SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
STRATUS FUND, INC.
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant) Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE>
PRELIMINARY COPY
STRATUS FUND, INC.
200 CENTRE TERRACE, 1225 "L" STREET
LINCOLN, NEBRASKA 68508
November 19, 1997
Dear Shareholder,
The attached Proxy Statement solicits your vote as a Shareholder of
Stratus Fund, Inc., a Minnesota corporation (the "Fund") on several important
proposals being recommended by the Board of Directors. If you are not currently
a Shareholder of the Fund but were a Shareholder on October 17, 1997, you are
still eligible to vote. Votes are solicited from Shareholders of record as of
October 17, 1997. A Special Meeting of the Shareholders of the Fund has been
scheduled for Friday, December 12, 1997. At the Special Meeting Shareholders of
the Fund will be asked to approve proposals affecting the Fund, and Shareholders
of the Capital Appreciation, Growth and Government Securities Portfolios will be
asked to approve proposals affecting those Portfolios. While you are, of course,
welcome to join us at the meeting, most Shareholders cast their vote by filling
out and signing the proxy card that accompanies the attached Proxy Statement.
The attached Proxy Statement is designed to give you further information
relating to the proposals on which you are asked to vote. We encourage you to
support the Board of Directors' recommendations.
Your vote is important to us. Please mark, sign, and date the enclosed
proxy card and return it as soon as possible. For your convenience, we have
enclosed a self-addressed stamped envelope. If you have questions about the
proposal please call 1 (800) 279-7437 during normal business hours. Thank you
for taking the time to consider these important proposals and for your
investment in the Fund.
Sincerely,
Michael S. Dunlap
PRESIDENT
<PAGE>
STRATUS FUND, INC.
200 CENTRE TERRACE, 1225 "L" STREET
LINCOLN, NEBRASKA 68508
-------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12, 1997
--------------------------------
TO THE SHAREHOLDERS OF STRATUS FUND, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Stratus
Fund, Inc., a Minnesota corporation (the "Fund") will be held on Friday,
December 12, 1997, at 1:00 p.m. local time, at the offices of the Fund located
at 200 Centre Terrace, 1225 "L" Street, Lincoln, Nebraska 68508. At the Special
Meeting Shareholders of the Fund will be asked to approve proposals affecting
the Fund, and Shareholders of the Capital Appreciation, Growth and Government
Securities Portfolios will be asked to approve proposals affecting those
Portfolios. The Special Meeting is being called for the following purposes:
1. For the Fund, to approve a proposal to adopt Amended and Restated
Articles of Incorporation to create a multiple class structure for each
portfolio (each a "Portfolio" and collectively the "Portfolios") of the Fund. If
approved by Shareholders, the Amended and Restated Articles of Incorporation of
the Fund would redesignate the current shares of the Fund's investment
Portfolios as Institutional Class shares of such Portfolio, and would create a
new Retail Class A class of shares for each Portfolio. The rights and
preferences of the Fund's issued and outstanding shares will not be affected by
the redesignation of those shares as Institutional Class shares. The Retail
Class A shares of each Portfolio will have the same rights and preferences as
the Institutional Class of shares, except that purchasers of Retail Class A
shares may pay sales loads and will bear certain expenses incurred in connection
with distribution of such shares.
2. For the Fund, to eliminate or modify certain of the fundamental
investment limitations (the "Investment Limitations") applicable to all
Portfolios of the Fund as follows:
(a) To eliminate Investment Limitation No. 1 that prohibits each
Portfolio (except the International Portfolio) from purchasing any
securities other than those described under the caption "Investment
Objectives and Policies" in the Prospectus for each Portfolio;
(b) To amend and restate Investment Limitation No. 2 to provide
an exception to the diversification requirements stated therein to allow
each Portfolio to purchase securities of other investment companies to
the extent permitted by applicable law or exemptive order;
(c) To eliminate Investment Limitation No. 3 that prohibits each
Portfolio from investing 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;
(d) To amend and restate Investment Limitation No. 4 to (i)
provide an exception to the diversification requirements stated therein
to allow each Portfolio to purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order,
and (ii) to allow each Portfolio to purchase up to 5% of the voting
securities, or up to 10% of the securities of any class, of any issuer;
(e) To eliminate Investment Limitation No. 6 that prohibits each
Portfolio from purchasing securities of other investment companies,
except in certain limited situations, if Proposal Nos. 2(b) and 2(d) are
approved;
(f) To amend and restate Investment Limitations No. 8 to make it
clear that obtaining short-term credit for the clearance of purchases
and sales of securities does not constitute a purchase of securities on
margin and to allow short sales against the box, which are permitted by
law;
(g) To amend and restate Investment Limitation No. 10 to provide
flexibility to the investment adviser of each Portfolio to enter into
commodities contracts for hedging purposes, including futures contracts
on securities, securities indices and currencies and options on such
contracts and to delete from Investment Limitation No. 7 the prohibition
on purchasing or selling commodities contracts;
(h) To eliminate Investment Limitation No. 14 that prohibits each
Portfolio from investing in securities with legal or contractual
restrictions on resale; and
(i) To eliminate Investment Limitation No. 15 that prohibits each
Portfolio from purchasing or holding securities of any issuer if 5% of
the securities of such issuer are owned by the investment adviser or by
directors and officers of the Fund or the investment adviser owing
individually more than 1/2 of 1% of
<PAGE>
its securities.
3. For the Fund, to elect five (5) directors to serve until their
successors are duly elected and qualified.
4. For the Capital Appreciation Portfolio, to approve an amendment to
the investment advisory agreement with Union Bank and Trust Company that would
(i) revise the incentive advisory fee schedule and (ii) change the stated index
used to determine the incentive fee from the S&P 500 Index to the Russell 2000
Index.
5. For the Growth Portfolio, to approve an amendment to the investment
advisory agreement with Union Bank and Trust Company to change the annual
advisory fee from 0.50% of average daily net assets to 0.75% of average daily
net assets.
6. For the Government Securities Portfolio, to change the investment
objective from "current income consistent with the preservation of capital" to
"providing high total return consistent with long term preservation of capital"
as further described herein.
Shareholders of record at the close of business on October 17, 1997, are
entitled to notice of, and to vote at, the Special Meeting or any adjournments
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED POSTAGE PAID RETURN ENVELOPE THE ACCOMPANYING PROXY WHICH IS BEING
SOLICITED BY THE MANAGEMENT OF THE FUND. THIS IS IMPORTANT FOR THE PURPOSE OF
ENSURING A QUORUM AT THE SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME
BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A
REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE FUND AT ANY TIME
BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
By Order of the Board of Directors,
MICHAEL S. DUNLAP
SECRETARY
Lincoln, Nebraska
November 19, 1997
<PAGE>
STRATUS FUND, INC.
200 CENTRE TERRACE, 1225 "L" STREET
LINCOLN, NEBRASKA 68508
-------------------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12, 1997
-------------------------
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are being furnished
to the Shareholders of record of Stratus Fund, Inc., a Minnesota corporation
(the "Fund"), in connection with the solicitation of proxies by the Board of
Directors of the Fund for use at the Special Meeting of Shareholders of the Fund
to be held on December 12, 1997 and at any adjourned session thereof (such
meeting and any adjournment thereof are hereinafter referred to as the
"Meeting"). The Meeting is scheduled to be held at 1:00 p.m. local time at the
offices of the Fund located at 200 Centre Terrace, 1225 "L" Street, Lincoln,
Nebraska 68508. At the Special Meeting Shareholders of the Fund will be asked to
approve proposals affecting the Fund and Shareholders of the Capital
Appreciation, Growth and Government Securities Portfolios will be asked to
approve proposals affecting those Portfolios. Even though you sign and return
the accompanying proxy, you may revoke it by giving written notice of such
revocation to the Secretary of the Fund prior to the Meeting or by delivering a
subsequently dated proxy or by attending and voting at the Meeting in person.
PURPOSE OF SPECIAL MEETING
At the Meeting, the following proposals will be considered by the
Shareholders of the Fund and the Capital Appreciation, Growth and Government
Securities Portfolios of the Fund, as the case may be:
1. For the Fund, to approve a proposal to adopt Amended and Restated
Articles of Incorporation to create a multiple class structure for each
portfolio (each a "Portfolio" and collectively the "Portfolios") of the Fund. If
approved by Shareholders, the Amended and Restated Articles of Incorporation of
the Fund would redesignate the current shares of the Fund's investment
Portfolios as Institutional Class shares of such Portfolio, and would create a
new Retail Class A class of shares for each Portfolio. The rights and
preferences of the Fund's issued and outstanding shares will not be affected by
the redesignation of those shares as Institutional Class shares. The Retail
Class A shares of each Portfolio will have the same rights and preferences as
the Institutional Class of shares, except that purchasers of Retail Class A
shares may pay sales loads and will bear certain expenses incurred in connection
with distribution of such shares.
2. For the Fund, to eliminate or modify certain of the fundamental
investment limitations (the "Investment Limitations") applicable to all
Portfolios of the Fund as follows:
(a) To eliminate Investment Limitation No. 1 that prohibits each
Portfolio (except the International Portfolio) from purchasing any
securities other than those described under the caption "Investment
Objectives and Policies" in the Prospectus for each Portfolio;
(b) To amend and restate Investment Limitation No. 2 to provide
an exception to the diversification requirements stated therein to allow
each Portfolio to purchase securities of other investment companies to
the extent permitted by applicable law or exemptive order;
(c) To eliminate Investment Limitation No. 3 that prohibits each
Portfolio from investing 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;
(d) To amend and restate Investment Limitation No. 4 to (i)
provide an exception to the diversification requirements stated therein
to allow each Portfolio to purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order,
and (ii) to allow each Portfolio to purchase up to 5% of the voting
securities, or up to 10% of the securities of any class, of any issuer;
(e) To eliminate Investment Limitation No. 6 that prohibits each
Portfolio from purchasing securities of other investment companies,
except in certain limited situations, if Proposal Nos. 2(b) and 2(d) are
approved;
1
<PAGE>
(f) To amend and restate Investment Limitations No. 8 to make it
clear that obtaining short-term credit for the clearance of purchases
and sales of securities does not constitute a purchase of securities on
margin and to allow short sales against the box, which are permitted by
law;
(g) To amend and restate Investment Limitation No. 10 to provide
flexibility to the investment adviser of each Portfolio to enter into
commodities contracts for hedging purposes, including futures contracts
on securities, securities indices and currencies and options on such
contracts, and to delete from Investment Limitation No. 7 the
prohibition on purchasing or selling commodities contracts;
(h) To eliminate Investment Limitation No. 14 that prohibits each
Portfolio from investing in securities with legal or contractual
restrictions on resale; and
(i) To eliminate Investment Limitation No. 15 that prohibits each
Portfolio from purchasing or holding securities of any issuer if 5% of
the securities of such issuer are owned by the investment adviser or by
directors and officers of the Fund or the investment adviser owing
individually more than 1/2 of 1% of its securities.
3. For the Fund, to elect five (5) directors to serve until their
successors are duly elected and qualified.
4. For the Capital Appreciation Portfolio, to approve of an amendment to
the investment advisory agreement with Union Bank and Trust Company that would
(i) revise the incentive advisory fee schedule and (ii) change the stated index
used to determine the incentive fee from the S&P 500 Index to the Russell 2000
Index.
5. For the Growth Portfolio, to approve an amendment to the investment
advisory agreement with Union Bank and Trust Company to change the annual
advisory fee from 0.50% of average daily net assets to 0.75% of average daily
net assets.
6. For the Government Securities Portfolio, to change the investment
objective from "current income consistent with the preservation of capital" to
"providing high total return consistent with long term preservation of capital"
as further described herein.
The Fund expects to solicit proxies principally by mail, but the Fund
may also solicit proxies by telephone or personal interview. The expenses of
this solicitation and the Meeting will be paid by the Fund. This Proxy Statement
was first mailed to shareholders on or about November 19, 1997. The most recent
Annual Report for the Fund for the fiscal year ended June 30, 1997, which was
previously mailed to Fund Shareholders, is also available at no cost, upon
written or oral request by contacting the Fund at 200 Centre Terrace, 1225 "L"
Street, Lincoln, Nebraska 68508, or by calling 1 (800) 279-7437.
The Board of Directors has fixed the close of business on October 17, 1997
as the record date (the "Record Date") for the determination of the shareholders
entitled to notice of, and to vote at, the Meeting. As of that date, there were
7,554,355.379 outstanding shares of common stock of the Fund and 517,430.716,
2,858,411.960 and 2,741,545.044 shares of common stock of the Capital
Appreciation, Growth and Government Securities Portfolios of the Fund, with each
share being entitled to one vote on each applicable matter to come properly
before the Meeting.
QUORUM AND VOTING REQUIREMENTS
Unless specific instructions are given to the contrary, the persons
named in the accompanying proxy will vote the number of shares represented
thereby as directed by the proxy, or, in the absence of such direction, such
shares will be voted in favor of (i.e., "FOR") each proposal set forth above.
Assuming a quorum of a majority of the outstanding shares of the Fund entitled
to vote at the Meeting is present, (i) the affirmative vote of the holders of a
majority of the voting power of the shares entitled to vote is required to
approve of the Amended and Restated Articles of Incorporation of the Fund to
implement the multiple class structure (Proposal No. 1), (ii) the affirmative
vote of the holders of a "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" of the
Fund, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"), is required to approve of each elimination or modification to the Fund's
fundamental investment limitations (Proposal No. 2) and (iii) the affirmative
vote of the holders of a majority of the voting power of the shares entitled to
vote and represented at the Meeting is required for the election of directors
(Proposal No. 3). Assuming a quorum of a majority of the outstanding shares of
each of the Capital Appreciation Portfolio and the Growth Portfolio entitled to
vote at the Meeting is present, the affirmative vote of the holders of a
"MAJORITY OF THE OUTSTANDING VOTING SECURITIES" of each of the Capital
Appreciation Portfolio and the Growth Portfolio is required to approve certain
amendments to the investment advisory agreements with Union Bank and Trust
Company relating to advisory fees (Proposal Nos. 4 and 5). Assuming a quorum of
a majority of the outstanding shares of the Government Securities Portfolio
entitled to vote at the Meeting is present, the affirmative vote of the holders
of a "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" of the Government
Securities Portfolio is required to approve of the change in that Portfolio's
investment objective (Proposal No. 6). The 1940 Act defines a
2
<PAGE>
"MAJORITY OF THE OUTSTANDING VOTING SECURITIES" of a Fund to mean the lesser of
(a) the vote of holders of 67% or more of the voting shares of the Fund (or
Portfolio), present in person or by proxy at the Meeting, if the holders of more
than 50% of the outstanding voting shares of the Fund (or Portfolio) are present
in person or by proxy, or (b) the vote of the holders of more than 50% of the
outstanding voting shares of the Fund (or Portfolio). Abstentions and broker
non-votes will be counted as shares present at the Meeting for quorum purposes,
but will not be counted as votes cast and will have no effect on the results of
the vote.
If a quorum is not present by the time scheduled for the Meeting, or if
a quorum is present but sufficient votes in favor of any of the proposals
described in this Proxy Statement are not received, the persons named as proxies
may propose one or more adjournments of the Meeting to permit further
solicitations of proxies. Any such adjournment will require the affirmative vote
of a majority of the shares present in person or by proxy at the session of the
Meeting to be adjourned. The persons named as proxies will vote in favor of any
such adjournment those proxies which instruct them to vote in favor of any of
the proposals to be considered at the adjourned Meeting, and will vote against
any such adjournment those proxies which instruct them to vote against or to
abstain from voting on all of the proposals to be considered at the adjourned
Meeting.
PROPOSAL NO. 1
APPROVAL OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO CREATE A MULTIPLE CLASS STRUCTURE AND OTHER MATTERS
Currently, the Fund offers shares in five different series, with each
series being operated as a separate investment portfolio. The separate
investment portfolios currently offered are designated as the Intermediate
Government Bond Portfolio, the Government Securities Portfolio, the Growth
Portfolio, the Capital Appreciation Portfolio and the International Portfolio
(collectively, the "Portfolios"). The Fund's Articles of Incorporation also
designate shares of the Fund's capital stock as the Money Market Portfolio, the
Variable Rate Portfolio and the Union Government Bond Portfolio which are not
now being offered for sale to the public (collectively, the "Inactive
Portfolios").
The shares of each Portfolio have typically been subscribed to and
purchased by financial institutions and other institutional investors and not
retail investors. The Fund believes that a market may exist for retail shares of
the various Portfolios. Accordingly, on October 23, 1997, the Board of Directors
of the Fund (the "Board") approved a Multiple Class Plan (the "Multiple Class
Plan") in accordance with Rule 18f-3 promulgated under Section 18(f) of the 1940
Act whereby each Portfolio would be restructured to offer newly created Retail
Class A shares (the "Retail Class A shares") to potential retail purchasers, and
to redesignate the current shares held by institutional investors as
Institutional Class shares (the "Institutional Class shares"). Rule 18f-3 of the
1940 Act was adopted by the Securities and Exchange Commission to permit funds
to issue multiple classes of shares without having to obtain an exemptive order.
A fund using Rule 18f-3 must adopt a written plan, such as the Multiple Class
Plan, setting forth the separate arrangements and expense allocations of each
class and related conversion and exchange features.
Implementation of the Multiple Class Plan requires an amendment to the
Articles of Incorporation of the Fund. A copy of the Amended and Restated
Articles of Incorporation, which reflect the adoption of this proposal, is
attached to the Proxy Statement as Exhibit A. The Amended and Restated Articles
of Incorporation would (i) redesignate each Portfolio as a class of shares,
instead of a series of shares, and would create two subcategories (or series)
within each Portfolio known as Retail Class A and Institutional Class, (ii)
establish the amount of Retail Class A shares at, 20,000,000 and (iii) delete
and remove the Inactive Portfolios. The newly created Retail Class A shares for
each Portfolio will be authorized in the amounts set forth in the table below
with each share having a par value equal to $.001.
3
<PAGE>
Number of Shares Number of Shares
Portfolio Prior to Amendment After Amendment
------------------------------ ---------------------- ----------------
Growth Portfolio
Institutional Class shares 20,000,000 20,000,000
Retail Class A shares ___ 20,000,000
Government Securities Portfolio
Institutional Class shares 10,000,000 10,000,000
Retail Class A shares ___ 20,000,000
Intermediate Government Bond Portfolio
Institutional Class shares 10,000,000 10,000,000
Retail Class A shares ___ 20,000,000
Capital Appreciation Portfolio
Institutional Class shares 10,000,000 10,000,000
Retail Class A shares ___ 20,000,000
International Portfolio
Institutional Class shares 10,000,000 10,000,000
Retail Class A shares ___ 20,000,000
----------
TOTAL 160,000,000(*)
---------------
(*) This leaves 840,000,000 authorized shares of common stock which may be
allocated to any existing or future class or series by action of the
Board.
The rights and preferences of the Fund's issued and outstanding shares
will not be affected by the redesignation of those shares as Institutional Class
shares and the current institutional holders of outstanding shares of the
Portfolios will have their shares redesignated as Institutional Class shares
without any action on their part. The Retail Class A shares of each Portfolio
may have the same rights and preferences as the Institutional Class of shares,
except that purchasers of Retail Class A shares may pay sales loads and will
bear certain expenses incurred in connection with distribution of such shares.
The Retail Class A shares of each Portfolio will be offered at the net asset
value plus a front-end sales charge as approved from time to time by the Board
and as set forth in the Portfolio's Prospectus. The Retail Class A shares will
also be subject to ongoing distribution fees described below. Retail Class A
shares of one Portfolio may be exchanged for Retail Class A shares of another
Portfolio, subject to certain limitations set forth in the Portfolio's
Prospectus. The Retail Class A shares will be marketed solely to retail
investors.
On October 23, 1997, the Board approved of a Distribution Plan for
Retail Class A Shares of each Portfolio (the "Distribution Plan") in accordance
with Rule 12b-1 promulgated under Section 12(b) of the 1940 Act. In general,
Section 12(b) of the 1940 Act prohibits a mutual fund from acting as distributor
of its own securities (except through an underwriter), in contravention with
Securities and Exchange Commission rules. Rule 12b-1 provides an exception to
this general restriction and permits a fund to finance the distribution of its
shares from fund assets subject to several conditions. Under the Distribution
Plan, the Fund has established an annual fee for each retail class of up to
0.50% of the value of the average daily net assets of such class, calculated and
payable monthly.
Since existing holders of the outstanding shares of the respective
Portfolios may not qualify as institutional investors, or may fail to quality as
institutional investors in the future, such holders will nonetheless be entitled
to maintain their redesignated Institutional Class share holdings.
Given the highly competitive nature of the mutual fund marketplace, the
Board believes that offering a retail class of shares for each Active Portfolio
will expand the Fund's name recognition beyond its current institutional market
and result in increased sales of Portfolio shares.
The Board of Directors believe that Proposal No. 1 is in the best
interests of the Fund and its shareholders, and accordingly, recommends a vote
"FOR" approval thereof.
PROPOSAL NOS. 2(A) - 2(I)
APPROVAL OF AMENDMENT TO ELIMINATE OR MODIFY CERTAIN
FUNDAMENTAL INVESTMENT LIMITATIONS
4
<PAGE>
The Fund has reviewed the investment objectives, policies and
restrictions which are applicable to each of the Portfolios of the Fund in light
of current industry standards and restrictions otherwise imposed by law. Based
upon such review, the Fund believes that certain of the enumerated Investment
Limitations should be eliminated or amended to remove unnecessary restrictions
on the investment adviser managing such Portfolios. Although each of the
separate proposals will be described under this caption, shareholders may vote
for, against or abstain with respect to each proposed change or changes to a
specific Investment Limitation.
CURRENT INVESTMENT LIMITATIONS
Set forth below are the current Investment Limitations contained in the
Fund's Statement of Additional Information.
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 (except that this limitation shall not apply to the
International 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;
(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 Prospectus;
(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, hypothecated 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
5
<PAGE>
investment adviser or by directors and officers of the Fund or
the investment adviser owning individually more than 1/2 of 1% of
its securities.
PROPOSED CHANGES
INVESTMENT LIMITATION NO. 1. Union Bank and Trust Company, the Fund's
investment adviser (the "Adviser"), recommends that Investment Limitation No. 1
be eliminated because it is not required by law. This provision has the effect
of prohibiting the Adviser from taking advantage of opportunities to invest in
new investment products until the Fund's prospectus is amended, which results in
the Fund incurring additional expenses (Proposal No. 2(a)).
INVESTMENT LIMITATION NO. 2. The Adviser recommends that Investment
Limitation No. 2 be amended and restated, as set forth immediately below, to
provide an exception to the diversification requirements stated therein so as to
allow each Portfolio to purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order (Proposal No. 2(b)).
"With respect to 75% of the value of the total assets of the Government
Securities Portfolio, Growth Portfolio, Capital Appreciation Portfolio
and Intermediate Portfolio, and with respect to 100% of the value of the
total assets of the Intermediate Government Bond Portfolio, invest more
than 5% of the market value of its total assets in the securities of any
one issuer, other than obligations of or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, except that each
Portfolio may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order."
INVESTMENT LIMITATION NO. 3. The Adviser recommends that Investment
Limitation No. 3 be eliminated because it is not required by law and
unnecessarily restricts the Adviser's ability to manage the Portfolios. This
Investment Limitation has its origins in state Blue Sky law requirements that
are no longer applicable to the Fund (Proposal No. 2(c)).
INVESTMENT LIMITATION NO. 4. The Adviser recommends that Investment
Limitation No. 4 be amended and restated, as set forth immediately below, to
provide certain exceptions to the diversification requirements stated therein
(Proposal No. 2(d)).
"Purchase the securities of any issuer if such purchase would cause more
than 5% of the voting securities, or more than 10% of the securities of
any class of such issuer, to be held by the Portfolio, except that a
Portfolio may purchase securities of other investment companies to the
extent permitted by applicable law or exemptive order."
INVESTMENT LIMITATION NO. 6. If Investment Limitation Nos. 2 and 4 are
revised as recommended, the Adviser recommends that Investment Limitation No. 6
be eliminated. Investment Limitation No. 6 should be eliminated because it is no
longer necessary and is inconsistent with such changes (Proposal No. 2(e)).
INVESTMENT LIMITATION NO. 8. The Adviser recommends that Investment
Limitation No. 8 be amended and restated, as set forth immediately below, to
make it clear that obtaining short-term credit for the clearance of purchases
and sales of securities does not constitute a purchase of securities on margin
and to allow short sales against the box, which are permitted by law (Proposal
No. 2(f)).
"Make short sales of securities or purchase securities on margin, except
that a Portfolio (a) may obtain such short-term credit as necessary for
the clearance of purchases and sales of securities, (b) may make margin
payments in connection with transactions in financial futures contract
and options thereon, and (c) may make short sales of securities if at
all times when a short position is open it owns at least an equal amount
of such securities or owns securities comparable to or exchangeable for
at least an equal amount of such securities."
INVESTMENT LIMITATION NO. 10. The Adviser recommends that Investment
Limitation No. 10 be amended and restated, as set forth immediately below, to
provide flexibility to the Adviser to enter into commodities contracts for
hedging purposes, including futures contracts on securities, securities indices
and currencies, and options on such contracts, and to delete the prohibition in
Investment Limitation No. 7 on purchasing or selling commodities contracts
(Proposal No. 2(g)).
"Purchase or sell commodity contracts, except that a Portfolio may, as
appropriate and consistent with its investment policies and other
investment restrictions, for hedging purposes, write, purchase or sell
options (including puts, calls and combinations thereof), write covered
call options, enter into futures contracts on securities, securities
indices and currencies, options on such futures contracts, forward
foreign currency exchange contracts, forward commitments and repurchase
agreements."
6
<PAGE>
INVESTMENT LIMITATION NO. 14. The Adviser recommends that Investment
Limitation No. 14 be eliminated because it is not required by law. Current law
allows an investment company to invest up to 15% of its assets in illiquid
securities, and that restriction would be reflected in investment policies of
the Portfolios (Proposal No. 2(h)).
INVESTMENT LIMITATION NO. 15. The Fund recommends that Investment
Limitation No. 15 be eliminated because it is not required by state securities
laws applicable to the Fund and unnecessarily restricts the Adviser's ability to
manage the Portfolios (Proposal No. 2(i)).
The Adviser has informed the Board of Directors that it does not intend
to alter its strategies or practices for management of the Portfolios if the
changes to the Fund's Investment Limitations described above are approved. The
Board of Directors believes that Proposal Nos. 2(a) through 2(i) would afford
the Adviser greater flexibility to deal with changing market conditions and
would conform the Funds Investment Limitations to current law. Accordingly, the
Board of Directors recommends a vote "FOR" approval thereof.
PROPOSAL NO. 3
ELECTION OF DIRECTORS
The Board of Directors of the Fund currently consists of five (5)
members. It is proposed that such five (5) members be re-elected at the Meeting.
Under the terms of the Fund's Articles of Incorporation, the directors who are
elected will serve until their successors are duly elected and qualified. Each
of the nominees has agreed to serve as a director if elected. If any of the
nominees is unable to serve for any reason, the persons named as proxies will
vote for such other nominee or nominees as the directors who are not "interested
persons" of the Fund, as defined in the 1940 Act, may recommend. It is the
intention of the persons named in the enclosed form of proxy, unless otherwise
directed by shareholders executing proxies, to vote all proxies "FOR" the
election of the five (5) nominees listed below.
Under the Articles of Incorporation, Minnesota law and the 1940 Act, the
Fund is not required to hold an annual meeting of shareholders. The Fund does
not hold annual shareholder meetings so as to achieve cost savings by
eliminating printing costs, mailing charges and other expenses involved in
routine annual meetings.
The Board of Directors may call special meetings of shareholders for
action by shareholder vote as may be required by the 1940 Act, or required or
permitted by the Articles of Incorporation and the By-Laws of the Fund. In
compliance with the 1940 Act, shareholder meetings will be held to elect
directors whenever fewer than a majority of the directors holding office have
been elected by the shareholders or, if necessary in the case of filling
vacancies, to assure that at least two-thirds of the directors holding office
after vacancies are filled have been elected by the shareholders. The Fund may
hold shareholder meetings to approve changes in the Articles of Incorporation,
changes in investment advisory agreements, changes in fundamental investment
limitations and changes in investment objectives and policies or other matters
requiring shareholder action under the 1940 Act. Under the Articles of
Incorporation, a meeting may also be called by shareholders holding at least 10%
of the shares entitled to vote at the meeting for any purpose in which case
shareholders may receive assistance in communicating with other shareholders.
7
<PAGE>
INFORMATION REGARDING NOMINEES
The following schedule sets forth certain information concerning each of
the nominees and Jon Gross, Vice President.
<TABLE>
<CAPTION>
SHARES OF FUND
BENEFICIALLY
PRINCIPAL OCCUPATION OWNED AS OF
NAME AND POSITION AND AFFILIATIONS POSITION OCTOBER 29,
WITH THE FUND AGE DURING THE PAST FIVE YEARS SINCE 1997
------------- --- -------------------------- ----- ----
<S> <C> <C> <C>
*Thomas C. Smith 52 Chairman, CONLEY SMITH Inc.; Vice 1994 None
Director, Chief Financial Officer & President, Lancaster Administrative
Treasurer; 200 Centre Terrace, Services, Inc., Lincoln, Nebraska;
1225 "L" Street Chairman and President, SMITH HAYES
Lincoln, Nebraska 68501 Financial Services Corporation Lincoln,
Nebraska; Chairman and President,
Consolidated investment Corporation,
Lincoln, Nebraska; Vice President and
Director, Concorde Management and
Development, Inc., Lincoln, Nebraska.
*Michael S. Dunlap 33 Executive Vice President and Director, 1991 35,132.797
Director, President 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.
Stan Schrier 62 President, Food 4 Less, Inc., a retail 1991 48,028.322
Director grocery chain, and owner, Schrier-Lawson
11128 John Galt Blvd. Motor Center.
Omaha, Nebraska 68137
R. Paul Hoff 62 Physician and CEO of Seward Clinic, 1991 54,207.199
Director P.C., Seward, Nebraska.
311 Jackson
Seward, Nebraska 68434
Edson L. Bridges III 39 Director, Bridges Investment Fund, Inc., 1991 None
Director registered open end management
8401 W. Dodge Road, #256 investment company, February, 1991 to
Omaha, Nebraska 68114 present; Vice President and Director of
Bridges Investment Counsel Inc., a
registered investment adviser.
Jon Gross 28 Trust Investment Officer, Union Bank and 1991 519.901
Vice President Trust Company, Lincoln, Nebraska, since
3643 South 48th Street 1991 and an employee of Union Bank and
Lincoln, Nebraska 68506 Trust Company since 1988.
- ---------------
* 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. See the subcaptions entitled "The Adviser and its Affiliates,"
"Distributor," and "Administrator" under the caption "GENERAL INFORMATION."
</TABLE>
8
<PAGE>
BOARD APPROVAL OF THE ELECTION OF DIRECTORS
As indicated above, certain of the persons nominated for election as
directors at the Meeting are not "interested persons" of the Fund or the Fund's
investment adviser within the meaning of Section 2(a)(19) of the 1940 Act. Under
the terms of the Fund's Distribution Plan for Retail Class A Shares, adopted
October 23, 1997, the selection and nomination of directors who are not
interested persons of the Fund is committed to the discretion of the Directors
then in office who are not interested persons of the Fund.
SHAREHOLDER APPROVAL OF THE ELECTION OF DIRECTORS
The favorable vote of a majority of the number of shares entitled to
vote and represented at the Meeting is required for the election of directors.
If the nominees are not approved by the shareholders of the Fund, the current
Board of Directors will consider alternative nominations.
PROPOSAL NOS. 4 AND 5
APPROVAL OF CERTAIN AMENDMENTS TO
TO INVESTMENT ADVISORY AGREEMENTS
WITH UNION BANK AND TRUST COMPANY
Shareholders of the Capital Appreciation Portfolio and Growth Portfolio
are being asked to approve of certain amendments to the investment advisory
agreements with Union Bank and Trust Company, as Adviser. The amendments would
modify the current fee structures for both Portfolios. Copies of the proposed
amendments to the investment advisory agreements are attached to this Proxy as
Exhibit B.
With respect to the Capital Appreciation Portfolio, the incentive
advisory fee structure is being amended in situations where the Portfolio under
performs at or over performs when compared to a stated index. The change in the
incentive advisory fee structure effectively narrows the current 0.00% to 2.80%
range to 0.40% to 2.40% so as to reduce variability of the Capital Appreciation
Portfolio's expenses. The Fund believes that limiting the upper end of the
incentive advisory fee benefits the Capital Appreciation Portfolio. The Adviser
has requested the establishment of a base fee (0.40%) to cover some portion of
the costs it incurs every year in managing the Capital Appreciation Portfolio.
Since the investment advisory contract for the Capital Appreciation Portfolio
was initially approved, the Adviser has tripled the size of its staff to provide
better service to its clients. The Adviser is increasing the advisory fees it
charges to all of its clients in light of its increased costs. The Board of
Directors of the Fund concluded that establishment of a base fee of the Adviser
of 0.40% of average daily net assets, which is below the investment advisory
fees paid by other similar portfolios, is appropriate in order to enable the
Adviser to recover a portion of its costs each year.
The amendment also changes the stated index used for such comparison
from the S&P 500 Index to the Russell 2000 Index. The S&P 500 Index consists
primarily of larger capitalization companies. Since the Capital Appreciation
Portfolio invests primarily in smaller to midcap size companies, the Adviser has
proposed that the Capital Appreciation Portfolio utilize a more appropriate
index, such as the Russell 2000 index, which is an index of small cap companies.
Set forth below is a side-by-side comparison of the current and proposed
incentive adviser fee structure for the Capital Appreciation Fund.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
INCENTIVE ADVISORY FEE COMPARISON
CURRENT PROPOSED
--------------------------------- -------------------------------
Relative to Relative to
S&P 500 Index Fee Russell 2000 Index Fee
------------- --- ------------------ ---
<S> <C> <C> <C> <C>
Minimum Mgt Fee U -7.00% and less 0.00%
N -6.50 0.10
D -6.00 0.20
E -5.50 0.30
R -5.00 0.40 -5.00% and less 0.40%
-4.50 0.50 -4.50 0.50
P -4.00 0.60 -4.00 0.60
E -3.50 0.70 -3.50 0.70
R -3.00 0.80 -3.00 0.80
F -2.50 0.90 -2.50 0.90
O -2.00 1.00 -2.00 1.00
R -1.50 1.10 -1.50 1.10
M -1.00 1.20 -1.00 1.20
-0.50 1.30 -0.50 1.30
Basic Mgt Fee 0.00 1.40 0.00 1.40
0.50% 1.50 0.50 1.50
O 1.00 1.60 1.00 1.60
V 1.50 1.70 1.50 1.70
E 2.00 1.80 2.00 1.80
R 2.50 1.80 2.50 1.90
3.00 2.00 3.00 2.00
P 3.50 2.10 3.50 2.10
E 4.00 2.20 4.00 2.20
R 4.50 2.30 4.50 2.30
F 5.00 2.40 +5.00% 2.40
and greater
O 5.50 2.50
R 6.00 2.50
M 6.50 2.70
Maximum Mgt Fee +7.00% 2.80
and Greater
</TABLE>
9
<PAGE>
With respect to the Growth Portfolio, the advisory fee is being changed
from 0.50% of average daily net assets to 0.75% of average daily net assets.
Since the investment advisory agreement for the Growth Portfolio was initially
approved, the Adviser has tripled the size of its staff to provide better
service to its clients. The Adviser is increasing the advisory fees it charges
to all of its clients in light of its increased costs, and has requested the
increase in the advisory fee paid by the Growth Portfolio. The Board of
Directors believes that the advisory fee requested by the Adviser is
commensurate with the advisory fees paid by other funds of the same size and
having the same investment objective as the Growth Portfolio, and that even
after the proposed fee increase, the total operating expenses of the Growth
Portfolio will be lower than those of similar funds. Additionally, the Growth
Portfolio is generally believed by the Fund to have out performed most other
funds having similar investment objectives during the past twelve month period.
For those reasons, the Board of Directors of the Fund recommends approval of the
proposed amendment to the investment advisory agreement for the Growth
Portfolio.
The aggregate amount of the Adviser's fees for the Capital Appreciation
and Growth Portfolios were approximately $17,500 and $160,343, respectively, for
the fiscal year ended June 30, 1997. If the changes to the incentive advisory
fee for the Capital Appreciation Portfolio were in effect during fiscal year
ended June 30, 1997, the incentive advisory fee would have been approximately
$21,627, or a difference of $4,127 when compared to the actual amount. If the
changes to the advisory fee for the Growth Portfolio were in effect during
fiscal year ended June 30, 1997, the advisory fee would have been approximately
$240,917, or a difference of $80,574 when compared to the actual amount.
For more detailed information with respect to the Adviser, the terms of the
various investment advisory agreements, the dates such agreements were initially
approved by the Board and other information relating to the Adviser, please see
the Fund's Statement of Additional Information dated October 1, 1997 attached
hereto as Exhibit C.
Although each of the separate proposals are discussed above,
shareholders may vote for, against or abstain with respect only for the proposal
affecting the Portfolio that has issued shares owned by such shareholders. The
Board of Directors, including a majority of the Directors who are not
"interested persons" of the Fund or the Adviser as that term is defined in the
1940 Act, believe that Proposal Nos. 4 and 5 are in the best interests of the
Capital Appreciation and Growth Portfolios and their shareholders, respectively,
and accordingly, recommend a vote "FOR" approval thereof.
PROPOSAL NO. 6
APPROVAL OF AMENDMENT TO CHANGE INVESTMENT OBJECTIVE
FOR THE GOVERNMENT SECURITIES PORTFOLIO
The current investment objective of the Government Securities Portfolio
is current income consistent with the preservation of capital.
The Fund proposes that the investment objective of the Government
Securities Portfolio be revised to providing a high total return consistent with
preservation of capital.
10
<PAGE>
Union Bank and Trust Company, the Adviser for the Government Securities
Portfolio, does not intend to alter its investment strategies for the Government
Securities Portfolio in connection with the change in investment objective.
Rather, the Adviser believes that the revised investment objective more
accurately reflects the way in which the Government Securities Portfolio is
currently being managed. The Government Securities Portfolio will continue to
invest 80% of its assets in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, which will provide current
income to shareholders. However, the Fund believes that by considering high
total return in managing the Government Securities Portfolio, and not focusing
solely on current income, the Government Securities Portfolio will provide
greater value to its shareholders over time.
The Board of Directors believes that Proposal No. 6 is in the best
interests of the Government Securities Portfolio and its shareholders, and
accordingly, recommends a vote "FOR" approval thereof.
GENERAL INFORMATION
BOARD OF DIRECTORS
Information about the current directors is set forth above. During the
fiscal year ended June 30, 1997, the Fund's Board of Directors met four (4)
times. During such fiscal year, all of the Fund's directors attended at least
75% of the aggregate of the number of meetings of the Board of Directors.
REMUNERATION OF DIRECTORS
Non-employee directors receive from the Fund an annual fee and are not
reimbursed for all out-of-pocket expenses relating to attendance of meetings.
The fees paid to directors for the fiscal years ended June 30, 1997, 1996, and
1995, are shown below. Officers of the Fund do not receive compensation from the
Fund for serving as directors. Other than Messrs. Dunlap and Gross, no person
who is a director, officer or employee of the Adviser serves as a director,
officer or employee of the Fund.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Fiscal Pension or
Year Aggregate Retirement Benefits Total Compensation
(Ended Compensation Accrued as Part of From the Fund
Name and Position June 30) From Fund the Fund Expenses Paid to Directors
----------------- -------- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
Thomas C. Smith, Director, Chief 1997 $0 $0 $0
Financial Officer & Treasurer 1996 $0 $0 $0
1995 $0 $0 $0
Michael S. Dunlap, Director, 1997 $0 $0 $0
President & Secretary 1996 $0 $0 $0
1995 $0 $0 $0
Stan Schrier, Director 1997 $4,000 $0 $4,000
1996 $2,000 $0 $2,000
1995 $2,000 $0 $2,000
R. Paul Hoff, Director 1997 $4,000 $0 $4,000
1996 $2,000 $0 $2,000
1995 $2,000 $0 $2,000
Edson L. Bridges III, Director 1997 $4,000 $0 $4,000
1996 $2,000 $0 $2,000
1995 $2,000 $0 $2,000
</TABLE>
EXECUTIVE OFFICERS OF THE FUND
The executive officers of the Fund and their principal occupations are
set forth above under the caption entitled "Proposal No. 3--Information
Regarding Nominees." The term of office of each of such officers is one year and
until his or her successor shall have been elected and qualified. The directors
and officers of the Fund, as a group, beneficially owned less than 2% of the
outstanding shares of the Fund as of October 29, 1997.
11
<PAGE>
THE ADVISER AND ITS AFFILIATES
Union Bank and Trust Company ("Union"), 4732 Calvert Street, Lincoln,
Nebraska 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. Murray Johnstone International Limited ("MJI") serves as
sub-adviser (the "Sub-Adviser") for the International Portfolio pursuant to the
terms of a Sub-Advisory Agreement between the Adviser and Sub-Adviser. The Sub-
Adviser's address is 11 West Nile Street, Glasgow G1 2PX United Kingdom.
DISTRIBUTOR
SMITH HAYES Financial Services Corporation ("SMITH HAYES") acts as the
Fund's distributor ("Distributor"). 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 23,
1997, LAS and SMITH HAYES address is 200 Centre Terrace, 1225 "L" Street,
Lincoln, Nebraska, 68508.
SMITH HAYES is a wholly owned subsidiary 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. The Sub-Adviser is a
wholly-owned subsidiary of United Asset Management Corporation.
ADMINISTRATOR
Lancaster Administrative Services, Inc. ("LAS") acts as the
administrator ("Administrator") for the Fund. The Administrator is a wholly
owned subsidiary of Consolidated Investment Corporation, a Nebraska corporation,
which is engaged through its subsidiaries in various aspects of the financial
services industry.
INDEPENDENT ACCOUNTANTS
A majority of the Fund's Board of Directors who are not "interested
persons" of the Fund have selected Deloitte & Touche LLP as the independent
accountants of the Fund for the fiscal year ending June 30, 1997 Deloitte &
Touche LLP has served as the Fund's auditors since 1996.
12
<PAGE>
BENEFICIAL OWNERS
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 October 29, 1997, as set forth
below. The following table also provides the name and address of any person
(excluding Directors and officers) who owned beneficially 5% or more of the
outstanding shares of each Portfolio as of the same date. As of October 29,
1997, there were 522,049.439 shares outstanding for the Capital Appreciation
Portfolio, 2,890,765.527 shares outstanding for the Growth Portfolio,
441,264.205 shares outstanding for the Intermediate Government Bond Portfolio,
2,746,819.784 shares outstanding for the Government Securities Portfolio and
1,002,670.277 shares outstanding for the International Portfolio.
Portfolio Name & Address Shares % Ownership
- ----------------- ------------- ------ ------------
Capital Appreciation UBATCO & Co. 522,049.439 100%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Cook Family Foods 33,818.556 6.48%
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
MD Investments 28,487.375 5.46%
c/o Mike Dunlap
P.O. Box 6155
Lincoln, NE 68506
Union Bank and Trust 35,549.129 6.81%
Company
Profit Sharing & 401(k)
Plan
4732 Calvert Street
Lincoln, NE 68506
Growth Portfolio UBATCO & Co. 2,883,800.529 99.75%
4732 Calvert Street
Lincoln, NE 68506
Including
Union Bank and Trust 149,411.997 5.17%
Company
Profit Sharing & 401(k)
Plan
4732 Calvert Street
Lincoln, NE 68506
Linweld 401K/PSP 163,811.684 5.67%
Portfolio
1225 "L" Street, Suite
600
Lincoln, NE 68508
Cook Family Foods 169,128.439 5.85%
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
13
<PAGE>
Portfolio Name & Address Shares % Ownership
- ----------------- ------------- ------ -----------
Intermediate UBATCO & Co. 437,104.150 99.06%
Government Bond 4732 Calvert Street
Portfolio Lincoln, NE 68506
Including
Benes Service Company 61,536.402 13.95%
Profit Sharing Plan
Valparaiso, NE 68605
Madonna Rehabilitation 35,151.561 7.97%
Hospital
Agency Account
5401 South
Lincoln, NE 68506
Oak Creek Valley Bank 30,861.002 6.99%
PSP
108 W. Second Street
Valparaiso, NE 60868
Womens Clinic 28,240.269 6.40%
Profit Sharing Plan
220 Lyncrest Drive
Lincoln, NE 68510
Government Securities UBATCO & CO 2,746,819.784 100%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
International Portfolio UBATCO & CO 1,002,670.277 100%
4732 Calvert Street
Lincoln, NE 68506
Including
Linweld 401K/PSP 103,231.064 10.30%
1225 "L" Street, Suite
600
Lincoln, NE 68508
Crete/Sunflower 121,483.484 12.16%
Profit Sharing Plan
P.O. Box 82118
Lincoln, NE 68528
Cook Family Foods 76,796.204 7.66%
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
14
<PAGE>
The following table also provides information as of October 29, 1997,
regarding the beneficial ownership of outstanding shares of the respective
Portfolios, as applicable, by (i) each Director and nominee for Director of the
Fund, (ii) each executive officer of the Fund and (iii) all Directors and
executive officers as a group.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF PORTFOLIO
----------------------- -------------------- -------------------
Thomas C. Smith None None
Chief Financial Officer & Treasurer;
200 Centre Terrace, 1225 "L" Street
Lincoln, Nebraska 68501
Michael S. Dunlap 28,803.224(1) 5.52%(1)
President and Secretary 2,945.809(2) 0.10%(2)
4732 Calvert Street 3,383.764(5) 0.34%(5)
Lincoln, Nebraska 68506
Stan Schrier 40,594.831(2) 1.40%(2)
Director 7,433.491(3) 1.68%(3)
11128 John Galt Blvd.
Omaha, Nebraska 68137
R. Paul Hoff 10,047.683(1) 1.92%(1)
Director 7,523.323(2) 0.26%(2)
311 Jackson 35,628.128(4) 1.30%(4)
Seward, Nebraska 68434 1,008.065(5) 0.10%(5)
Edson L. Bridges III None None
Director
8401 W. Dodge Road, #256
Omaha, Nebraska 68114
Jon Gross 279.377(1) 0.05%(1)
Vice President 91.190(2) 0.00%(2)
3643 South 48th Street 149.334(5) 0.01%(5)
Lincoln, Nebraska 68506
All directors and executive officers as 39,130.284(1) 7.50%(1)
a group (4 persons) 51,155.153(2) 1.77%(2)
7,433.491(3) 1.68%(3)
35,628.128(4) 1.30%(4)
4,541.163(5) .45%(5)
- ---------------------------
(1) Capital Appreciation Portfolio
(2) Growth Portfolio
(3) Intermediate Governemnt Bond Portfolio
(4) Government Securities Portfolio
(5) International Portfolio
TRANSACTIONS WITH RELATED PARTIES
SMITH HAYES and Lancaster Administrative Services, Inc. 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 Bank and Trust Company 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.
Accordingly, Thomas C. Smith and Michael S. Dunlap have a beneficial
interest in the agreements between SMITH HAYES, Lancaster Administrative
Services, Inc. and Union Bank and Trust Company and the Fund. Such agreements
are required to be approved by a majority of the disinterested directors of the
Fund.
15
<PAGE>
SHAREHOLDER PROPOSALS
Under its Articles of Incorporation and under Minnesota law, the Fund is
not required to hold annual shareholder meetings. Shareholders who wish to
present a proposal for action or suggestions as to nominees for the Board of
Directors at the next meeting of shareholders of the Fund, should submit their
proposal or suggestions to the Secretary of the Fund within a reasonable time in
advance of any such meeting for inclusion in the Fund's proxy statement and form
of proxy for such meeting. The Board of Directors will give consideration to
shareholder suggestions as to nominees for the Board of Directors. Shareholders
also retain the right, under limited circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
OTHER MATTERS
The directors do not know of any matters to be presented at the Meeting
other than those set forth in this Proxy Statement. If any other business should
come before the Meeting, the persons named in the accompanying proxy will vote
thereon in accordance with their best judgment and in the best interests of
shareholders.
SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the
Board. The expense of solicitation of proxies for the Meeting will be paid by
the Fund. In addition to the mailing of the proxy material, such solicitation
may be made in person or by written communication, telephone or telegraph by
directors, officers or employees of the Fund.
ANNUAL REPORT AND STATEMENT OF ADDITIONAL INFORMATION
THE FUND WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON SOLICITED BY THIS
PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE FUND'S
ANNUAL REPORT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR ITS MOST
RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO THE INVESTOR
RELATIONS DEPARTMENT AT THE ADDRESS OF THE FUND APPEARING ON THE FIRST PAGE OF
THIS PROXY STATEMENT OR FAXED TO THE FUND AT (402) 476-6909. THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION IS INCLUDED IN THIS PROXY STATEMENT AS
EXHIBIT C.
By Order of the Board of Directors,
MICHAEL S. DUNLAP
SECRETARY
Lincoln, Nebraska
November 19, 1997
16
<PAGE>
APPENDIX A
STRATUS FUND, INC.
200 CENTRE TERRACE, 1225 "L" STREET
LINCOLN, NEBRASKA 68508
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 12, 1997
The undersigned hereby appoints each of Colleen Hector and Jon Gross,
individually, as proxy and attorney-in-fact for the undersigned with full power
of substitution to vote on behalf of the undersigned at the Special Meeting of
Shareholders of Stratus Fund, Inc. (the "Fund") to be held on December 12, 1997,
and at any adjournment or postponement thereof, all shares of the Fund standing
in the name of the undersigned or which the undersigned may be entitled to vote
as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" EACH OF THE PROPOSALS. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof, hereby revoking
any proxy or proxies heretofore given by the undersigned.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
1. For the Fund, to approve a proposal to adopt Amended and Restated Articles of
Incorporation for the Fund to create a multiple class structure for each
portfolio of the Fund.
FOR |_| AGAINST |_| ABSTAIN |_|
2. For the Fund, to eliminate or modify certain of the fundamental investment
limitations (the "Investment Limitations") applicable to all Portfolios of the
Fund as set forth in the Fund's Statement of Additional Information, as follows:
(a) To eliminate Investment Limitation No. 1 that prohibits each
Portfolio (except the International Portfolio) from purchasing any securities
other than those described under the caption "Investment Objectives and
Policies" in the Prospectus for each Portfolio.
FOR |_| AGAINST |_| ABSTAIN |_|
(b) To amend and restate Investment Limitation No. 2 to provide an
exception to the diversification requirements stated therein to allow each
Portfolio to purchase securities of other investment companies to the extent
permitted by applicable law or exemptive order.
FOR |_| AGAINST |_| ABSTAIN |_|
(c) To eliminate Investment Limitation No. 3 that prohibits each
Portfolio from investing 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.
FOR |_| AGAINST |_| ABSTAIN |_|
(d) To amend and restate Investment Limitation No. 4 to (i) provide an
exception to the diversification requirements stated therein to allow each
Portfolio to purchase securities of other investment companies to the extent
permitted by applicable law or exemptive order, and (ii) to allow each Portfolio
to purchase up to 5% of the voting securities, or up to 10% of the securities of
any class, of any issuer.
FOR |_| AGAINST |_| ABSTAIN |_|
(e) To eliminate Investment Limitation No. 6 that prohibits each
Portfolio from purchasing securities of other investment companies, except in
certain limited situations, if Proposal No. 2(b) and 2(d) are approved.
FOR |_| AGAINST |_| ABSTAIN |_|
(f) To amend and restate Investment Limitations No. 8 to make it clear
that obtaining short-term credit for clearance
<PAGE>
of purchases and sales of securities does not constitute a purchase of
securities on margin and to allow short sales against the box which are
permitted by law.
FOR |_| AGAINST |_| ABSTAIN |_|
(g) To amend and restate Investment Limitations No. 10 to provide
flexibility to the investment adviser of each Portfolio to enter into
commodities contracts for hedging purposes, including futures contracts on
securities, securities indices and currencies and options on such contracts, and
to delete from Investment Limitation No. 7 the prohibition on purchasing or
selling commodities contracts.
FOR |_| AGAINST |_| ABSTAIN |_|
(h) To eliminate Investment Limitation No. 14 that prohibits each
Portfolio from investing in securities with legal or contractual restrictions on
resale.
FOR |_| AGAINST |_| ABSTAIN |_|
(i) To eliminate Investment Limitation No. 15 that prohibits each
Portfolio from purchasing or holding securities of any issuer if 5% of the
securities of such issuer are owned by the investment adviser or by directors
and officers of the Fund or the investment adviser owing individually more than
1/2 of 1% of its securities.
FOR |_| AGAINST |_| ABSTAIN |_|
3. For the Fund, the election of directors set forth in the Proxy Statement.
FOR |_| WITHHOLD |_| FOR ALL EXCEPT |_|
Thomas C. Smith Michael S. Dunlap Stan Schrier
R. Paul Hoff Edson L. Bridges, III
IF YOU DO NOT WISH TO VOTE "FOR" A PARTICULAR NOMINEE FOR DIRECTOR, MARK
THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NAME OF THAT NOMINEE.
YOUR SHARES WILL BE VOTED "FOR" THE REMAINING NOMINEES.
4. For the Capital Appreciation Portfolio, to approve of an amendment to the
investment advisory agreement with Union Bank and Trust Company that would (i)
revise the incentive advisory fee schedule and (ii) change the stated index used
to determine the incentive fee from the S&P 500 Index to the Russell 2000 Index.
FOR |_| AGAINST |_| ABSTAIN |_|
5. For the Growth Portfolio, to approve an amendment to the investment advisory
agreement with Union Bank and Trust Company to change the advisory fee from
0.50% of average daily net assets to 0.75% of average daily net assets.
FOR |_| AGAINST |_| ABSTAIN |_|
6. For the Government Securities Portfolio, to change the investment objective
from "current income consistent with the preservation of capital" to "providing
high total return consistent with long term preservation of capital."
FOR |_| AGAINST |_| ABSTAIN |_|
IF YOU DO NOT VOTE ON A PARTICULAR PROPOSAL, THE PROXIES SHALL VOTE
"FOR" EACH PROPOSAL.
Please sign:
Dated:
<PAGE>
Signature
Signature (if held jointly)
When shares are held by joint
tenants, both should sign.
When signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If a
corporation, please sign in
the corporate name by
president or other authorized
officer. If a partnership,
please sign in the
partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT A
FORM OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
STRATUS FUND, INC.
1. In accordance with Sections 135 and 139 of Chapter 302A of the
Minnesota Statutes, the Board of Directors of Stratus Fund, Inc., a Minnesota
corporation (the "Corporation"), recommended by a resolution dated October 23,
1997, that the shareholders of the Corporation approve, and the shareholders
having approved by resolution dated December 12, 1997, the number of votes cast
for the amendments by the shareholders being sufficient for such approval in
accordance with Section 437 of Chapter 302A of the Minnesota Statutes, the
amendment and restatement of the Corporation's Articles of Incorporation to read
in its entirety as follows:
ARTICLE 1.
The name of the Corporation is Stratus Fund, Inc.
ARTICLE 2.
The Corporation shall have general business purposes and shall
have unlimited power to engage in and do any lawful act concerning any
and all lawful businesses for which corporations may be organized under
the Minnesota Statutes, Chapter 302A. Without limiting the generality of
the foregoing, the Corporation shall have specific power:
(a) To conduct, operate and carry on the business
of an open-end, series, management investment company pursuant to
applicable state and federal regulatory statutes, and exercise
all the powers necessary and appropriate to the conduct of such
operations.
(b) To purchase, subscribe for, invest in or
otherwise acquire, and to own, hold, pledge, mortgage,
hypothecate, sell, possess, transfer or otherwise dispose of, or
turn to account or realize upon, and generally deal in, all forms
of securities of every kind, nature, character, type and form,
and other financial instruments which may not be deemed to be
securities, including but not limited to futures contracts and
options thereon. Such securities and other financial instruments
may include but are not limited to shares, stocks, bonds,
debentures, notes, scrip, participation certificates, rights to
subscribe, warrants, options, certificates of deposit, bankers'
acceptances, repurchase agreements, commercial paper, chooses in
action, evidences of indebtedness, certificates of indebtedness
and certificates of interest of any and every kind and nature
whatsoever, secured and unsecured, issued or to be issued, by any
corporation, company, partnership (limited or general),
association, trust, entity or person, public or private, whether
organized under the laws of the United States, or any state,
commonwealth, territory or possession thereof, or organized under
the laws of any foreign country, or any state, province,
territory or possession thereof, or issued or to be issued by the
United States government or any agency or instrumentality
thereof, and futures contracts and options thereon.
(c) In the above provisions of this Article 2,
purposes shall also be construed as powers and powers shall also
be construed as purposes, and the enumeration of specific
purposes or powers shall not be construed to limit other
statements of purposes or to limit purposes or powers which the
Corporation may otherwise have under applicable law, all of the
same being separate and cumulative, and all of the same may be
carried on, promoted and pursued, transacted or exercised in any
place whatsoever.
<PAGE>
ARTICLE 3.
The Corporation shall have perpetual existence.
ARTICLE 4.
The location and post office address of the registered agent and
office of the Corporation in Minnesota is The Prentice-Hall Corporation
System, Inc., Multi-Foods Tower, 33 South Sixth Street, Minneapolis,
Minnesota 55402.
ARTICLE 5.
The total number of authorized shares of the Corporation is
1,000,000,000, all of which shall be common shares of the par value of
$.001 each and which shall be categorized into the following classes,
and within a class, the following series:*
Series of a * Authorized
Class of Shares Particular Class Number of Shares
---------------------- ----------------------------- -----------------
Growth Portfolio Retail Class A Series Shares 20,000,000
Institutional Class Series Shares 20,000,000
(previously designated as
Equity Income Portfolio series shares)
Government Securities Retail Class A Series Shares 20,000,000
Portfolio
Institutional Class Series Shares 10,000,000
(previously designated as
Government Securities Portfolio
series shares)
Intermediate Government Bond Class A Series Retail Shares 20,000,000
Portfolio
Institutional Class Series Shares 10,000,000
(previously designated as
Intermediate Government Bond
Portfolio series shares)
<PAGE>
Capital Appreciation Portfolio Class A Series Retail Shares 20,000,000
Institutional Class Series Shares 10,000,000
(previously designated as
Capital Appreciation Portfolio
series shares)
International Portfolio Retail Class A Series Shares 20,000,000
Institutional Class Series Shares 10,000,000
(previously designated as
International Portfolio series
shares)
* In accordance with these Amended and Restated Articles of
Incorporation, all of the Retail Class A Series Shares are being
designated herein. Prior to the filing of these Amended and
Restated Articles of Incorporation, the Institutional Class
Series of Shares were designated as noted parenthetically. The
Institutional Class Series of Shares are merely being
redesignated in name only, as set forth in the table.
The balance of 840,000,000 shares may be issued in such classes and series with
such designations, preferences and relative, participating, optional or other
special rights, or qualifications, limitations or restrictions thereof, or may
be authorized for issuance as additional shares of any existing classes or
series as and to the extent stated or expressed in a resolution or resolutions
providing for the issue of any such class or series of shares adopted from time
to time by the Board of Directors of the Corporation pursuant to the authority
hereby vested in said Board of Directors. The Corporation may issue and sell any
of its shares in fractional denominations to the same extent as its whole
shares, and shares and fractional denominations shall have, in proportion to the
relative fractions represented thereby, all the rights of whole shares,
including, without limitation, the right to vote, the right to receive dividends
and distributions, and the right to participate upon liquidation of the
Corporation. Each class of shares established hereby or which the Board of
Directors may establish, as provided herein, will evidence, an interest in a
separate and distinct portion of the Corporation's assets, which shall take the
form of a separate portfolio of investment securities, cash and other assets as
described in the Corporation's current Registration Statement on Form N-1A as
filed with the Securities and Exchange Commission. Authority to establish
additional separate portfolios is hereby vested in the Board of Directors of the
Corporation, and such separate portfolios may be established by the Board of
Directors without the authorization or approval of the holders of any class or
series of shares of the Corporation.
ARTICLE 6.
The shareholders of the Corporation:
(a) shall not have the right to cumulate votes for the election
of the Directors; and
(b) shall have no preemptive right to subscribe to any issue of
shares of any class or series of the Corporation now or hereafter
made.
ARTICLE 7.
The shareholders of the Growth Portfolio shares, the Government
Securities Portfolio shares, the Intermediate Government Bond Portfolio
shares, the Capital Appreciation Portfolio shares, the International
Portfolio shares, and any other class or series of shares designated by
the Board of Directors as provided herein shall have the following
rights and preferences:
(a) On any matter submitted to a vote of shareholders of the
Corporation, all shares of the Corporation then issued and
outstanding and entitled to vote, irrespective of class
<PAGE>
or series, shall be voted in the aggregate and not by class or
series, except: (i) when otherwise required by Minnesota
Statutes, Chapter 302A, in which case shares will be voted by
individual class or series; (ii) when otherwise required by the
Investment Company Act of 1940, as amended, or the rules adopted
thereunder, in which case shares shall be voted by individual
class or series; and (iii) when the matter affects only the
interests of a particular class or series in which case only
shareholders of the class or series affected, as the case may be
shall be entitled to vote thereon and shall vote by individual
class or series.
(b) All consideration received by the Corporation for the issue
or sale of shares of any class, together with all assets, income,
earnings, profits and proceeds derived therefrom (including all
proceeds derived from the sale, exchange or liquidation thereof
and, if applicable, any assets derived from any reinvestment of
such proceeds in whatever form the same may be) shall become part
of the assets of the portfolio to which the shares of that class
relate, for all purposes, subject only to the rights of
creditors, and shall be so treated upon the books of account of
the Corporation. Such assets, income, earnings, profits and
proceeds (including any proceeds derived from the sale, exchange
or liquidation thereof and, if applicable, any assets derived
from any reinvestment of such proceeds in whatever form the same
may be) are herein referred to as "assets belonging to" a class
of the common shares of the Corporation.
(c) Assets of the Corporation not belonging to any particular
class are referred to herein as "General Assets." General Assets
shall be allocated to each class in proportion to the respective
net assets belonging to such class. The determination of the
Board of Directors shall be conclusive as to the amount of
assets, as to the characterization of assets as those belonging
to a class or as General Assets, and as to the allocation of
General Assets.
(d) The assets belonging to a particular class of common shares
shall be charged with the liabilities incurred specifically on
behalf of such class of common shares ("Special liabilities").
Such assets shall also be charged with a share of the general
liabilities of the Corporation ("General Liabilities") in
proportion to the respective net assets belonging to such class
of common shares. The determination of the Board of Directors
shall be conclusive as to the amount of liabilities, including
accrued expenses and reserves, as to the characterization of any
liability as a Special Liability or General Liability, and as to
the allocation of General Liabilities.
(e) The Board of Directors may, to the extent permitted by
Minnesota Statutes, Chapter 302A, and in the manner provided
herein, declare and pay dividends or distributions in shares or
cash on any or all classes of common shares, the amount of such
dividends and the payment thereof being wholly in the discretion
of the Board of Directors. Dividends or distributions on shares
of any class of common shares shall be paid only out of the
earnings, surplus, or other lawfully available assets belonging
to such class (including, for this purpose, any General Assets
allocated to such class).
(f) In the event of the liquidation or dissolution of the
Corporation, holders of the shares of any class shall have
priority over the holders of any other class with respect to, and
shall be entitled to receive, out of the assets of the
Corporation available for distribution to holders of shares, the
assets belonging to such class of common shares and the General
Assets allocated to such class of common shares, and the assets
so distributable to the holders of the shares of any class shall
be distributed among such holders in proportion to the number of
shares of such class held by them and recorded on the books of
the Corporation.
(g) With the approval of a majority of the shareholders of each
of the affected class of common shares, the Board of Directors
may transfer the assets of any portfolio to any
<PAGE>
other portfolio. Upon such a transfer, the Corporation shall
issue common shares representing interests in the portfolio to
which the assets were transferred in exchange for all common
shares representing interests in the portfolio from which the
assets were transferred. Such shares shall be exchanged at their
respective net asset values.
ARTICLE 8.
The following additional provisions, when consistent with law,
are hereby established for the management of the business, for the
conduct of the affairs of the Corporation, and for the purpose of
describing certain specific powers of the Corporation and of its
Directors and shareholders.
(a) In furtherance and not in limitation of the powers conferred
by statute and pursuant to these Amended and Restated Articles of
Incorporation, the Board of Directors is expressly authorized to
do the following:
(1) to make, adopt, alter, amend and repeal Bylaws of the
Corporation unless reserved to the shareholders by the
Bylaws or by the laws of the State of Minnesota, subject
to the power of the shareholders to change or repeal such
Bylaws;
(2) to distribute, in its discretion, for any fiscal year
(in the year or in the next fiscal year) as ordinary
dividends and as capital gains distributions,
respectively, amounts sufficient to enable the Corporation
to qualify under the Internal Revenue Code as a regulated
investment company to avoid any liability for federal
income tax in respect of such year. Any distribution or
dividend paid to shareholders from any capital source
shall be accompanied by a written statement showing the
source or sources of such payment;
(3) to authorize, subject to such vote, consent, or
approval of shareholders and other conditions, if any, as
may be required by any applicable statute, rule or
regulation, the execution and performance by the
Corporation of any agreement or agreements with any
person, corporation, association, company, trust,
partnership (limited or general) or other organization
whereby, subject to the supervision and control of the
Board of Directors, any such other person, corporation,
association, company, trust, partnership (limited or
general), or other organization shall render managerial,
investment advisory, distribution, transfer agent,
accounting and/or other services to the Corporation
(including, if deemed advisable, the management or
supervision of the investment portfolios of the
Corporation) upon such terms and conditions as may be
provided in such agreement or agreements;
(4) to authorize any agreement of the character described
in subparagraph 3 of this paragraph (a) with any person,
corporation, association, company, trust, partnership
(limited or general) or other organization, although one
or more of the members of the Board of Directors or
officers of the Corporation may be the other party to any
such agreement or an officer, director, employee,
shareholder, or member of such other party, and no such
agreement shall be invalidated or rendered voidable by
reason of the existence of any such relationship;
(5) to allot and authorize the issuance of the authorized
but unissued shares of any class or series of the
Corporation;
(6) to accept or reject subscriptions for shares made
after incorporation; and
<PAGE>
(7) to fix the terms, conditions and provisions of and
authorize the issuance of options to purchase or subscribe
for shares of any class or series including the option
price or prices at which shares may be purchased or
subscribed for.
(b) The determination as to any of the following matters made by
or pursuant to the direction of the Board of Directors consistent
with these Amended and Restated Articles of Incorporation and in
the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of duties, shall be final and conclusive
and shall be binding upon the Corporation and every holder of
shares of its capital stock; namely, the amount of the assets,
obligations, liabilities and expenses of each portfolio of the
Corporation; the amount of the net income of each portfolio of
the Corporation from dividends and interest for any period and
the amount of assets at any time legally available for the
payment of dividends in each portfolio; the amount of paid-in
surplus, other surplus, annual or other net profits, or net
assets in excess of capital, undivided profits, or excess of
profits over losses on sales of securities of each portfolio; the
amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for
which such reserves or charges shall have been created shall have
been paid or discharged); the market value, or any sale, bid or
asked price to be applied in determining the market value, of any
security owned or held by or in each portfolio of the
Corporation; the fair value of any other asset owned by or in
each portfolio of the Corporation; the number of shares of each
class and series of the Corporation issued or issuable; any
matter relating to the acquisition, holding and disposition of
securities and other assets by each portfolio of the Corporation;
and any question as to whether any transaction constitutes a
purchase of securities on margin, a short sale of securities, or
an underwriting of the sale of, or participation in any
underwriting or selling group in connection with the public
distribution of any securities.
(c) The Board of Directors or the shareholders of the Corporation
may adopt, amend, affirm or reject investment policies and
restrictions upon investment or the use of assets of each
portfolio of the Corporation and may designate some such policies
as fundamental and not subject to change other than by a vote of
a majority of the outstanding voting securities, as such phrase
is defined in the Investment Company Act of 1940, of the affected
portfolio or portfolios of the Corporation.
(d) The Corporation shall indemnify such persons for such
expenses and liabilities, in such manner, under such
circumstances, and to the full extent permitted by Section
302A.521 of the Minnesota Statutes, as now enacted or hereafter
amended, provided, however, that no such indemnification may be
made if it would be in violation of Section 17(h) of the
Investment Company Act of 1940, as now enacted or hereafter
amended.
(e) Any action which might be taken at a meeting of the Board of
Directors, or any duly constituted committee thereof, may be
taken without a meeting if done in writing and signed by a
majority of the Directors or committee members, unless otherwise
provided by the Investment Company Act of 1940 or regulations
thereunder.
(f) Notwithstanding any other provision of these Amended and
Restated Articles of Incorporation, no person shall serve as a
director of the Corporation after the holders of record of not
less than two-thirds of the outstanding shares of the Corporation
have declared that such director be removed from office by votes
cast in person or by proxy at a meeting called for such purpose.
Notwithstanding the provisions of Minnesota statutes, subchapter
302(A), the Board of Directors shall promptly call a meeting of
shareholders for the removal of a director if recordholders of
not less than 10 percent of the outstanding shares request in
writing that such a meeting be held. Whenever 10 or more
shareholders of record who have been such for at least six months
preceding the date of application and who in aggregate own shares
having a net asset value of at least $25,000 or at least 1
percent of the outstanding shares, whichever is less, shall apply
to the Board
<PAGE>
of Directors in writing stating that they wish to communicate
with other shareholders with a view to obtaining signatures to
request a meeting pursuant to this section and which is
accompanied by the form of communication proposed to be
transmitted to such other shareholders, the Board of Directors
shall within five business days after receipt thereof either
afford such applicants access to the list of names and addresses
of such shareholders on such date or inform such applicants of
the approximate number of such shareholders of record and the
approximate cost of mailing to them the proposed communication
and form of request. If such applicants provide sufficient copies
of all materials to be so mailed and provide payment for all
reasonable costs and expenses of mailing, the Board of Directors
shall mail such materials to all shareholders of record, unless
within five days of the tender of the materials and payment
therefor the Board of Directors files with the Securities and
Exchange Commission and provides to the applicants a copy of a
written statement signed by a majority of the directors which
indicates that in their opinion such material contains untrue
statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in
violation of law, and specifying the basis of such opinion.
ARTICLE 9.
To the fullest extent permitted by Minnesota Statutes, Chapter
302A, as the same exists or may hereafter be amended, and to the extent
not inconsistent with the Investment Company Act of 1940 and regulations
thereunder, a director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director.
2. The undersigned officer of the Corporation has been duly authorized
to submit these Amended and Restated Articles of Incorporation to the Department
of Secretary of State of the State of Minnesota for filing in accordance with
Section 151 of Chapter 302A of the Minnesota Statutes.
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of the Corporation has
executed these Amended and Restated Articles of Incorporation on December 12,
1997.
___________________
Michael S. Dunlap
STATE OF NEBRASKA )
) ss
COUNTY OF LANCASTER )
On December ___, 1997, before me, a Notary Public, personally appeared
Michael S. Dunlap, to me known to be the person named as the Secretary of
Stratus Fund, Inc., a Minnesota corporation, who executed the foregoing Amended
and Restated Articles of Incorporation on behalf of said Corporation.
____________________
(Notarial Seal)
<PAGE>
EXHIBIT B
FORM OF
AMENDMENTS TO INVESTMENT
ADVISORY AGREEMENTS FOR
THE CAPITAL APPRECIATION
AND GROWTH PORTFOLIOS
STRATUS FUND, INC.
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
CAPITAL APPRECIATION PORTFOLIO
THIS AMENDMENT TO INVESTMENT ADVISORY AGREEMENT (the "Amendment"), made as
of the 12th day of December, 1997, by and between Stratus Fund, Inc., a
Minnesota corporation (the "Fund") and Union Bank & Trust Company, a Nebraska
state bank (the "Investment Adviser") (together, the "Parties"), amends the
Investment Advisory Agreement for the Capital Appreciation Portfolio between the
Parties dated October 30, 1992 (the "Agreement"):
WITNESSETH:
WHEREAS, the Parties wish to amend the Agreement to revise the
compensation paid by the Fund on behalf of the Capital Appreciation Portfolio
for services provided by the Investment Adviser to the Capital Appreciation
Portfolio under the Agreement.
NOW, THEREFORE, for good and valuable consideration, the Parties agree
that "Exhibit 1" to the Agreement is hereby replaced by the attached Exhibit 1.
IN WITNESS WHEREOF, the parties hereto have executed, accepted and
delivered this Amendment on the day and year first above written.
STRATUS FUND, INC.
By __________________________
Chairman
UNION BANK AND TRUST COMPANY
By___________________________
President
<PAGE>
Exhibit 1
As compensation for the Investment Adviser's services to the Fund during
the period of this Agreement, the Fund will pay to the Investment Adviser a fee
calculated and paid pursuant to the provisions of this exhibit. The fee
described below will be calculated and paid monthly. The period which forms the
basis for each monthly fee calculation shall be the 12 months ending with the
month for which such fee calculation is made, and such 12- month period shall be
referred to below as the "fee period".
(a) BASIC FEE. As primary compensation for the services rendered and the
expenses assumed by the Investment Adviser, the Fund shall pay the Investment
Adviser a monthly basic advisory fee, based on the net asset value of the
Capital Appreciation Portfolio averaged daily over the fee period ("Average
Daily Net Asset Value"), in an amount equal to 1/12th of (i) 1.4% of that
portion of the Average Daily Net Asset Value during the fee period. The Average
Daily Net Asset Value will be computed by averaging the net asset values of the
Capital Appreciation Portfolio at the close of each business day during the fee
period.
(b) INCENTIVE FEE. The monthly basic advisory fee shall be subject to an
incentive adjustment depending upon the investment performance of the Capital
Appreciation Portfolio relative to the Russell 2000 Index (herein called the
"Index") during the fee period. The incentive adjustment; if any, shall be
computed as of the end of each fee period, shall be added to or subtracted from
the monthly basic advisory fee calculated for such fee period and shall be
calculated as follows:
(i) There shall be added to the net asset value of a share of
the Capital Appreciation Portfolio outstanding at the close
of business on the last business day of the fee period: (A)
the value of all cash distributions per share of the Capital
Appreciation Portfolio made during such fee period,
accumulated to the end of such fee period, which amount
shall be treated as if reinvested in shares of the Capital
Appreciation Portfolio at the net asset value per share,
after giving effect to any such distributions; in effect at
the close of business on the respective record date or dates
for the payment thereof, and (B) the value of capital gains
taxes per share of the Capital Appreciation Portfolio paid
or payable on undistributed realized long-term capital gains
during the fee period, accumulated to the end of such fee
period, which amount shall be treated as reinvested in
shares of the Capital Appreciation Portfolio at the net
asset value per share, alter giving effect of such taxes, in
effect at the close of business on the date on which such
provision is made therefore. The adjusted net asset value
per share of the Capital
<PAGE>
Appreciation Portfolio, as so calculated, shall then be
compared with the net asset value of a share of the Capital
Appreciation Portfolio at the close of business on the
business day immediately preceding the first day of the fee
period. The difference between such adjusted net asset value
of share at the close of business on the last day of the fee
period and the net asset value of a share at the close of
business on the day immediately preceding the first day of
the fee period shall then be expressed as a percentage of
the net asset value of a share of the Capital Appreciation
Portfolio at the close of business on the day immediately
preceding the first day of the fee period (such percentage
being herein referred to as the "net asset value percentage
change").
(ii) There shall be added to the level of the Index at the
close of business on the last business day of the fee
period, in accordance with Commission guidelines, the value,
computed consistently with the "Index", of cash
distributions made during the fee period and accumulated to
the end of such fee period, by companies whose securities
comprised the Index. For this purpose cash distributions on
securities which comprise the Index made during the fee
period shall be treated as reinvested in the Index at the
close of business on the last day of each month following
the payment of such distribution. The adjusted level of the
Index thus obtained shall then be compared to the level of
the Index at the close of business on the business day
immediately preceding the first day of the fee period and
the difference in the two levels shall be expressed as a
percentage of the Index level at the close of business on
the business day immediately preceding the first day of the
fee period (such percentage being hereinafter referred to as
the "Index Percentage Change").
(iii) The Index percentage change will then be subtracted from
the net asset value percentage change to determine the
performance differential, it being understood that any time
either the percentage change an/or the performance
differential could result in a negative figure. To the
extent that there is a positive or negative performance
differential, an incentive adjustment for each such fee
period shall be an amount equal to 1/12th of the excess
performance differential multiplied by the average daily net
asset value for the fee period according to the attached
chart, labeled Appendix 1 and incorporated by reference
herein. Notwithstanding any positive or negative performance
differential or incentive fee adjustment calculated pursuant
thereto, there shall in no event be an incentive adjustment
for any fee period
2
<PAGE>
exceeding 1/12th of 1.4% of the average daily net asset
value during such fee period.
(iv) For purpose hereof, the incentive adjustment shall be
computed in accordance with any applicable rules,
regulations and attributable releases promulgated by the
Commission.
(c) REIMBURSEMENT. Notwithstanding any other provision in this
Investment Advisory Agreement, the Investment Adviser agrees to reimburse the
Capital Appreciation Portfolio for its actual expenses incurred, exclusive of
brokerage commissions, interest, taxes, dividends on short sales and the
positive incentive adjustment, if any, in excess of the lowest expense maximum
permitted by the state securities commission of the states in which the Capital
Appreciation Portfolio has registered its securities for sale (hereinafter
called the "maximum expense limitation").
(d) ACCRUAL AND PAYMENT OF THE FEE. The Capital Appreciation Portfolio's
expenses (including the monthly basic advisory fee) and the incentive adjustment
for each fee period, shall be computed and accrued daily and taken into account
in computing the daily net asset value of the Capital Appreciation Portfolio
shares. However, expenses in excess of the maximum expense limitation shall not
be accrued for the purpose of computing the daily net asset value of a Capital
Appreciation Portfolio share. The incentive adjustment for any fee period will
not be accrued for the purpose of calculating the basic advisory fee for the
incentive adjustment for such period or for the purpose of determining that
performance differential for such period. The amount of the basic advisory fee
and any incentive adjustment will be determined monthly promptly alter the close
of the fee period, and the fee for such period will be paid alter such
determination period.
3
<PAGE>
APPENDIX 1
Performance Total
Relative to
Russell 2000 Index Adviser Fee Management Fee
- --------------------------- ------------- ------------------
-5.0% & under .40% Minimum Management Fee
-4.5 .50
-4.0 .60
-3.5 .70
-3.0 .80
-2.5 .90
-2.0 1.00
-1.5 1.10
-1.0 1.20
-0.5 1.30
0.0 1.40
0.5 1.50
1.0 1.60
1.5 1.70
2.0 1.80
2.5 1.90
3.0 2.00
3.5 2.10
4.0 2.20
4.5 2.30
5.0 2.40 Maximum Management Fee
<PAGE>
STRATUS FUNDS, INC.
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
FOR GROWTH PORTFOLIO
THIS AMENDMENT TO INVESTMENT ADIVSORY AGREEMENT (the "Amendment"), made as
of the 12th day of December, 1997, by and between Stratus Fund, Inc., a
Minnesota corporation (the "Fund") and Union Bank & Trust Company, a Nebraska
state bank (the "Investment Adviser") (together, the "Parties"), amends the
Investment Advisory Agreement for the Growth Portfolio between the Parties dated
August 1, 1993 (the "Agreement"):
WHEREAS, the Parties wish to amend the Agreement to revise the
compensation paid by the Fund on behalf of the Growth Portfolio for services
provided by the Investment Adviser to the Growth Portfolio under the Agreement.
NOW, THEREFORE, for good and valuable consideration, the Parties agree
that Exhibit 1 to the Agreement shall be amended hereby to provide that the fee
payable to the Investment Adviser under Section 4 of the Agreement is 0.75%.
IN WITNESS WHEREOF, the parties hereto have executed, accepted and
delivered this Amendment on the day and year first above written.
STRATUS FUND, INC.
By __________________________
Chairman
UNION BANK AND TRUST COMPANY
By___________________________
President
<PAGE>
EXHIBIT C
STATEMENT OF ADDITIONAL INFORMATION
STRATUS FUND, INC.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
GROWTH PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
INTERNATIONAL PORTFOLIO
October 1, 1997
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, Growth
Portfolio, Capital Appreciation Portfolio and International Portfolio of Stratus
Fund, Inc. (the "Fund") dated October 1, 1997, 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.
Table of Contents
Page
GENERAL INFORMATION.......................................................... 2
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............................. 2
Intermediate Government Bond Portfolio............................... 2
Government Securities Portfolio...................................... 2
Growth Portfolio..................................................... 2
Capital Appreciation Portfolio....................................... 3
International Portfolio.............................................. 3
Portfolio Turnover................................................... 3
All Portfolios....................................................... 3
DIRECTORS AND EXECUTIVE OFFICERS............................................. 5
INVESTMENT ADVISORY AND OTHER SERVICES....................................... 6
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS............................. 10
CAPITAL STOCK AND CONTROL.................................................... 12
NET ASSET VALUE AND PUBLIC OFFERING PRICE.................................... 14
REDEMPTION................................................................... 14
TAX STATUS................................................................... 14
CALCULATIONS OF PERFORMANCE DATA............................................. 15
FINANCIAL STATEMENTS......................................................... 16
AUDITORS..................................................................... 16
APPENDIX A - Ratings of Corporate Obligations................................A-1
1
<PAGE>
GENERAL INFORMATION
The shares of 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 of shares designated Intermediate Government Bond
Portfolio, Government Securities Portfolio, Growth Portfolio, Capital
Appreciation Portfolio and International Portfolio (the "Portfolios"). 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
Government Securities Portfolio and Equity Income Portfolio effective April 30,
1994. The Equity Income Portfolio was renamed the Growth Portfolio as of
February 15, 1996. The Growth/Income Portfolio of the Fund was merged into the
Equity Income Portfolio on the same date and ceased separate existence. The
International Portfolio commenced business operations on October 1, 1996.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The following discussions provides certain information concerning
the investment objectives and policies of the Portfolios, along with a
description of certain restrictions applicable to the investment programs of the
Portfolios. See the Prospectus for further information concerning the investment
policies of the Portfolios.
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. 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) or Standard
and Poor's Corporation ("Standard and Poor's); (2) Obligations of commercial
banks, including repurchase agreements; or (3) Money Market investments, as
fully described in the Prospectus.
GROWTH PORTFOLIO
The Growth Portfolio has an investment objective of capital appreciation
and income. 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 or S&P. (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
2
<PAGE>
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.
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.
INTERNATIONAL PORTFOLIO
The investment objective of the International Portfolio is high total
return consistent with reasonable risk by investing in a diversified portfolio
of securities of companies located in countries other than the United States.
Under normal circumstances, the International Portfolio will invest at least 65%
of its total assets in common stocks of established foreign companies believed
by the Portfolio's sub-adviser to have potential for capital growth, income, or
both.
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 (except that this limitation shall not apply to the
International 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
<PAGE>
(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;
(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 Prospectus;
(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.
4
<PAGE>
<TABLE>
<CAPTION>
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, Age, Position with Fund and Address Principal Occupation Last Five Years
- ----------------------------------------------- -----------------------------------------------------
<S> <C>
*Thomas C. Smith (52) Chairman, CONLEY SMITH Inc., Lincoln, Nebraska;
Chief Financial Officer & Treasurer; Vice President, Lancaster Administrative Services,
200 Centre Terrace, 1225 "L" Street Inc., Lincoln, Nebraska;Chairman and President,
Lincoln, Nebraska 68501 SMITH HAYES Financial Services Corporation Lincoln,
Nebraska; Chairman and President, Consolidated
Investment Corporation, Lincoln, Nebraska; Vice
President and Director, Concorde Management and
Development, Inc., Lincoln, Nebraska.
*Michael S. Dunlap (33) Executive Vice President and Director Union
President and Secretary Bank and Trust Company, Lincoln, Nebraska;
4732 Calvert Street Director, Lancaster County Bank, Waverly,
Lincoln, Nebraska 68506 Nebraska; and Unipac Service Corporation.
Stan Schrier (62) President, Food 4 Less, Inc., a retail
Director grocery chain, and owner, Schrier-Lawson
11128 John Galt Blvd. Motor Center.
Omaha, Nebraska 68137
R. Paul Hoff (62) Physician and CEO of Seward Clinic,
Director P.C., Seward, Nebraska.
311 Jackson
Seward, Nebraska 68434
Edson L. Bridges III (39) Director, Bridges Investment Fund, Inc.,
Director a registered open end management investment
8401 W. Dodge Road, #256 company, February, 1991 to present; Vice
Omaha, Nebraska 68114 President and Director of Bridges Investment
Counsel Inc., a registered investment adviser.
Jon Gross (28) Trust Investment Officer, Union Bank and Trust
Vice President Company, Lincoln, Nebraska, since 1991 and an employee
3643 South 48th Street of Union Bank and Trust Company since 1988.
Lincoln, Nebraska 68506
- ----------------------------------------------- -----------------------------------------------------
</TABLE>
*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.
5
<PAGE>
The following table represents the compensation amounts received for
services as a director of the Funds for the year ended June 30, 1997:
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 $4,000 $0 $4,000
R. Paul Hoff, Director $4,000 $0 $4,000
Edson L. Bridges III, $4,000 $0 $4,000
Director
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Lancaster Administrative Services, Inc. ("LAS") acts as the
administrator ("Administrator") for the Fund 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. Murray Johnstone International Limited ("MJI") serves as sub-adviser (the
"Sub-Adviser") for the International Portfolio pursuant to the terms of a
Sub-Advisory Agreement between the Adviser and Sub-Adviser. The Sub-Adviser's
address is 11 West Nile Street, Glasgow G1 2PX United Kingdom. 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 23, 1997. LAS and SMITH HAYES address is 200 Centre
Terrace, 1225 "L" Street, Lincoln, Nebraska, 68508.
CONTROL OF THE ADVISER, THE SUB-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. The
Sub-Adviser is a wholly-owned subsidiary of United Asset Management Corporation.
6
<PAGE>
INVESTMENT ADVISORY AGREEMENT, SUB-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"). MJI acts as Sub-Adviser to the International Portfolio
pursuant to a Sub-Advisory Agreement with the Adviser (the "Sub-Advisory
Agreement"). 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 or Administration Agreement, or interested
persons of any such parties (other than as directors of the Fund)). The Advisory
Agreement and Administration Agreements for the Intermediate Government Bond
Portfolio, Government Securities Portfolio, Growth Portfolio and Capital
Appreciation Portfolio were last approved by the Board of Directors on July 23,
1997. 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 Portfolios, 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.
The Advisory Agreement for the International Portfolio and the
Sub-Advisory Agreement became effective on October 1, 1996, and shall continue
in effect for a period of two years from its effective date. Thereafter, the
Advisory Agreement for the International Portfolio and the Sub-Advisory
Agreement shall continue in effect only so long as such continuance is
specifically approved at least annually by the Board of Directors of the Fund or
by the votes of the majority of the outstanding voting securities of the
International Portfolio, and by the vote of a majority of the directors of the
Fund who are not parties to the Advisory Agreement or Sub-Advisory Agreement or
interested persons of the Fund, the Adviser or the Sub-Adviser.
The Advisory Agreements, Sub-Advisory Agreement and Administration
Agreement terminate automatically in the event of their assignment. In addition,
the Advisory Agreements, the Sub-Adviser Agreement 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 and Sub-Advisory Agreement, by
vote of a majority of the Trust's outstanding voting securities, on not more
than 60 days' written notice to the Adviser or Sub-Adviser as the case may be,
and by the Adviser, Sub-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.
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 pay Union a monthly
advisory fee equal on an annual basis to .50% of their 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").
7
<PAGE>
(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%).
Performance
Relative to Adviser Total
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
8
<PAGE>
Pursuant to the Advisory Agreement the International Portfolio pay the
Advisor a fee in an amount equal to 1.15% per annum of the Portfolio's daily
average net assets. The Adviser pays the Sub-Adviser a fee equal to .65% of the
first $10 million and .60% above that amount per annum of the International
Portfolio's daily average net assets pursuant to the Sub-Advisory Agreement.
Pursuant to the Administration Agreement, the Administrator provides, or
contracts with others to provide, the Fund all necessary office facilities,
bookkeeping and shareholder recordkeeping services, share transfer services and
dividend disbursing 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. From July 1, 1995 to October 31, 1995, and from
February 1, 1996, to June 30, 1997 the Administrator waived .15% of that fee.
The Administrator revoked its fee waiver effective July 1, 1997. For the years
ended June 30, 1995, 1996 and 1997 (and the period October 1, 1996 to June 30,
1997 for the International Portfolio) the Fund paid to Advisor and the
Administrator the following amounts for advisory and administrative services as
indicated:
Advisory Fees Administration
Fees
Intermediate Government
Bond Portfolio
1997 $38,269 $14,719
1996 $42,967 $16,555
1995 $40,101 $ 6,169
Capital Appreciation
Portfolio
1997 $17,500 $11,855
1996 $18,902 $ 3,032
1995 $ 2,370 $ 672
Growth Portfolio
1997 $160,343 $80,173
1996 $ 93,310 $46,667
1995 $ 59,230 $11,846
Government Securities
Portfolio
1997 $122,584 $61,292
1996 $ 94,612 $47,314
1995 $ 64,587 $12,917
International Portfolio
1997 $64,660 $14,057
Under the Advisory Agreements, the Adviser provides the Portfolios with
advice and assistance in the selection and disposition of that Portfolios'
investments. Under the Sub-Advisory Agreement, the Sub-Adviser provides
assistance in management of the assets of the International Portfolio. 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.
9
<PAGE>
DISTRIBUTOR
The Distributor provides underwriting services to the Fund pursuant to
the terms of an Underwriting and Distribution Agreement dated May 21, 1991 (the
"Underwriting Agreement"). Pursuant to the Underwriting Agreement, the
Distributor is obligated to offer shares of the Portfolios for sale on a
continuous basis at all time when such shares are available for sale. In return
for services provided under the Underwriting Agreement, the Distributor is
entitled to receive the sales load charged in connection with the sale of any
Portfolio shares and to be reimbursed for expenses incurred in providing such
services. The Distributor received $8,086 during the Fund's fiscal year ended
June 30, 1997, and paid out 100% of this amount as commissions and dealer
allowances.
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 monthly 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, the Growth Portfolio and
the International Portfolio pay no Custodian fees.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
The Adviser is responsible for decisions to buy and sell securities for
the Portfolios, the selection of broker-dealers to effect the transactions and
the negotiation of brokerage commissions, if any. The Adviser has delegated
those responsibilities for the International Portfolio to the Sub-Adviser under
the Sub-Advisory Agreement. 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 or Sub-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 or
Sub-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 or Sub-Adviser to
supplement their own investment research activities and enables the Adviser or
Sub-Adviser to obtain the views and information of individuals and research
staffs of many different securities firms prior to making investment decisions
for the Portfolios. To the extent portfolio transactions are effected with
broker-dealers who furnish research services, the Adviser or Sub-Adviser
receives benefits, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Portfolio from these transactions.
The Adviser and Sub-Adviser believe 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.
10
<PAGE>
The Adviser and Sub-Adviser do not maintain any "formula" which must be
followed in connection with the placement of transactions. However, from time to
time, the Adviser or Sub-Adviser may elect to use certain brokers to execute
transactions in order to encourage them to provide it with research services
which the Adviser or Sub-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 or Sub-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 or Sub-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.
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
or Sub-Adviser. Investment decisions for the Fund and for such advisory clients
are made by the Adviser or Sub-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 or Sub-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 or Sub-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 or Sub-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 or Sub-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 or Sub-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.
During the fiscal years ended June 30, 1997, 1996 and 1995, the Fund
incurred $208,138, $91,900 and $41,468 in brokerage commissions. A portion of
those commissions was paid to the Fund's Distributor, allocated among the
Portfolios as follows:
1997 1996 1995
---- ---- ----
Intermediate Government Bond Portfolio $0 $ 450 $3,250
Government Securities Portfolio 0 0 2,300
Growth Portfolio 0 980 7,629
Capital Appreciation Portfolio 50,410 6,370 21,020
International Portfolio 0 0 0
-------- -------- ----------
$50,410 $7,800 $34,199
11
<PAGE>
The Distributor was paid 82% and 8% of the aggregate brokerage
commissions incurred in the fiscal years ended June 30, 1995, and 1996 and 24%
in 1997. The remaining brokerage commissions were paid to twelve other
unaffiliated broker dealers. Of the aggregate dollar amount of transactions
involving payment of commissions, 29% were effected through the Distributor in
the fiscal year ended June 30, 1997. It is the Company's intent that brokerage
transactions executed through SMITH HAYES will be effected pursuant to the
Company'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.
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 ofSeptember 9, 1997, 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. 495,166.676 100%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Cook Family Foods 33,818.556 6.83%
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
MD Investments 28,487.375 5.75%
c/o Mike Dunlap
P.O. Box 6155
Lincoln, NE 68506
Union Bank and Trust 26,831.819 5.42%
Company
Profit Sharing & 401(k) Plan
4732 Calvert
Lincoln, NE 68506
Growth UBATCO & Co. 2,776,195.745 99.75%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Union Bank & Trust Company 147,192.026 5.29%
Profit Sharing Plan & 401K Plan
4732 Calvert Street
Lincoln, NE 68506
12
<PAGE>
Growth Portfolio Name & Address Shares % Ownership
Linweld 401K/PSP 152,822.673 5.49%
1225 "L" Street, Street. 600
Lincoln, NE 68508
Intermediate Government UBATCO & Co. 440,081.626 99.07%
Bond Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Benes Service Company 61,262.319 13.79%
Profit Sharing Plan
Valparaiso, NE 68605
Intermediate Government Madonna Rehabilitation Hospital 34,995.001 7.88%
Bond Portfolio Agency Account
5401 South
Lincoln, NE 68506
Cook Family Foods 76,796.204 7.80%
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
Oak Creek Valley Bank 30,723.547 6.92%
Profit Sharing Plan
108 W. Second Street
Valparaiso, NE 60868
Womens Clinic 28,114.487 6.33%
Profit Sharing Plan
220 Lyncrest Drive
Lincoln, NE 68510
Government Securities UBATCO & Co. 2,721,164.145 100%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
International UBATCO & Co. 984,214.108 100%
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Linweld 401K/PSP 95,997.791 9.75%
1225 "L" Street, Street. 600
Lincoln, NE 68508
Crete/Sunflower 121,483.484 12.34%
Profit Sharing Plan
P.O. Box 81228
Lincoln, NE 68528
13
<PAGE>
On September 9, 1997, the Directors and officers of the Fund as a group
beneficially owned 35,664.702 shares or 1.31%, 51,760.459 shares or 1.86%,
39,753.519 shares or 8.03%, 12,390.468 shares or 1.26% and 1,008.065 shares or
.14%, respectively, of the Government Securities Portfolio, Growth Portfolio,
Capital Appreciation Portfolio and the International Portfolio. Directors and
officers owned 1.88% of the shares outstanding in all Portfolios.
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.
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 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 or 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
14
<PAGE>
all dividend, capital gain and 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 Portfolio'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.
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.
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.
15
<PAGE>
The yields of the Intermediate Government Bond Portfolio and Government
Securities Portfolio for the 30-day period ended June 30, 1997 were 4.73% and
5.25% respectively.
The average annual total returns of the Portfolios for the one year,
five years and inception to date ended June 30, 1997 are as follows:
One Year Five Years Inception to Date
Intermediate Government Bond Portfolio 5.6% 5.2% 6.0%
Capital Appreciation Portfolio 11.7% -- 11.4%
Growth Portfolio 32.6% -- 19.7%
Government Securities Portfolio 6.3% -- 4.1%
International Portfolio -- -- 13.6%
FINANCIAL STATEMENTS
The Fund hereby incorporates by reference the information in the Fund's
Annual Report dated June 30, 1997, filed with the Securities and Exchange
Commission on August 27, 1997 and the Fund's Semi-Annual Report dated December
31, 1996 filed with the Commission on February 26, 1997. Both Reports are
available upon request to the Fund without charge.
AUDITORS
The Board of Directors, including all disinterested directors,
unanimously approved the appointment of Deloitte & Touche LLP, 1040 NBC Center,
Lincoln, Nebraska 68508 as the Fund's accountants.
16
<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.
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.
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.
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.
