GROWTH PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
February 15, 1995
Table of Contents
Page
GENERAL INFORMATION........................................................2
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS...........................2
Intermediate Government Bond Portfolio.................................2
Government Securities Portfolio........................................2
Growth Portfolio.......................................................3
Capital Appreciation Portfolio.........................................3
Portfolio Turnover.....................................................4
All Portfolios.........................................................4
DIRECTORS AND EXECUTIVE OFFICERS...........................................5
INVESTMENT ADVISORY AND OTHER SERVICES.....................................6
PORTFOLIO TRANSACTIONS AND BROKERAGE
ALLOCATIONS ..........................................................10
CAPITAL STOCK AND CONTROL.................................................11
NET ASSET VALUE AND PUBLIC OFFERING PRICE.................................12
REDEMPTION................................................................12
TAX STATUS................................................................13
CALCULATION OF PERFORMANCE DATA...........................................13
FINANCIAL STATEMENTS......................................................14
AUDITORS..................................................................14
APPENDIX A - Ratings of Corporate Obligations............................A-1
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the combined Prospectus for the
Intermediate Government Bond Portfolio, Government Securities Portfolio, Equity
Income Portfolio and Capital Appreciation Portfolio dated February 15, 1996, and
should be read in conjunction therewith. A copy of the Prospectus may be
obtained from the Fund at 200 Centre Terrace, 1225 "L" Street, Lincoln,
Nebraska, 68508.
<PAGE>
GENERAL INFORMATION
---------------------
The shares of the STRATUS FUND, Inc. (the "Fund") are currently offered
in series, with each series representing a separate investment portfolio with
its own investment objectives and policies. This Statement of Additional
Information relates to the series designated Intermediate Government Bond
Portfolio, Government Securities Portfolio, Equity Income Portfolio (referred to
herein as "Growth Portfolio") and Capital Appreciation Portfolio shares (the
"Portfolios"). The investment objectives and policies of the Portfolios are set
forth in the Prospectus. The Fund was originally incorporated under the name NEW
HORIZON FUND, INC. on October 29, 1990 and changed its name to APEX FUND, INC.
on November 9, 1990. The name was changed to STRATUS FUND, INC. on January 23,
1991. The Union Government Securities Portfolio and Union Equity Income
Portfolio changed their names to simply Government Securities Portfolio and
Equity Income Portfolio effective April 30, 1994. The Equity Income Portfolio
was renamed the Growth Portfolio as of the date hereof. The Growth/Income
Portfolio was merged into the Equity Income Portfolio on the same date and
ceased separate existence. Certain additional investment information is set
forth below.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
-------------------------------------------------
Intermediate Government Bond Portfolio
The investment objective of the Intermediate Government Bond Portfolio is to
provide current income, some or all of which is exempt from state income tax,
consistent with the preservation of capital. In order to achieve this objective,
at least 80% of the assets of the Portfolio will be invested, at the time of
purchase, in securities issued or guaranteed by the United States Government,
its agencies or its instrumentalities.
The Portfolio will maintain an average dollar weighted maturity of between
three and ten years on debt securities it owns.
Government Securities Portfolio
The investment objective of the Government Securities Portfolio is to
provide current income consistent with the preservation of capital. In order to
achieve this objective, at least 80% of the total assets of the Portfolio will
be invested, at the time of purchase, in securities issued or guaranteed by the
United States Government, its agencies or its instrumentalities.
Additionally, the Portfolio may invest the remainder of its assets in:
(1) Domestic marketable debt obligations, rated at time of purchase within
the three highest debt rating categories established by Moody's Investors
Service, Inc. (Moody's)(Aaa, Aa and A) or Standard and Poor's Corporation
("Standard and Poor's) (AAA,AA and A) (see "Appendix" hereto);
(2) Obligations of commercial banks, including repurchase agreements. A
repurchase agreement involves the sale of securities and an agreement by the
seller to repurchase the securities at the same price plus an amount equal
to an agreed upon interest rate within a specified time period, usually
until the next business day but occasionally for longer periods. The
Portfolio must initially rely upon the credit of a particular bank for
completion of the repurchase agreement. Such repurchase agreements are
intended to be fully collateralized, in an amount equal to at least the
principal amount of the transaction plus accrued interest earned thereon, by
the underlying Government or agency securities valued at their fair market
value each day. Although the Portfolio will normally have legal title to and
construction possession of the collateral, it cannot eliminate the risk of a
default by a bank which could result in a loss to the Portfolio on the sale
of the underlying securities or delays in obtaining the collateral because
of bankruptcy or insolvency proceedings.
(3) Money Market investments as fully described in the Prospectus.
<PAGE>
Growth Portfolio
Ordinarily, the Growth Portfolio will be principally invested in common
stocks and other equity-related securities, such as convertible bonds and
preferred stock. Investments in convertible bonds and preferred stock will only
be made in securities which are rated in the top three classifications by
Moody's Investors Service, Inc. or Standard and Poor's Corporation. (see
"Appendix A" hereto for a description of these ratings).
In addition to common and preferred stocks, the Growth Portfolio may invest
in other securities having equity features because they are convertible into, or
represent the right to purchase, common stock. Convertible bonds and debentures
are corporate debt instruments, frequently unsecured and subordinated to senior
corporate debt, which may be converted into common stock at a specified price.
Such securities may trade at a premium over their face amount when the price of
the underlying common stock exceeds the conversion price, but otherwise will
normally trade at prices reflecting current interest rate trends. The Growth
Portfolio may purchase securities of other investment companies, subject to the
limitations discussed under "Investment Objectives, Policies and Restrictions -
All Portfolios." The Growth Portfolio does not intend to purchase any such
securities involving the payment of a front-end sales load, but may purchase
shares of investment companies specializing in securities in which the Growth
Portfolio has a particular interest or shares of closed-end investment companies
which frequently trade at a discount from their net asset value.
The Growth Portfolio intends periodically to invest in special situations.
A special situation arises when, in the opinion of the Investment Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development particularly or uniquely applicable to that company and regardless
of general business conditions or movements of the stock market as a whole.
Developments creating special situations might involve, among others, the
following: "workouts" such as liquidations, reorganizations, recapitalizations
or mergers; material litigations; technological breakthroughs; and new
management or management policies. Special situations involve a different type
of risk than is inherent in ordinary investment securities, that is, a risk
involving the likelihood or timing of specific events rather than general
economic market or industry risks. As with any securities transaction,
investment in special situations involves the risk of decline or total loss of
the value of the investment. However, the Adviser will not invest in special
situations unless, in its judgment, the risk involved is reasonable in light of
the Growth Portfolio's investment objective, the amount to be invested and the
expected investment results.
Capital Appreciation Portfolio
The Investment Objective of the Capital Appreciation Portfolio is capital
appreciation. The Portfolio will seek to achieve this objective by investing in
a diversified portfolio of common stocks and securities convertible into common
stocks. The Investment Adviser intends to invest principally in companies which
it believes will have earnings growth above the market averages with an emphasis
toward companies whose growth the Investment Adviser believes has not been fully
reflected in the market price of such companies' shares. While the Portfolio may
assume from time to time temporary defensive positions and invest in U.S.
Government debt securities, repurchase agreements and money market instruments,
the Portfolio will maintain at least 65% of its total assets in common stocks or
in securities convertible into common stock at all times.
In making investment selections, the Investment Adviser relies primarily on
a company by company analysis (rather than on a broader analysis of industry or
economic sector trends) and considers such matters as the quality of a company's
management, the existing of a leading or dominant position in a major product
line or market and the soundness of a company's financial position. As companies
are identified as possible investments, the Investment Adviser further evaluates
such companies by application of a number of valuation techniques to determine
the relative attractiveness of each company. Based upon these factors, the
Investment Adviser will attempt to select those companies whose shares, in its
estimation, are most attractively priced.
<PAGE>
The Capital Appreciation Portfolio will also periodically invest in special
situations. A special situation arises when, in the opinion of the Investment
Adviser, the securities or particular company will, within a reasonable period
of time, be accorded market recognition at an appreciated value solely by reason
of a development particularly or uniquely applicable to that company and
regardless of general business conditions or movements of the stock market as a
whole. Developments creating special situations include recapitalizations or
mergers, material litigation, technological break-throughs, and new management
or management policies. Special situations also involve a different type of risk
that is inherent in ordinary investment securities, that is, a risk that the
Investment Adviser may inaccurately predict the likelihood or timing of specific
events rather than general economic or industry risks and as a result fail to
achieve the investment objective. As in any securities transaction, an
investment in a special situation may result in the decline or total loss of the
value of the particular investment. The Investment Adviser will not, however,
invest in special situations, unless, in its judgement, the risk involved is
reasonable in light of the Portfolio's investment objective, the amount to be
invested and the expected investment results.
The Capital Appreciation Portfolio may invest in convertible securities
including convertible debt and convertible preferred stock. Such convertible
debt and convertible preferred stock shall be rated BBB or higher by Standard
and Poors, Inc. ("S&P") or Baa or higher by Moody's Investors Services, Inc.
("Moody's"). For a description of the Moody's and S & P ratings see Appendix to
Statement of Additional Information. The Investment Adviser may also use options
and hedging strategies designed to protect the Portfolio's holdings.
Portfolio Turnover
The portfolio turnover rate for each of the Portfolios is calculated by
dividing the lesser of a Portfolio's purchases or sales of securities for the
year by the monthly average value of the securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less. The portfolio turnover rate may vary greatly from year to year as
well as within a particular year, and may also be affected by cash requirements
for redemption of shares. Portfolio turnover will not be a limiting factor in
making investment decisions.
All Portfolios
The Fund has adopted a number of investment policies and restrictions for
all the Portfolios, some of which can be changed by the Board of Directors.
Others may be changed only by the holders of a majority of the outstanding
shares of each Portfolio and include the following:
Without shareholder approval, each of the Portfolios may not:
(1) purchase any securities other than those described under "Investment
Objectives and Policies" in the Prospectus for each Portfolio:
(2) invest more than 5% as to 75% of its total assets, except that the
Intermediate Government Bond Portfolio may not invest more than 5% as
to 100% of its total assets, taken at market value at the time of a
particular purchase, in the securities of any one issuer, other than in
U.S.Government securities;
(3) invest more than 5% of its total assets, taken at market value at the
time of a particular purchase, in securities of issuers with operating
records, including any predecessors, of less than three years;
(4) acquire more than 10%, at the time of a particular purchase, of the
outstanding voting securities of any one issuer;
(5) invest in companies for the purpose of exercising control or
influencing management;
(6) purchase securities of other investment companies, except in connection
with a merger, acquisition, consolidation or reorganization or by
purchase in the open market where no profit to the sponsor or dealer
results from the purchase other than customary brokerage commissions or
pursuant to the provisions of the Investment Company Act of 1940 which
restricts purchases to not more than 3% of the stock of another
investment company or purchases of stock of other investment companies
equal to more than 5% of the respective Portfolio's assets in the case
of a single investment company and 10% of such assets in the case of all
investment companies in the aggregate;
<PAGE>
(7) purchase or sell real estate, commodities or commodity contracts,
futures contracts or interests in oil, gas or other mineral exploration
or development programs;
(8) purchase securities on margin or make short sales;
(9) underwrite securities of other issuers;
(10)purchase or write puts, and calls, or engage in straddles, and spreads
or any combination thereof other than as described under "Special
Investment Methods" in the Prospectuses;
(11)make loans to other persons other than by purchasing part of an issue
of debt obligations; a Portfolio may, however, invest up to 10% of its
total assets, taken at market value at time of purchase, in repurchase
agreements maturing in not more than seven days;
(12)borrow money, except to meet extraordinary or emergency needs for
funds, and then only from banks in amounts not exceeding 10% of its
total assets, nor purchase securities at any time borrowings exceed 5%
of its total assets;
(13)mortgage, pledge, hypothecate, or in any manner transfer, as security
for indebtedness, any securities owned by the respective Portfolio
except as may be necessary in connection with borrowings as described in
(12) above and then securities mortgaged, hypotheticated or pledged may
not exceed 5% of the respective Portfolio's total assets taken at market
value;
(14)invest in securities with legal or contractual restrictions on resale
(except for repurchase agreements as described in (11) above); and
(15)purchase or hold securities of any issuer if 5% of the securities of
such issuer are owned by the Adviser or by directors and officers of the
Fund or the Adviser owning individually more than 1/2 of 1% of its
securities.
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The names, addresses and principal occupations during the past five years of
the directors and executive officers of the Fund are given below:
Name, Position with Fund and Address Principal Occupation Last Five Years
- ------------------------------------ ------------------------------------
*Thomas C. Smith, Chief Financial Chairman, CONLEY SMITH, Inc.; Vice
Officer & Treasurer; President, Lancaster Administrative
200 Centre Terrace, 1225 "L" Street Services, Inc., Lincoln, Nebraska;
Lincoln, Nebraska 68501 Chairman and President, SMITH HAYES
Financial Services Lincoln, Nebraska;
Chairman and President, Consolidated
Investment Corporation, Lincoln,
Nebraska; Vice President and
Director, Consolidated Realty
Corporation, Lincoln, Nebraska.
*Michael S. Dunlap, President Executive Vice President and Director
and Secretary Union Bank and Trust Company,Lincoln,
4732 Calvert Street Nebraska; Director, Lancaster County
Lincoln, Nebraska 68506 Bank, Waverly, Nebraska; and Unipac
Service Corporation.
<PAGE>
Name, Position with Fund and Address Principal Occupation Last Five Years
- ------------------------------------ ------------------------------------
Stan Schrier, Director President, Food 4 Less, Inc.,a retail
11128 John Galt Blvd. grocery chain, and owner,
Omaha, Nebraska 68137 Schrier-Lawson Motor Center.
R. Paul Hoff, Director Physician and CEO of Seward Clinic,
311 Jackson P.C., Seward, Nebraska.
Seward, Nebraska 68434
Edson L. Bridges III, Director Director, Bridges Investment Fund,
8401 W. Dodge Road, #256 Inc., a registered open end
Omaha, Nebraska 68114 management invest ment company,
February, 1991 to present; Vice
President and Director of Bridges
Investment Counsel Inc., a
registered investment adviser.
Jon Gross, Vice President Trust Officer, Union Bank and Trust
3643 South 48th Street Company, Lincoln, Nebraska, since
Lincoln, Nebraska 68506 1991 and an employee of Union Bank
and Trust Company since 1987.
*Interested directors of the Fund by virtue of their affiliation with
Lancaster Administrative Services, Inc., SMITH HAYES Financial Services
Corporation and Union Bank and Trust Company as defined under the
Investment Company Act of 1940.
The addresses of the directors and officers of the Fund are that of the Fund
unless otherwise indicated.
The following table represents the compensation amounts received for
services as a director of the Funds for the year ended June 30, 1995:
Compensation Table
Pension or
Aggregate Retirement Benefits Total Compensation
Compensation Accrued as Part From the Fund
Name and Position From Fund of the Fund Expenses Paid to Directors
Thomas C. Smith, Director $0 $0 $0
Chief Financial Officer
& Treasurer
Michael S. Dunlap, $0 $0 $0
Director, President
& Secretary
Stan Schrier, Director $2,000 $0 $2,000
R. Paul Hoff, Director $2,000 $0 $2,000
Edson L. Bridges III, $2,000 $0 $2,000
Director
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
---------------------------------------
General
Lancaster Administrative Services, Inc. ("LAS") acts as the administrator
("Administrator") and SMITH HAYES Financial Services Corporation ("SMITH HAYES")
acts as the Fund's distributor ("Distributor"). Union Bank and Trust Company,
("Union"), 4732 Calvert Street, Lincoln, NE 68506 acts as the investment adviser
(the "Adviser") to the Portfolios and as the Fund's Custodian (the "Custodian").
The Adviser acts as such pursuant to written agreements periodically approved by
the directors or the shareholders of the Fund. SMITH HAYES acts as the Fund's
distributor pursuant to an Underwriting Agreement under which SMITH HAYES agrees
to publicly distribute the Fund's shares continuously. SMITH HAYES has a related
agreement with Union pursuant to which SMITH HAYES maintains an office and sales
personnel on Union premises to facilitate Fund distribution as well as provide
Union customers access to other brokerage services. The Underwriting Agreement
is reviewed annually by the Board of Directors and was last approved on July 20,
1995. LAS and SMITH HAYES address is 200 Centre Terrace, 1225 "L" Street,
Lincoln, Nebraska, 68508. Union's address is 3643 South 48th Street, Lincoln,
Nebraska 68506.
Control of the Adviser and the Distributor
SMITH HAYES and the Administrator are wholly owned subsidiaries of
Consolidated Investment Corporation, a Nebraska corporation, which is engaged
through its subsidiaries in various aspects of the financial services industry.
Thomas C. Smith is the control person of Consolidated Investment Corporation.
Union is controlled by and is a subsidiary of Farmers and Merchants Investments,
Inc., a Nebraska bank holding company. Farmers and Merchants Investment, Inc. is
controlled by the Dunlap family of which Michael S. Dunlap is a member.
Investment Advisory Agreement and Administration Agreement
LAS acts as Administrator to the Fund under a Transfer Agent and
Administrative Services Agreement (the "Administration Agreement"). Union acts
as the Adviser to the Portfolios, under Investment Advisory Agreements (the
"Advisory Agreements"). The Advisory Agreements and Administration Agreement are
approved annually by the Board of Directors (including a majority of the
directors who are not parties to the Advisory and Administration Agreement, or
interested persons of any such parties (other than as directors of the Fund)).
The Advisory Agreement and Administration Agreement were approved by the
shareholders of the Intermediate Government Bond Portfolio on October 10, 1991.
The Advisory Agreement and Administration Agreement for all Portfolios were last
approved by the Board of Directors on July 20, 1995.
The Advisory Agreements and Administration Agreement terminate automatically
in the event of their assignment. In addition, the Advisory Agreements and
Administration Agreement are terminable at any time, without penalty, by the
Board of Directors of the Fund or, with respect to the Advisory Agreements, by
vote of a majority of the Trust's outstanding voting securities on not more than
60 days' written notice to the Adviser, or as the case may be, and by the
Adviser or Administrator, as the case may be, on 60 days' written notice to the
Fund. The Administration Agreement is terminable by the vote of a majority of
all outstanding voting securities of the Fund. Unless sooner terminated, the
Advisory Agreements and Administration Agreement shall continue in effect for
more than two years after their execution, only so long as such continuance is
specifically approved at least annually by either the Board of Directors or by a
vote of a majority of the outstanding voting securities of the Trust, provided
that in either event such continuance is also approved by a vote of a majority
of the directors who are not parties to such agreement, or interested persons of
such parties, cast in person at a meeting called for the purpose of voting on
such approval.
<PAGE>
Pursuant to the Advisory Agreements, the Intermediate Government Bond
Portfolio pays Union a monthly advisory fee equal on an annual basis to .65% of
the Intermediate Government Bond Portfolio's daily average net assets. The
Government Securities Portfolio and Growth Portfolio pays Union a monthly
advisory fee equal on an annual basis to .50% of the daily average net assets.
The Capital Appreciation Portfolio pays Union a monthly advisory fee calculated
at the annual rate of 1.4% of the daily net asset value of the Portfolio. In
addition this fee is subject to an incentive adjustment commencing January 4,
1994, calculated monthly, depending upon the performance of the Portfolio
relative to the Standard and Poor's 500 Index (the "Index"), on the basis of
1/12 of the results during the last 12 months (a moving average method). The
incentive adjustment, if any, is added to or subtracted from the monthly basic
management fee, and is payable after the close of each month on the basis of the
latest 12 months' experience. The incentive adjustment is accrued as incurred
for the purpose of calculating the redemption price and offering price per
share. The incentive adjustment for the Portfolio is calculated each month as
follows:
(1) The sum of the net asset value of a share of the Portfolio at the end of
the last 12 month period, plus the value per share during such period,
of all cash distributions made and capital gain taxes paid or payable on
undistributed realized long-term capital gains (treated as reinvested
shares of the Portfolio on the record date of such distribution or the
date on which provision for such taxes is made, as the case may be) is
compared to the net asset value per share of the Portfolio at the
beginning of the period and the differences expressed as a percentage
(the "Portfolio's Percentage Change").
(2) The Portfolio's Percentage Change is compared to the percentage change
in the Index, which change is determined by adding the level of the
index at the end of the period, in accordance with Securities and
Exchange Commission guidelines, the value of cash distributions on
securities which comprise the Index, treating the value of such
distributions as reinvested in the Index based on a monthly value
supplied by Standard and Poor's and comparing such adjusted level with
the level of the Index at the beginning of the period.
(3) The Portfolio's Percentage Change is then compared to the change in
Index for the period and the incentive adjustment as set forth in the
following table is multiplied by the net asset value of the Portfolio
averaged daily over the 12 month period and divided by twelve. The
incentive adjustment may not in any case exceed 1/12 of 1.40% of the
average net asset value for the 12 month period (equivalent on an annual
basis to 1.40%).
<PAGE>
Performance Total
Relative to Adviser
S&P 500 Index Fee
------------- ---------
U -7.00% and less 0.00% Minimum Mgt Fee
N -6.50% 0.10%
D -6.00% 0.20%
E -5.50% 0.30%
R -5.00% 0.40%
-4.50% 0.50%
P -4.00% 0.60%
E -3.50% 0.70%
R -3.00% 0.80%
F -2.50% 0.90%
O -2.00% 1.00%
R -1.50% 1.10%
M -1.00% 1.20%
-0.50% 1.30%
Basic Mgt Fee -0.00% 1.40%
0.50% 1.50%
O 1.00% 1.60%
V 1.50% 1.70%
E 2.00% 1.80%
R 2.50% 1.90%
3.00% 2.00%
P 3.50% 2.10%
E 4.00% 2.20%
R 4.50% 2.30%
F 5.00% 2.40%
O 5.50% 2.50%
R 6.00% 2.60%
M 6.50% 2.70%
+7.00% and Greater 2.80% Maximum Mgt Fee
Pursuant to the Administration Agreement, the Administrator provides, or
contracts with others to provide, the Fund all necessary bookkeeping and
shareholder recordkeeping services, share transfer services, and custodial
services. Under the Administration Agreement, the Administrator receives an
administration fee, computed separately for each Portfolio and paid monthly, at
an annual rate of .25% of the daily average net assets of each Portfolio.
Commencing January 1, 1992, the Administrator agreed to waive .15% of its fee
until further notice. For the years ended June 30, 1993, 1994 and, 1995 and
1995, the Fund paid to Advisor and the Administrator the following amounts for
advisory and administrative services as indicated:
<PAGE>
Advisory Fees Administration Fees
-------------- --------------------
Intermediate Government
Bond Portfolio
1995 $40,101 $ 6,169
1994 $51,830 $ 7,974
1993 $33,993 $ 5,092
Capital Appreciation
Portfolio
1995 $ 2,370 $ 672
1994 $ 5,886 $ 729
1993 $ 3,104 $ 222
Growth Portfolio
1995 $59,230 $11,846
1994 $43,945 $ 8,805
Government Securities
Portfolio
1995 $64,587 $12,917
1994 $44,959 $ 8,992
* Period ending April 30, 1994.
Under the Advisory Agreements, the Adviser provides the Portfolios with
advice and assistance in the selection and disposition of that Portfolios'
investments. All investment decisions are subject to review by the Board of
Directors of the Fund. The Adviser is obligated to pay the salaries and fees of
any affiliates of the Adviser serving as officers or directors of the Fund.
The laws of certain States require that if a mutual fund's expenses
(including advisory fees but excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed certain percentages of average net assets,
the Fund must be reimbursed for such excess expenses. Based upon the fee
structure for the Portfolios, the Fund should not be subject to such
reimbursement provisions.
Custodian
The Fund's Custodian is Union. Under the Custodian Agreement Union holds all
cash and securities of the Fund's various Portfolios through its trust
department and effects transactions in the Fund's securities and cash only upon
written instruction from the Fund's authorized persons. Union receives fees from
the Intermediate Government Bond Portfolio and the Capital Appreciation
Portfolio for acting as Custodian based upon the market value of the Fund's
securities which are calculated and billed quarterly at the annual rates of
eleven (11) basis points for the market value of securities up to $10 million,
six (6) basis points for the next $10 million and two and one half (2.5) basis
points over $20 million. Additionally, Union is paid an annual fee of $100 per
account and transaction charges of $12 for each transaction in the Fund's
securities or accounts. However, the Government Securities Portfolio and the
Growth Portfolio pay no Custodian fees.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
----------------------------------------------
The Adviser is responsible for decisions to buy and sell securities for the
Portfolio, the selection of broker-dealers to effect the transactions and the
negotiation of brokerage commissions, if any. In placing orders for securities
transactions, the primary criterion for the selection of a broker-dealer is the
ability of the broker-dealer, in the opinion of the Adviser, to secure prompt
execution of the transactions on favorable terms, including the reasonableness
of the commission (if any) and considering the state of the market at the time.
When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research and/or services to the Adviser.
Such research or services include advice, both directly and in writing, as to
the value of securities; the advisability of investing in, purchasing or selling
securities; and the availability of securities, or purchasers or sellers of
securities; as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. This allows the Adviser to supplement their own investment research
activities and enables the Adviser to obtain the views and information of
individuals and research staffs of many different securities firms prior to
making investment decisions for the Portfolio. To the extent portfolio
transactions are effected with broker-dealers who furnish research services, the
Adviser receives benefits, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Portfolio from these transactions.
The Adviser believes that most research services obtained generally benefit
several or all of the accounts which they manage, as opposed to solely
benefiting one specific managed Fund or account. Normally, research services
obtained through managed funds or accounts investing in common stocks would
primarily benefit the managed funds or accounts which invest in common stock;
similarly, services obtained from transactions in fixed-income securities would
normally be of greater benefit to the managed funds or accounts which invest in
debt securities.
The Adviser has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of transactions in exchange for research services
except as noted below. However, from time to time, the Adviser may elect to use
certain brokers to execute transactions in order to encourage them to provide it
with research services which the Adviser anticipates will be useful to it. The
Adviser will authorize the Fund to pay an amount of commission for effecting a
securities transaction for a Portfolio in excess of the amount of commission
another broker-dealer would have charged only if the Adviser determines, in good
faith, that such amount of commission is reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Adviser's overall
responsibilities with respect to the accounts as to which it exercises
investment discretion.
Portfolio transactions may be effected through the Distributor, as discussed
in the Prospectus under "Management-Portfolio Brokerage." In determining the
commissions to be paid to the Distributor, it is the policy of the Fund that
such commissions, will, in the judgment of the Adviser, subject to review by the
Board of Directors, be both (a) at least as favorable as those which would be
charged by other qualified brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time, and (b) at least as favorable as commissions
contemporaneously charged by the Distributor on comparable transactions for its
most favored comparable unaffiliated customers. While the Fund does not deem it
practicable and in the best interest of the Fund to solicit competitive bids for
commission rates on each transaction, consideration will regularly be given to
posted commission rates as well as to other information concerning the level of
commissions charged on comparable transactions by other qualified brokers.
All transactions will be effected pursuant to the Fund's Guidelines
Regarding Payment of Brokerage Commissions to Affiliated Persons adopted by the
Board of Directors including a majority of the noninterested directors pursuant
to Rule 17(e)-1 under the Investment Company Act of 1940.
<PAGE>
In certain instances, there may be securities which are suitable for the
Fund as well as for that of one or more of the advisory clients of the Adviser.
Investment decisions for the Fund and for such advisory clients are made by the
Adviser with a view to achieving the investment objectives. It may develop that
a particular security is bought or sold for only one client of the Adviser even
though it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients of the Adviser when
one or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable for
the investment objectives of more than one client. When two or more clients of
the Adviser are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed by the
Adviser, as the case may be, to be equitable to each (and may result, in the
case of purchases, in allocation of that security only to some of those clients
and the purchase of another security for other clients regarded by the Adviser,
as the case may be, as a satisfactory substitute). It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as the Fund involved is concerned. At the same time, however, it
is believed that the ability of the Fund to participate in volume transactions
will sometimes produce better execution prices.
For the periods ending June 30, 1995, 1994, and 1993 and 1992, the Fund paid
$12,219, $15,148 $41,468, $5,586 and $14,318 $5,460 in brokerage commissions,
some of which was paid to the Fund's Distributor, allocated among the Portfolios
as follows:
1995 1994 1993
----- ---- -----
Intermediate Government Bond $3,250 $ 25 $ 0
Portfolio
Government Securities Portfolio 2,300 600 0
Growth Portfolio 7,629 3,410 0
Capital Appreciation Portfolio 21,020 1,551 5,460
------ ------ ------
$34,199 $5,586 $5,460
The remaining brokerage commissions were paid to eight unaffiliated
broker/dealers.
CAPITAL STOCK AND CONTROL
-------------------------
A complete description of the rights and characteristics of the Fund's
capital stock is included in the Prospectus. UBATCO & Co. as nominee of Union,
owned of record, without voting rights the number and percentage of the
outstanding shares of the Portfolios as of November 30, 1995 as set forth below:
The following table also provides the name and address of any person who
owned beneficially 5% or more of the outstanding shares of each Portfolio as of
the same date.
Portfolio Name & Address Shares % Ownership
- --------- ---------------- ---------- -----------
Capital Appreciation UBATCO & Co. 78,134.021 100.00%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Central Agency, Inc. 7,683.930 9.83%
Milford, NE 68405
MD Investments 25,656.517 32.84%
Mike Dunlap
P.O. Box 6155
Lincoln, NE 68516 68506
Unipac Services Corp. 19,196.359 24.57%
3015 S. Parker Road
Aurora, CO 80014
Growth UBATCO & Co. 1,355,350.548 99.53%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Union Bank & Trust Co. 231,350.827 16.99%
Profit Sharing Plan & 401K Plan
4732 Calvert Street
Lincoln, NE 68506
<PAGE>
Portfolio Name & Address Shares % Ownership
- --------- ---------------- ---------- ----------
Growth Crete/Sunflower 401K 83,709.337 6.15%
Portfolio P.O. Box 81228
Lincoln, NE 68528
Linweld 401K/PSP 165,336.172 12.14%
1225 "L" Street, Ste. 600
Lincoln, NE 68508
Intermediate Government UBATCO & Co. 666,852.390 99.44%
Bond Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Unipac Services Corp. 35,208.492 5.28%
3015 S. Parker Road
Aurora, CO 80014
Government Securities UBATCO & Co. 1,855,293.438 100.00%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Union Bank & Trust Co. 134,379.371 7.24%
Profit Sharing Plan & 401K Plan
4732 Calvert Street
Lincoln, NE 68506
Crete/Sunflower 401K 124,135.455 6.69%
P.O. Box 81228
Lincoln, NE 68528
The Directors and officers of the Fund beneficially owned 12,380.947 shares
or 1.85%, 33,442.550 shares or 1.80%, 20,396.123 shares or 1.50% and 5,563.455
shares or %7.12%, respectively, of the Intermediate Government Bond Portfolio,
Government Securities Portfolio, Growth Portfolio and the Capital Appreciation
Portfolio. Directors and officers owned 1.81% of the shares outstanding in all
Portfolios.
<PAGE>
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of the Fund's shares is
summarized in the Prospectus in the text following the heading "Purchase of
Shares--Public Offering Price" and "Valuation of Shares." The net asset value of
the Fund's shares is determined each day that the New York Stock Exchange is
open, provided that the net asset value need not be determined on days when no
shares are tendered for redemption and no order for shares is received. The New
York Stock Exchange is not open for business on the following holidays (or on
the nearest Monday or Friday if the holiday falls on a weekend): New Year's Day,
Presidents' Day, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving
and Christmas.
REDEMPTION
----------
Redemption of shares, or payment, may be suspended at times (a) when the New
York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Portfolios of securities owned by
them is not reasonably practicable, or it is not reasonably practicable for the
Portfolios fairly to determine the value of their net assets, or (d) during any
other period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.
TAX STATUS
----------
The Fund has qualified and intends to continue to qualify both of its
Portfolios as "regulated investment companies" under Subchapter M of the
Internal Revenue Code of 1986, as amended, so as to be relieved of federal
income tax on its capital gains and net investment income distributed to
shareholders. To qualify as a regulated investment company, a Portfolio must,
among other things, receive at least 90% of its gross income each year from
dividends, interest, gains from the sale of other disposition of securities and
certain other types of income including, with certain exceptions, income from
options and futures contracts. However, gains from the sale or other disposition
of stock or securities held for less than three months must constitute less than
30% of each Portfolio's gross income. This restriction may limit the extent to
which a Portfolio may effect sales of securities held for less than three months
or transactions in futures contracts and options even when the Adviser otherwise
would deem such transaction to be in the best interest of a Portfolio. The Code
also requires a regulated investment company to diversify its holdings. The
Internal Revenue Service has not made its position clear regarding the treatment
of futures contracts and options for purposes of the diversification test, and
the extent to which a Portfolio could buy or sell futures contracts and options
may be limited by this requirement.
The Code requires that all regulated investment companies pay a
nondeductible 4% excise tax to the extent the regulated investment company does
not distribute 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end.
The required distributions are based only on the taxable income of a regulated
investment company.
Ordinarily, distributions and redemption proceeds earned by a Portfolio
shareholder are not subject to withholding of federal income tax. However, if a
shareholder fails to furnish a tax identification number or social security
number, or certify under penalties of perjury that such number is correct, the
Fund may be required to withhold federal income tax ("backup withholding") from
all dividend, capital gain and/or redemption payments to such shareholder.
Dividends and capital gain distributions may also be subject to backup
withholding if a shareholder fails to certify under penalties of perjury that
such shareholder is not subject to backup withholding due to the underreporting
of certain income. These certifications are contained in the purchase
application enclosed with the Prospectus.
CALCULATIONS OF PERFORMANCE DATA
--------------------------------
From time to time the Fund may quote the yield for the Portfolios in
advertisements or in reports and other communications to shareholders. For this
purpose, yield is calculated by dividing a Portfolios's net investment income
per share for the base period which is 30 days or one month, by the Portfolio's
maximum offering purchase price on the last day of the period and annualizing
the result. The Portfolio's net investment income changes in response to
fluctuations in interest rates and in the expenses of the Portfolio.
Consequently, any given quotation should not be considered as representative of
what the Portfolio's yield may be for any specified period in the future.
<PAGE>
Yield information may be useful in reviewing a Portfolio's performance and
for providing a basis for comparison with other investment alternatives.
However, a Portfolio's yield will fluctuate, unlike other investments which pay
a fixed yield for a stated period of time. Current yield should be considered
together with fluctuations in the Portfolio's net asset value over the period
for which yield has been calculated, which, when combined, will indicate a
Portfolio's total return to shareholders for that period. Other investment
companies may calculate yields on a different basis. In addition, investors
should give consideration to the quality and maturity of the portfolio
securities of the respective investment companies when comparing investment
alternatives.
Investors should recognize that in periods of declining interest rates a
bond portfolio's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, such portfolio's yield will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a bond Portfolio from the continuous sale of its shares will likely
be invested in instruments producing lower yields than the balance of such
portfolio's holdings, thereby reducing the current yield of such Portfolio. In
periods of rising interest rates, the opposite can be expected to occur.
The Fund may also quote the indices of bond prices and yields prepared by
Shearson Lehman Hutton Inc. and Salomon Brothers Inc., leading broker-dealer
firms. These indices are not managed for any investment goal. Their composition
may, however, be changed from time to time.
The Intermediate Government Bond Portfolio may quote the yield or total
return on Ginnie Maes, Fannie Maes, Freddie Macs, corporate bonds and Treasury
bonds and notes, either as compared to each other or as compared to the
Portfolio's performance. In considering such yields or total returns, investors
should recognize that the performance of securities in which the Portfolio may
invest does not reflect the Portfolio's performance, and does not take into
account either the effects of portfolio management or of management fees or
other expenses; and that the issuers of such securities guarantee that interest
will be paid when due and that principal will be fully repaid if the securities
are held to maturity, while there are no such guarantees with respect to shares
of the Portfolio. Investors should also be aware that the mortgage underlying
mortgage-related securities may be prepaid at any time. Prepayment is
particularly likely in the event of an interest rate decline, as the holders of
the underlying mortgages seek to pay off high-rate mortgages or renegotiate them
at potentially lower current rates. Because the underlying mortgages are more
likely to be prepaid at their par value when interest rates decline, the value
of certain high-yielding mortgage-related securities may have less potential for
capital appreciation than conventional debt securities (such as U. S. Treasury
bonds and notes) in such markets. At the same time, such mortgage-related
securities may have less potential for capital appreciation when interest rates
rise.
<PAGE>
In connection with the quotations of yields in advertisements described
above, the Fund may also provide average annual total returns from the date of
inception for one, five and ten-year periods if applicable. Total return is a
calculation which equates an initial amount invested to the ending redeemable
value at a specified time. It assumes the reinvestment of all dividends and
capital gains distributions. Average total return will be the average of the
total returns for each year in the period. The Portfolios may also provide a
total return figure for the most recent calendar quarter prior to the
publication of the advertisement.
The yields of the Intermediate Government Bond Portfolio and Government
Securities Portfolio for the 30-day period ending June 30, 1994 1995 were 5.01%
5.06% and 4.34% 5.00% respectively.
The average annual total returns of the Portfolios for one year and
inception to date ending June 30, 1994 1995 are as follows:
Year Inception to Date
---- ------------------
Intermediate Government Bond Portfolio 7.9% 6.6%
Capital Appreciation Portfolio 28.6% 5.8%
Growth Portfolio 20.3% 11.3%
Government Securities Portfolio 9.0% 3.0%
<PAGE>
FINANCIAL STATEMENTS
--------------------
The Fund hereby incorporates by reference the information in the Fund's
Annual Financial Report dated June 30, 1995, filed with the Securities and
Exchange Commission on August 29, 1995 and which is available upon request to
the Fund without charge.
AUDITORS
--------
On July 20, 1995, the Board of Directors, including all
disinterested directors, unanimously approved the appointment of KPMG Peat
Marwick LLP, Two Central Park Plaza, Suite 1501, Omaha, Nebraska 68102 as the
Fund's accountants.
<PAGE>
APPENDIX A
RATINGS OF CORPORATE OBLIGATIONS,
COMMERCIAL PAPER, AND PREFERRED STOCK
Ratings of Corporate Obligations
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal and interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree. Such bonds are often in default or have other marked shortcomings.
Those securities in the A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols A-1 and Baa-1.
Other A and Baa securities comprise the balance of their respective groups.
These rankings (1) designate the securities which offer the maximum in security
within their quality groups, (2) designate securities which can be bought for
possible upgrading in quality, and (3) additionally afford the investor an
opportunity to gauge more precisely the relative attractiveness of offerings in
the marketplace.
<PAGE>
Standard & Poor's Corporation
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A: Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Although they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories. Bonds rated
BBB are regarded as having speculation characteristics.
BB--B--CCC-CC: Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation among such bonds and CC the highest degree of
speculation. Although such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Ratings of Preferred Stock
Standard & Poor's Corporation
Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer
to meet the timely payment of preferred stock dividends and
any applicable sinking fund requirements in accordance with
the terms of the obligation.
2. Nature of and provisions of the issue.
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors'
rights.
AAA: This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA: A preferred stock issue rated AA also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues
rated AAA.
A: An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
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BBB: An issue rated BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to make payments for a preferred stock in this category than for issues
in the A category.
BB, B, CCC: Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation. While
such issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is currently
paying.
C: A preferred stock rated C is a nonpaying issue.
D: A preferred stock rated D is a nonpaying issue with the
issuer in default on debt instruments.
NR indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S & P does
not rate a particular type of obligation as a matter of policy.
Plus (+) or Minus (-) To provide more detailed indications of
preferred stock quality, the ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Moody's Investors Service, Inc.
aaa: An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa: An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
a: An issue which is rated a is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater
than in the aaa and aa classifications, earnings and asset protection
are, nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
ba: An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks
in this class.
b: An issue which is rated b generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long period of time may be small.
caa: An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments.
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ca: An issue which is rated ca is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of
eventual payment.
c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
