STRATUS FUND, INC.
GROWTH
GOVERNMENT SECURITIES
CAPITAL APPRECIATION
INTERMEDIATE GOVERNMENT BOND
INTERNATIONAL
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
<PAGE>
TABLE OF CONTENTS
Schedule of Investments
Growth Portfolio.................... 1
Government Securities Portfolio..... 5
Capital Appreciation Portfolio...... 6
Intermediate Government Bond Portfolio 9
International Portfolio............. 10
Statement of Assets and Liabilities.... 14
Statement of Operations................ 16
Statements of Changes in Net Assets
Growth Portfolio.................... 17
Government Securities Portfolio..... 17
Capital Appreciation Portfolio...... 18
Intermediate Government Bond Portfolio 18
International Portfolio............. 19
Financial Highlights
Growth Portfolio.................... 20
Government Securities Portfolio..... 21
Capital Appreciation Portfolio...... 22
Intermediate Government Bond Portfolio 23
International Portfolio............. 24
Notes to Financial Statements.......... 25
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
GROWTH PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK - 94.65% ASSETS VALUE
------ --------------------- ------ -----
CHEMICALS 3.21%
---------
20,000 Nalco Chemical Company $791,250
20,000 Praxair, Inc. 900,000
-------
1,691,250
COMPUTER RELATED 7.53%
----------------
35,000 First Data Corporation 1,023,750
15,000 International Business Machines 1,568,438
6,000 Microsoft Corporation 775,500
15,000 Sun Microsystems Inc.* 598,125
-------
3,965,813
ELECTRICAL EQUIPMENT 1.93%
--------------------
18,000 Emerson Electric Company 1,015,875
ELECTRONICS 3.35%
-----------
8,000 Altera Corporation 265,000
11,000 Intel Corporation 772,750
12,000 Phillips Electronics N.V.* 726,000
-------
1,763,750
ENTERTAINMENT/LEISURE 1.79%
---------------------
17,000 Carnival Corporation Class A 941,375
FINANCIAL SERVICES 6.05%
------------------
12,000 Bankamerica Corporation 876,000
15,000 Barnett Banks, Inc. 1,078,125
20,000 Merchantile Bank Corporation 1,230,000
---------
3,184,125
FOOD PROCESSING 1.99%
---------------
32,000 ConAgra, Inc. 1,050,000
1
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
GROWTH PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
------ ---------------------------- ----------- --------
GAS-DISTRIBUTION 2.12%
----------------
25,000 Questar Corporation $1,115,625
HOLDING COMPANY 1.87%
---------------
9,000 Chase Manhattan Corporation 985,500
HOUSEHOLD PRODUCTS/WARES 1.54%
------------------------
11,000 Colgate-Palmolive Company 808,500
INDUSTRIAL SERVICES 2.12%
-------------------
30,000 Corning, Inc. 1,113,750
INSURANCE
24,000 American General Corporation 10.58% 1,297,500
14,000 American International Group 1,522,500
16,000 Allstate Corporation 1,454,000
24,000 Travelers Group, Inc. 1,293,000
---------
5,567,000
MACHINERY/TOOLS 2.20%
---------------
32,000 Dover Corporation 1,156,000
MANUFACTURING 7.27%
-------------
20,000 General Electric Company 1,467,500
27,000 Mattel, Inc. 1,005,750
30,000 Tyco International Ltd. 1,351,875
---------
3,825,125
MEDICAL SUPPLIES/SERVICE 4.16%
------------------------
19,000 Becton Dickson Company 950,000
10,000 Warner-Lambert Company* 1,240,000
---------
2,190,000
OIL-FIELD SERVICES 1.84%
------------------
12,000 Schlumberger Ltd. 966,000
2
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
GROWTH PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
-------- ------------------------- --------- -------
OIL COMPANY- INTEGRATED 6.18%
-----------------------
15,000 Mobil Corporation $1,082,813
20,000 Royal Dutch Petroleum ADR 1,083,750
20,000 Texaco, Inc. 1,087,500
---------
3,254,063
OFFICE/BUSINESS 2.85%
---------------
35,000 Viking Office Products 763,439
10,000 Xerox Corporation 738,125
-------
1,501,564
PACKAGING/CONTAINER 2.13%
-------------------
25,000 Avery Dennison Corporation 1,118,750
PHARMACEUTICAL/MEDICAL 5.53%
----------------------
20,000 Johnson & Johnson 1,317,500
15,000 Merck & Company Inc. 1,593,750
---------
2,911,250
PUBLISHING/PRINTING 2.11%
-------------------
18,000 Gannett, Company 1,112,625
RETAIL/APPAREL 3.18%
--------------
14,000 Dayton/Hudson Corporation 945,000
20,000 Ross Stores, Inc. 727,500
-------
1,672,500
RETAIL STORE 3.93%
------------
25,000 Costo Companies, Inc.* 1,115,625
28,000 General Nutrition Company* 952,000
-------
2,067,625
TELECOMMUNICATIONS 1.97%
------------------
25,000 Airtouch Communications, Inc.* 1,039,063
3
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
GROWTH PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
-------- ------------------------- --------- -------
TELECOMMUNICATION EQUIPMENT 3.23%
---------------------------
12,000 Lucent Technology $958,500
14,000 Tellabs, Inc.* 740,250
-------
1,698,750
TRANSPORTATION 1.75%
--------------
37,500 Southwest Airlines Company 923,435
UTILITIES/ELECTRIC 2.24%
------------------
40,000 Kansas City Power & Light Company 1,182,500
Total Investment in Securities
(cost $38,543,203) 94.65% 49,821,813
Cash Equivalents 5.02% 2,641,868
Other assets, less liabilities 0.33% 172,696
----- -------
TOTAL NET ASSETS 100.00% $52,636,377
======= ============
* indicates non-income producing security
4
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
GOVERNMENT SECURITIES FUND
PERCENT
OF NET MARKET
PRINCIPAL ASSETS VALUE
AMOUNT U.S. GOVERNMENT SECURITIES 92.55%
- ---------- ------------------------------ ---------- --------
$1,000,000 Federal National Mtg. Assn. 6.2% due 6/6/00 $1,007,865
2,000,000 Federal National Mtg. Assn. 6.35% due 6/10/05 2,041,124
3,000,000 U.S. Treasury Bond 6.5% due 5/31/01 3,072,188
1,500,000 U.S. Treasury Bond 6.25% due 3/31/99 1,510,547
2,000,000 U.S. Treasury Bond 6.625% due 3/31/02 2,064,063
2,000,000 U.S. Treasury Bond 7.125% due 10/15/98 2,021,875
2,000,000 U.S. Treasury Bond 6.375% due 7/15/99 2,020,313
3,000,000 U.S. Treasury Bond 6.375% due 1/15/00 3,039,375
3,000,000 U.S. Treasury Bond 5.75% due 8/15/03 3,000,938
1,000,000 U.S. Treasury Bond 7.75% due 11/30/99 1,036,875
3,000,000 U.S. Treasury Bond 5.75% due 10/31/00 3,003,750
2,000,000 U.S. Treasury Bond 5.50% due 12/31/00 1,988,750
---------
Total investment in securities
(cost $25,434,585) 92.55% $25,807,663
Cash equivalents 5.68% 1,583,079
Other assets, less liabilities 1.77% 494,276
----- -------
TOTAL NET ASSETS 100.00% $27,885,018
======= ===========
5
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
CAPITAL APPRECIATION PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK - 91.53% ASSETS VALUE
------ --------------------- ------ -----
AEROSPACE/DEFENSE 2.74%
-----------------
2,700 Thiokol Corporation $219,375
ADVERTISING 3.56%
-----------
7,800 Snyder Communications, Inc.* 284,700
BROADCASTING/MEDIA 6.79%
------------------
3,500 Clear Channel Communications* 278,031
3,800 Univision 265,288
-------
543,319
COMMERCIAL SERVICES 2.03%
-------------------
4,600 Manpower, Inc. 162,150
COMPUTER RELATED 4.61%
----------------
3,000 Affiliated Computer* 78,938
5,000 Ciber, Inc. 290,000
-------
368,938
FINANCIAL SERVICES 19.91%
------------------
4,200 H.F. Ahmanson & Company* 281,138
4,500 Coast Savings Financial* 308,531
3,400 First Union Corporation 174,250
6,000 Imperial Bankcorp* 295,875
11,000 Morgan Keegan, Inc.* 278,438
10,000 Ocwen Financial, Inc. 254,375
-------
1,592,607
FOOD/BEVERAGE/TOBACCO 3.28%
---------------------
4,400 Suiza Foods Corporation* 262,075
6
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
CAPITAL APPRECIATION PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
-------- ---------------------------------- --------- ---------
HOUSEHOLD PRODUCTS/WARES 5.36%
------------------------
5,100 Ethan Allen Interiors $196,669
5,500 Sunbeam Corporation 231,688
-------
428,357
INSURANCE 7.83%
---------
1,500 Aflac, Inc. 76,688
2,200 Allstate Corporation 199,925
3,800 Fremont General Corporation 208,050
4,400 IPC Holdings, Inc. 141,625
-------
626,288
MACHINERY/EQUIPMENT 1.54%
-------------------
4,200 Agco Corporation 122,850
MANUFACTURING 3.49%
-------------
5,700 USG Corporation* 279,300
MEDICAL SUPPLIES/SERVICES 0.94%
-------------------------
1,000 Cardinal Health, Inc. 75,125
PUBLISHING/PRINTING 3.70%
-------------------
8,000 Valassis Communications, Inc.* 296,000
RESTAURANT/FOOD SERVICE 3.42%
-----------------------
6,500 CKE Restaurant 273,813
RETAIL/APPAREL 2.02%
--------------
4,600 Tommy Hilfiger Corporation* 161,575
RETAIL STORE 9.84%
------------
8,000 Fred Meyer, Inc.* 291,000
3,000 Home Depot, Inc. 176,625
6,000 Mac Frugals Bargains 246,750
10,000 Petsmart, Inc.* 72,500
------
786,875
7
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
CAPITAL APPRECIATION PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
-------- ---------------------------------- --------- ---------
TRANSPORTATION 3.59%
--------------
4,600 US Airways Group, Inc.* $287,500
UTILITIES 6.88%
---------
7,800 New York State Electric 276,900
8,600 Montana Power Company 273,584
-------
550,484
Total investment in securities
(cost $6,777,259) 91.53% $7,321,331
Cash equivalents 9.67% 773,262
Other assets, less liabilities (1.20%) (95,472)
------- --------
NET ASSETS 100.00% $7,999,121
======= ==========
*Indicates nonincome-producing security
8
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
INTERMEDIATE GOVERNMENT BOND FUND
PERCENT
PRINCIPAL OF NET MARKET
AMOUNT ASSETS VALUE
- --------- --------- -------
U.S. GOVERNMENT SECURITIES 90.83%
-------------------------- ---------
$500,000 U.S. Treasury Bond 6.25% due 1/31/02 $508,827
400,000 U.S. Treasury Bond 6.625% due 4/30/02 413,125
200,000 U.S. Treasury Bond 7.875% due 4/15/98 201,313
550,000 U.S. Treasury Bond 7.125% due 10/15/98 556,016
500,000 U.S. Treasury Bond 6.375% due 1/15/99 503,516
400,000 U.S. Treasury Bond 6.375% due 1/15/00 405,250
500,000 U.S. Treasury Bond 7.125% due 2/29/00 514,453
500,000 U.S. Treasury Bond 6.125% due 7/31/00 505,156
500,000 U.S. Treasury Bond 6.25% due 10/31/01 508,750
Total investment in securities
(cost $4,064,984) 90.83% $4,116,406
Cash equivalents 7.41% 335,680
Other assets, less liabilities 1.76% 79,752
----- ------
NET ASSETS 100.00% $4,531,838
======= ==========
9
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
INTERNATIONAL PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK - 96.96% ASSETS VALUE
------ --------------------- ------ -----
AUTO/TRUCK/PARTS 2.56%
----------------
10,300 Nissan Motor Company ADR $84,975
5,700 PSA Peugeot Citroen ADR 179,787
-------
264,762
BROADCASTING/MEDIA 1.62%
------------------
4,300 Carlton Communications Plc ADR 167,700
BUILDING MATERIALS/CONSTRUCTION 2.15%
-------------------------------
13,400 Williams Holdings ADR 222,247
CHEMICALS 1.66%
---------
3,900 Quimica Minera Chili SA ADR 171,600
COMPUTER RELATED 1.51%
----------------
2,900 Fujitsu Limited 156,128
DIVERSIFIED OPERATIONS 5.36%
----------------------
7,676 Barlow Ltd ADR 65,145
5,200 Cie Generale Des Eaux ADR 145,216
2,300 Hutchinson Whampoa Ltd ADR 72,132
3,000 Telecom Italia 192,000
14,700 Swire Pacific Ltd ADR 80,630
------
555,123
ELECTRICAL EQUIPMENT 1.06%
--------------------
800 Sumitomo Electronics* 109,521
ELECTRONICS 2.88%
-----------
1,400 Hitachi Ltd ADR 96,863
3,300 Sgs-Thomson Microeletronics N.V.* 201,506
-------
298,369
10
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
INTERNATIONAL PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
-------- ---------------------------------- --------- -------
INTERNATIONAL PORTFOLIO 3.14%
-----------------------
5,600 Allied Irish Banks $324,800
FINANCIAL SERVICES 19.87%
------------------
6,400 Australia & New Zealand Banking Group Ltd ADR 210,400
3,100 Barclays Plc ADR 338,481
8,485 Banco Frances Del Rio De La Plata S.A. ADR 232,277
5,500 Banque National Paris ADR 292,468
3,900 Dresdner Bank 180,029
4,200 Prudential Corporation 244,120
7,000 Societe Generale 190,828
6,000 Banco Santander SA ADR 195,375
1,500 Sumitomo Bank 171,895
-------
2,055,873
FOOD/BEVERAGE/TOBACCO 2.52%
---------------------
6,300 Cadbury Schweppes* 260,663
INSURANCE 2.75%
---------
11,000 Liberty Life Association of Africa ADR 141,275
1,500 Zurich Versi ADR 143,156
-------
284,431
MANUFACTURING 4.41%
-------------
12,200 Continental AG ADR 269,370
4,900 Fuji Photo Film 187,119
-------
456,489
MEDICAL SUPPLIES/SERVICES 0.99%
-------------------------
6,700 Eisai Company Ltd ADR 102,545
OFFICE/BUSINESS 1.32%
---------------
2,200 Ricoh Company Ltd ADR 137,055
11
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
INTERNATIONAL PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
-------- ---------------------------------- --------- -------
OIL EXPLORATION/PRODUCTION 1.07%
--------------------------
2,000 Total SA Sponsor* $111,000
OIL/GAS DRILLING 3.72%
----------------
3,300 Eni Spa ADR 188,306
4,500 Shell Transport & Trading Company ADR 196,875
-------
385,181
PHARMACEUTICAL/MEDICAL 3.61%
----------------------
4,600 Novartis AG ADR 373,727
PUBLISHING/PRINTING 3.39%
-------------------
2,000 Elsevier NV ADR 64,500
10,145 Vnu-Verenigde Nederlandse ADR 286,249
-------
350,749
REAL ESTATE 2.20%
-----------
20,800 City Developments Ltd ADR 96,287
20,000 Cheung Kong Holdings Ltd ADR 130,996
-------
227,283
RECREATION 2.14%
----------
51,000 Ladbroke Group 221,534
11,540 Cifra SA DE CV 4.90% 283,425
8,000 Kingfisher Plc 223,247
-------
506,672
TELECOMMUNICATIONS 9.41%
------------------
5,900 Cia de Telecommunications de Chile Sa ADR 176,263
9,500 Deutsche Telekom ADR 176,938
5,500 Telecom Corporation of New Zealand 213,125
12
<PAGE>
STRATUS FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
INTERNATIONAL PORTFOLIO
PERCENT
OF NET MARKET
SHARES COMMON STOCK (CONTINUED) ASSETS VALUE
-------- ---------------------------------- --------- -------
TELECOMMUNICATIONS (CONTINUED)
------------------------------
5,000 Portugal Telecom SA ADR $235,000
2,800 Telstar Corporation Ltd 116,900
1,000 Telefonos de Mexico ADR 56,059
------
974,285
UTLITIES/TELECOMMUNICATIONS 3.17%
---------------------------
3,600 Telefonica de Espana ADR 327,825
REGISTERED INVESTMENT COMPANIES
-------------------------------
8,000 Webs-Sinagpore Index Series* 9.55% 53,000
8,600 Webs-Italy Index Series* 172,000
20,500 Webs-Japan Index Series* 202,438
19,900 Webs-Belgium Index Series* 329,594
15,000 Webs-Switzerland Index Series* 231,563
-------
988,595
Total investment in securities
(cost $9,644,865) 96.96% $10,034,157
Cash Equivalents 4.27% 442,062
Other Assets, less Liabilities (1.23%) (127,460)
------- ---------
TOTAL NET ASSETS 100.00% $10,348,759
======= ===========
* indicates non-income producing security
13
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Statement of Assets and Liabilities
December 31, 1997
(Unaudited)
Government Capital
Growth Securities Appreciation
ASSETS: Portfolio Portfolio Portfolio
----------- ----------- ------------
<S> <C> <C> <C>
Investments in securities, at market value
(cost $38,543,203, 25,434,585, and 6,777,259) $49,821,813 $25,807,663 $7,321,331
Cash equivalents 2,641,868 1,583,079 773,262
Accrued interest and dividends receivable 66,657 429,640 5,163
Receivable for securities sold - - 2,966,964
Receivable for fund shares sold 254,224 167,121 49,497
----------- ----------- -----------
Total assets 52,784,562 27,987,503 11,116,217
----------- ----------- -----------
LIABILITIES:
Accrued expenses, including investment
management and service fees payable to
adviser, administrator and distributor (note 3) 39,668 24,233 15,454
Payable for securities purchased - - 3,085,087
Payable for fund shares redeemed 108,517 78,252 16,555
----------- ----------- -----------
Total liabilities 148,185 102,485 3,117,096
----------- ----------- -----------
NET ASSETS APPLICABLE TO OUTSTANDING
CAPITAL STOCK $52,636,377 $27,885,018 $7,999,121
=========== =========== ===========
Net assets are represented by:
Capital stock outstanding, at par (note 5) $3,280 $2,828 $583
Additional paid-in capital 41,592,339 27,948,357 7,604,488
Accumulated undistributed net
investment income (loss) 213 157 67
Accumulated undistributed net realized
gain (loss) on investments (238,065) (439,403) (150,088)
Unrealized appreciation (note 4) 11,278,610 373,078 544,072
----------- ----------- -----------
Total net assets applicable
to shares outstanding $52,636,377 $27,885,018 $7,999,121
=========== =========== ==========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Shares of capital stock outstanding: 3,279,750,
2,828,319, and 582,799 respectively (note 5) $16.05 $9.86 $13.73
====== ====== ======
See accompanying notes to financial statements.
</TABLE>
14
<PAGE>
STRATUS FUND, INC.
Statement of Assets and Liabilities
December 31, 1997
(Unaudited)
Intermediate
Government
Bond International
ASSETS: Portfolio Portfolio
Investments in securities, at market value --------------- ------------
(cost $4,064,984 and 9,644,865) $4,116,406 $10,034,157
Cash equivalents 335,680 442,062
Accrued interest and dividends receivable 87,056 13,501
Receivable for fund shares sold - 3,457
--------- ----------
Total assets 4,539,143 10,493,177
--------- ----------
LIABILITIES:
Accrued expenses, including investment
management and service fees payable to
adviser, administrator and distributor (note 3) 4,553 16,355
Payable for fund shares redeemed 2,752 128,063
--------- ----------
Total liabilities 7,305 144,418
--------- ----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK $4,531,838 $10,348,759
========= ==========
Net assets are represented by:
Capital stock outstanding, at par (note 5) $428 $995
Additional paid-in capital 4,595,951 10,133,300
Accumulated undistributed net
investment income (loss) (63) (7,411)
Accumulated undistributed net realized
loss on investments (115,900) (167,417)
Unrealized appreciation (note 4) 51,422 389,292
--------- ----------
Total net assets applicable
to shares outstanding $4,531,838 $10,348,759
========= ==========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Shares of capital stock outstanding: 427,827
and 995,076 respectively (note 5) $10.59 $10.40
====== ======
See accompanying notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
INTERMEDIATE
GOVERNMENT CAPITAL GOVERNMENT
GROWTH SECURITIES APPRECIATION BOND INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $317,340 $ - $16,956 $ - $76,333
Interest 133,746 819,329 19,431 142,035 13,010
------------ ----------- ---------- ----------- ------------
Total investment income 451,086 819,329 36,387 142,035 89,343
------------ ----------- ---------- ----------- ------------
EXPENSES (NOTE 3):
Investment advisory fees 127,740 67,988 2,011 15,207 61,858
Administration/Marketing fees 63,870 33,994 9,763 5,849 13,447
Legal fees 3,057 1,676 472 290 12,311
Accounting 4,362 3,788 3,305 3,423 3,377
Custodial fees - - 5,203 2,356 -
Securities pricing 2,325 - 1,324 - 2,675
Other operating expenses 10,844 8,134 4,222 380 3,085
------------ ----------- ---------- ----------- ------------
Total expenses 212,199 115,581 26,299 27,505 96,753
------------ ----------- ---------- ----------- ------------
Net investment income (loss) 238,887 703,748 10,088 114,529 (7,410)
------------ ----------- ---------- ----------- ------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 4):
Net realized gain (loss) 2,739,398 3,634 301,425 2,945 (167,415)
Net unrealized appreciation
(depreciation):
Beginning of period 11,608,175 (16,878) 748,896 (3,965) 902,570
End of period 11,278,610 373,078 544,072 51,422 389,292
------------ ----------- ---------- ----------- ------------
Net unrealized appreciation
(depreciaton) (329,565) 389,956 (204,824) 47,457 (513,278)
------------ ----------- ---------- ----------- ------------
Net realized and unrealized
gain (loss) on investments 2,409,833 393,590 96,601 50,402 (680,693)
------------ ----------- ---------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,648,720 $1,097,338 $106,689 $164,932 ($688,103)
============ =========== ========== =========== ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Statements of Changes in Net Assets
Six Months Ended December 31, 1997 and Year Ended June 30, 1997
Government
Growth Securities
Portfolio Portfolio
Six Months Ended Year Ended Six Months Ended Year Ended
Dec. 31, 1997 June 30, 1997 Dec. 31, 1997 June 30, 1997
(Unaudited) (Unaudited)
--------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operations:
Net investment income $238,887 $469,077 $703,748 $1,277,296
Net realized gain (loss) on investments 2,739,398 2,814,809 3,634 (77,114)
Unrealized appreciation (depreciation) (329,565) 6,226,081 389,956 265,658
--------- --------- --------- ----------
Net increase in net assets
resulting from operations 2,648,720 9,509,967 1,097,338 1,465,840
--------- --------- --------- ----------
Distributions to shareholders from:
Net investment income 239,918 477,783 704,039 1,289,378
Net realized gains 5,694,496 1,270,098 - -
--------- --------- --------- ----------
Total distributions 5,934,414 1,747,881 704,039 1,289,378
--------- --------- --------- ----------
Capital share transactions:
Proceeds from sales 6,853,288 12,534,379 1,683,103 9,004,815
Net assets from
tax-free exchange (note 6) - 6,102,448 - -
Payment for redemptions (1,960,935) (6,403,413) (1,366,863) (6,830,029)
Reinvestment of net investment income
and net realized gain distributions at
net asset value 4,840,619 1,565,616 641,611 1,139,458
--------- --------- --------- ----------
Total increase from capital
share transactions 9,732,972 13,799,030 957,851 3,314,244
--------- --------- --------- ----------
Total increase in net assets 6,447,278 21,561,116 1,351,149 3,490,706
Net assets:
Beginning of period 46,189,099 24,627,983 26,533,869 23,043,163
--------- --------- --------- ----------
End of period $52,636,377 $46,189,099 $27,885,018 $26,533,869
========== ========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Statements of Changes in Net Assets
Six Months Ended December 31, 1997 and Year ended June 30, 1997
Intermediate
Capital Government
Appreciation Bond
Portfolio Portfolio
Six Months Ended Year Ended Six Months Ended Year Ended
Dec. 31, 1997 June 30, 1997 Dec. 31, 1997 June 30, 1997
(Unaudited) (Unaudited)
------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $10,088 $62,073 $114,529 $302,278
Net realized gain (loss) on investments 301,425 35,730 2,945 (626)
Unrealized appreciation (depreciation) (204,824) 560,860 47,457 18,789
--------- --------- --------- --------
Net increase in net assets
resulting from operations 106,689 658,663 164,932 320,441
--------- --------- --------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income 10,101 43,274 114,591 307,339
Net realized gains 461,512 165,941 - -
--------- --------- --------- --------
Total distributions 471,612 209,215 114,591 307,339
--------- --------- --------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales 1,665,694 4,546,087 185,530 199,716
Payment for redemptions (501,479) (942,467) (412,823) (3,096,495)
Reinvestment of net investment income
and net realized gain distributions at
net asset value 467,288 205,002 103,072 264,889
--------- --------- --------- --------
Total increase (decrease) from capital
share transactions 1,631,504 3,808,622 (124,221) (2,631,890)
--------- ---------- --------- ---------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,266,581 4,258,070 (73,880) (2,618,788)
NET ASSETS:
Beginning of period 6,732,540 2,474,470 4,605,718 7,224,506
--------- ---------- --------- ---------
End of period $7,999,121 $6,732,540 $4,531,838 $4,605,718
========= ========== ========= ==========
See accompanying notes to financial statements.
</TABLE>
18
<PAGE>
STRATUS FUND, INC.
Statements of Changes in Net Assets
Six Months Ended December 31, 1997 and the
Period from October 1, 1996 (commencement of operations) to June 30, 1997
International
Portfolio
Six Months Ended Period Ended
Dec. 31, 1997 June 30, 1997
(Unaudited)
------------- -------------
Operations:
Net investment income ($7,410) $107,811
Net realized gain on investments (167,415) 131,682
Unrealized appreciation (513,278) 902,569
---------- ----------
Net increase in net assets
resulting from operations (688,103) 1,142,062
---------- ----------
Distributions to shareholders from:
Net investment income 199 107,613
Net realized gains 131,684 -
---------- ----------
Total distributions 131,883 107,613
---------- ----------
Capital share transactions:
Proceeds from sales 1,421,547 9,586,087
Payment for redemptions (813,572) (294,866)
Reinvestment of net investment income
and net realized gain distributions at
net asset value 129,662 105,437
---------- ----------
Total increase from capital
share transactions 737,638 9,396,658
---------- ----------
Total increase in net assets (82,347) 10,431,107
Net assets:
Beginning of period 10,431,107 -
---------- ----------
End of period $10,348,760 $10,431,107
========== ==========
See accompanying notes to financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 AND THE PERIOD FROM
OCTOBER 8, 1993 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1994
GROWTH PORTFOLIO
----------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
------------- ------------- ------------- ------------- ------------
(UNAUDITED)
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C>
Beginning of period $17.07 $13.67 $11.47 $9.84 $10.00
------ ------ ------ ----- ------
Income from investment operations:
Net investment income 0.08 0.22 0.23 0.22 0.19
Net realized and unrealized
gain (loss) on investments 0.85 3.99 2.36 1.72 (0.16)
---- ---- ---- ---- ------
Total income from
investment operations 0.93 4.21 2.59 1.94 0.03
---- ---- ---- ---- ----
Less distributions:
Dividends from net investment income(0.08) (0.22) (0.22) (0.22) (0.19)
Distributions from capital gains (1.87) (0.59) (0.17) (0.09) 0.00
------ ------ ------ ------ ----
Total distributions (1.95) (0.81) (0.39) (0.31) (0.19)
------ ------ ------ ------ ------
End of period $16.05(a) $17.07(a) $13.67 $11.47 $9.84
======== ========= ====== ====== =====
TOTAL RETURN 5.7%(a)(c) 32.6%(a) 22.6% 20.3% (.03%)(b)
=========== ========= ====== ===== =========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $52,636,377 46,189,099 24,627,983 12,813,352 12,892,161
Ratio of expenses to average net assets 0.67%(c) 0.72% 0.71% 0.82% 0.76%(c)
Ratio of net income to average net assets 0.26%(c) 1.46% 1.78% 2.14% 2.38%(c)
Portfolio turnover rate 57.29% 88.53% 92.72% 19.89% 10.05%
Average Commission Rate (d) $0.0989 $0.0948 N/A N/A N/A
(a) Excludes maximum sales load of 4%.
(b) Total return is not annualized.
(c) Annualized for those periods less than twelve months in duration.
(d) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE
YEARS ENDED JUNE 30, 1997, 1996 AND 1995 AND THE PERIOD FROM
OCTOBER 8, 1993 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1994
GOVERNMENT SECURITIES
PORTFOLIO
----------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
------------- ------------- ------------- ------------- ----------
(UNAUDITED)
NET ASSET VALUE:
<S> <C> <C> <C> <C> <C>
Beginning of period $9.72 $9.64 $9.77 $9.40 $10.00
----- ----- ----- ----- ------
Income (loss) from investment
operations:
Net investment income 0.26 0.51 0.49 0.45 0.27
Net realized and unrealized
gain (loss) on investments 0.14 0.08 (0.13) 0.37 (0.60)
---- ---- ------ ---- ------
Total income (loss) from
investment operations 0.40 0.59 0.36 0.82 (0.33)
---- ---- ---- ---- ------
Less distributions from
net investment income (0.26) (0.51) (0.49) (0.45) (0.27)
------ ------ ------ ------ ------
End of period $9.86(a) $9.72(a) $9.64 $9.77 $9.40
======= ======== ===== ===== =====
TOTAL RETURN 4.1%(a)(c) 6.3%(a) 3.7% 9.0% (3.(b)
====== ======== ==== ==== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $27,885,018 26,533,869 23,043,163 13,885,204 12,477,517
Ratio of expenses to average net assets 0.85%(a) 0.71% 0.69% 0.80% 0.74%(c)
Ratio of net income to average net assets 5.17%(a) 5.21% 5.04% 4.82% 3.89%(c)
Portfolio turnover rate 2.07% 27.20% 40.61% 33.88% 17.36%
(a) Excludes maximum sales load of 3%.
(b) Total return is not annualized.
(c) Annualized for those periods less than twelve months in duration.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE
YEARS ENDED JUNE 30, 1997, 1996, 1995 AND 1994 AND THE PERIOD FROM
JANUARY 4, 1993 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1993
CAPITAL APPRECIATION PORTFOLIO
--------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997 JUNE 30, 1996 JUNE 30,1995 JUNE 30, 1994 JUNE 30, 1993
(UNAUDITED)
NET ASSET VALUE: -------------- ------------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $14.25 $13.19 $11.23 $8.95 $9.40 $10.00
------ ------ ------ ----- ----- ------
Income (loss) from investment operations:
Net investment income (loss) 0.02 0.18 (0.19) (0.15) (0.12) (0.04)
Net realized and unrealized
gain (loss) on investments 0.19 1.48 2.88 2.62 (0.33) (0.56)
---- ---- ---- ---- ------ ------
Total Income (loss) from
Investment Operations 0.21 1.66 2.69 2.47 (0.45) (0.60)
---- ---- ---- ---- ------ ------
Less distributions from
net investment income (0.02) (0.12) - - - -
Less distributions from
capital gains (0.71) (0.48) (0.73) (0.19) - -
-------- -------- --------- ------- ------- -------
End of period $13.73(a) $14.25(a) $13.19 $11.23 $8.95 $9.40
====== ====== ====== ====== ===== =====
TOTAL RETURN 4.9%(a)(c) 11.7%(a) 26.0% 28.6% (4.8%) (6.0%)(b)
========= ======= ===== ===== ====== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $7,999,121 6,732,540 2,474,470 748,588 653,757 583,403
Ratio of expenses to average net assets 0.67%(c) 0.91% 2.84% 2.69% 2.13% 2.41%(c)
Ratio of net income (loss)
to average net assets 0.26%(c) 1.31% (1.54%) (1.59%) (1.27%) (1.04%)(c)
Portfolio turnover rate 159.51% 322.07% 179.06% 214.47% 9.09% 4.42%
Average Commission Rate (d) $0.0603 $0.0689 N/A N/A N/A N/A
(a) Excludes maximum sales load of 4%.
(b) Total return is not annualized.
(c) Annualized for those periods less than twelve months in duration.
(d) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission charged.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
STRATUS FUND, INC.
Financial Highlights
Six Months Ended December 31, 1997 and the
Years ended June 30, 1997, 1996, 1995, 1994 and 1993
Intermediate Government Bond
Portfolio
-------------------------------------------------------------------
Six Months Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 June 30,1997 June 30,1996 June 30,1995 June 30,1994 June 30, 1993
(Unaudited)
---------------- ----------- ------------ ------------ -------------- --------------
Net asset value:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $10.48 $10.47 $10.56 $10.29 $10.84 $10.72
Income (loss) from investment operations:
Net investment income 0.26 0.54 0.52 0.50 0.47 0.38
Net realized and unrealized
gain (loss) on investments 0.11 0.02 (0.09) 0.27 (0.55) 0.34
Total income (loss) from
investment operations 0.37 0.56 0.43 0.77 (0.08) 0.72
Less distributions:
Dividends from net
investment income (0.26) (0.55) (0.52) (0.50) (0.47) (0.38)
Distributions from capital gains - - - - - (0.22)
---------- -------- --------- --------- --------- -----------
Total distributions (0.26) (0.55) (0.52) (0.50) (0.47) (0.60)
---------- -------- --------- --------- --------- -----------
End of period $10.59(a) $10.48(a) $10.47 $10.56 $10.29 $10.84
========== ========= ====== ===== ====== ======
Total return 7.1%(a)(b) 5.6%(a) 4.1% 7.9% (0.8%) 8.9%
========== ========= ====== ====== ====== =====
Ratios/Supplemental data:
Net assets, end of period $4,531,838 4,605,718 7,224,506 5,518,431 7,774,768 6,747,719
Ratio of expenses to
average net assets 1.18% 1.02% 1.03% 1.11% 1.05% 1.12%
Ratio of net income to
average net assets 4.90% 5.14% 4.95% 4.84% 4.41% 4.58%
Portfolio turnover rate 0.00% 26.88% 4.05% 27.67% 21.02% 32.39%
(a) Excludes maximum sales load of 3%.
(b) Annualized for those periods less than one year.
See accompanying notes to financial statements.
</TABLE>
23
<PAGE>
STRATUS FUND, INC.
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND THE
PERIOD FROM OCTOBER 1, 1996 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1997
INTERNATIONAL
PORTFOLIO
--------------------------------
SIX MONTHS ENDED PERIOD ENDED
DEC. 31, 1997 JUNE 30, 1997
(UNAUDITED)
NET ASSET VALUE: ----------- ------------
Beginning of period $11.22 $10.00
------ ------
Income from investment operations:
Net investment income (0.01) 0.15
Net realized and unrealized gain
on investments (0.69) 1.22
------ ----
Total income from
investment operations (0.70) 1.37
------ ----
Less distributions:
Dividends from net investment income 0.00 (0.15)
------
Dividends from capital gains (0.12) (0.15)
------ ------
End of period $10.40(a) $11.22(a)
TOTAL RETURN (12.2%)(a)(b) 18.2%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $10,348,759 $10,431,107
Ratio of expenses to average net assets 1.78%(b) 1.48%(b)
Ratio of net income to average net assets (0.14%)(b) 1.89%(b)
Portfolio turnover rate 27.86% 33.77%
Average Commission Rate (c) $0.1000 $0.0809
(a) Excludes maximum sales load of 4%.
(b) Annualized for those periods less than twelve months in duration.
(c) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission charged.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
Stratus Fund, Inc. (the Fund) is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The Fund issues its shares in series, each series representing a
distinct portfolio with its own investment objectives and policies. At
December 31, 1997, the following series are presently authorized and have
shares outstanding.
Growth Portfolio Capital Appreciation Portfolio
Government Intermediate Government
Securities Portfolio Bond Portfolio
International Portfolio
2. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
The following is a summary of significant accounting policies employed by
the Fund in preparing its financial statements.
USE OF ESTIMATES: In preparing the financial statements in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the
date of the financial statements and changes in net assets for the period.
Actual results could differ from those estimates.
VALUATION OF INVESTMENTS
Investment securities are carried at market determined using the following
valuation methods:
o Securities traded on a national or regional stock exchange or included
in the NASDAQ National Market System are valued at the last quoted
sales price.
o Securities not listed on an exchange or securities for which the latest
quoted sales price is not readily available and securities traded
over-the-counter but not included in the NASDAQ National Market System
are valued at the mean of the closing bid and asked prices.
o Securities including bonds or other assets for which reliable recent
market quotations are not readily available are valued at fair market
value as determined in good faith or under the direction of the Board
of Directors. Determination of fair value involves, among other things,
reference to market indices, matrices and data from independent brokers
and pricing services.
25
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
All securities are valued in accordance with the above noted policies at
the close of each business day.
The Growth, Capital Appreciation, and International Portfolios are
authorized to engage in the purchase of exchange-traded put and call
options. When a call option is purchased, an amount equal to the premium
received by the Portfolio is included by the Portfolio in the Portfolio's
statement of assets and liabilities as a liability.
The amount of the liability is subsequently marked to market to reflect the
current value of the option written. The current market value of the traded
option is the last sales price on the principal exchange on which such
options are traded, or in the absence of such a sale, at the latest ask
quotation. When an option expires on its stipulated expiration date or the
Portfolio enters into a closing purchase transaction, the Portfolio
realizes a gain (or loss if the cost of a closing transaction exceeds the
premium received when the option was sold) without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When an option is exercised, the Portfolio realizes
a gain or loss from the sale of the underlying security and the proceeds
from such sale are increased by the premium originally received.
When a put option is purchased, an amount equal to the premium paid by the
Portfolio is included by the Portfolio in the Portfolio's statement of
assets and liabilities as an asset. The amount of the asset is subsequently
marked to market to reflect the value of the option written. The current
market value of a traded option is the last sales price on the principal
exchange on which such options are traded, or in the absence of such a
sale, at the latest ask quotation. When an option expires on its stipulated
expiration date or the Portfolio enters into a closing sales transaction,
the Portfolio realizes a gain (or loss if the cost of a closing transaction
is lower than the premium paid when the option was sold) without regard to
any unrealized gain or loss on the underlying security, and the asset
related to such option is extinguished. When an option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
and the proceeds from such sale are decreased by the premium originally
paid.
At December 31, 1997, the Growth, Capital Appreciation and International
Portfolios had no such option contracts outstanding nor were any written
during the year then ended.
At December 31, 1997, the cost of investment securities is identical for
financial reporting and income tax purposes.
26
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
2. CONTINUED
SECURITY TRANSACTIONS
Security transactions are accounted for on the date securities are
purchased or sold (trade date). Dividend income is recognized on the
ex-dividend date and interest income is accrued daily. Amortization of
premium and discount is accrued daily using both the constant yield and the
straight-line methods. Realized investment gains and losses are determined
by specifically identifying the issue sold.
FEDERAL INCOME TAXES
It is the policy of each Portfolio to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute virtually all of the taxable income generated by the Portfolios
to their shareholders within the time period allowed by the Federal law.
Consequently, no liability for Federal income taxes is required. Internal
Revenue Code requirements regarding distributions may differ from amounts
determined under generally accepted accounting principles. These book/tax
differences are either temporary or permanent in nature. To the extent
these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate in the
period that the differences arise. Each Portfolio is treated as a separate
entity for tax purposes, and on a calendar basis, will distribute
substantially all of its net investment income and realized gains, if any,
to avoid payment of any Federal excise tax. There will be no net realized
gain distributions until the net realized loss carry forwards have been
offset or expired. The losses will expire in 8 years. Each Portfolio
prepares its tax return on an accrual basis. The Government Securities and
Intermediate Government Bond Portfolios have unused capital loss carry
forwards of approximately $330,000 and $1,000 respectively, available for
federal income tax purposes at December 31, 1997. The losses begin expiring
in 2003 and 2005 for the Government Securities and Intermediate Government
Bond portfolios, respectively.
DISTRIBUTION TO SHAREHOLDERS
Dividends to shareholders are recorded on the ex-dividend date. In
accordance with resolutions enacted by the Board of Directors, the
Government Securities and Intermediate Government Bond Portfolios declare
dividends monthly and the Growth and Capital Appreciation Portfolios
declare dividends semi-annually. The dividends declared become payable
immediately.
27
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
3. FEES, EXPENSES AND RELATED PARTY TRANSACTIONS
CASH EQUIVALENTS
The Fund considers investments with an original maturity of three months or
less when purchased to be cash equivalents.
The Fund and each of its Portfolios have retained Union Bank & Trust
Company (UBATCO) as their exclusive investment adviser and custodian of the
Fund's assets (hereinafter, the Adviser). The agreement provides that the
Capital Appreciation Portfolio will compensate the Adviser on a performance
based scale, whereby the Portfolio will pay a fee which may be increased or
decreased by up to 1.40% of the average daily net assets during the latest
12 months (a rolling average method), depending upon the performance of
this Portfolio relative to the S&P 500. The performance based scale became
effective January 1, 1994. Prior to January 1, 1994, the fee was equal to
1.40%. For each of the six months ended December 31, 1997, the annualized
fee was 0.0%.
Growth and Government Securities Portfolios will pay the Adviser a fee
equal to .50% per annum of its average daily net assets. The Intermediate
Government Bond Portfolio will pay an advisory fee of .65% per annum of its
average daily net assets. The International Portfolio will pay the Adviser
a fee equal to 1.15% per annum of its average daily net assets. These
Portfolios do not participate in performance based compensation scales.
The Fund and each of its Portfolios have retained UBATCO as the custodian
of the Fund's investments. The agreement provides that the portfolios
(except the Growth, Government Securities, and International Portfolios,
which pay no fee), will pay the custodian an annual fee which is calculated
and billed monthly. The fee calculation does not include cash equivalents.
The fee consists of an investment transaction charge of $12 for each
transaction, a fee of $100 per account, plus an additional fee calculated
in accordance with the following table.
Net assets of:
$0 - $10 million 11 basis points
$10 - $20 million 6 basis points
Over $20 million 2.5 basis points
The Fund and each of its Portfolios have retained Lancaster
Administrative Services, Inc. (the Administrator) to act as their
transfer agent and administrator to provide all
28
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
3. CONTINUED
necessary record keeping and share transfer services for the Fund. The
agreement provides that each Portfolio will pay an administrative fee to
the Administrator equal to .25% per annum of average daily net assets. From
July 1, 1996 to June 30, 1997 the Administrator waived .15% of its .25%
administrative fee. No such waiver was effective for the period from July
1, 1997 to December 31, 1997. Under the terms of the advisory, custodian
and administrative agreements outlined above, the Portfolios collectively
incurred $274,805, 7,559 and 126,924 for such services.
At December 31, 1997, the following accrued investment advisory and
administrative fees were payable to the Adviser and Administrator.
Payable to Payable to
Adviser Administrator Total
---------- ------------ --------
Growth Portfolio $22,204 $12,818 $35,022
Government Securities Portfolio 11,707 6,700 18,407
Capital Appreciation Portfolio 9,468 1,807 11,275
Intermediate Government
Bond Portfolio 2,514 1,123 3,637
International Portfolio 10,206 2,829 13,035
Under the terms of the advisory agreement, the Adviser may be obligated to
reimburse a Portfolio up to the amount of the Adviser's fee paid to the
Adviser if during any year the expenses of the Portfolio, including the
Adviser's fee, exceed certain limitations. At December 31, 1997, no expense
reimbursement was required.
In addition to the amounts paid by the Portfolios under advisory,
custodian, and administration agreements, the Portfolios used SMITH HAYES
Financial Services Corporation (SMITH HAYES), a company related through
common management, to affect security trades on their behalf. As is
customary in the industry, the investment adviser evaluates the pricing and
ability to execute the transaction in selecting brokers to affect trades.
SMITH HAYES was paid commissions in the amount of $31,231 for their
brokerage services during the six months ended December 31, 1997.
The Portfolios also retained SMITH HAYES (the Distributor) to act as the
underwriter and distributor of the Fund's shares. The Distributor received
$39,365 and paid out 100% of this amount as commissions and dealer
allowances.
29
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
4. SECURITIES TRANSACTIONS
Purchases of securities and proceeds from sales were as follows for each
Portfolio:
Purchases of Proceeds
Securities from Sales
-------------- -------------
Growth Portfolio $30,617,871 $26,119,581
Government Securities Portfolio 1,001,016 503,516
Capital Appreciation Portfolio 12,140,761 11,177,549
Intermediate Government Bond Portfolio - 252,500
International Portfolio 3,331,802 2,805,166
At December 31, 1997, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities in each Portfolio
were as follows:
Aggregate Gross
Unrealized
Appreciation Depreciation
------------ -------------
Growth Portfolio $12,311,000 $1,032,390
Government Securities Portfolio 392,292 19,214
Capital Appreciation Portfolio 628,641 84,569
Intermediate Government Bond Portfolio 51,816 394
International Portfolio 1,201,125 811,833
5. CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue a total of 1 billion shares of common stock
in series with a par value of $.001 per share. The Board of Directors have
authorized twenty million shares to be issued in the Growth Portfolio and
ten million each in the Government Securities Portfolio, Capital
Appreciation Portfolio, Intermediate Government Bond Portfolio, and the
International Portfolio.
Transactions in the capital stock of each Portfolio for the six months
ended December 31, 1997 were as follows:
Government
Growth Securities
Portfolio Portfolio
Transactions in shares: ---------------- -------------
Shares sold 383,399.414 170,992.172
Shares redeemed (110,684.872) (139,228.902)
Reinvested dividends 301,408.382 65,386.858
------------ ------------
Net increase 574,122.924 97,150.128
=========== ============
30
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
5. CONTINUED
Intermediate
Capital Government
Appreciation Bond
Portfolio Portfolio
Transactions in shares: ------------ ------------
Shares sold 108,884.086 17,602.430
Shares redeemed (33,037.291) (38,984.747)
Reinvested dividends 34,410.029 9,760.900
------------- -----------
Net increase (decrease) 110,256.824 (11,621.417)
=========== ============
International
Portfolio
Transactions in shares: --------------
Shares sold 139,975.780
Shares redeemed (76,831.520)
Reinvested dividends 12,467.537
-------------
Net increase 75,611.797
==========
At December 31, 1997, directors, officers and employees of the Fund, the
Adviser and Administrator and their immediate families held the following
in each Portfolio:
Shares Value
---------- ---------
Growth Portfolio 50,787.525 $815,140
Government Securities 35,730.583 352,304
Capital Appreciation Portfolio 44,469.859 610,571
International Portfolio 3,967.701 41,264
At December 31, 1997, UBATCO held, in nominee name, the following in each
Portfolio:
Shares Value
----------- ------------
Growth Portfolio 3,275,580.682 $52,569,453
Government Securities Portfolio 2,828,319.316 27,885,018
Capital Appreciation Portfolio 582,798.647 7,999,121
Intermediate Government Bond Portfolio 423,629.552 4,487,389
International Portfolio 995,075.999 10,348,759
31
<PAGE>
STRATUS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
6. BUSINESS CHANGES
The International Portfolio commenced operations on October 1, 1996.
On December 27, 1996, the net assets of Union Bank's Common Trust Equity
Fund were transferred into the Growth Portfolio with a corresponding
purchase of shares. The transaction was accounted for as a tax free
exchange. The market value of the assets received by the Growth Portfolio
was $6,102,448 with unrealized appreciation of $1,862,355.
Effective January 1, 1998, all shares of the portfolios were designated
Institutional Clas shares and the issuance of Retail Class A shares of each
portfolio was authorized. Retail class A shares bear a sales load on the
purchase of shares and 12b-1 fees. Institutional class shares do not bear a
sales load and are not charged 12b-1 fees.
Effective January 1, 1998, the Growth Portfolio's advisory fee was changed
to an annual rate of .75% of average daily net assets, and the Capital
Appreciation Portfolio's performance-based advisory fee will be computed at
the annual rate of 1.40% of its daily average net asset value. In addition,
the Capital Appreciation Portfolio pays the Adviser an incentive adjustment
by which the basic fee may be increased or decreased by up to 1.00% of the
average daily net asset value.
32
