As filed with the Securities and Exchange Commission on August 27, 1999
1933 Act Registration No. 33-37928; 1940 Act Registration No. 811-6259
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 18 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19
(Check appropriate box or boxes.)
STRATUS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
200 Centre Terrace, 1225 "L" Street
Lincoln, Nebraska 68508
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (402) 476-3000
Thomas C. Smith
STRATUS FUND, INC.
200 Centre Terrace, 1225 "L" Street
Lincoln, Nebraska 68508
(Name and Address of Agent for Service)
Copies of all communications to:
Thomas H. Duncan
Ballard Spahr Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, Colorado 80202
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement
becomes effective.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (Date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (Date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (Date) pursuant to paragraph (a)(ii) of Rule 485
<PAGE>
Stratus Fund, Inc.
Institutional Class Shares
Prospectus
November 1, 1999
Intermediate Government Bond Portfolio
Government Securities Portfolio
Growth Portfolio
Capital Appreciation Portfolio
International Portfolio
Investment Adviser
Union Bank and Trust Company
Investment Sub-Adviser for the
International Portfolio
Murray Johnstone International, Inc.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
1
<PAGE>
Introduction
Stratus Fund, Inc. is a mutual fund that offers shares in separate
investment portfolios. Each Portfolio operates as a separate mutual fund. A
mutual fund pools shareholders' money and, using professional investment
managers, invests the money in securities. The value of your investment in a
Portfolio is based on the market value of the securities the Portfolio holds.
Each Portfolio has its own investment goal and strategies for reaching
that goal. This prospectus gives you important information about the Portfolios
that you should know before investing. Please read this prospectus and keep it
for future reference.
An investment in a Portfolio is not a deposit in Union Bank and Trust
Company and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency and involves investment risk,
including potential loss of principal.
Table of Contents
Fund Summary...............................................................3
More Information About Investment Objectives and Strategies...............23
More Information About Risk...............................................28
Each Portfolio's Other Investments........................................31
Shareholder Information...................................................31
Fund Distribution.........................................................35
Dividends and Capital Gains Distributions.................................37
Tax Consequences..........................................................38
Fund Management...........................................................38
Financial Highlights......................................................40
2
<PAGE>
Fund Summary
Intermediate Government Bond Portfolio
Investment Objective
The Intermediate Government Bond Portfolio seeks current income, some or all of
which is exempt from state income tax, consistent with the preservation of
capital.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in securities issued or guaranteed by the U.S.
Government, its agencies or its instrumentalities.
o Normally maintaining an average dollar weighted maturity of between
three and ten years.
Principal Investment Risks
The portfolio is subject to the following principal investment risks:
o Interest Rate Changes. Interest rate increases can cause the price of
a debt security to decrease.
o Prepayment Risk. The ability of an issuer of a debt security to repay
principal prior to a security's maturity can cause greater price
volatility if interest rates change.
o Issuer-Specific Risk. The value of an individual security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole.
o Income risk. Falling interest rates will cause the portfolio's income
to decline.
When you sell your shares of the Portfolio, they could be worth more or less
than what you paid for them.
Performance
The following information shows changes in the Intermediate Government Bond
Portfolio's performance from year to year and compares the Portfolio's
performance to the performance of a market index over various periods of time.
Returns are based on past results and are not necessarily an indication of
future performance.
3
<PAGE>
<TABLE>
<CAPTION>
Year-by-Year Returns
Calendar 1991(1) 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years ___% ___% ___% ___% ___% ___% ___% ___%
Percentage %
20
10
0
- 10
- --------------------
(1)Commenced operations May 15, 1991
</TABLE>
During the periods shown in the chart for the Intermediate Government Bond
Portfolio, the highest return for a quarter was ___% (quarter ending ________
__, ____) and the lowest return for a quarter was ___% (quarter ending ________
__, ____).
The year-to-date return as of September 30, 1999 for Intermediate Government
Bond Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Intermediate
Government Bond
Portfolio
Merrill Lynch
Inter-Term Index
Fees and Expenses
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Intermediate Government Bond Portfolio:
4
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of the offering price) None
Maximum Deferred Sales Charge None
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Portfolio Operating Expenses (expenses that are deducted
from Portfolio assets)
Management Fees .65%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
Example
The following example is intended to help you compare the cost of an investment
in the Intermediate Government Bond Portfolio with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
5
<PAGE>
Government Securities Portfolio
Investment Objective
The Government Securities Portfolio seeks a high total return consistent with
the preservation of capital.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
o Investing the remainder of its assets in marketable debt obligations
rated within the four highest debt ratings, obligations of commercial
banks, repurchase agreements and money market instruments.
o Normally maintaining an average dollar weighted maturity of between
three and ten years.
Principal Investment Risks
The Government Securities Portfolio is subject to the following principal
investment risks:
o Interest Rate Changes. Interest rate increases can cause the price of
a debt security to decrease.
o Prepayment Risk. The ability of an issuer of a debt security to repay
principal prior to a security's maturity can cause greater price
volatility if interest rates change.
o Issuer-Specific Risk. The value of an individual security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole.
o Income Risk. Falling interest rates will cause the Portfolio's income
to decline.
When you sell shares of the Portfolio, they could be worth more or less than
what you paid for them.
Performance
The following information shows changes in the Government Securities Portfolio's
performance from year to year and compares the Portfolio's performance to the
performance of a market index
6
<PAGE>
over various periods of time. Returns are based on past results and are not an
indication of future performance.
<TABLE>
<CAPTION>
Year-by-Year Returns
Government Securities Portfolio
Calendar Years 1993(1) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
---% ---% ---% ---% ---% ---%
Percentage %
20
10
0
- 10
- ----------------------
(1)Commenced operations October 8, 1993.
</TABLE>
During the periods shown in the chart for the Government Securities Portfolio,
the highest return for a quarter was ___% (quarter ending ________ __, ____) and
the lowest return for a quarter was ___% (quarter ending ________ __, ____).
The year-to-date return as of September 30, 1999 for Government Securities
Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Government
Securities Portfolio
Merrill Lynch
Inter-Term Index
Fees and Expenses
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Government Securities Portfolio:
7
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of the offering price) None
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Portfolio Operating Expenses (expenses that are deducted from
Portfolio assets)
Management Fees .50%
Other Expenses
Total Portfolio Operating Expenses
Example
The following example is intended to help you compare the cost of an investment
in the Government Securities Portfolio with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
8
<PAGE>
Growth Portfolio
Investment Objective
The Growth Portfolio seeks capital appreciation and income.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in a diversified portfolio of common stocks.
o Selecting equity securities, the majority of which pay dividends.
o Investing in medium and large capitalization companies.
o Investing in companies the Adviser believes will have earnings that grow
faster than inflation and faster than the economy in general and whose
securities are attractively priced.
Principal Investment Risks
The Growth Portfolio is subject to the following principal investment risks:
o Stock Market Volatility. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory,
market or economic developments. Different parts of the market can react
differently to these developments.
o Issuer-Specific Risks. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
o Growth Investing. Growth stocks can perform differently than the market
as a whole and other types of stocks and can be more volatile than other
types of stocks.
Performance
The following information shows changes in the Growth Portfolio's performance
from year to year and compares the Portfolio's performance to the performance of
a market index over various periods of time. Returns are based on past results
and are not an indication of future performance.
9
<PAGE>
<TABLE>
<CAPTION>
Year-by-Year Returns
Growth Portfolio
Calendar Years 1993(1) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
---% ---% ---% ---% ---% ---%
Percentage %
20
10
0
- 10
- ---------------
(1)Comenced operation October 8, 1993.
</TABLE>
During the periods shown in the chart for the Growth Portfolio, the highest
return for a quarter was ___% (quarter ending ________ __, ____) and the lowest
return for a quarter was ___% (quarter ending ________ __, ____).
The year-to-date return as of September 30, 1999 for Growth Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Growth Portfolio
S&P 500 Index
Fee Table
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Growth Portfolio:
10
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of the offering price) None
Maximum Deferred Sale Charge None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Fund Operating Expenses (expenses that are deducted
from Portfolio assets)
Management Fees .75%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
Example
The following example is intended to help you compare the cost of an investment
in the Growth Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
11
<PAGE>
Capital Appreciation Portfolio
Investment Objective
The Capital Appreciation Portfolio seeks capital appreciation.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in common stocks.
o Investing in small to mid-size companies that it believes will have
higher earnings growth potential than that of the general market and
have attractive stock prices in relation to their growth potential.
Principal Investment Risks
The Capital Appreciation Portfolio is subject to the following principal
investment risks:
o Stock Market Volatility. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory
market, or economic developments. Different parts of the market can
react differently to these developments.
o Issuer-Specific Risks. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
o Growth Investing. Growth stocks can perform differently than the market
as a whole and other types of stocks and can be more volatile than other
types of stocks.
Performance
The following information shows changes in the Capital Appreciation Portfolio's
performance from year to year and compares the Portfolio's performance to the
performance of a market index over various periods of time. Returns are based on
past results and are not an indication of future performance.
12
<PAGE>
<TABLE>
<CAPTION>
Year-by-Year Returns
Capital Appreciation Portfolio
Calendar Years 1993(1) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
---% ---% ---% ---% ---% ---%
Percentage %
20
10
0
- 10
- -------------------
)1)Commenced operations January 4, 19993.
</TABLE>
During the periods shown in the chart for the Capital Appreciation Portfolio,
the highest return for a quarter was ___% (quarter ending ________ __, ____) and
the lowest return for a quarter was ___% (quarter ending ________ __, ____).
The year-to-date return as of September 30, 1999 for Capital Appreciation
Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Capital Appreciation
Portfolio
Russell 2000 Index
Fee Table
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Capital Appreciation Portfolio:
13
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of
the offering price) None
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Fund Operating Expenses (expenses that are deducted
from Portfolio assets)
Management Fees 1.40%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
The Capital Appreciation Portfolio is obligated to pay the Adviser a basic
investment advisory fee of 1.40% of the Portfolio's average annual net assets,
but that fee is adjusted upward or downward based on the Portfolio's performance
relative to the Russell 2000 Stock Index on a 12 month average. The fee could be
as high as 2.40% of the Portfolio's average annual net assets or low as 0.40%.
The management fees for the Capital Appreciation Portfolio have been restated to
reflect the basic fee of 1.40% without adjustment.
Example
The following example is intended to help you compare the cost of an investment
in the Capital Appreciation Portfolio with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
14
<PAGE>
Period Costs
1 year
3 years
5 years
10 years
15
<PAGE>
International Portfolio
Investment Objective
The International Portfolio seeks a high total return consistent with reasonable
risk.
Principal Investment Strategies
The Sub-Adviser's principal investment strategies include:
o Investing primarily in common stocks of established foreign companies
that it believes have potential for capital growth, income or both.
o Maintaining a globally diversified portfolio of investment securities.
Principal Investment Risks
The International Portfolio is subject to the following risks:
o Stock Market Volatility. Stock markets are volatile and can decline
significantly in response to adverse issues, political, regulatory
market, or economic developments.
o Issuer-Specific Risks. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
o Foreign Country Risk. Foreign markets can be more volatile than the U.S.
market due to increased risks from adverse issuer, political,
regulatory, market or economic developments.
o Currency Risk. The value of the Portfolio will be affected by changes in
currency exchange rates. A rise in the value of the U.S. Dollar against
a foreign currency will cause the U.S. Dollar value of a foreign
security to decrease.
Performance
The following information shows changes in the International Portfolio's
performance from year to year and compares the Portfolio's performance to the
performance of a market index over various periods of time. Returns are based on
past results and are not an indication of future performance.
16
<PAGE>
Year-by-Year Returns
International Portfolio
Calendar Years 1996(1) 1997 1998
---% ---% ---%
Percentage %
20
10
0
- 10
- --------------------
(1)Commenced operations October 1, 1996
During the periods shown in the chart for the International Portfolio, the
highest return for a quarter was ___% (quarter ending ________ __, ____) and the
lowest return for a quarter was ___% (quarter ending ________ __, ____).
The year-to-date return as of September 30, 1999 for International Portfolio was
___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year Inception
----------------- ------ ---------
International Portfolio
Morgan Stanley
International Index
Fee Table
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the International Portfolio:
17
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a % of the offering price) None
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Portfolio Operating Expenses (expenses that are deducted
from Portfolio assets)
Management Fees 1.15%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
Example
The following example is intended to help you compare the cost of an investment
in the International Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
18
<PAGE>
More Information About Investment Objectives and Strategies
Intermediate Government Bond Portfolio
Investment Objective
The investment objective of the Intermediate Government Bond Portfolio
is to provide current income, some or all of which is exempt from state income
tax, consistent with the preservation of capital.
Principal Investment Strategies
The Portfolio will invest at least 80% of its assets in securities
issued or guaranteed by the U.S. Government, its agencies or its
instrumentalities. The Portfolio may also invest in money market instruments.
The Portfolio maintains an average dollar weighted maturity between 3
and 10 years with respect to all of its debt securities.
To achieve its objective of current income, the Portfolio normally
purchases securities with a view to holding them rather than selling them to
achieve short-term trading profits. However, the Portfolio may sell any security
at any time if the Adviser believes general economic, industry or securities
market conditions warrant selling the security.
The Portfolio is not a money market fund. The value of an investment in
the Portfolio will fluctuate daily as the value of the Portfolio's assets
change. The Adviser expects that annual portfolio turnover rate will normally
not exceed 100%.
Fundamental Investment Policies
The investment objective of the Intermediate Government Bond Portfolio
is a fundamental policy that may not be changed without shareholder approval.
Government Securities Portfolio
Investment Objective
The investment objective of the Government Securities Portfolio is to
provide a high total return consistent with the preservation of capital.
19
<PAGE>
Implementation of Investment Objective
To achieve its objective, the Government Securities Portfolio will
invest at least 80% of its total assets in securities issued or guaranteed by
the U. S. Government, its agencies or its instrumentalities. The Portfolio will
invest its remaining assets in the following securities:
o Domestic issues of marketable debt obligations that are rated at time of
purchase within the four highest debt rating categories established by
Moody's or S&P or are determined to by the Adviser to be of a comparable
quality or the time of purchase.
o Obligations of commercial banks, including negotiable certificates of
deposit and banker's acceptances.
o Repurchase agreements on securities issued or guaranteed by the U.S.
Government.
o Money market instruments.
To achieve its objective of current income, the Portfolio normally
purchases securities with a view to holding them rather than selling them to
achieve short-term trading profits. However, the Portfolio may sell any security
at any time without regard to the length of time it has been held if the Adviser
believes general economic, industry or securities market conditions warrant
selling the security. In selecting debt securities for the Portfolio that are
not government securities, the Adviser will utilize a fundamental analysis of
the issuer's financial condition and operations, including an analysis of
products and services and competition, management research and development
activities. These issuers generally will have a debt to capital ratio of less
than 60% and have market capitalization in excess of $500,000,000.
The Adviser expects that annual Portfolio turnover rate will normally
not exceed 100%.
The Portfolio is not a money market fund. The value of an investment in
the Portfolio will fluctuate daily as the value of the Portfolio's assets
change. The average dollar-weighted maturity of the Portfolio's investments in
debt instruments will normally be between three and ten years.
Fundamental Investment Policies
The investment objective of the Government Securities Portfolio is a
fundamental policy that may not be changed without shareholder approval.
20
<PAGE>
Growth Portfolio
Investment Objective
The investment objective of the Growth Portfolio is capital appreciation
and income.
Principal Investment Strategies
To achieve its investment objective, the Growth Portfolio will invest at
least 65% of its total assets in a diversified portfolio of common stocks. The
remaining assets (up to 35% of the Portfolio) may be invested in U.S. Government
securities, put and call options and money market instruments.
The Growth Portfolio invests principally in medium and large
capitalization companies having a market capitalization greater than $1 billion.
The Growth Portfolio seeks to identify and invest in companies whose earnings
the Adviser believes will grow faster than inflation and faster than the economy
in general and whose growth the Adviser believes has not yet been fully
reflected in the market price of the company's shares. The Adviser also seeks to
invest in securities it believes will out perform the Standard and Poor's Equity
Index on a risk adjusted basis. To provide current income, the Adviser may
select securities for the Portfolio issued by companies that have a history of
paying regular dividends.
When selecting securities for the Growth Portfolio, the Adviser relies
on a company-by-company analysis and a broader analysis of industry or economic
sector trends and takes into consideration the quality of a company's
management, the existence of a leading or dominant position in a major product
line or market and the soundness of the company's financial position. Once the
Adviser identifies a possible investment, a number of valuation measures are
applied to determine the relative attractiveness of each company and select
those companies whose shares are most attractively priced.
Fundamental Investment Policies
The investment objective of the Growth Portfolio is a fundamental policy
that may not be changed without shareholder approval
Capital Appreciation Portfolio
Investment Objective
The Investment objective of the Capital Appreciation Portfolio is
capital appreciation.
21
<PAGE>
Principal Investment Strategies
To achieve its objective, the Capital Appreciation Portfolio will invest
at least 65% of its assets in a diversified portfolio of common stocks. The
Adviser invests principally in companies which it believes will have earnings
growth above the market averages with an emphasis toward companies whose growth
the Adviser believes has not been fully reflected in the market price of such
company's shares. The Capital Appreciation Portfolio invests principally in
medium and small capitalization companies having market capitalization of $5
billion or less.
The Adviser selects securities for investment based upon considerations
such as the quality of a company's management, the existence of a leading or
dominant position in a major product line market and the soundness of a
company's financial position. As companies are identified as possible
investments, the Adviser applies a number of valuation techniques to determine
the relative attractiveness of each company. Based upon these factors, the
Adviser will attempt to select those companies whose shares, in its estimation,
are most attractively priced.
The Adviser has engaged in active trading of securities held by the
Capital Appreciation Portfolio. The Portfolio's turnover rate for its last
fiscal year was ____%. Frequent trading of portfolio securities increases the
expenses of the Portfolio as a consequence of trading costs and can result in
distributions of gains to shareholders that are subject to tax.
Fundamental Investment Policies
The investment objective of the Capital Appreciation Portfolio is a
fundamental policy that may not be changed without shareholder approval.
International Portfolio
Investment Objective
The investment objective of the International Portfolio is high total
return consistent with reasonable risk.
Principal Investment Strategies
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 Sub-Adviser to have potential for capital growth, income or
both.
The Portfolio will make investments in various countries. Under normal
circumstances, the Portfolio will invest at least 65% of its total assets in the
securities of issuers in no less than three countries. The Portfolio may, from
time to time, invest more than 25% of its assets in any major industrial or
developed country which in the view of the Sub-Adviser poses no unique
22
<PAGE>
investment risk. To determine the appropriate distribution of investments among
various countries and geographic regions, the Sub-Adviser ordinarily will
consider the following factors:
o prospects of relative economic growth among foreign countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to
the global investor.
The Portfolio may invest up to 30% of its assets in companies located in
developing countries, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems which may be less stable. The Sub-Adviser considers a country to be a
developing country if it is not included in the Morgan Stanley Capital
International World Index.
The Sub-Adviser expects that the Portfolio turnover for the
International Portfolio will be less than 100%.
Although the Portfolio invests primarily in equity securities, it may
invest up to 35% of its net assets in debt securities, excluding money market
instruments. Bonds purchased for the Portfolio will generally be rated AAA or
Aaa by S&P or Moody's, respectively, or be of equivalent credit quality as
determined by the Sub-Adviser. Five percent (5%) of Portfolio assets may be
invested in debt securities rated lower than AAA or Aaa, but in no event lower
than BBB or Baa, or, of equivalent credit quality. The Sub-Adviser does not
intend to purchase any bonds rated lower than AAA unless the instrument provides
an opportunity to invest in an attractive company in which an equity investment
is not currently available or desirable.
If a change in credit quality after acquisition by the Portfolio causes
the bond not to be investment grade, the Portfolio will dispose of the bond, if
necessary to keep its holdings, if any, of such bonds to 5% or less of the
Portfolio's net assets. See the Statement of Additional Information for more
information on bond ratings and credit quality.
The International Portfolio may purchase securities of foreign issuers
on U.S. registered exchanges, over-the-counter markets or in the form of
American Depository Receipts ("ADRs"), and other securities representing
underlying securities of foreign issuers including securities, such as World
Equity Benchmark Shares, of issuers that invest in shares of a foreign country
in an attempt to track an index for securities of that foreign country. The
International Portfolio does not currently purchase securities in foreign
markets.
23
<PAGE>
Fundamental Investment Policies
The investment objective of the International Portfolio is a fundamental
policy that may not be changed without shareholder approval.
More Information About Risk
Many factors affect a Portfolio's performance. The price of a
Portfolio's share will change daily based on changes in interest rates and
market conditions and in response to other economic, political or financial
developments. A Portfolio's reaction to these developments will be affected by
the types and maturities of the securities in which the Portfolio invests, the
financial condition, industry and economic sector, and geographic location of an
issuer, as well as the Portfolio's level of investment in the securities of that
issuer. When you sell your shares of a Portfolio, they could be worth more or
less than what you paid for them. In addition, the following factors may
significantly affect the Portfolio's performances.
Interest Rate Changes
Intermediate Government Bond Portfolio
Government Securities Portfolio
Debt securities have varying levels of sensitivity to changes in
interest rates. Generally, the price of a debt security can fall when interest
rates rise and vice-versa. Securities with longer maturities tend to be more
sensitive to interest rate changes and are generally more volatile, so the
average maturity or duration of these securities affects risk.
Prepayment Risk
Intermediate Government Bond Portfolio
Government Securities Portfolio
Many types of debt securities are subject to prepayment risk. Prepayment
occurs when the issuer of a security can repay principal prior to the security's
maturity. During periods of falling interest rates, the issuer may repay debt
obligations with high interest rates prior to maturity. This may cause
Portfolio's average weighted maturity to fluctuate, and may require a Portfolio
to invest the resulting proceeds at lower interest rates.
U.S. Government Securities Risk
Intermediate Government Bond Portfolio
Government Securities Portfolio
Although U.S. Government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued or guaranteed by some U.S.
Government agencies are backed by the U.S. Treasury, while
24
<PAGE>
others are backed solely by the ability of the agency to borrow from the U.S.
Treasury or by the agency's own resources.
Stock Market Volatility
Growth Portfolio
Capital Appreciation Portfolio
International Portfolio
Stock markets are volatile and can decline significantly in response to
adverse issuer, political, regulatory, market or economic developments. In the
short term, equity prices can fluctuate dramatically in response to these
factors. Political or economic developments can affect a single issuer, issuers
within an industry or economic sector or geographic region, or the market as a
whole.
Issuer-Specific Risk
All Portfolios
Changes in the financial condition of an issuer, changes in specific
economic or political conditions that affect a particular type of issuer, and
changes in general economic or political conditions can affect the value of an
issuer's securities. The value of securities of smaller, less well-known
companies can be more volatile than that of larger companies.
Growth Investing
Growth Portfolio
Capital Appreciation Portfolio
Growth stocks can react differently to issuer, political, market and
economic developments than the market as a whole and other types of stocks.
Growth stocks tend to be more expensive relative to their earnings or assets
compared to other types of stocks. As a result, growth stocks tend to be more
sensitive to changes in their earnings and more volatile than other types of
stocks.
Foreign Issuer Risks
International Portfolio
Currency Risk. The value of the Portfolio's foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
25
<PAGE>
Political and Economic Risk. The economies of many of the countries in
which the Portfolio may invest are not as developed as the United States economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Portfolios investments.
Regulatory Risk. Foreign companies are not registered with the SEC and
are generally not subject to the regulatory controls imposed on United States
issuers. As a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Portfolio may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Portfolio's shareholders.
Emerging Markets. Foreign securities purchased by the Portfolio may be
issued by foreign companies located in developing countries in various regions
of the world. A "developing country" is a country in the initial stages of its
industrial cycle. Investing in developing countries often involves risk of high
inflation, high sensitivity to commodity prices, and government ownership of the
biggest industries in that country. Investment in the securities of issuers in
developing countries involves exposure to markets that may have substantially
less trading volume and greater price volatility, economic structures that are
less diverse and mature, and political systems that may be less stable.
Investing in developing countries involves a higher probability of occurrence of
the risks of investing in foreign securities in general, including less
financial information available, relatively illiquid markets, and the
possibility of adverse government action.
Year 2000 Risk
All Portfolios
The Portfolios depend on smooth functioning of computer systems in
almost every aspect of their business. Like other mutual funds, businesses and
individuals around the world, the Portfolios could be adversely affected if the
computer systems used by their service providers do not properly process dates
on or after January 1, 2000, and distinguish between the year 2000 and the year
1900. The Portfolios have asked their service providers whether they expect to
have their computer systems adjusted for the year 2000 transition, and have
received assurances from each service provider that they are devoting
significant resources to prevent material adverse consequences to the
Portfolios. Nevertheless, the Portfolios and their Shareholders may experience
losses if these assurances prove to be incorrect or as a result of year 2000
computer difficulties experienced by issuers of portfolio securities or third
parties, such as custodians, banks, broker-dealers or others with which the
Portfolios do business.
26
<PAGE>
Each Portfolio's Other Investments
In addition to the investments and strategies described in this
prospectus, each Portfolio also may invest in other securities, use other
strategies and engage in other securities and engage in other investment
practices. These investments and strategies are described in our Statement of
Additional Information. Of course, the Portfolio cannot guarantee that any
Portfolio will achieve its investment goal.
The investments and strategies described in this prospectus are those
used under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Portfolio may invest up to
100% of its assets in fixed income securities, money market instruments and
other securities that would not ordinarily be consistent with the Portfolio's
objectives. The Portfolios may not achieve their investment objectives while
pursuing these defensive strategies.
Shareholder Information
Buying Shares
Smith Hayes Financial Services Corporation ("Smith Hayes") acts as the
principal distributor of the Fund's shares. Financial institutions may acquire
shares of the Portfolios for their own account or as record owners on behalf of
fiduciary, agency or custody accounts. You may purchase shares at an offering
price of their net asset value next determined after your purchase order is
placed. You may purchase shares from registered representatives of Smith Hayes
and from other broker-dealers who have sales agreements with Smith Hayes.
You may purchase shares of each Portfolio on days on which the New York
Stock Exchange is open for business. You must place your orders with the
Distributor prior to 4:00 p.m. Eastern time on any business day for the order to
be accepted on that business day. You may purchase shares by completing the
Purchase Application included in this Prospectus and submitting it with a check
payable to:
STRATUS FUND, Inc.
200 Centre Terrace
1225 "L" Street
Lincoln, Nebraska 68508
For subsequent purchases, the name of your account and your account
number should be included with any purchase order to properly identify your
account. You may also pay for shares by bank wire. To do so, you must direct
your bank to wire immediately available funds directly to the Custodian as
indicated below:
1. Telephone the Fund (402) 476-3000 and furnish your name, your account
number and your telephone number as well as the amount being wired and the name
of the wiring bank. If you
27
<PAGE>
are opening a new account we will request additional account information and
will provide you with an account number.
2. Instruct the bank to wire the specific amount of immediately
available funds to the Custodian. The Fund will not be responsible for the
consequences of delays in the bank or Federal Reserve wire system. Your bank
must furnish the full name of your account and the account number.
The wire should be addressed as follows:
UNION BANK AND TRUST COMPANY
Lincoln, Nebraska
Fund Department, ABA #104910795
Lincoln, Nebraska 68506
Account of STRATUS FUND, Inc.
-----------------------------
FBO (Account Registration name)
#_____________________________
3. If the shares you are purchasing by bank wire transfer represent an
initial purchase, complete a Purchase Application and mail it to the Fund. The
completed Purchase Application must be received by the Fund before subsequent
instructions to redeem Fund shares will be accepted.
Banks may impose a charge for the wire transfer of funds.
You will receive written confirmation of your purchases. Stock
certificates will not be issued in order to facilitate redemptions and exchanges
between the Portfolios. Smith Hayes reserves the right to reject any purchase
order.
Minimum Investments
We require a minimum initial aggregate investment of $250,000, unless
waived by the Distributor.
Selling Shares
You may redeem shares of the Portfolios, in any amount, at any time at
their net asset value next determined after your sale order is placed. To redeem
shares of the Portfolios, you may make a redemption request through your Smith
Hayes investment executive or other broker-dealer. A redemption request may be
made in writing if accompanied by the following:
1. a letter of instruction or stock assignment specifying the number or
dollar value of shares to be redeemed, signed by all the owners of the shares in
the exact names in which they appear on the account, or by an authorized officer
of a corporate shareholder indicating the capacity in which such officer is
signing;
28
<PAGE>
2. a guarantee of the signature of each owner by an eligible institution
which is a participant in the Securities Transfer Agent Medallion Program which
includes many U.S. commercial banks and members of recognized securities
exchanges; and
3. other supporting legal documents, if required by applicable law, in
the case of estates, trusts, guardianships, custodianships, corporations and
pension and profit-sharing plans.
Payment of Redemption Proceeds
Normally, the Fund will make payment for all shares redeemed within five
business days. In no event will the Fund make payment more than seven days after
Smith Hayes receives a redemption request. However, payment may be postponed or
the right of redemption suspended for more than seven days under unusual
circumstances, such as when trading is not taking place on the New York Stock
Exchange. The Fund may also delay payment of redemption proceeds until the check
used to purchase the shares to be redeemed has cleared the banking system, which
may take up to 15 days from the purchase date. You may request that the Fund
transmit redemption proceeds by Federal Funds bank wire to a bank account
designated on your account application form, provided the bank wire redemptions
are in the amounts of $500 or more and you have provided all requisite account
information to the Fund.
Involuntary Redemption
The Fund reserves the right to redeem the shares in your account at any
time if the net asset value of your account falls below $500 as the result of a
redemption or transfer request. You will be notified in writing that the value
of your account is less than $500 and you will be allowed 30 days to make
additional investments before the redemption is processed.
29
<PAGE>
Exchanging Shares
Once payment for shares has been received (i.e., an account has been
established), you may exchange some or all of your shares for Institutional
Class shares of other Portfolios of the Fund. Exchanges are made at net asset
value next determined after receipt of the exchange order.
You should contact the Distributor for instructions on how to exchange
shares. Exchanges will be made only after the Distributor receives proper
instructions in writing or by telephone for an established account. If the
Distributor receives an exchange request in good order by 4:00 p.m. Eastern time
on any business day, the exchange will ordinarily be effective on that day. To
make an exchange you must have received a current prospectus of the Portfolio
into which the exchange is being made before the exchange will be effected.
Each exchange of the shares of a Portfolio for the shares of another
Portfolio is actually a sale of shares of one Portfolio and a purchase of shares
in the other, which may produce a gain or loss for tax purposes. In order to
protect the Portfolio's performance and its shareholders, the Fund discourages
frequent exchange activity in response to short-term market fluctuations. The
Fund reserves the right to modify or withdraw the exchange privilege or to
suspend the offering of shares in any class without notice to you if, in the
Adviser's judgment, the Portfolio would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. The Fund also reserves the right to reject
any specific purchase order, including certain purchases by exchange.
Valuing Shares
A Portfolio's net asset value per share (NAV) is the value of a single
Portfolio share. The Portfolios generally determine their NAV on each day the
New York Stock Exchange is open for business. The calculation is made as of the
close of business of the New York Stock Exchange (currently 4:00 p.m., Eastern
time) after the Portfolios have declared any applicable dividends.
The NAV for each of the Portfolios is determined by dividing the value
of the securities owned by the Portfolio plus any cash and other assets less all
liabilities by the number of Portfolio shares outstanding.
Net Asset Value = Total Assets - Liabilities
--------------------------------
Number of Shares Outstanding
For the purposes of determining the aggregate net assets of the
Portfolios, cash and receivables are valued at their face amounts. Interest is
recorded as accrued and dividends are recorded on the ex-dividend date.
Securities traded on a national securities exchange or on the Nasdaq Stock
Market are valued at the last reported sale price that day. Securities traded on
a
30
<PAGE>
national securities exchange or on the Nasdaq Stock Market for which there were
no sales on that day, and securities traded on other over-the-counter markets
for which market quotations are readily available, are valued at the mean
between the bid and the asked prices. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
in good faith by the Board of Directors. With the approval of the Board of
Directors, the Portfolios may utilize a pricing service, bank, or broker-dealer
experienced in such matters to perform any of the above-described functions.
Dividends and Capital Gains Distributions
Each Portfolio distributes its income as follows:
Intermediate Government Bond Portfolio - declared and paid monthly
Government Securities Portfolio - declared and paid monthly
Growth Portfolio - declared and paid annually
Capital Appreciation Portfolio - declared and paid annually
International Portfolio - declared and paid annually
If you own Portfolio shares as of the record date of the distribution,
you will be entitled to receive the distribution. Each Portfolio makes
distributions of capital gains, if any, at least annually.
You will receive dividends and distributions in the form of additional
Portfolio shares unless you elect to receive payment in cash. To receive payment
in cash, you must notify your Smith Hayes investment executive or other
broker-dealer of your election. The taxable status of income dividends and/or
net capital gains distributions is not affected by whether they are reinvested
or paid in cash.
Tax Consequences
The Portfolios will each be treated as separate entities for federal
income tax purposes. The Fund has operated the Portfolios in a manner that
qualifies them as "regulated investment companies" as defined in the Internal
Revenue Code. Provided certain distribution requirements are met, the Portfolios
will not be subject to federal income tax on their net investment income and net
capital gains that they distribute to their shareholders.
Shareholders subject to federal income taxation will receive taxable
dividend income or capital gains, as the case may be, from distributions,
whether paid in cash or received in the form of additional shares. Promptly
after the end of each calendar year, each shareholder will receive a statement
of the federal income tax status of all dividends and distributions paid during
the year.
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<PAGE>
Shareholders of the Intermediate Government Bond and the Government
Securities Portfolios may be able to exclude a portion of the dividends received
from taxable income as exempt interest income under various state income tax
rules. Shareholders should consult their tax advisers as to the extent and
availability of these exclusions.
The Fund is subject to the backup withholding provisions of the Internal
Revenue Code and is required to withhold income tax from dividends and
redemptions paid to a shareholder, if such shareholder fails to furnish the Fund
with a taxpayer identification number or under certain other circumstances.
Accordingly, shareholders are urged to complete and return Form W-9 when
requested to do so by the Fund.
This discussion is only a summary and relates solely to federal tax
matters. Dividends may also be subject to state and local taxation. You are
urged to consult with your personal tax advisers.
Fund Management
Investment Adviser and Sub-Adviser
The Portfolios are managed by Union Bank and Trust Company, 6801 S.
27th, P.O. Box 82535, Lincoln, Nebraska 68501. Union Bank has engaged Murray
Johnstone International, Inc., 11 West Nile Street, Glasgow G12PX United
Kingdom, a corporation organized under the laws of Scotland, to act as
Sub-Adviser to the International Portfolio.
The Portfolios pay Union Bank monthly fees for investment advisory
services. For the fiscal year ended June 30, 1999, Union Bank received advisory
fees, expressed as a percentage of daily average net assets, of:
Intermediate Government Bond Portfolio .65%
Government Securities Portfolio .50%
Growth Portfolio .75%
Capital Appreciation Portfolio ____%
International Portfolio 1.15%
Murray Johnstone International, Inc. received from Union Bank a sub-advisory
fee, expressed as a percentage of daily average net assets, of .65%.
Portfolio Managers
Intermediate Government Bond Portfolio, Government Securities Portfolio, Growth
Portfolio, Capital Appreciation Portfolio
William S. Eastwood has been affiliated with Union Bank and Trust
Company and the management of the Fund since March of 1995. Prior to joining
Union Bank, Mr. Eastwood was statewide manager of trust investments for a
regional bank. Mr. Eastwood was responsible for the
32
<PAGE>
management of equity and fixed become common funds at that bank from 1979 to
1995. Mr. Eastwood holds the Chartered Financial Analyst (CFA) professional
designation.
Jon C. Gross is currently a Vice President/Portfolio Manager and has
been affiliated with Union Bank since 1988. Mr. Gross has been actively involved
in the management of the Fund since 1991. Mr. Gross holds the Chartered
Financial Analyst (CFA) professional designation.
International Portfolio
James Clunie, BS (Hons), AIIMR, CFA is an investment manager for
international and global equity portfolios for clients in several countries, and
also manages Murray Johnstone's "SCOTS" active/passive portfolios. Mr. Clunie
maintains and develops Murray Johnstone's proprietary "Twenty Questions
Analysis," a numerical system for ranking countries in terms of investment
attractiveness. Mr. Clunie is a member of the Group Strategy team, which is
responsible for producing asset allocation guidelines for all Murray Johnstone
portfolios, and is head of the country allocation team for international
portfolios. Mr. Clunie is qualified as an Associate of the Institute of
Investment Management and Research (U.K. investment qualification) and as a
Chartered Financial Analyst (CFA). Mr. Clunie graduated with Honours in
Mathematics and Statistics from the University of Edinburgh, Scotland. He joined
Murray Johnstone in 1989, and has worked in various analytical and
business-development roles with the company, prior to his current position.
Andrew V. Preston, BA (Hons) graduated from Melbourne University where
he studied Economics and Oriental Studies, including Chinese and Japanese
languages. This was followed by post-graduate work at Ritsumeikan University in
Kyoto, Japan, prior to joining the Australian Department of Foreign Affairs. Mr.
Preston joined Murray Johnstone in January 1985 and has managed portfolios in
the United Kingdom, United States and Japanese markets. In 1992, Mr. Preston
joined Murray Johnstone International as a portfolio manager and a member of the
Country Allocation Team. Mr. Preston was appointed a Director of MJI in January
1993. Mr. Preseton has specialized in Socially Responsible Investments since
1992 and was appointed Head of SRI in Murray Johnstone in 1996.
Financial Highlights
The financial highlights tables are intended to help you understand the
Portfolio's financial performance for the past five years or, if shorter, the
period of the Portfolio's operations. Certain information reflects financial
results for a single Portfolio share. The total returns in the tables represent
the rate that an investor would have earned (or lost) on an investment in the
Portfolio (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, independent certified
public accountants, whose report, along with the Portfolio's financial
statements, are included in the annual report, which is available upon request.
33
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Intermediate Government Bond Portfolio
Years Ended June 30, 1999, 1998, 1997, 1996, 1995, 1994, 1993, and 1992
and for the period from May 15, 1991 (commencement of operations) to
June 30, 1991
Net asset value: 1999 1998 1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of period: $10.48 $10.47 10.56 10.29 10.84 10.72 10.02 10.00
------ ------ ----- ----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment income 0.52 0.54 0.52 0.50 0.47 0.38 0.94 0.07
Net realized and unrealized
gain (loss) on investments 0.12 0.02 (0.09) 0.27 (0.55) 0.34 0.70 (0.05)
---- ---- ------ ---- ------ ---- ---- ------
Total income
(loss) from investment
operations 0.64 0.56 0.43 0.77 (0.08) 0.72 1.64 0.
---- ---- ---- ---- ------ ---- ---- --
Less distributions:
Dividends from net investment
income (0.52) (0.55) (0.52) (0.50) (0.47) (0.38) (0.94) -----
Distributions from capital gains ------ ------ ------ ------ ------ (0.22) ----- -----
------ ------ ------ ------ ------ ------ ----- -----
Total distributions (0.52) (0.55) (0.52) (0.50) (0.47) (0.60) (0.94) -----
------ ------ ------ ------ ------ ------ -----
End of period $10.60 $10.48 ($10.47 $10.56 $10.29 $10.84 $10.72 $10.02
====== ======== ====== ====== ====== ====== ======
Total return 6.3% 5.6% (a)4.1% 7.9% (.8%) 8.9% 11.4% 1.6% (b)
==== ======== ==== ==== ===== ========
Ratios/Supplemental data:
Net assets, end of period (000's) $4,009 $4,606 7,225 5,518 7,775 6,748 4,681 2,230
Ratio of expense to average
net assets 1.17% 1.02% 1.03% 1.11% 1.05% 1.12% 1.04% 1.46% (c)
Ratio of net income to average
net assets 4.93% 5.14% 4.95% 4.84% 4.41% 4.58% 5.31% 7.41% (c)
Portfolio turnover rate 89% -
-- 26.88% 4.05% 27.67% 21.02% 32.39% 205.
(a) Excludes maximum sales load of 3%
(b) Total return is not annualized.
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Government Securities Portfolio
Years ended June 30, 1999, 1998, 1997, 1996 and 1995 and the period
from October 8, 1993 (commencement of operations) to June 30, 1994
Net asset value: 1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <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 0.51 0.51 0.49 0.45 0.27
Net realized and unrealized gain
(loss) on investments 0.16 0.08 (0.13) 0.37 (0.60)
---- ---- ------ ---- ------
Total income (loss) from
investment operations 0.67 0.59 0.36 0.82 (0.33)
---- ---- ---- ---- ------
Less distributions from net investment
income (0.51) (0.51) (0.49) (0.45) (0.27)
------ ------
End of period $9.88 $9.72 (a) 9.64 9.77 9.40
===== ========= ==== ===== ====
Total return 7.0% 6.3% (a) 3.7% 9.0% (3.4%) (b)
==== ======== ==== ==== ======
Ratios/Supplemental data:
Net assets, end of period (000's)
$30,368 $26,534 23,043 13,885 12,478
Ratio of expense to average net assets
0.82% 0.71% 0.69% 0.80% 0.74% (c)
Ratio of net income to average net assets
5.17% 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Growth Portfolio
Years ended June 30, 1999, 1998, 1997, 1996 and 1995 and the period
from October 8, 1993 (commencement of operations) to June 30, 1994
Net asset value: 1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <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 0.11 0.22 0.23 0.22 0.19
Net realized and unrealized
gain (loss) on investments 3.45 3.99 2.36 1.72 (0.16)
---- ---- ---- ---- ------
Total income from
investment operations 3.56 4.21 2.59 1.94 0.03
---- ---- ---- ---- ----
Less distributions:
Dividends from net investment (0.11) (0.22) (0.22) (0.22) (0.19)
income
Distributions from capital gains
(1.99) (0.59) (0.17) (0.09) -----
------ ----- ------ -----
Total distributions (2.10) (0.81) (0.39) (0.31) (0.19)
------ ------ ----- ------ ------
End of period $18.53 $17.07 (a) 13.67 11.47 9.84
====== ========== ===== ===== ====
Total return 22.29% 32.6% (a) 22.6% 20.3% (0.3%) (b)
====== ======== ===== ===== =========
Ratios/Supplemental data:
Net assets, end of period (000's) $63,097 $46,189 24,628 12,813 12,892
Ratio of expense to average net assets 0.76% 0.72% 0.71% 0.82% 0.76% (c)
Ratio of net income to average net assets 0.18% 1.46% 1.78% 2.14% 2.38% (c)
Portfolio turnover rate 137.03% 88.53% 92.72% 19.89% 10.05%
Average Commission Rate (d) $0.0957 $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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Capital Appreciation Portfolio
Years Ended June 30, 1999, 1998, 1997, 1996, 1995 and 1994 and for
the period from January 4, 1993 (commencement of operations)
to June 30, 1993
Net asset value: 1999 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- -----
<S> <C> <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 loss 0.03 0.18 (0.19) (0.15) (0.12) (0.04)
Net realized and unrealized gain
(loss) on investments 0.86 1.48 2.88 2.62 (0.33) (0.56)
---- ---- ---- ---- ------ ------
Total income (loss)
from investment 0.89 1.66 2.69 2.47 0.45) (0.60)
---- ---- ---- ---- ----- ------
operations
Less distributions form
net investment income (.03) (.12) ----- ------ ----- ------
----- ----- ----- ------ ----- ------
Less distributions from capital gains: (0.72) (0.48) (0.73) (0.19) ----- -----
------ ------ ------ ------ ----- -----
End of period $14.39 $14.25 (a) 13.19 11.23 8.95 9.40
====== ========== ===== ===== ==== ====
Total return 7.5% 11.7% (a) 26.0% 28.6% (4.8%) (6.0%)(b)
==== ========= ====== ====== ===== ========
Ratios/Supplemental data:
Net assets, end of period (000's) $9,175 $6,733 2,474 749 654 583
Ratio of expenses to average net assets 0.76% 0.91% 2.84% 2.69% 2.13% 2.41%(c)
Ratio of net income (loss) to average net 0.18% 1.31% (1.54%) (1.59%) (1.27%) (1.04%)
assets (c)
Portfolio turnover rate 277.13% 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.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
International Portfolio
Year ended June 30, 1999 and 1998 and for the period from
October 1, 1996 (commencement of operations) to June 30, 1997
Net asset value: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Beginning of period: $11.22 $10.00
------ ------
Income from investment operations:
Net investment income 0.02 0.15
Net realized and unrealized gain on investments
0.64 1.22
---- ----
Total income from investment operations
0.66 1.37
---- ----
Less distributions from net investment income: (0.13) (0.15)
====== ======
End of period $11.75 $11.22 (a)
====== ==========
Total return 6.3% 18.2% (a)
==== =========
Ratios/Supplemental data:
Net assets, end of period (000's) $11,974 $10,431
Ratio of expenses to average net assets 1.65% 1.48% (b)
Ratio of net loss to average net assets 0.21% 1.89% (b)
Portfolio turnover rate 52.92% 33.77%
Average Commission Rate (c) $0.0991 $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.
</TABLE>
38
<PAGE>
Back Cover Page
Stratus Fund
Institutional Class Shares
You can obtain more information about each Portfolio without charge through the
following:
Statement of Additional Information (SAI)
The SAI dated November 1, 1999, includes detailed information about the Stratus
Fund Portfolios. The SAI is on file with the SEC and is incorporated by
reference into this prospectus. This means that the SAI, for legal purposes, is
a part of this prospectus.
Annual and Semi-Annual Reports
These reports list each Portfolio's holdings and contain information from the
Portfolio's managers about strategies, and recent market conditions and trends.
The reports also contain detailed financial information about the Portfolios.
To obtain more information:
By Telephone: Call (402) 476-3000
By Mail: Stratus Fund, Inc.
200 Centre Terrace
1225 "L" Street
Lincoln, Nebraska 68508
You can also obtain the SAI or the Annual and Semi-Annual Reports, as well as
other information about Stratus Fund, from the SEC's website
(HTTP://WWW.SEC.GOV). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-6009. The Stratus Fund's Investment Company Act
registration number is 811-6259.
39
<PAGE>
Stratus Fund, Inc.
Retail Class A Shares
Prospectus
November 1, 1999
Intermediate Government Bond Portfolio
Government Securities Portfolio
Growth Portfolio
Capital Appreciation Portfolio
International Portfolio
Investment Adviser
Union Bank and Trust Company
Investment Sub-Adviser for the
International Portfolio
Murray Johnstone International, Inc.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
1
<PAGE>
Introduction
Stratus Fund, Inc. is a mutual fund that offers shares in separate
investment portfolios. Each Portfolio operates as a separate mutual fund. A
mutual fund pools shareholders' money and, using professional investment
managers, invests the money in securities. The value of your investment in a
Portfolio is based on the market value of the securities the Portfolio holds.
Each Portfolio has its own investment goal and strategies for reaching
that goal. This prospectus gives you important information about the Portfolios
that you should know before investing. Please read this prospectus and keep it
for future reference.
An investment in a Portfolio is not a deposit in Union Bank and Trust
Company and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency and involves investment risk,
including potential loss of principal.
Table of Contents
Fund Summary.............................................................3
More Information About Investment Objectives and Strategies.............23
More Information About Risk.............................................28
Each Portfolio's Other Investments......................................31
Shareholder Information.................................................31
Fund Distribution.......................................................35
Dividends and Capital Gains Distributions...............................37
Tax Consequences........................................................38
Fund Management.........................................................38
Financial Highlights....................................................40
2
<PAGE>
Fund Summary
Intermediate Government Bond Portfolio
Investment Objective
The Intermediate Government Bond Portfolio seeks current income, some or all of
which is exempt from state income tax, consistent with the preservation of
capital.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in securities issued or guaranteed by the U.S.
Government, its agencies or its instrumentalities.
o Normally maintaining an average dollar weighted maturity of between
three and ten years.
Principal Investment Risks
The portfolio is subject to the following principal investment risks:
o Interest Rate Changes. Interest rate increases can cause the price of
a debt security to decrease.
o Prepayment Risk. The ability of an issuer of a debt security to repay
principal prior to a security's maturity can cause greater price
volatility if interest rates change.
o Issuer-Specific Risk. The value of an individual security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole.
o Income risk. Falling interest rates will cause the portfolio's income
to decline.
When you sell your shares of the Portfolio, they could be worth more or less
than what you paid for them.
Performance
The following information shows changes in the Intermediate Government Bond
Portfolio's performance from year to year and compares the Portfolio's
performance to the performance of a market index over various periods of time.
Returns are based on past results and are not necessarily an indication of
future performance.
3
<PAGE>
<TABLE>
<CAPTION>
Year-by-Year Returns
Calendar 1991(1) 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years ___% ___% ___% ___% ___% ___% ___% ___%
Percentage %
20
10
0
- 10
- --------------------
(1)Commenced operations May 15, 1991
</TABLE>
During the periods shown in the chart for the Intermediate Government Bond
Portfolio, the highest return for a quarter was ___% (quarter ending ________
__, ____) and the lowest return for a quarter was ___% (quarter ending ________
__, ____).
The year-to-date return as of September 30, 1999 for Intermediate Government
Bond Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Intermediate
Government Bond
Portfolio
Merrill Lynch
Inter-Term Index
Fees and Expenses
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Intermediate Government Bond Portfolio:
4
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of the offering price) 3%
Maximum Deferred Sales Charge None
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Portfolio Operating Expenses (expenses that are deducted
from Portfolio assets)*
Management Fees .65%
Distribution 12b-1 Fees .50%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Portfolio is
currently paying only a portion of the total 12b-1 fee authorized for
payment to the Distributor. The Portfolio may increase the payments to the
Distributor to the amount shown above. With the reduced Distributor
payments, the Portfolio's actual total operating expenses are ___%.
Example
The following example is intended to help you compare the cost of an investment
in the Intermediate Government Bond Portfolio with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
5
<PAGE>
Government Securities Portfolio
Investment Objective
The Government Securities Portfolio seeks a high total return consistent with
the preservation of capital.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
o Investing the remainder of its assets in marketable debt obligations
rated within the four highest debt ratings, obligations of commercial
banks, repurchase agreements and money market instruments.
o Normally maintaining an average dollar weighted maturity of between
three and ten years.
Principal Investment Risks
The Government Securities Portfolio is subject to the following principal
investment risks:
o Interest Rate Changes. Interest rate increases can cause the price of
a debt security to decrease.
o Prepayment Risk. The ability of an issuer of a debt security to repay
principal prior to a security's maturity can cause greater price
volatility if interest rates change.
o Issuer-Specific Risk. The value of an individual security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole.
o Income Risk. Falling interest rates will cause the Portfolio's income
to decline.
When you sell shares of the Portfolio, they could be worth more or less than
what you paid for them.
6
<PAGE>
Performance
The following information shows changes in the Government Securities Portfolio's
performance from year to year and compares the Portfolio's performance to the
performance of a market index over various periods of time. Returns are based on
past results and are not an indication of future performance.
<TABLE>
<CAPTION>
Year-by-Year Returns
Government Securities Portfolio
Calendar Years 1993(1) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
---% ---% ---% ---% ---% ---%
Percentage %
20
10
0
- 10
- ----------------------
(1)Commenced operations October 8, 1993.
</TABLE>
During the periods shown in the chart for the Government Securities Portfolio,
the highest return for a quarter was ___% (quarter ending ________ __, ____) and
the lowest return for a quarter was ___% (quarter ending ________ __, ____).
The year-to-date return as of September 30, 1999 for Government Securities
Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Government
Securities Portfolio
Merrill Lynch
Inter-Term Index
Fees and Expenses
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Government Securities Portfolio:
7
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of the offering price) 3%
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Portfolio Operating Expenses (expenses that are deducted
from Portfolio assets)*
Management Fees .50%
Distribution 12b-1 Fees .50%
Other Expenses
Total Portfolio Operating Expenses
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Portfolio is
currently paying only a portion of the total 12b-1 fee authorized for
payment to the Distributor. The Portfolio may increase the payments to the
Distributor to the amount shown above. With the reduced Distributor
payments, the Portfolio's actual total operating expenses are ___%.
Example
The following example is intended to help you compare the cost of an investment
in the Government Securities Portfolio with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
8
<PAGE>
Growth Portfolio
Investment Objective
The Growth Portfolio seeks capital appreciation and income.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in a diversified portfolio of common stocks.
o Selecting equity securities, the majority of which pay dividends.
o Investing in medium and large capitalization companies.
o Investing in companies the Adviser believes will have earnings that grow
faster than inflation and faster than the economy in general and whose
securities are attractively priced.
Principal Investment Risks
The Growth Portfolio is subject to the following principal investment risks:
o Stock Market Volatility. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory,
market or economic developments. Different parts of the market can react
differently to these developments.
o Issuer-Specific Risks. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
o Growth Investing. Growth stocks can perform differently than the market
as a whole and other types of stocks and can be more volatile than other
types of stocks.
Performance
The following information shows changes in the Growth Portfolio's performance
from year to year and compares the Portfolio's performance to the performance of
a market index over various periods of time. Returns are based on past results
and are not an indication of future performance.
9
<PAGE>
<TABLE>
<CAPTION>
Year-by-Year Returns
Growth Portfolio
Calendar Years 1993(1) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
---% ---% ---% ---% ---% ---%
Percentage %
20
10
0
- 10
- ---------------
(1)Comenced operation October 8, 1993.
</TABLE>
During the periods shown in the chart for the Growth Portfolio, the highest
return for a quarter was ___% (quarter ending ________ __, ____) and the lowest
return for a quarter was ___% (quarter ending ________ __, ____).
The year-to-date return as of September 30, 1999 for Growth Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Growth Portfolio
S&P 500 Index
Fee Table
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Growth Portfolio:
10
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of the offering price) 4.5%
Maximum Deferred Sale Charge None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Fund Operating Expenses (expenses that are deducted
from Portfolio assets)*
Management Fees .75%
Distribution 12b-1 Fees .50%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Portfolio is
currently paying only a portion of the total 12b-1 fee authorized for
payment to the Distributor. The Portfolio may increase the payments to the
Distributor to the amount shown above. With the reduced Distributor
payments, the Portfolio's actual total operating expenses are ___%.
Example
The following example is intended to help you compare the cost of an investment
in the Growth Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
11
<PAGE>
Capital Appreciation Portfolio
Investment Objective
The Capital Appreciation Portfolio seeks capital appreciation.
Principal Investment Strategies
The Adviser's principal investment strategies include:
o Investing primarily in common stocks.
o Investing in small to mid-size companies that it believes will have
higher earnings growth potential than that of the general market and
have attractive stock prices in relation to their growth potential.
Principal Investment Risks
The Capital Appreciation Portfolio is subject to the following principal
investment risks:
o Stock Market Volatility. Stock markets are volatile and can decline
significantly in response to adverse issuer, political, regulatory
market, or economic developments. Different parts of the market can
react differently to these developments.
o Issuer-Specific Risks. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
o Growth Investing. Growth stocks can perform differently than the market
as a whole and other types of stocks and can be more volatile than other
types of stocks.
Performance
The following information shows changes in the Capital Appreciation Portfolio's
performance from year to year and compares the Portfolio's performance to the
performance of a market index over various periods of time. Returns are based on
past results and are not an indication of future performance.
12
<PAGE>
<TABLE>
<CAPTION>
Year-by-Year Returns
Capital Appreciation Portfolio
Calendar Years 1993(1) 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
---% ---% ---% ---% ---% ---%
Percentage %
20
10
0
- 10
- -------------------
(1)Commenced operations January 4, 1993.
</TABLE>
During the periods shown in the chart for the Capital Appreciation Portfolio,
the highest return for a quarter was ___% (quarter ending ________ __, ____) and
the lowest return for a quarter was ___% (quarter ending ________ __, ____).
The year-to-date return as of September 30, 1999 for Capital Appreciation
Portfolio was ___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year 5 Years Inception
----------------- ------ ------- ---------
Capital Appreciation
Portfolio
Russell 2000 Index
Fee Table
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Capital Appreciation Portfolio:
13
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a % of
the offering price) 3%
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Fund Operating Expenses (expenses that are deducted
from Portfolio assets)*
Management Fees 1.40%
Distribution 12b-1 Fees .50%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Portfolio is
currently paying only a portion of the total 12b-1 fee authorized for
payment to the Distributor. The Portfolio may increase the payments to the
Distributor to the amount shown above. With the reduced Distributor
payments, the Portfolio's actual total operating expenses are ___%.
The Capital Appreciation Portfolio is obligated to pay the Adviser a basic
investment advisory fee of 1.40% of the Portfolio's average annual net assets,
but that fee is adjusted upward or downward based on the Portfolio's performance
relative to the Russell 2000 Stock Index on a 12 month average. The fee could be
as high as 2.40% of the Portfolio's average annual net assets or low as 0.40%.
The management fees for the Capital Appreciation Portfolio have been restated to
reflect the basic fee of 1.40% without adjustment.
Example
The following example is intended to help you compare the cost of an investment
in the Capital Appreciation Portfolio with the cost of investing in other mutual
funds.
14
<PAGE>
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
15
<PAGE>
International Portfolio
Investment Objective
The International Portfolio seeks a high total return consistent with reasonable
risk.
Principal Investment Strategies
The Sub-Adviser's principal investment strategies include:
o Investing primarily in common stocks of established foreign companies
that it believes have potential for capital growth, income or both.
o Maintaining a globally diversified portfolio of investment securities.
Principal Investment Risks
The International Portfolio is subject to the following risks:
o Stock Market Volatility. Stock markets are volatile and can decline
significantly in response to adverse issues, political, regulatory
market, or economic developments.
o Issuer-Specific Risks. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
o Foreign Country Risk. Foreign markets can be more volatile than the U.S.
market due to increased risks from adverse issuer, political,
regulatory, market or economic developments.
o Currency Risk. The value of the Portfolio will be affected by changes in
currency exchange rates. A rise in the value of the U.S. Dollar against
a foreign currency will cause the U.S. Dollar value of a foreign
security to decrease.
Performance
The following information shows changes in the International Portfolio's
performance from year to year and compares the Portfolio's performance to the
performance of a market index over various periods of time. Returns are based on
past results and are not an indication of future performance.
16
<PAGE>
Year-by-Year Returns
International Portfolio
Calendar Years 1996(1) 1997 1998
---% ---% ---%
Percentage %
20
10
0
- 10
- --------------------
(1)Commenced operations October 1, 1996
During the periods shown in the chart for the International Portfolio, the
highest return for a quarter was ___% (quarter ending ________ __, ____) and the
lowest return for a quarter was ___% (quarter ending
- -------- --, ----).
The year-to-date return as of September 30, 1999 for International Portfolio was
___%.
Average Annual Returns
For the periods ended Since
December 31, 1998 1 Year Inception
----------------- ------ ---------
International Portfolio
Morgan Stanley
International Index
Fee Table
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the International Portfolio:
17
<PAGE>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a %
of the offering price) 3%
Maximum Deferred Sales Charge None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
Maximum Account Fee None
Annual Portfolio Operating Expenses (expenses that are deducted
from Portfolio assets)*
Management Fees 1.15%
Distribution 12b-1 Fees .50%
Other Expenses . %
----
Total Portfolio Operating Expenses . %
====
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Portfolio is
currently paying only a portion of the total 12b-1 fee authorized for
payment to the Distributor. The Portfolio may increase the payments to the
Distributor to the amount shown above. With the reduced Distributor
payments, the Portfolio's actual total operating expenses are ___%.
Example
The following example is intended to help you compare the cost of an investment
in the International Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Period Costs
1 year
3 years
5 years
10 years
18
<PAGE>
More Information About Investment Objectives and Strategies
Intermediate Government Bond Portfolio
Investment Objective
The investment objective of the Intermediate Government Bond Portfolio
is to provide current income, some or all of which is exempt from state income
tax, consistent with the preservation of capital.
Principal Investment Strategies
The Portfolio will invest at least 80% of its assets in securities
issued or guaranteed by the U.S. Government, its agencies or its
instrumentalities. The Portfolio may also invest in money market instruments.
The Portfolio maintains an average dollar weighted maturity between 3
and 10 years with respect to all of its debt securities.
To achieve its objective of current income, the Portfolio normally
purchases securities with a view to holding them rather than selling them to
achieve short-term trading profits. However, the Portfolio may sell any security
at any time if the Adviser believes general economic, industry or securities
market conditions warrant selling the security.
The Portfolio is not a money market fund. The value of an investment in
the Portfolio will fluctuate daily as the value of the Portfolio's assets
change. The Adviser expects that annual portfolio turnover rate will normally
not exceed 100%.
Fundamental Investment Policies
The investment objective of the Intermediate Government Bond Portfolio
is a fundamental policy that may not be changed without shareholder approval.
Government Securities Portfolio
Investment Objective
The investment objective of the Government Securities Portfolio is to
provide a high total return consistent with the preservation of capital.
19
<PAGE>
Implementation of Investment Objective
To achieve its objective, the Government Securities Portfolio will
invest at least 80% of its total assets in securities issued or guaranteed by
the U. S. Government, its agencies or its instrumentalities. The Portfolio will
invest its remaining assets in the following securities:
o Domestic issues of marketable debt obligations that are rated at time of
purchase within the four highest debt rating categories established by
Moody's or S&P or are determined to by the Adviser to be of a comparable
quality or the time of purchase.
o Obligations of commercial banks, including negotiable certificates of
deposit and banker's acceptances.
o Repurchase agreements on securities issued or guaranteed by the U.S.
Government.
o Money market instruments.
To achieve its objective of current income, the Portfolio normally
purchases securities with a view to holding them rather than selling them to
achieve short-term trading profits. However, the Portfolio may sell any security
at any time without regard to the length of time it has been held if the Adviser
believes general economic, industry or securities market conditions warrant
selling the security. In selecting debt securities for the Portfolio that are
not government securities, the Adviser will utilize a fundamental analysis of
the issuer's financial condition and operations, including an analysis of
products and services and competition, management research and development
activities. These issuers generally will have a debt to capital ratio of less
than 60% and have market capitalization in excess of $500,000,000.
The Adviser expects that annual Portfolio turnover rate will normally
not exceed 100%.
The Portfolio is not a money market fund. The value of an investment in
the Portfolio will fluctuate daily as the value of the Portfolio's assets
change. The average dollar-weighted maturity of the Portfolio's investments in
debt instruments will normally be between three and ten years.
Fundamental Investment Policies
The investment objective of the Government Securities Portfolio is a
fundamental policy that may not be changed without shareholder approval.
20
<PAGE>
Growth Portfolio
Investment Objective
The investment objective of the Growth Portfolio is capital appreciation
and income.
Principal Investment Strategies
To achieve its investment objective, the Growth Portfolio will invest at
least 65% of its total assets in a diversified portfolio of common stocks. The
remaining assets (up to 35% of the Portfolio) may be invested in U.S. Government
securities, put and call options and money market instruments.
The Growth Portfolio invests principally in medium and large
capitalization companies having a market capitalization greater than $1 billion.
The Growth Portfolio seeks to identify and invest in companies whose earnings
the Adviser believes will grow faster than inflation and faster than the economy
in general and whose growth the Adviser believes has not yet been fully
reflected in the market price of the company's shares. The Adviser also seeks to
invest in securities it believes will out perform the Standard and Poor's Equity
Index on a risk adjusted basis. To provide current income, the Adviser may
select securities for the Portfolio issued by companies that have a history of
paying regular dividends.
When selecting securities for the Growth Portfolio, the Adviser relies
on a company-by-company analysis and a broader analysis of industry or economic
sector trends and takes into consideration the quality of a company's
management, the existence of a leading or dominant position in a major product
line or market and the soundness of the company's financial position. Once the
Adviser identifies a possible investment, a number of valuation measures are
applied to determine the relative attractiveness of each company and select
those companies whose shares are most attractively priced.
Fundamental Investment Policies
The investment objective of the Growth Portfolio is a fundamental policy
that may not be changed without shareholder approval
Capital Appreciation Portfolio
Investment Objective
The Investment objective of the Capital Appreciation Portfolio is
capital appreciation.
21
<PAGE>
Principal Investment Strategies
To achieve its objective, the Capital Appreciation Portfolio will invest
at least 65% of its assets in a diversified portfolio of common stocks. The
Adviser invests principally in companies which it believes will have earnings
growth above the market averages with an emphasis toward companies whose growth
the Adviser believes has not been fully reflected in the market price of such
company's shares. The Capital Appreciation Portfolio invests principally in
medium and small capitalization companies having market capitalization of $5
billion or less.
The Adviser selects securities for investment based upon considerations
such as the quality of a company's management, the existence of a leading or
dominant position in a major product line market and the soundness of a
company's financial position. As companies are identified as possible
investments, the Adviser applies a number of valuation techniques to determine
the relative attractiveness of each company. Based upon these factors, the
Adviser will attempt to select those companies whose shares, in its estimation,
are most attractively priced.
The Adviser has engaged in active trading of securities held by the
Capital Appreciation Portfolio. The Portfolio's turnover rate for its last
fiscal year was ____%. Frequent trading of portfolio securities increases the
expenses of the Portfolio as a consequence of trading costs and can result in
distributions of gains to shareholders that are subject to tax.
Fundamental Investment Policies
The investment objective of the Capital Appreciation Portfolio is a
fundamental policy that may not be changed without shareholder approval.
International Portfolio
Investment Objective
The investment objective of the International Portfolio is high total
return consistent with reasonable risk.
Principal Investment Strategies
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 Sub-Adviser to have potential for capital growth, income or
both.
22
<PAGE>
The Portfolio will make investments in various countries. Under normal
circumstances, the Portfolio will invest at least 65% of its total assets in the
securities of issuers in no less than three countries. The Portfolio may, from
time to time, invest more than 25% of its assets in any major industrial or
developed country which in the view of the Sub-Adviser poses no unique
investment risk. To determine the appropriate distribution of investments among
various countries and geographic regions, the Sub-Adviser ordinarily will
consider the following factors:
o prospects of relative economic growth among foreign countries;
o expected levels of inflation;
o relative price levels of the various capital markets;
o government policies influencing business conditions;
o the outlook for currency relationships; and
o the range of individual investment opportunities available to
the global investor.
The Portfolio may invest up to 30% of its assets in companies located in
developing countries, which involve exposure to economic structures that are
generally less diverse and mature than in the United States, and to political
systems which may be less stable. The Sub-Adviser considers a country to be a
developing country if it is not included in the Morgan Stanley Capital
International World Index.
The Sub-Adviser expects that the Portfolio turnover for the
International Portfolio will be less than 100%.
Although the Portfolio invests primarily in equity securities, it may
invest up to 35% of its net assets in debt securities, excluding money market
instruments. Bonds purchased for the Portfolio will generally be rated AAA or
Aaa by S&P or Moody's, respectively, or be of equivalent credit quality as
determined by the Sub-Adviser. Five percent (5%) of Portfolio assets may be
invested in debt securities rated lower than AAA or Aaa, but in no event lower
than BBB or Baa, or, of equivalent credit quality. The Sub-Adviser does not
intend to purchase any bonds rated lower than AAA unless the instrument provides
an opportunity to invest in an attractive company in which an equity investment
is not currently available or desirable.
If a change in credit quality after acquisition by the Portfolio causes
the bond not to be investment grade, the Portfolio will dispose of the bond, if
necessary to keep its holdings, if any, of such bonds to 5% or less of the
Portfolio's net assets. See the Statement of Additional Information for more
information on bond ratings and credit quality.
The International Portfolio may purchase securities of foreign issuers
on U.S. registered exchanges, over-the-counter markets or in the form of
American Depository Receipts ("ADRs"), and other securities representing
underlying securities of foreign issuers including securities, such as World
Equity Benchmark Shares, of issuers that invest in shares of a foreign country
in an attempt to track an index for securities of that foreign country. The
International Portfolio does not currently purchase securities in foreign
markets.
23
<PAGE>
Fundamental Investment Policies
The investment objective of the International Portfolio is a fundamental
policy that may not be changed without shareholder approval.
More Information About Risk
Many factors affect a Portfolio's performance. The price of a
Portfolio's share will change daily based on changes in interest rates and
market conditions and in response to other economic, political or financial
developments. A Portfolio's reaction to these developments will be affected by
the types and maturities of the securities in which the Portfolio invests, the
financial condition, industry and economic sector, and geographic location of an
issuer, as well as the Portfolio's level of investment in the securities of that
issuer. When you sell your shares of a Portfolio, they could be worth more or
less than what you paid for them. In addition, the following factors may
significantly affect the Portfolio's performances.
Interest Rate Changes
Intermediate Government Bond Portfolio
Government Securities Portfolio
Debt securities have varying levels of sensitivity to changes in
interest rates. Generally, the price of a debt security can fall when interest
rates rise and vice-versa. Securities with longer maturities tend to be more
sensitive to interest rate changes and are generally more volatile, so the
average maturity or duration of these securities affects risk.
Prepayment Risk
Intermediate Government Bond Portfolio
Government Securities Portfolio
Many types of debt securities are subject to prepayment risk. Prepayment
occurs when the issuer of a security can repay principal prior to the security's
maturity. During periods of falling interest rates, the issuer may repay debt
obligations with high interest rates prior to maturity. This may cause
Portfolio's average weighted maturity to fluctuate, and may require a Portfolio
to invest the resulting proceeds at lower interest rates.
U.S. Government Securities Risk
Intermediate Government Bond Portfolio
Government Securities Portfolio
24
<PAGE>
Although U.S. Government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued or guaranteed by some U.S.
Government agencies are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.
Stock Market Volatility
Growth Portfolio
Capital Appreciation Portfolio
International Portfolio
Stock markets are volatile and can decline significantly in response to
adverse issuer, political, regulatory, market or economic developments. In the
short term, equity prices can fluctuate dramatically in response to these
factors. Political or economic developments can affect a single issuer, issuers
within an industry or economic sector or geographic region, or the market as a
whole.
Issuer-Specific Risk
All Portfolios
Changes in the financial condition of an issuer, changes in specific
economic or political conditions that affect a particular type of issuer, and
changes in general economic or political conditions can affect the value of an
issuer's securities. The value of securities of smaller, less well-known
companies can be more volatile than that of larger companies.
Growth Investing
Growth Portfolio
Capital Appreciation Portfolio
Growth stocks can react differently to issuer, political, market and
economic developments than the market as a whole and other types of stocks.
Growth stocks tend to be more expensive relative to their earnings or assets
compared to other types of stocks. As a result, growth stocks tend to be more
sensitive to changes in their earnings and more volatile than other types of
stocks.
Foreign Issuer Risks
International Portfolio
Currency Risk. The value of the Portfolio's foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
25
<PAGE>
Political and Economic Risk. The economies of many of the countries in
which the Portfolio may invest are not as developed as the United States economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Portfolios investments.
Regulatory Risk. Foreign companies are not registered with the SEC and
are generally not subject to the regulatory controls imposed on United States
issuers. As a consequence, there is generally less publicly available
information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned by
the Portfolio may be reduced by a withholding tax at the source, which tax would
reduce dividend income payable to the Portfolio's shareholders.
Emerging Markets. Foreign securities purchased by the Portfolio may be
issued by foreign companies located in developing countries in various regions
of the world. A "developing country" is a country in the initial stages of its
industrial cycle. Investing in developing countries often involves risk of high
inflation, high sensitivity to commodity prices, and government ownership of the
biggest industries in that country. Investment in the securities of issuers in
developing countries involves exposure to markets that may have substantially
less trading volume and greater price volatility, economic structures that are
less diverse and mature, and political systems that may be less stable.
Investing in developing countries involves a higher probability of occurrence of
the risks of investing in foreign securities in general, including less
financial information available, relatively illiquid markets, and the
possibility of adverse government action.
Year 2000 Risk
All Portfolios
The Portfolios depend on smooth functioning of computer systems in
almost every aspect of their business. Like other mutual funds, businesses and
individuals around the world, the Portfolios could be adversely affected if the
computer systems used by their service providers do not properly process dates
on or after January 1, 2000, and distinguish between the year 2000 and the year
1900. The Portfolios have asked their service providers whether they expect to
have their computer systems adjusted for the year 2000 transition, and have
received assurances from each service provider that they are devoting
significant resources to prevent material adverse consequences to the
Portfolios. Nevertheless, the Portfolios and their Shareholders may experience
losses if these assurances prove to be incorrect or as a result of year 2000
computer difficulties experienced by issuers of portfolio securities or third
parties, such as custodians, banks, broker-dealers or others with which the
Portfolios do business.
26
<PAGE>
Each Portfolio's Other Investments
In addition to the investments and strategies described in this
prospectus, each Portfolio also may invest in other securities, use other
strategies and engage in other securities and engage in other investment
practices. These investments and strategies are described in our Statement of
Additional Information. Of course, the Portfolio cannot guarantee that any
Portfolio will achieve its investment goal.
The investments and strategies described in this prospectus are those
used under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Portfolio may invest up to
100% of its assets in fixed income securities, money market instruments and
other securities that would not ordinarily be consistent with the Portfolio's
objectives. The Portfolios may not achieve their investment objectives while
pursuing these defensive strategies.
Shareholder Information
Buying Shares
Smith Hayes Financial Services Corporation ("Smith Hayes") acts as the
principal distributor of the Fund's shares. You may purchase shares at an
offering price of their net asset value next determined after your purchase
order is placed plus the applicable sales charge. You may purchase shares from
registered representatives of Smith Hayes and from other broker-dealers who have
sales agreements with Smith Hayes.
You may purchase shares of each Portfolio on days on which the New York
Stock Exchange is open for business. You must place your orders with the
Distributor prior to 4:00 p.m. Eastern time on any business day for the order to
be accepted on that business day. You may purchase shares by completing the
Purchase Application included in this Prospectus and submitting it with a check
payable to:
STRATUS FUND, Inc.
200 Centre Terrace
1225 "L" Street
Lincoln, Nebraska 68508
For subsequent purchases, the name of your account and your account
number should be included with any purchase order to properly identify your
account. You may also pay for shares by bank wire. To do so, you must direct
your bank to wire immediately available funds directly to the Custodian as
indicated below:
1. Telephone the Fund (402) 476-3000 and furnish your name, your account
number and your telephone number as well as the amount being wired and the name
of the wiring bank. If you are opening a new account we will request additional
account information and will provide you with an account number.
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<PAGE>
2. Instruct the bank to wire the specific amount of immediately
available funds to the Custodian. The Fund will not be responsible for the
consequences of delays in the bank or Federal Reserve wire system.
Your bank must furnish the full name of your account and the account number.
The wire should be addressed as follows:
UNION BANK AND TRUST COMPANY
Lincoln, Nebraska
Fund Department, ABA #104910795
Lincoln, Nebraska 68506
Account of STRATUS FUND, Inc.
-----------------------------
FBO (Account Registration name)
#_____________________________
3. If the shares you are purchasing by bank wire transfer represent an
initial purchase, complete a Purchase Application and mail it to the Fund. The
completed Purchase Application must be received by the Fund before subsequent
instructions to redeem Fund shares will be accepted. Banks may impose a charge
for the wire transfer of funds.
You will receive written confirmation of your purchases. Stock
certificates will not be issued in order to facilitate redemptions and exchanges
between the Portfolios. Smith Hayes reserves the right to reject any purchase
order.
Minimum Investments
Except as provided under the Automatic Investment Plan, we require a
minimum initial aggregate investment of $1,000, unless waived by the
Distributor.
Automatic Investment Plan
Under an automatic investment plan, money is withdrawn each month from
your predesignated bank account for investment in a Portfolio. The minimum
investment is $50 per Portfolio. By investing the same dollar amount each month,
you will purchase more shares when a Portfolio's net asset value is low and
fewer shares when the net asset value is high. While periodic investing can help
build significant savings over time, it does not assure a profit or protect
against loss in a declining market.
You must notify your account representative to establish an automatic
investment plan, and your bank must be a member of the Automated Clearing House.
You may revoke the plan at any time, but it may take up to 15 days from the date
we receive a written revocation notice to terminate the plan. Any purchases of
shares made during the period shall be considered authorized. If an automatic
withdrawal cannot be made from your predesignated bank account to provide funds
for automatic share purchases, your plan will be terminated.
28
<PAGE>
Selling Shares
You may redeem shares of the Portfolios, in any amount, at any time at
their net asset value next determined after your sale order is placed. To redeem
shares of the Portfolios, you may make a redemption request through your Smith
Hayes investment executive or other broker-dealer. A redemption request may be
made in writing if accompanied by the following:
1. a letter of instruction or stock assignment specifying the number or
dollar value of shares to be redeemed, signed by all the owners of the shares in
the exact names in which they appear on the account, or by an authorized officer
of a corporate shareholder indicating the capacity in which such officer is
signing;
2. a guarantee of the signature of each owner by an eligible institution
which is a participant in the Securities Transfer Agent Medallion Program which
includes many U.S. commercial banks and members of recognized securities
exchanges; and
3. other supporting legal documents, if required by applicable law, in
the case of estates, trusts, guardianships, custodianships, corporations and
pension and profit-sharing plans.
Payment of Redemption Proceeds
Normally, the Fund will make payment for all shares redeemed within five
business days. In no event will the Fund make payment more than seven days after
Smith Hayes receives a redemption request. However, payment may be postponed or
the right of redemption suspended for more than seven days under unusual
circumstances, such as when trading is not taking place on the New York Stock
Exchange. The Fund may also delay payment of redemption proceeds until the check
used to purchase the shares to be redeemed has cleared the banking system, which
may take up to 15 days from the purchase date. You may request that the Fund
transmit redemption proceeds by Federal Funds bank wire to a bank account
designated on your account application form, provided the bank wire redemptions
are in the amounts of $500 or more and you have provided all requisite account
information to the Fund.
Involuntary Redemption
The Fund reserves the right to redeem the shares in your account at any
time if the net asset value of your account falls below $500 as the result of a
redemption or transfer request. You will be notified in writing that the value
of your account is less than $500 and you will be allowed 30 days to make
additional investments before the redemption is processed.
29
<PAGE>
Automatic Withdrawal Plan
If you own shares of the Fund with a value of $5,000 or more, you may
elect to redeem a portion of your shares on a regular periodic (monthly,
quarterly or annual) basis. The minimum withdrawal amount is $100. Payment may
be made to you, a predesignated bank account, or to another payee. Under this
plan, sufficient shares are redeemed from your account in time to send a check
in the amount requested on or about the first day of a month. Redemptions under
the automatic withdrawal plan will reduce and may ultimately exhaust the value
of your designated account. You may realize taxable gains or losses where you
redeem shares under the automatic withdrawal plan.
Purchasing additional shares concurrently with automatic withdrawals is
likely to be disadvantageous to you because of tax liabilities. Consequently,
the Portfolio will not normally accept additional purchase payments in single
amounts of less than $5,000 if you have this plan in effect. Any charges to
operate an automatic withdrawal plan will be assessed against your account when
each withdrawal is effected.
You must notify your account representative to establish an automatic
withdrawal plan. Forms must be properly completed and received at least 30 days
before the first payment date. You may terminate automatic withdrawal plan at
any time, by written notice.
Exchanging Shares
Once payment for shares has been received (i.e., an account has been
established), you may exchange some or all of your shares for Retail Class A
shares of other Portfolios of the Fund.
Exchanges are made at net asset value next determined after receipt of
the exchange order plus any applicable sales charge. No additional sales charge
will be imposed in connection with an exchange of shares of a Portfolio for
shares of another Portfolio if the exchange occurs more than 6 months after the
purchase of the Portfolio shares disposed of in the exchange. If, within 6
months of their acquisition, you exchange shares of a Portfolio for shares of
one of another Portfolio with a higher sales charge, you will pay the difference
between the sales charges in connection with the exchange. No refund of a sales
charge will be made if shares of a Portfolio are exchanged for shares of another
Portfolio that imposes a lower sales charge.
If you buy shares of a Portfolio and receive a sales charge waiver, you
will be deemed to have paid the sales charge for purposes of this exchange
privilege. In calculating any sales charge payable on an exchange, we will
assume that the first shares exchanged are those on which a sales charge has
already been paid. Sales charge waivers may also be available under certain
circumstances, as described in this Prospectus. The Fund reserves the right to
change the terms and conditions of the exchange privilege, or to terminate the
exchange privilege, upon sixty days' notice.
You should contact the Distributor for instructions on how to exchange
shares. Exchanges will be made only after the Distributor receives proper
instructions in writing or by telephone for an established account. If the
Distributor receives an exchange request in good order by 4:00 p.m. Eastern time
on any business day, the exchange will ordinarily be effective on that day. To
make an exchange you must have received a current prospectus of the Portfolio
into which the exchange is being made before the exchange will be effected.
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<PAGE>
Each exchange of the shares of a Portfolio for the shares of another
Portfolio is actually a sale of shares of one Portfolio and a purchase of shares
in the other, which may produce a gain or loss for tax purposes. In order to
protect the Portfolio's performance and its shareholders, the Fund discourages
frequent exchange activity in response to short-term market fluctuations. The
Fund reserves the right to modify or withdraw the exchange privilege or to
suspend the offering of shares in any class without notice to you if, in the
Adviser's judgment, the Portfolio would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. The Fund also reserves the right to reject
any specific purchase order, including certain purchases by exchange.
Valuing Shares
A Portfolio's net asset value per share (NAV) is the value of a single
Portfolio share. The Portfolios generally determine their NAV on each day the
New York Stock Exchange is open for business. The calculation is made as of the
close of business of the New York Stock Exchange (currently 4:00 p.m., Eastern
time) after the Portfolios have declared any applicable dividends.
The NAV for each of the Portfolios is determined by dividing the value
of the securities owned by the Portfolio plus any cash and other assets less all
liabilities by the number of Portfolio shares outstanding.
Net Asset Value = Total Assets - Liabilities
----------------------------
Number of Shares Outstanding
For the purposes of determining the aggregate net assets of the
Portfolios, cash and receivables are valued at their face amounts. Interest is
recorded as accrued and dividends are recorded on the ex-dividend date.
Securities traded on a national securities exchange or on the Nasdaq Stock
Market are valued at the last reported sale price that day. Securities traded on
a national securities exchange or on the Nasdaq Stock Market for which there
were no sales on that day, and securities traded on other over-the-counter
markets for which market quotations are readily available, are valued at the
mean between the bid and the asked prices. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
in good faith by the Board of Directors. With the approval of the Board of
Directors, the Portfolios may utilize a pricing service, bank, or broker-dealer
experienced in such matters to perform any of the above-described functions.
Fund Distribution
Sales Charges
Your purchase of shares of the Portfolios is subject to a sales charge which
varies depending on the size of your purchase. The following table shows the
regular sales charges on Portfolio shares to a single purchaser.
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<PAGE>
<TABLE>
<CAPTION>
Intermediate Government Bond Portfolio
Government Securities Portfolio
Sales Charge as Sales Charge as
a percent of a Percentage of
Amount of Purchase Offering Price Net Amount Invested
- ------------------------------------------- ---------------------- -----------------------
<S> <C> <C> <C>
less than $50,000 3% 3.1%
$50,000 but less than $100,000 2.5% 2.6%
$100,000 but less than $250,000 1.5% 1.5%
$250,000 and over 0% 0%
Growth Portfolio
Capital Appreciation Portfolio
International Portfolio
- ------------------------------------------- ---------------------- -----------------------
Sales Charge as Sales Charge as
a percent of a Percentage of
Amount of Purchase Offering Price Net Amount Invested
less than $50,000 4.5% 4.7%
$50,000 but less than $100,000 3.5% 3.6%
$100,000 but less than $250,000 2.5% 2.6%
$250,000 and over 0% 0%
- ------------------------------------------- ---------------------- -----------------------
</TABLE>
Reduction of Sales Charge: Right of Accumulation.
In calculating the sales charge rates applicable to current purchases of
shares of the Portfolio you are entitled to combine current purchases with the
current market value of previously purchased shares of the Portfolio. The right
of accumulation will be available only if you notify the Distributor in writing
at the time of purchase of your prior purchase of Portfolio shares.
Reinstatement Privilege
If you have redeemed shares of the Portfolio you have a one-time right
to reinvest the redemption proceeds in shares of the Portfolio at NAV as of the
time of reinvestment. Reinvestment must be made within 30 days of the redemption
and is limited to the amount of the redemption proceeds. Although redemptions
and repurchases of shares are taxable events, a reinvestment within such 30-day
period in the same fund is considered a "wash sale" and results in the inability
to recognize currently all or a portion of a loss realized on the original
redemption for federal income tax purposes. You must notify the Distributor at
the time your trade is placed that the transaction is a reinvestment.
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<PAGE>
Sales Charge Waivers.
No sales charge is imposed on shares of the Portfolios
o issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party,
o sold to Union Bank and Trust Company acting in its capacity as
trustee for trust, employee benefit and managed agency accounts
in which external account fees are charged for services rendered.
Rule 12b-1 Fees
The Fund has adopted a distribution plan for the Retail Class A shares
of the Portfolios in accordance with the provisions of Rule 12b-1 under the
Investment Company Act that allows the Fund to pay distribution fees for the
sale and distribution of its shares.
The distribution plan provides for payment to the Distributor of a total
fee calculated and payable monthly, at the annual rate of up to 0.50% of the
value of the average daily net assets of such class. All of this fee may be
payable as a distribution fee.
Because these fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
Dividends and Capital Gains Distributions
Each Portfolio distributes its income as follows:
Intermediate Government Bond Portfolio - declared and paid monthly
Government Securities Portfolio - declared and paid monthly
Growth Portfolio - declared and paid annually
Capital Appreciation Portfolio - declared and paid annually
International Portfolio - declared and paid annually
If you own Portfolio shares as of the record date of the distribution,
you will be entitled to receive the distribution. Each Portfolio makes
distributions of capital gains, if any, at least annually.
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<PAGE>
You will receive dividends and distributions in the form of
additional Portfolio shares unless you elect to receive payment in cash. To
receive payment in cash, you must notify your Smith Hayes investment executive
or other broker-dealer of your election. The taxable status of income dividends
and/or net capital gains distributions is not affected by whether they are
reinvested or paid in cash.
Tax Consequences
The Portfolios will each be treated as separate entities for federal
income tax purposes. The Fund has operated the Portfolios in a manner that
qualifies them as "regulated investment companies" as defined in the Internal
Revenue Code. Provided certain distribution requirements are met, the Portfolios
will not be subject to federal income tax on their net investment income and net
capital gains that they distribute to their shareholders.
Shareholders subject to federal income taxation will receive taxable
dividend income or capital gains, as the case may be, from distributions,
whether paid in cash or received in the form of additional shares. Promptly
after the end of each calendar year, each shareholder will receive a statement
of the federal income tax status of all dividends and distributions paid during
the year.
Shareholders of the Intermediate Government Bond and the Government
Securities Portfolios may be able to exclude a portion of the dividends received
from taxable income as exempt interest income under various state income tax
rules. Shareholders should consult their tax advisers as to the extent and
availability of these exclusions.
The Fund is subject to the backup withholding provisions of the Internal
Revenue Code and is required to withhold income tax from dividends and
redemptions paid to a shareholder, if such shareholder fails to furnish the Fund
with a taxpayer identification number or under certain other circumstances.
Accordingly, shareholders are urged to complete and return Form W-9 when
requested to do so by the Fund.
This discussion is only a summary and relates solely to federal tax
matters. Dividends may also be subject to state and local taxation. You are
urged to consult with your personal tax advisers.
Fund Management
Investment Adviser and Sub-Adviser
The Portfolios are managed by Union Bank and Trust Company, 6801 S.
27th, P.O. Box 82535, Lincoln, Nebraska 68501. Union Bank has engaged Murray
Johnstone International, Inc., 11 West Nile Street, Glasgow G12PX United
Kingdom, a corporation organized under the laws of Scotland, to act as
Sub-Adviser to the International Portfolio.
The Portfolios pay Union Bank monthly fees for investment advisory
services. For the fiscal year ended June 30, 1999, Union Bank received advisory
fees, expressed as a percentage of daily average net assets, of:
34
<PAGE>
Intermediate Government Bond Portfolio .65%
Government Securities Portfolio .50%
Growth Portfolio .75%
Capital Appreciation Portfolio ____%
International Portfolio 1.15%
Murray Johnstone International, Inc. received from Union Bank a sub-advisory
fee, expressed as a percentage
of daily average net assets, of .65%.
Portfolio Managers
Intermediate Government Bond Portfolio, Government Securities Portfolio, Growth
Portfolio, Capital Appreciation Portfolio
William S. Eastwood has been affiliated with Union Bank and Trust
Company and the management of the Fund since March of 1995. Prior to joining
Union Bank, Mr. Eastwood was statewide manager of trust investments for a
regional bank. Mr. Eastwood was responsible for the management of equity and
fixed become common funds at that bank from 1979 to 1995. Mr. Eastwood holds the
Chartered Financial Analyst (CFA) professional designation.
Jon C. Gross is currently a Vice President/Portfolio Manager and has
been affiliated with Union Bank since 1988. Mr. Gross has been actively involved
in the management of the Fund since 1991. Mr. Gross holds the Chartered
Financial Analyst (CFA) professional designation.
International Portfolio
James Clunie, BS (Hons), AIIMR, CFA is an investment manager for
international and global equity portfolios for clients in several countries, and
also manages Murray Johnstone's "SCOTS" active/passive portfolios. Mr. Clunie
maintains and develops Murray Johnstone's proprietary "Twenty Questions
Analysis," a numerical system for ranking countries in terms of investment
attractiveness. Mr. Clunie is a member of the Group Strategy team, which is
responsible for producing asset allocation guidelines for all Murray Johnstone
portfolios, and is head of the country allocation team for international
portfolios. Mr. Clunie is qualified as an Associate of the Institute of
Investment Management and Research (U.K. investment qualification) and as a
Chartered Financial Analyst (CFA). Mr. Clunie graduated with Honours in
Mathematics and Statistics from the University of Edinburgh, Scotland. He joined
Murray Johnstone in 1989, and has worked in various analytical and
business-development roles with the company, prior to his current position.
35
<PAGE>
Andrew V. Preston, BA (Hons) graduated from Melbourne University where
he studied Economics and Oriental Studies, including Chinese and Japanese
languages. This was followed by post-graduate work at Ritsumeikan University in
Kyoto, Japan, prior to joining the Australian Department of Foreign Affairs. Mr.
Preston joined Murray Johnstone in January 1985 and has managed portfolios in
the United Kingdom, United States and Japanese markets. In 1992, Mr. Preston
joined Murray Johnstone International as a portfolio manager and a member of the
Country Allocation Team. Mr. Preston was appointed a Director of MJI in January
1993. Mr. Preseton has specialized in Socially Responsible Investments since
1992 and was appointed Head of SRI in Murray Johnstone in 1996.
Financial Highlights
The financial highlights tables are intended to help you understand the
Portfolio's financial performance for the past five years or, if shorter, the
period of the Portfolio's operations. Certain information reflects financial
results for a single Portfolio share. The total returns in the tables represent
the rate that an investor would have earned (or lost) on an investment in the
Portfolio (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, independent certified
public accountants, whose report, along with the Portfolio's financial
statements, are included in the annual report, which is available upon request.
36
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Intermediate Government Bond Portfolio
Years Ended June 30, 1999, 1998, 1997, 1996, 1995, 1994, 1993, and 1992
and for the period from May 15, 1991 (commencement of operations) to
June 30, 1991
Net asset value: 1999 1998 1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of period: $10.48 $10.47 10.56 10.29 10.84 10.72 10.02 10.00
------ ------ ----- ----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment income 0.52 0.54 0.52 0.50 0.47 0.38 0.94 0.07
Net realized and unrealized
gain (loss) on investments 0.12 0.02 (0.09) 0.27 (0.55) 0.34 0.70 (0.05)
---- ---- ------ ---- ------ ---- ---- ------
Total income
(loss) from investment
operations 0.64 0.56 0.43 0.77 (0.08) 0.72 1.64 0.
---- ---- ---- ---- ------ ---- ---- --
Less distributions:
Dividends from net investment
income (0.52) (0.55) (0.52) (0.50) (0.47) (0.38) (0.94) -----
Distributions from capital gains ------ ------ ------ ------ ------ (0.22) ----- -----
------ ------ ------ ------ ------ ------ ----- -----
Total distributions (0.52) (0.55) (0.52) (0.50) (0.47) (0.60) (0.94) -----
------ ------ ------ ------ ------ ------ -----
End of period $10.60 $10.48 ($10.47 $10.56 $10.29 $10.84 $10.72 $10.02
====== ======== ====== ====== ====== ====== ======
Total return 6.3% 5.6% (a)4.1% 7.9% (.8%) 8.9% 11.4% 1.6% (b)
==== ======== ==== ==== ===== ========
Ratios/Supplemental data:
Net assets, end of period (000's) $4,009 $4,606 7,225 5,518 7,775 6,748 4,681 2,230
Ratio of expense to average
net assets 1.17% 1.02% 1.03% 1.11% 1.05% 1.12% 1.04% 1.46% (c)
Ratio of net income to average
net assets 4.93% 5.14% 4.95% 4.84% 4.41% 4.58% 5.31% 7.41% (c)
Portfolio turnover rate 89% -
-- 26.88% 4.05% 27.67% 21.02% 32.39% 205.
(a) Excludes maximum sales load of 3%
(b) Total return is not annualized.
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Government Securities Portfolio
Years ended June 30, 1999, 1998, 1997, 1996 and 1995 and the period
from October 8, 1993 (commencement of operations) to June 30, 1994
Net asset value: 1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <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 0.51 0.51 0.49 0.45 0.27
Net realized and unrealized gain
(loss) on investments 0.16 0.08 (0.13) 0.37 (0.60)
---- ---- ------ ---- ------
Total income (loss) from
investment operations 0.67 0.59 0.36 0.82 (0.33)
---- ---- ---- ---- ------
Less distributions from net investment
income (0.51) (0.51) (0.49) (0.45) (0.27)
------ ------
End of period $9.88 $9.72 (a) 9.64 9.77 9.40
===== ========= ==== ===== ====
Total return 7.0% 6.3% (a) 3.7% 9.0% (3.4%) (b)
==== ======== ==== ==== ======
Ratios/Supplemental data:
Net assets, end of period (000's)
$30,368 $26,534 23,043 13,885 12,478
Ratio of expense to average net assets
0.82% 0.71% 0.69% 0.80% 0.74% (c)
Ratio of net income to average net assets
5.17% 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.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Growth Portfolio
Years ended June 30, 1999, 1998, 1997, 1996 and 1995 and the period
from October 8, 1993 (commencement of operations) to June 30, 1994
Net asset value: 1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <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 0.11 0.22 0.23 0.22 0.19
Net realized and unrealized
gain (loss) on investments 3.45 3.99 2.36 1.72 (0.16)
---- ---- ---- ---- ------
Total income from
investment operations 3.56 4.21 2.59 1.94 0.03
---- ---- ---- ---- ----
Less distributions:
Dividends from net investment (0.11) (0.22) (0.22) (0.22) (0.19)
income
Distributions from capital gains
(1.99) (0.59) (0.17) (0.09) -----
------ ----- ------ -----
Total distributions (2.10) (0.81) (0.39) (0.31) (0.19)
------ ------ ----- ------ ------
End of period $18.53 $17.07 (a) 13.67 11.47 9.84
====== ========== ===== ===== ====
Total return 22.29% 32.6% (a) 22.6% 20.3% (0.3%) (b)
====== ======== ===== ===== =========
Ratios/Supplemental data:
Net assets, end of period (000's) $63,097 $46,189 24,628 12,813 12,892
Ratio of expense to average net assets 0.76% 0.72% 0.71% 0.82% 0.76% (c)
Ratio of net income to average net assets 0.18% 1.46% 1.78% 2.14% 2.38% (c)
Portfolio turnover rate 137.03% 88.53% 92.72% 19.89% 10.05%
Average Commission Rate (d) $0.0957 $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.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Capital Appreciation Portfolio
Years Ended June 30, 1999, 1998, 1997, 1996, 1995 and 1994 and for
the period from January 4, 1993 (commencement of operations)
to June 30, 1993
Net asset value: 1999 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- -----
<S> <C> <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 loss 0.03 0.18 (0.19) (0.15) (0.12) (0.04)
Net realized and unrealized gain
(loss) on investments 0.86 1.48 2.88 2.62 (0.33) (0.56)
---- ---- ---- ---- ------ ------
Total income (loss)
from investment 0.89 1.66 2.69 2.47 0.45) (0.60)
---- ---- ---- ---- ----- ------
operations
Less distributions form
net investment income (.03) (.12) ----- ------ ----- ------
----- ----- ----- ------ ----- ------
Less distributions from capital gains: (0.72) (0.48) (0.73) (0.19) ----- -----
------ ------ ------ ------ ----- -----
End of period $14.39 $14.25 (a) 13.19 11.23 8.95 9.40
====== ========== ===== ===== ==== ====
Total return 7.5% 11.7% (a) 26.0% 28.6% (4.8%) (6.0%)(b)
==== ========= ====== ====== ===== ========
Ratios/Supplemental data:
Net assets, end of period (000's) $9,175 $6,733 2,474 749 654 583
Ratio of expenses to average net assets 0.76% 0.91% 2.84% 2.69% 2.13% 2.41%(c)
Ratio of net income (loss) to average net 0.18% 1.31% (1.54%) (1.59%) (1.27%) (1.04%)
assets (c)
Portfolio turnover rate 277.13% 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.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
International Portfolio
Year ended June 30, 1999 and 1998 and for the period from
October 1, 1996 (commencement of operations) to June 30, 1997
Net asset value: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Beginning of period: $11.22 $10.00
------ ------
Income from investment operations:
Net investment income 0.02 0.15
Net realized and unrealized gain on investments
0.64 1.22
---- ----
Total income from investment operations
0.66 1.37
---- ----
Less distributions from net investment income: (0.13) (0.15)
====== ======
End of period $11.75 $11.22 (a)
====== ==========
Total return 6.3% 18.2% (a)
==== =========
Ratios/Supplemental data:
Net assets, end of period (000's) $11,974 $10,431
Ratio of expenses to average net assets 1.65% 1.48% (b)
Ratio of net loss to average net assets 0.21% 1.89% (b)
Portfolio turnover rate 52.92% 33.77%
Average Commission Rate (c) $0.0991 $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.
</TABLE>
41
<PAGE>
Back Cover Page
Stratus Fund
Retail Class A Shares
You can obtain more information about each Portfolio without charge through the
following:
Statement of Additional Information (SAI)
The SAI dated November 1, 1999, includes detailed information about the Stratus
Fund Portfolios. The SAI is on file with the SEC and is incorporated by
reference into this prospectus. This means that the SAI, for legal purposes, is
a part of this prospectus.
Annual and Semi-Annual Reports
These reports list each Portfolio's holdings and contain information from the
Portfolio's managers about strategies, and recent market conditions and trends.
The reports also contain detailed financial information about the Portfolios.
To obtain more information:
By Telephone: Call (402) 476-3000
By Mail: Stratus Fund, Inc.
200 Centre Terrace
1225 "L" Street
Lincoln, Nebraska 68508
You can also obtain the SAI or the Annual and Semi-Annual Reports, as well as
other information about Stratus Fund, from the SEC's website
(HTTP://WWW.SEC.GOV). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-6009. The Stratus Fund's Investment Company Act
registration number is 811-6259.
42
<PAGE>
Statement of Additional Information
Stratus Fund, Inc.
Intermediate Government Bond Portfolio
Government Securities Portfolio
Growth Portfolio
Capital Appreciation Portfolio
International Portfolio
November 1, 1999
This Statement of Additional Information is not a prospectus.
This Statement of Additional Information relates to the Prospectuses for the
Institutional Class shares and Retail Class A shares of the Intermediate
Government Bond Portfolio, Government Securities Portfolio, Growth Portfolio,
Capital Appreciation Portfolio and International Portfolio of Stratus Fund, Inc.
(the "Fund") dated November 1, 1999. A copy of the Prospectuses may be obtained
from the Fund by written request delivered to 200 Centre Terrace, 1225 "L"
Street, Lincoln, Nebraska, 68508, or by calling (402) 476-3000.
<PAGE>
Table of Contents
Page
Fund History...........................................................2
Additional Information About The Portfolios' Investment
Objectives, Policies And Risks.................................2
Special Investment Methods and Related Risks...........................2
Directors and Executive Officers......................................10
Investment Advisory and Other Services................................12
Portfolio Transactions and Brokerage Allocations......................19
Capital Stock.........................................................22
Redemption of Shares and Exchanges Between Classes....................26
Redemption............................................................26
Calculations of Performance Data......................................27
Financial Statements..................................................30
Auditors..............................................................30
APPENDIX A - Ratings of Corporate Obligations, Commercial Paper,
and Preferred Stock..........................................A-1
1
<PAGE>
Fund History
Stratus Fund, Inc. (the "Fund") is a Minnesota corporation operating as
an investment company, commonly called a mutual fund. The Fund has divided the
shares of its capital stock into separate categories that are referred to as
portfolios, each of which is operated as a separate diversified, open-end
management investment company having its own investment objectives and policies.
The Fund initially issued only one class of shares of each portfolio. Pursuant
to its Amended and Restated Articles of Incorporation which became effective on
December 31, 1997, all shares of the portfolios then outstanding were designated
Institutional Class shares and issuance of Retail Class A shares of each
portfolio was authorized. This Statement of Additional Information relates to
the Retail Class A shares and Institutional Class shares of the 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.
Additional Information About The Portfolios' Investment
Objectives, Policies And Risks
Investment Objectives and Policies
The investment objectives and the principal investment policies of the
Portfolios are described in the Prospectuses. Further information on the
investment policies and limitations of the Portfolios are described below.
Special Investment Methods and Related Risks
Some or all of the Portfolios may invest in U.S. Government Securities,
repurchase agreements, convertible securities, options for hedging purposes and
money market instruments. Descriptions of such securities, and the inherent
risks of investing in such securities, are set forth below.
U.S. Government Securities
The Portfolios may invest in U.S. Government Securities which are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Obligations issued by the U.S. Treasury include Treasury
Bills, Notes and Bonds which differ from each other mainly in their interest
rates and the length of their maturity at original issue. Treasury Bills have a
maturity of one year or less, Treasury Notes have maturities of one to ten years
and Treasury Bonds generally have
2
<PAGE>
maturities greater than ten years. Treasury Securities are backed by the full
faith and credit of the U.S. Government.
The obligations of U.S. Government agencies or instrumentalities are
guaranteed or backed in a variety of ways by the U.S. Government, its agencies
or instrumentalities. Some of these obligations, such as Government National
Mortgage Association mortgage-related securities and obligations of the Farmers
Home Administration, are backed by the full faith and credit of the U.S.
Treasury. Obligations of the Farmers Home Administration are also backed by the
issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks and the Farmers Home Administration are backed by the discretionary
authority of the U.S. Government to purchase certain obligations of agencies or
instrumentalities. Obligations of Federal Home Loan Banks, the Farmers Home
Administration, Federal Farm Credit Banks, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation are backed by the
credit of the agency or instrumentality issuing the obligations.
As with all fixed income securities, various market forces influence the
value of U.S. Government Securities. There is an inverse relationship between
the market value of such securities and yield. As interest rates rise, the value
of the securities falls; conversely, as interest rates fall, the market value of
such securities rises.
Repurchase Agreements
The Government Securities Portfolio, Growth Portfolio and Capital
Appreciation Portfolio may enter into repurchase agreements for U.S. Government
Securities. A repurchase agreement involves the purchase by a Portfolio of U.S.
Government Securities with the condition that after a stated period of time
(usually seven days or less) the original seller will buy back the same
securities ("collateral") at a predetermined price or yield. Repurchase
agreements involve certain risks not associated with direct investments in
securities. In the event the original seller defaults on its obligation to
repurchase, as a result of its bankruptcy or otherwise, the Portfolio will seek
to sell the collateral, which action could involve costs or delays. In such
case, the Portfolio's ability to dispose of the collateral to recover such
investment may be restricted or delayed. While collateral will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale of collateral were less than the repurchase price, a Portfolio would suffer
a loss.
Options Transactions
The Growth Portfolio, Capital Appreciation Portfolio and International
Portfolio may purchase put options, solely for hedging purposes, in order to
protect portfolio holdings in an underlying security against a substantial
decline in the market value of such holdings ("protective puts"). Such
protection is provided during the life of the put because the Portfolio may sell
the underlying security at the put exercise price, regardless of a decline in
the underlying security's market price. Any loss to the Portfolio is limited to
the premium paid for, and transaction costs paid in connection with, the put
plus the initial excess, if any, of the market price of the underlying security
over the exercise price. However, if the market price of such security
increases, the profit
3
<PAGE>
a Portfolio realizes on the sale of the security will be reduced by the premium
paid for the put option less any amount for which the put is sold.
The Growth Portfolio, Capital Appreciation Portfolio and International
Portfolio may also purchase call options solely for the purpose of hedging
against an increase in prices of securities that the Portfolio ultimately wants
to buy. Such protection is provided during the life of the call option because
the Portfolio may buy the underlying security at the call exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Portfolio will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.
The Growth Portfolio, Capital Appreciation Portfolio and International
Portfolio may only purchase exchange-traded put and call options.
Exchange-traded options are third party contracts with standardized strike
prices and expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while other options may
not.
Use of options in hedging strategies is intended to protect performance,
but can result in poorer performance than without hedging with options if the
Adviser is incorrect in its forecasts of the direction of stock prices.
Normally, the Portfolio will only invest in options to protect existing
positions and as a result, will normally invest no more than 10% of the
Portfolio's assets in options.
Convertible Securities
The Growth Portfolio and Capital Appreciation Portfolio may invest in
convertible securities. Convertible securities are securities that may be
exchanged or converted into a predetermined number of the issuer's underlying
common shares at the option of the holder during a specified time period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, or a combination of the features of these
securities. The investment characteristics of convertible securities vary
widely, allowing convertible securities to be employed for different investment
objectives. Convertible securities held by the Growth Portfolio and Capital
Appreciation Portfolio will be treated as common stocks for asset allocation
purposes.
Convertible bonds and convertible preferred stocks are fixed income
securities entitling the holder to receive the fixed income of a bond or the
dividend preference of a preferred stock until the holder elects to exercise the
conversion privilege. They are senior securities, and, therefore, have a claim
to assets of the issuer prior to the common stock in the case of liquidation.
However, convertible securities are generally subordinated to non-convertible
securities of the same company. The interest income and dividends from
convertible bonds and preferred stocks provide a stream of income with generally
higher yields than common stocks, but lower than non-convertible securities of
similar quality.
As with all fixed income securities, various market forces influence the
market value of convertible securities, including changes in the prevailing
level of interest rates. As the level of
4
<PAGE>
interest rates increases, the market value of convertible securities tends to
decline and, conversely, as interest rates decline, the market value of
convertible securities tends to increase. The unique investment characteristic
of convertible securities (the right to exchange for the issuer's common stock)
causes the market value of the convertible securities to increase when the value
of the underlying common stock increases. However, because security prices
fluctuate, there can be no assurance of capital appreciation. Most convertible
securities will not reflect as much capital appreciation as their underlying
common stocks. When the underlying common stock is experiencing a decline, the
value of the convertible security tends to decline to a level approximating the
yield-to-maturity basis of straight non-convertible debt of similar quality,
often called "investment value," and may not experience the same decline as the
underlying common stock.
Most convertible securities sell at a premium over their conversion
values (i.e., the number of shares of common stock to be received upon
conversion multiplied by the current market price of the stock). This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed income security with a possibility of capital appreciation
due to the conversion privilege. If this appreciation potential is not realized,
the premium may not be recovered.
Special Situations
The Growth Portfolio and Capital Appreciation Portfolio may periodically
invest in special situations. A special situation arises when, in the opinion of
the Adviser, the securities of a particular company will, within a reasonably
estimable period of time, be accorded market recognition at an appreciated value
solely by reason of a development particularly or uniquely applicable to that
company and regardless of general business conditions or movements of the stock
market as a whole. Developments creating special situations might involve, among
others, the following: "workouts" such as liquidations, reorganizations,
recapitalizations or mergers; material litigation; technological breakthroughs;
and new management or management policies. Special situations involve a
different type of risk than is inherent in ordinary investment securities; that
is, a risk involving the likelihood or timing of specific events rather than
general economic market or industry risks. As with any securities transaction,
investment in special situations involves the risk of decline or total loss of
the value of the investment. However, the Adviser will not invest in special
situations unless, in its judgment, the risk involved is reasonable in light of
the Portfolio's investment objective, the amount to be invested and the expected
investment results.
Money Market Instruments
The Government Securities Portfolio, Growth Portfolio and Capital
Appreciation Portfolio may invest in money market instruments which include:
(i) U.S. Treasury Bills;
(ii) U.S. Treasury Notes with maturities of 18 months or less;
(iii) U.S. Government Securities subject to repurchase agreements;
5
<PAGE>
(iv) Obligations of domestic branches of U.S. banks (including
certificates of deposit and bankers' acceptances with maturities of 18 months or
less) which at the date of investment have capital, surplus, and undivided
profits (as of the date of their most recently published financial statements)
in excess of $10,000,000 and obligations of other banks or savings and loan
associations if such obligations are insured by the Federal Deposit Insurance
Corporation ("FDIC");
(v) Commercial paper which at the date of investment is rated A-1 by S&P
or P-1 by Moody's or, if not rated, is issued or guaranteed as to payment of
principal and interest by companies which at the date of investment have an
outstanding debt issue rated AA or better by S&P or Aa or better by Moody's;
(vi) Short-term (maturing in one year or less) corporate obligations
which at the date of investment are rated AA or better by S&P or Aa or better by
Moody's; and
(vii) Shares of no-load money market mutual funds (subject to the
ownership restrictions of the Investment Company Act of 1940). See "Other
Permitted Investments and Related Risks" in this Statement of Additional
Information.
The Intermediate Government Bond Portfolio may invest in the Money
Market Instruments described in (i), (ii), (iv) and (vii) above, provided that
investments in shares of no load money market mutual funds shall be further
invested in those money market mutual funds which invest solely in those
securities otherwise permitted for the Intermediate Government Bond Portfolio.
Investment by a Portfolio in shares of a money market mutual fund indirectly
results in the investor paying not only the advisory fee and related fees
charged by the Portfolio, but also the advisory fees and related fees charged by
the adviser and other entities providing services to the money market mutual
fund.
Other Permitted Investments and Related Risks
Although the Adviser and Sub-Adviser for the Fund does not currently
intend to do so, each Portfolio may make the following investments.
Securities of Other Investment Companies. Each Portfolio may invest in
securities issued by other investment companies to the extent permitted by the
Investment Company Act of 1940.
Forward Foreign Currency Contracts ("International Portfolio Only"). A
forward contract involves an obligation to purchase or sell a specific currency
amount at a future date, agreed upon by the parties, at a price set at the time
of the contract. A Portfolio may also enter into a contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, an amount of foreign
currency having the approximate value of some or all of the Portfolio's
securities denominated in such foreign currency.
At the maturity of a forward contract, a Portfolio may either sell a
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
6
<PAGE>
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Portfolio may realize a gain or loss from currency
transactions.
Futures Contracts and Options on Futures Contracts. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the right,
in exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Portfolio may use
futures contracts and related options for bona fide hedging purposes, to offset
changes in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. A Portfolio will minimize the risk that it will be unable to
close out a futures contract by only entering into futures contracts which are
traded on national futures exchanges.
Stock index futures are futures contracts for various stock indices that
are traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) an amount of cash
equal to a specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made.
There are risks associated with these activities, including the
following: (1) the success of a hedging strategy may depend on an ability to
predict movements in the prices of individual securities, fluctuations in
markets and movements in interest rates, (2) there may be an imperfect or no
correlation between the changes in market value of the securities held by a
Portfolio and the prices of futures and options on futures, (3) there may not be
a liquid secondary market for a futures contract or option, (4) trading
restrictions or limitations may be imposed by an exchange, and (5) government
regulations may restrict trading in futures contracts and futures options.
Illiquid Securities -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Portfolio's books. An illiquid security includes a
demand instrument with a demand notice period exceeding seven days, where there
is no secondary market for such security, and repurchase agreements with
durations (or maturities) over 7 days in length. Not more than 15% of a
Portfolio's total assets may be invested in illiquid securities.
Short Sales -- Selling securities short involves selling securities the
seller does not own (but has borrowed) in anticipation of a decline in the
market price of such securities. To deliver the securities to the buyer, the
seller must arrange through a broker to borrow the securities and, in so doing,
the seller becomes obligated to replace the securities borrowed at their market
price at the time of replacement. In a short sale, the proceeds the seller
receives from the sale are retained by a broker until the seller replaces the
borrowed securities. The seller may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
A Portfolio may only sell securities short "against the box." A short
sale is "against the box" if, at all times during which the short position is
open, the Portfolio owns at least an equal amount
7
<PAGE>
of the securities or securities convertible into, or exchangeable without
further consideration for, securities of the same issuer as the securities that
are sold short.
A Portfolio may also maintain short positions in forward currency
exchange transactions, which involve the Portfolio's agreeing to exchange
currency that it does not own at that time for another currency at a future date
and specified price in anticipation of a decline in the value of the currency
sold short relative to be currency that the Portfolio has contracted to receive
in the exchange. To ensure that any short position of a Portfolio is not used to
achieve leverage, a Portfolio establishes with its custodian a segregated
account consisting of cash or liquid, high grade debt securities equal to the
fluctuating market value of the currency as to which any short position is being
maintained.
Investment Limitations
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) invest in 25% or more of its total assets in any one
industry (this restriction does not apply to securities of
the U.S. Government or its agencies, and instrumentalities
and repurchase agreements relating thereto; however,
utility companies, gas, electric, telephone, telegraph,
satellite, and microwave communications companies are
considered as separate industries);
(2) with respect to 75% of the value of the total assets of
the Government Securities Portfolio, Growth Portfolio,
Capital Appreciation Portfolio and International
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;
(3) 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;
(4) invest in companies for the purpose of exercising control
or influencing management;
8
<PAGE>
(5) purchase or sell real estate, commodities or interests in
oil, gas or other mineral exploration or development
programs;
(6) make short sales of securities or purchase securities on
margin, except that a Portfolio (a) may obtain such
short-term credit as is necessary for the clearance of
purchases and sales of securities, (b) may make margin
payments in connection with transactions in financial
futures contracts 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;
(7) underwrite securities of other issuers;
(8) 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 and forward commitments;
(9) 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;
(10) 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; or
(11) 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 (10) above and
then securities mortgaged, hypothecated or pledged may not
exceed 5% of the respective Portfolio's total assets taken
at market value.
If a percentage restriction set forth under "Investment Objectives and
Strategies" is adhered to at the time of an investment, a later increase or
decrease in percentage resulting from changes in values or assets will not
constitute a violation of such restriction. The foregoing investment
restrictions, as well as all investment objectives and those policies designated
by the Fund as fundamental policies, may not be changed without the approval of
a "majority" of a Portfolio's shares outstanding, defined as the lesser of: (a)
67% of the votes cast at a meeting of shareholders for a Portfolio at which more
than 50% of the shares are represented in person or by proxy, or (b) a
9
<PAGE>
majority of the outstanding voting shares of that Portfolio. These provisions
apply to each Portfolio if the action proposed to be taken affects that
Portfolio.
Portfolio Turnover
While it is not the policy of any of the Portfolios to trade actively
for short-term (less than six months) profits, each Portfolio will dispose of
securities without regard to the time they have been held when such action
appears advisable to the Adviser. 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. The portfolio turnover
rate for the Capital Appreciation Portfolio was ___% and ___% for the Growth
Portfolio for the Fund's fiscal year ended June 30, 1999. That rate of portfolio
turnover results in increased brokerage and other costs and can result in
shareholders receiving distributions of capital gains that are subject to
taxation. Portfolio turnover will not be a limiting factor in making investment
decisions.
Directors and Executive Officers
The Fund is governed by a Board of Directors which is responsible for
protecting the interests of the Fund's shareholders under Minnesota law. The
Directors meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Adviser.
10
<PAGE>
The names, addresses and principal occupations during the past five
years of the directors and executive officers of the Fund are given below:
<TABLE>
<CAPTION>
Name, Address and Age, Address Position(s) Held With Fund Principal Occupation During Last Five Years
------------------------------ -------------------------- --------------------------------------------
<S> <C> <C>
*Thomas C. Smith (__) (Chief Financial Officer Chairman, CONLEY SMITH Inc., Lincoln, Nebraska;
200 Centre Terrace, Treasurer) Vice President, Lancaster Administrative Services, Inc.,
1225 "L" Street 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 (__) (President and Secretary) Executive Vice President and Director Union
4732 Calvert Street Bank and Trust Company, Lincoln, Nebraska;
Lincoln, Nebraska 68506 Director, Lancaster County Bank, Waverly,
Nebraska; and Unipac Service Corporation.
Stan Schrier (__) (Director) President, Food 4 Less, Inc., a retail
11128 John Galt Blvd. grocery chain, and owner, Schrier-Lawson
Omaha, Nebraska 68137 Motor Center.
R. Paul Hoff (__) (Director) Physician and CEO of Seward Clinic,
311 Jackson P.C., Seward, Nebraska.
Seward, Nebraska 68434
Edson L. Bridges III (__) Director, Bridges Investment Fund, Inc.,
8401 W. Dodge Road, #256 (Director) a registered open end management investment
Omaha, Nebraska 68114 company, February, 1991 to present; Vice
President and Director of
Bridges Investment Counsel
Inc., a registered
investment adviser.
Jon Gross (__) (Vice President) Assistant Vice President, Union Bank and
4732 Calvert Street Trust Company, Lincoln, Nebraska; Trust Investment
Lincoln, Nebraska 68506 Officer, Union Bank and Trust Company, Lincoln,
Nebraska, since 1991.
</TABLE>
*Interested directors of the Fund as defined under the Investment
Company Act of 1940 by virtue of their affiliation with Lancaster Administrative
Services, Inc., Smith Hayes Financial Services Corporation and Union Bank and
Trust Company.
The following table represents the compensation amounts received for
services as a director of the Funds for the year ended June 30, 1999:
11
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Pension or
Retirement
Benefits Estimated Total
Accrued Annual Compensation
Aggregate as Part of Benefits From Fund
Name of Person, Compensation Fund Upon Paid to
Position from Fund Expenses Retirement Directors
-------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Thomas C. Smith, $0 $0 $0
Director
Chief Financial
Officer & Treasurer
Michael S. Dunlap, $0 $0 $0
Director, President &
Secretary
Stan Shrier, 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
</TABLE>
Investment Advisory and Other Services
General
Union Bank and Trust Company ("Union Bank"), 6801 S. 27th Street, Lincoln,
NE 68512 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. 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"). 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 address is 200 Centre Terrace, 1225 "L" Street, Lincoln, Nebraska, 68508.
12
<PAGE>
Investment Advisory Agreement and Sub-Advisory Agreement
Union Bank acts as the Adviser to the Portfolios, under Investment
Advisory Agreements (the "Advisory Agreements"). Union Bank 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.
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 Advisory
Agreements are approved annually by the Board of Directors (including a majority
of the directors who are not parties to the Advisory Agreements, or interested
persons of any such parties (other than as directors of the Fund)). The Advisory
Portfolios were last approved by the Board of Directors on July 14, 1999.
MJI acts as Sub-Adviser to the International Portfolio pursuant to a
Sub-Advisory Agreement with the Adviser (the "Sub-Advisory Agreement"). The
Sub-Adviser is a wholly-owned subsidiary of United Asset Management Corporation.
The Sub-Advisory Agreement will 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
Sub-Advisory Agreement was last approved by the Board of Directors on July 14,
1999.
The Advisory Agreements and Sub-Advisory Agreement terminate
automatically in the event of their assignment. In addition, the Advisory
Agreements and the Sub-Adviser Agreement are terminable at any time, without
penalty, by the Board of Directors of the Fund or, 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 or
Sub-Adviser, as the case may be, on 60 days' written notice to the Fund.
Advisory Fees
Pursuant to the Advisory Agreements, the Intermediate Government Bond
Portfolio pays the Adviser 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 the Adviser a
monthly advisory fee equal on an annual basis to .50% and .75%, respectively, of
their daily average net assets. The Capital Appreciation Portfolio pays the
Adviser 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, calculated monthly, depending upon the performance of the
Portfolio relative to the Russell 2000 Stock Index (the "Index"), on the basis
of 1/12 of the results during the last 12 months (a moving average method). The
incentive adjustment,
13
<PAGE>
if any, is added to or subtracted from the monthly basic management fee, and is
payable after the close of each month on the basis of the latest 12 months'
experience. The incentive adjustment is accrued as incurred for the purpose of
calculating the redemption price and offering price per share. The incentive
adjustment for the Portfolio is calculated each month as follows:
(1) The sum of the net asset value of a share of the Portfolio at the
end of the last 12 month period, plus the value per share during
such period, of all cash distributions made and capital gain
taxes paid or payable on undistributed realized long-term capital
gains (treated as reinvested shares of the Portfolio on the
record date of such distribution or the date on which provision
for such taxes is made, as the case may be) is compared to the
net asset value per share of the Portfolio at the beginning of
the period and the differences expressed as a percentage (the
"Portfolio's Percentage Change").
(2) The Portfolio's Percentage Change is compared to the percentage
change in the Index, which change is determined by adding the
level of the index at the end of the period, in accordance with
Securities and Exchange Commission guidelines, the value of cash
distributions on securities which comprise the Index, treating
the value of such distributions as reinvested in the Index based
on a monthly value supplied by Standard and Poor's and comparing
such adjusted level with the level of the Index at the beginning
of the period.
(3) The Portfolio's Percentage Change is then compared to the change
in Index for the period and the incentive adjustment as set forth
in the following table is multiplied by the net asset value of
the Portfolio averaged daily over the 12 month period and divided
by twelve. The incentive adjustment may not in any case exceed
1/12 of 2.40% of the average net asset value for the 12 month
period (equivalent on an annual basis to 2.40%).
14
<PAGE>
Performance
Relative to Adviser Total
Index Fee
-5.00% & under 0.40% Minimum Mgt Fee
-4.50% 0.50%
-4.00% 0.60%
-3.50% 0.70%
-3.00% 0.80%
-2.50% 0.90%
-2.00% 1.00%
-1.50% 1.10%
-1.00% 1.20%
-0.50% 1.30%
Basic Mgt Fee 0.00% 1.40%
0.50% 1.50%
1.00% 1.60%
1.50% 1.70%
2.00% 1.80%
2.50% 1.90%
3.00% 2.00%
3.50% 2.10%
4.00% 2.20%
4.50% 2.30%
5.00% 2.40% Maximum Mgt Fee
Pursuant to the Advisory Agreement the International Portfolio pays the
Adviser 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.
For the years ended June 30, 1997, 1998 and 1999 (and the period October
1, 1996 to June 30, 1997 and the years ended June 30, 1998 and 1999 for the
International Portfolio) the Fund paid to Adviser the following amounts for
advisory services:
1999 1998 1997
---- ---- ----
Intermediate Government Bond Portfolio $_________ $ 28,920 $38,269
Government Securities Portfolio _________ 141,097 122,584
Growth Portfolio _________ 347,146 160,343
Capital Appreciation Portfolio _________ 15,676 17,500
International Portfolio _________ 127,313 64,660
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").
15
<PAGE>
The Underwriting Agreement is reviewed annually by the Board of Directors and
was last approved on July 14, 1999. 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, a director of the Fund, is the control person of Consolidated
Investment Corporation.
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. In return for services
provided under the Underwriting Agreement, the Distributor is also entitled to
receive compensation for distribution related services under the Fund's
distribution plan described below.
Class A shares of the Portfolios are offered for sale to the public NAV
plus the applicable sales charge. The following chart reflects the total sales
charges paid in connection with the sale of Class A shares of each Portfolio and
the amount retained by the Distributor for the fiscal years ended June 30, 1999,
1998 and 1997 (and the fiscal years ended June 30, 1999 and 1998 and the period
October 1, 1996 to June 30, 1997 for the International Portfolio).
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Sales Amount Sales Amount Sales Amount
Charge Retained Charge Retained Charge Retained
<S> <C> <C> <C> <C> <C> <C>
Intermediate
Government Bond
Portfolio $_______ $_______ $_______ $_______ $_______ $_______
Government Securities
Portfolio _______ _______ _______ _______ _______ _______
Growth Portfolio _______ _______ _______ _______ _______ _______
Capital Appreciation
Portfolio _______ _______ _______ _______ _______ _______
International Portfolio _______ _______ _______ _______ _______ _______
</TABLE>
The Distributor may reallow to dealers selling Portfolio shares a
portion of the sales charge collected by the Distributor in connection with
those sales. The table below shows the maximum amounts of such reallowances
expressed as a percentage of the offering price of each Portfolio's Class A
shares.
16
<PAGE>
Reallowance as a
Portfolio Percentage of Offering Price
--------- ----------------------------
Intermediate Government Bond _____%
Portfolio
Government Securities Portfolio _____%
Growth Portfolio _____%
Capital Appreciation Portfolio _____%
International Portfolio _____%
Under certain circumstances, commissions up to the amount of the entire sales
charge may be reallowed to certain investment professionals, who might then be
deemed to be "underwriters" under the Securities Act of 1933, as amended.
The Fund has adopted a Distribution Plan for the Retail Class A shares
of each Portfolio (the "Distribution Plan") in accordance with the provisions of
Rule 12b-1 under the 1940 Act which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. In this regard, the Board of Directors has
determined that the Distribution Plan is in the best interests of the Retail
Class A shareholders. Continuance of the Distribution Plan must be approved
annually by a majority of the Board of Directors, and by a majority of the
Directors who are not "interested persons" of the Fund as that term is defined
in the Investment Company Act of 1940 and who have no direct or indirect
financial interest in the operation of the Distribution Plan or in any
agreements related thereto ("Qualified Directors"). The Distribution Plan
requires that quarterly written reports of amounts spent under the Distribution
Plan and the purposes of such expenditures be furnished to and reviewed by the
Directors. The Distribution Plan may not be amended to increase materially the
amount which may be spent thereunder without approval by a majority of the
outstanding Retail Class A shares of the Portfolio affected. All material
amendments of the Distribution Plan will require approval by a majority of the
Board of Directors and of the Qualified Directors.
The Distribution Fee may be used by the Distributor to provide initial
and ongoing sales compensation to its investment executives and to other
broker-dealers in respect of sales of Retail Class A shares of the applicable
Portfolio and to pay for other advertising and promotional expenses in
connection with the distribution of such Retail Class A shares. These
advertising and promotional expenses include, by way of example but not by way
of limitation, costs of printing and mailing prospectuses, statements of
additional information and shareholders reports to prospective investors;
preparation and distribution of sales literature; advertising of any type; an
allocation of overhead and other expenses for the Distributor related to the
distribution of such Retail Class A sharers; and payments to, and expenses of,
officers, employees or representatives of the Distributor, or other
broker-dealers, banks or other financial institutions, and of any other persons
who provide support services in connection with the distribution of such shares,
including travel, entertainment and telephone expenses.
17
<PAGE>
Payments under the Distribution Plan are not tied exclusively to the
expenses for distribution activities actually incurred by the Distributor, so
that such payments may exceed expenses actually incurred by the Distributor. The
Fund's Board of Directors will evaluate the appropriateness of the Distribution
Plan and its payment terms on a continuing basis and in doing so will consider
all relevant factors, including expenses borne by the Distributor and amounts it
receives under the Distribution Plan.
The Fund's Investment Adviser, Administrator and the Distributor may, at
their option and in their sole discretion, make payments from their own
resources to cover cost of additional shareholder servicing and distribution
activities.
For the fiscal years ended June 30, 1999 and the period January 1, 1998
to June 30, 1998, the Retail Class A share classes of the Portfolios paid the
Distributor the following amounts:
1999 1998
---- ----
Intermediate Government Bond Portfolio $_________ $_________
Government Securities Portfolio _________ _________
Growth Portfolio _________ _________
Capital Appreciation Portfolio _________ _________
International Portfolio _________ _________
The Distribution Plan adopted by the Retail Class A shareholders of the
Portfolio provides that the Fund will pay the Distributor a fee of up to .50% of
the average daily net assets of a Portfolio's Retail Class A shares which the
Distributor can use to compensate broker-dealer and service providers, including
the Distributor and its affiliates, which provide distribution related services
to Retail Class A shareholders. The Distribution first took effect on January 1,
1998.
Administrator
Lancaster Administrative Services, Inc., has been retained as the Fund's
administrator, transfer agent and dividend paying agent under a Transfer Agent
and Administrative Services Agreement with the Fund. The Administrator provides,
or contracts with others to provide, all necessary office facilities,
bookkeeping and recordkeeping services, dividend disbursing services and share
transfer services for the Fund. The Administrator is entitled to receive an
administration fee, computed and paid monthly, at an annual rate of .25% of the
average daily net assets of each Portfolio. The Administrator is a wholly-owned
subsidiary of Farmers & Merchants Investments, Inc. and is an affiliate of the
Adviser.
The Portfolios paid the Administrator the following fees pursuant to the
Administration Agreement for the fiscal years ended June 30, 1999, 1998 and 1997
(and the fiscal years ended
18
<PAGE>
June 30, 1999 and 1998 and the period October 1, 1996 to June 30, 1997 for the
International Portfolio).
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Intermediate Government Bond Portfolio $_________ $_________ $_________
Government Securities Portfolio _________ _________ _________
Growth Portfolio _________ _________ _________
Capital Appreciation Portfolio _________ _________ _________
International Portfolio _________ _________ _________
</TABLE>
The Administrator may enter into Sub-Administration Agreements with
various banks and financial institutions pursuant to which such banks and
financial institutions will provide subaccounting and other shareholder services
to their customers who invest in the Portfolios. These Sub-Administration
Agreements will provide for the payment of a fee of up to ___% of average daily
net assets of the Portfolios represented by shares held by the banks. Banks may
reimburse customer accounts for such fees if required by local trust laws.
Custodian
The Fund's Custodian is Union Bank. Under the Custodian Agreement, Union
Bank 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 Bank 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 Bank 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.
19
<PAGE>
When consistent with these objectives, business may be placed with
broker-dealers who furnish investment research 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 benefitting one specific managed fund or account. Normally, research
services obtained through managed funds or accounts investing in common stocks
would primarily benefit the managed funds or accounts which invest in common
stock; similarly, services obtained from transactions in fixed-income securities
would normally be of greater benefit to the managed funds or accounts which
invest in debt securities.
The Adviser 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 research services which the
Adviser or Sub-Adviser anticipates will be useful. The Adviser or Sub-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. 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.
20
<PAGE>
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, 1999, 1998 and 1997 (and the
fiscal years ended June 30, 1999 and 1998 and the period October 1, 1996 to June
30, 1997 for the International Portfolio), the Fund incurred brokerage
commissions in the following amounts:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Intermediate Government Bond Portfolio $_________ $_________ $_________
Government Securities Portfolio _________ _________ _________
Growth Portfolio _________ _________ _________
Capital Appreciation Portfolio _________ _________ _________
International Portfolio _________ _________ _________
A portion of these commissions was paid to the Fund's Distributor as follows:
21
<PAGE>
1999 1998 1997
---- ---- ----
Intermediate Government Bond Portfolio $_________ $ 0 $ 0
Government Securities Portfolio _________ 0 ______
Growth Portfolio _________ 0 ______
Capital Appreciation Portfolio _________ 60,612 50,410
International Portfolio _________ 0 0
----------- ------------
$60,612 $50,410
</TABLE>
The Distributor was paid ____% of the aggregate brokerage commissions
paid in the fiscal year ended June 30, 1999. The remaining brokerage commissions
were paid to twelve other unaffiliated broker dealers. Of the aggregate dollar
amount of transactions involving payment of commissions, _____% were effected
through the Distributor in the fiscal year ended June 30, 1999. 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
Capital Stock
The Fund is authorized to issue a total of one billion shares of capital
stock, with a par value of $.001 per share. The Fund has divided the shares of
its capital stock into separate categories of common stock designated as the
Intermediate Government Bond Portfolio, Government Securities Portfolio, Growth
Portfolio, Capital Appreciation Portfolio and International Portfolio shares.
The Fund initially issued only one class of shares of each Portfolio. Pursuant
to its Amended and Restated Articles of Incorporation which became effective
December 31, 1997, all shares of the Portfolios then outstanding were designated
Institutional Class shares and issuance of Retail Class A shares of each
Portfolio was authorized. The Fund's Amended and Restated Articles of
Incorporation designate 10 million shares to the Institutional Class of the
Intermediate Government Bond Portfolio, Government Securities Portfolio, Capital
Appreciation Portfolio and Growth Portfolio and 20 million shares to the
Institutional Class of the Growth Portfolio and to the Retail Class A class of
each Portfolio. The Board of Directors is empowered under the Fund's Articles of
Incorporation to issue other Portfolios or classes of shares of the Fund's
common stock without shareholder approval or to designate additional authorized
but unissued shares for issuance by one or more existing Portfolios.
22
<PAGE>
All shares, when issued, will be fully paid and nonassessable and will
be redeemable and freely transferable. They can be issued as full or fractional
shares. A fractional share has pro rata the same rights and privileges as a full
share. The shares possess no preemptive or conversion rights.
Voting Rights
Each share of the Portfolios has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the Fund's
shares. On some issues, such as the election of directors, all shares of the
Fund, irrespective of Portfolio, vote together as one series. Cumulative voting
is not authorized. This means that the holders of more than 50% of the shares
voting for the election of directors can elect 100% of the directors if they
choose to do so, and, in such event, the holders of the remaining shares will be
unable to elect any directors.
On an issue affecting only one Portfolio or only one class of shares of
a Portfolio, the shares of the Portfolio or class vote as a separate series.
Examples of such issues would be proposals to change the Investment Advisory
Agreement or change a fundamental investment restriction pertaining to only one
Portfolio. In voting on the Investment Advisory Agreement or proposals affecting
only one Portfolio, approval of such an agreement or proposal by the
shareholders of one Portfolio would make that agreement effective as to that
Portfolio whether or not the agreement or proposal had been approved by the
shareholders of the Fund's other Portfolios.
Shareholders Meetings
The Fund does not intend to hold annual or periodically scheduled
regular meetings of shareholders unless it is required to do so. Minnesota
corporation law requires only that the Board of Directors convene shareholder
meetings when it deems appropriate. However, Minnesota law provides that if a
regular meeting of shareholders has not been held during the immediately
preceding 15 months, a shareholder or shareholders holding 3% or more of the
voting shares of the Fund may demand a regular meeting of shareholders by
written notice given to the chief executive officer or chief financial officer
of the Fund. Within 30 days after receipt of the demand, the Board of Directors
shall cause a regular meeting of shareholders to be called, which meeting shall
be held no later than 90 days after receipt of the demand, all at the expense of
the Fund.
In addition, the 1940 Act requires a shareholder vote for all amendments
to fundamental investment policies and restrictions, for all investment advisory
contracts and amendments thereto, and for approval and all amendments to Rule
12b-1 distribution plans. Finally, the Fund's Articles of Incorporation provide
that shareholders also have the right to remove Directors upon two-thirds vote
of the outstanding shares and may call a meeting to remove a Director upon the
application of 10% or more of the outstanding shares. The Fund is obligated to
facilitate shareholder communications in this situation if certain conditions
are met.
23
<PAGE>
Principal Holders of Securities
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
____________ __, 1999, 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.
Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Cook Family Foods
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
MD Investments
c/o Mike Dunlap
P.O. Box 6155
Lincoln, NE 68506
Union Bank and Trust Company
Profit Sharing & 401(k) Plan
4732 Calvert Street
Lincoln, NE 68506
Growth Portfolio UBATCO & Co.
4732 Calvert Street
Lincoln, NE 68506
Including
Union Bank and Trust Company
Profit Sharing & 401(k) Plan
4732 Calvert Street
Lincoln, NE 68506
Linweld 401K/PSP
Portfolio
1225 "L" Street, Suite 600
Lincoln, NE 68508
24
<PAGE>
Portfolio Name & Address Shares % Ownership
Cook Family Foods
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
Intermediate Government UBATCO & Co.
Bond Portfolio 4732 Calvert Street
Lincoln, NE 68506
Including
Benes Service Company
Profit Sharing Plan
Valparaiso, NE 68605
Madonna Rehabilitation Hospital
Agency Account
5401 South
Lincoln, NE 68506
Oak Creek Valley Bank PSP
108 W. Second Street
Valparaiso, NE 60868
Womens Clinic
Profit Sharing Plan
220 Lyncrest Drive
Lincoln, NE 68510
Government Securities UBATCO & CO
Portfolio 4732 Calvert Street
Lincoln, NE 68506
International Portfolio UBATCO & CO
4732 Calvert Street
Lincoln, NE 68506
Including
Linweld 401K/PSP
1225 "L" Street, Suite 600
Lincoln, NE 68508
Crete/Sunflower
Profit Sharing Plan
P.O. Box 82118
Lincoln, NE 68528
Cook Family Foods
Profit Sharing Plan
200 South 2nd Street
Lincoln, NE 68508
25
<PAGE>
On ____________ __, 1999, the Directors and officers of the Fund as a
group beneficially owned __________ shares or _____%, __________ shares or
_____%, __________ shares or _____% and __________ shares or _____%,
respectively, of the Intermediate Government Bond Portfolio, Government
Securities Portfolio, Growth Portfolio, Capital Appreciation Portfolio and the
International Portfolio. Directors and officers owned _____% of the shares
outstanding in all Portfolios.
Redemption of Shares and Exchanges Between Classes
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.
Exchanges Between Classes
An exchange between Retail Class A shares and the Institutional Class
shares of a Portfolio is generally not permitted. However, exchanges between the
classes will be permitted if a Retail Class A shareholder becomes eligible to
purchase Institutional Class shares. For example, a Retail Class A shareholder
may establish a trust account that is eligible to purchase shares of the
Institutional Class. In this case, an exchange will be permitted between the
Retail Class A class of a Portfolio and the Institutional Class of the same
Portfolio at net asset value, without the imposition of a sales charge, fee or
other charge. An exchange from the Institutional Class of a Portfolio to the
Retail Class A class of that Portfolio will occur automatically when an
Institutional Class shareholder becomes ineligible to invest in the
Institutional Class, at net asset value and without the imposition of a sales
load, fee or other charge. The Fund will provide at least thirty days' notice of
any such exchange. After the exchange, the exchanged shares will be subject to
all fees applicable to the Retail Class A shares. The Fund reserves the right to
require you to complete an application or other documentation in connection with
the exchange.
26
<PAGE>
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
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.
27
<PAGE>
Yield information may be useful in reviewing a Portfolio's performance
and for providing a basis for comparison with other investment alternatives.
However, a Portfolio's yield will fluctuate, unlike other investments which pay
a fixed yield for a stated period of time. Current yield should be considered
together with fluctuations in the Portfolio's net asset value over the period
for which yield has been calculated, which, when combined, will indicate a
Portfolio's total return to shareholders for that period. Other investment
companies may calculate yields on a different basis. In addition, investors
should give consideration to the quality and maturity of the portfolio
securities of the respective investment companies when comparing investment
alternatives.
Investors should recognize that in periods of declining interest rates a
bond portfolio's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, such portfolio's yield will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a bond Portfolio from the continuous sale of its shares will likely
be invested in instruments producing lower yields than the balance of such
portfolio's holdings, thereby reducing the current yield of such Portfolio. In
periods of rising interest rates, the opposite can be expected to occur. The
Fund may also quote the indices of bond prices and yields prepared by Shearson
Lehman Hutton Inc. and Salomon Brothers Inc., leading broker-dealer firms. These
indices are not managed for any investment goal. Their composition may, however,
be changed from time to time.
The Intermediate Government Bond Portfolio may quote the yield or total
return on Ginnie Maes, Fannie Maes, Freddie Macs, corporate bonds and Treasury
bonds and notes, either as compared to each other or as compared to the
Portfolio's performance. In considering such yields or total returns, investors
should recognize that the performance of securities in which the Portfolio may
invest does not reflect the Portfolio's performance, and does not take into
account either the effects of portfolio management or of management fees or
other expenses; and that the issuers of such securities guarantee that interest
will be paid when due and that principal will be fully repaid if the securities
are held to maturity, while there are no such guarantees with respect to shares
of the Portfolio. Investors should also be aware that the mortgages 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.
28
<PAGE>
The yields of the Portfolio for the 30-day period ended June 30, 1999
were:
Institutional Retail Class A
Class Shares Shares
Intermediate Government Bond Portfolio _____% _____%
Government Securities Portfolio _____% _____%
Growth Portfolio _____% _____%
Capital Appreciation Portfolio _____% _____%
International Portfolio _____% _____%
In connection with the quotations of yields in advertisements described
above, the Fund may also provide average annual total returns from the date of
inception for one, five and ten-year periods if applicable. Total return is a
calculation which equates an initial amount invested to the ending redeemable
value at a specified time. It assumes the reinvestment of all dividends and
capital gains distributions. Average total return will be the average of the
total returns for each year in the period. The Portfolios may also provide a
total return figure for the most recent calendar quarter prior to the
publication of the advertisement.
The average annual total returns of the Retail Class A shares of the
Portfolios for the one year, five years and inception to date ended June 30,
1999 are as follows:
One Year Inception to Date
Intermediate Government Bond Portfolio
Capital Appreciation Portfolio
Growth Portfolio
Government Securities Portfolio
International Portfolio
The average annual total returns of the Institutional shares of the
Portfolios for the one year, five years and inception to date ended June 30,
1999 are as follows:
One Year Five Years Inception to Date
Intermediate Government Bond Portfolio
Capital Appreciation Portfolio
Growth Portfolio
Government Securities Portfolio
International Portfolio
29
<PAGE>
Financial Statements
None.
Counsel
Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Fund.
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.
30
<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.
A-1
<PAGE>
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.
A-2
<PAGE>
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.
A-3
<PAGE>
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.
A-4
<PAGE>
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.
A-5
<PAGE>
PART C
OTHER INFORMATION
Item 22. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
* None
Item 23.
Exhibits
Exhibit No. Description
---------- ------------
(a) (i) Articles of Incorporation of New Horizon Fund,
Inc., dated October 26, 1990, were filed
electronically as an Exhibit to Post-Effective
Amendment No. 11 on October 25, 1995.
(ii) Articles of Amendment to the Articles of
Incorporation of the New Horizon Fund, Inc.,
changing the name of the corporation to Apex
Fund, Inc., dated as of November 7, 1990, were
filed electronically as an Exhibit to
Post-Effective Amendment No. 11 on October 25,
1995.
(iii) Articles of Amendment to the Articles of
Incorporation of Apex Fund, Inc., changing the
name of the corporation to Stratus Fund, Inc.,
dated as of January 15, 1991, were filed
electronically as an Exhibit to Post- Effective
Amendment No. 11 on October 25, 1995.
(iv) Articles of Amendment to the Articles of
Incorporation of Stratus Fund, Inc., dated April
28, 1994, were filed electronically as an
Exhibit to Post-Effective Amendment No. 11 on
October 25, 1995.
(v) Amended and Restated Articles of Incorporation
of Stratus Fund, Inc. dated December 6, 1997,
was filed electronically as an Exhibit to
Post-Effective Amendment No. 17 on October 29,
1998.
(b) Bylaws of Stratus Fund, Inc., as amended, dated as of
January 15, 1991, were filed electronically as an
Exhibit to Post-Effective Amendment No. 11 on October
25, 1995, and are hereby incorporated by reference.
2
<PAGE>
(c) Transfer Agent and Administrative Services
Agreement between Stratus Fund, Inc., and
Lancaster Administrative Services, Inc., dated
July 1, 1999, is herewith filed electronically.
(d) (i) Investment Advisory Agreement between Apex Fund
and Union Bank & Trust Company, dated May 12,
1991, was filed electronically as an Exhibit to
Post-Effective Amendment No. 11 on October 25,
1995, and is hereby incorporated by reference.
(ii) Investment Advisory Agreement between Stratus
Fund, Inc., and Union Bank and Trust Company for
the Capital Appreciation Portfolio dated October
30, 1992, was filed electronically as an Exhibit
to Post-Effective Amendment No. 11 on October
25, 1995, and is hereby incorporated by
reference.
(iii) Investment Advisory Agreement between Stratus
Fund, Inc., and Union Bank & Trust Company for
the Union Equity/Income Portfolio and Union
Government Securities Portfolio dated April 28,
1993, was filed electronically as an Exhibit to
Post- Effective Amendment No. 11 on October 25,
1995, and is hereby incorporated by reference.
(iv) Investment Advisory Agreement between Stratus
Fund, Inc., and Union Bank & Trust Company for
the International Portfolio dated as of July 15,
1996, was filed electronically as an Exhibit to
Post- Effective Amendment No. 13 on September
27, 1996, and is hereby incorporated by
reference.
(v) Sub-Advisory Agreement between Union Bank and
Trust Company and Murray Johnstone International
Limited dated as of July 15, 1996, was filed
electronically as an Exhibit to Post-Effective
Amendment No. 13 on September 27, 1996, and is
hereby incorporated by reference.
(vi) Amendment to Investment Advisory Agreement for
Growth Portfolio dated December 16, 1997, was
filed electronically as an Exhibit to
Post-Effective Amendment No. 17 on October 29,
1998 and is hereby incorporated by reference.
(vii) Amendment to Investment Advisory Agreement for
Capital Appreciation Portfolio dated December
16, 1997, was filed electronically as an Exhibit
to Post-Effective Amendment No. 17 on October
29, 1998 and is hereby incorporated by
reference.
(e) Underwriting and Distribution Agreement between
Apex Fund Inc., and Smith Hayes Financial
Services Corporation dated May 12, 1991 was
filed electronically as an Exhibit to
Post-Effective Amendment No. 11 on October 25,
1995 and is hereby incorporated by reference.
(f) None
(g) Custodian Agreement between Stratus Fund, Inc.,
and Union Bank and Trust Company, Lincoln,
Nebraska, dated May 1, 1994, was filed
electronically as an Exhibit to Post-Effective
Amendment No. 11 on October 25, 1995 and is
hereby incorporated by reference.
(h) None
3
<PAGE>
(i) (i) Opinion and Consent of Messrs. Cline, Williams,
Wright, Johnson & Oldfather dated May 10, 1991
were filed electronically as an Exhibit to
Post-Effective Amendment No. 11 on October 25,
1995, and are hereby incorporated by reference.
(ii) Opinion and Consent of Messrs. Cline, Williams,
Wright, Johnson & Oldfather with Respect to the
Capital Appreciation Portfolio dated October 30,
1992 were filed as an Exhibit to Post-Effective
Amendment No. 11 on October 25, 1995 and are
hereby incorporated by reference.
(iii) Opinion and Consent of Messrs. Cline, Williams,
Wright, Johnson & Oldfather with Respect to the
Union Equity/Income Portfolio and Union
Government Bond Portfolio dated May 26, 1993
were filed as an Exhibit to Post-Effective
Amendment No. 11 on October 25, 1995, and are
hereby incorporated by reference.
(iv) Opinion of Ballard Spahr Andrews and Ingersoll
with respect to the International Portfolio
dated July 17, 1996 was filed electronically as
an Exhibit to Post-Effective Amendment No. 12 on
July 17, 1996 and is hereby incorporated by
reference.
(v) Opinion of Ballard Spahr Andrews & Ingersoll
with respect to Retail Class A shares of each
Portfolio dated October 31, 1997, was filed
electronically as an Exhibit to Post-Effective
Amendment No. 16 on October 31, 1997 and is
hereby incorporated by reference.
(vi) Consent of Ballard Spahr Andrews & Ingersoll
dated August 27, 1999, is filed herewith
electronically.
(j) None
(k) None
(l) Revised Subscription Agreement of Initial
Stockholder dated May 3, 1991, was filed
electronically as an Exhibit to Post-Effective
Amendment No. 11 on October 25, 1995, and is
hereby incorporated by reference.
(m) Distribution Plan for Retail Class A Series of
Shares of Stratus Fund, Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No.16 on October 31, 1997 and is
hereby incorporated by reference.
(n) Financial Data Schedules for the period ended
June 30, 1998 are filed herewith electronically.
(o) Multiple Class Plan of Stratus Fund, Inc.,
adopted pursuant to Rule 18f-3 under the 1940
Act was filed electronically as an Exhibit to
Post-Effective Amendment No. 16 on October 31,
1997 and is hereby incorporated by reference.
Item 24. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
N/A
4
<PAGE>
Item 25. Indemnification
---------------
Section 302A.521 of the Minnesota Business Corporation Act requires
indemnification of officers and directors of the Registrant under circumstances
set forth therein. Reference is made to Article 9 of the Amended and Restated
Articles of Incorporation (Exhibit 1), Article XIII of the Bylaws of Registrant
(Exhibit 2 hereto), to Section 10 of the Underwriting Agreement (Exhibit 6) and
to Section 8 of the Transfer Agent and Administrative Services Agreement
(Exhibit 5a) for additional indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification by the Registrant is against public policy as expressed in
the Act and, therefore, may be unenforceable. In the event that a claim for such
indemnification (except insofar as it provides for the payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person and the Securities
and Exchange Commission is still of the same opinion, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
or not such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Union Bank and Trust Company is a state bank chartered in the state of
Nebraska and is engaged in the general banking business with trust powers. All
Directors and officers of Union Bank and Trust Company are principally engaged
in Banking unless otherwise indicated.
Name of Director Positions with Other Substantial
and Officer Adviser Business Past Two Years
----------- ------- -----------------------
Jay L. Dunlap Chairman Banking
Phylis Acklie Director Vice President,
Corporate
Secretary and
Director,
Crete Carrier
Corporation,
Lincoln, Nebraska
Michael S. Dunlap Director and Executive Banking
Vice President
Angie Muhleisen Director and President Banking
Executive
Tonn Osterguard Director President and
CEO, Crete
Carrier
Corporation,
Lincoln, Nebraska
5
<PAGE>
Edwin C. Perry Director Attorney
R. David Wilcox Senior Vice President - Banking
Trust Department
William C. Eastwood Senior Vice President - Banking
Trust Department
Ken Backemeyer Senior Vice President - Banking
Trust Department
Ross Wilcox Director and CEO Banking
Neil S. Tyner Director Retired Chairman,
Director
and Chief Executive
Officer, Ameritas
Life Insurance
Company
Duane Ackle Director Chairman
Crete Carrier
Corporation,
Lincoln, Nebraska
The address is the address of the Adviser unless otherwise indicated, which is
contained under "Management" in the Prospectus.
6
<PAGE>
Item 27. Principal Underwriters
-----------------------
(a) SMITH HAYES Financial Services Corporation, the Registrant's
principal underwriter, also serves as the principal underwriter for SMITH HAYES
Trust, Inc.
(b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ----------------- ------------- -----------------------
Thomas C. Smith Chairman and Treasurer
200 Centre Terrace President
1225 "L" Street
Lincoln, NE 68508
George W. Peterson Director and Vice President n/a
200 Centre Terrace
1225 L St.
Lincoln, NE 68508
Max H. Callen Director and Vice President n/a
200 Centre Terrace
1225 L St.
Lincoln, NE 68508
A. John Walters Director and Vice President n/a
200 Centre Terrace
1225 L St.
Lincoln, NE 68508
Allen J. Moore Director and Vice President n/a
200 Centre Terrace
1225 L St.
Lincoln, NE 68508
Sharon A. Shelley Director, VP, Sec/Treasurer n/a
200 Centre Terrace
1225 L St.
Lincoln, NE 68508
John H. Conley Director n/a
444 Regency Parkway
Omaha, NE 68114
W. Don Nelson Vice President n/a
200 Centre Terrace
1225 L St.
Lincoln, NE 68508
Pamela A. Feilmeier Vice President n/a
200 Centre Terrace
1225 L St.
Lincoln, NE 68508
(c) Not applicable.
Item 28. Location of Accounts and Records
--------------------------------
All required accounts, books and records will be maintained by Thomas C.
Smith, 200 Centre Terrace, 1225 "L" Street, P.O. Box 83000, Lincoln, Nebraska
68508 and Michael S. Dunlap, 6801 S. 27th, Lincoln, Nebraska 68501
Item 29. Management Services
----------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Lincoln, State of Nebraska, on the 27th day of
August, 1999.
STRATUS FUND, INC.
By /s/ Michael S. Dunlap
------------------------------
Michael S. Dunlap, President
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities indicated on August 27, 1999:
Signatures
/s/ Michael S. Dunlap
- -------------------------
Michael S. Dunlap
President,
Chief Executive Officer,
Secretary and Director
/s/ Thomas C. Smith
- -------------------------
Thomas C. Smith
Chief Financial Officer,
Treasurer and Director
- -------------------------
R. Paul Hoff
Director
- -------------------------
Stan Schrier
Director
/s/ Edson L. Bridges, III
- -----------------------------
Edson L. Bridges, III
Director
8
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------- -------------------------------
(d) (i) Transfer Agent and Administrative Services Agreement between
Stratus Fund, Inc. and Lancaster Administrative Services, Inc.
(i) (vi) Consent of Ballard Spahr Andrews & Ingersoll dated August 27, 1999.
(n) Financial Data Schedules.
9
<PAGE>
TRANSFER AGENT
AND
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement made this 1st day of July, 1999 by and between STRATUS
FUND, INC., a Minnesota corporation (the "Fund"), and LANCASTER ADMINISTRATIVE
SERVICES, INC., a Nebraska corporation (the "Administrator").
WHEREAS, the Fund and the Administrator entered into that certain
Amended Transfer Agent and Administrative Services Agreement dated July 1, 1995;
WHEREAS, effective July 1, 1999, Consolidated Investments Corporation
transferred to Farmers & Merchant Investments, Inc. all of the issued and
outstanding stock of the Administrator;
WHEREAS, the change in control of the Administrator effected a
termination of the Amended Transfer Agent and Administrative Services Agreement
dated July 1, 1995;
WHEREAS, the Fund and the Administrator now desire to renew their
business relationship;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR.
Subject to the conditions set forth in this Agreement, the Fund hereby
appoints the Administrator, and the Administrator accepts such appointment, to
act as the Fund's Transfer Agent and Dividend Disbursing Agent and to administer
the general affairs of the Fund and provide services to the shareholders of the
Fund subject to the supervision of the Board of Directors of the Fund for the
period and on the terms set forth herein. The Administrator agrees during such
period, at its own expense, to render the services and to assume the obligations
herein set forth, for the compensation herein provided.
1
<PAGE>
2. DESCRIPTION OF ACCOUNTING SERVICES.
The Administrator will perform the following accounting services:
(a) Journalize the Fund's investment, capital share and income and
expense activities;
(b) Verify investment buy/sell trade tickets when received from the
Fund's investment adviser and transmit trades to the Fund's
custodian for proper settlement;
(c) Maintain individual ledgers for investment securities;
(d) Maintain historical tax lots for each security;
(e) Reconcile cash and investment balances of the Fund with the
custodian, and provide the Fund's investment adviser with the
beginning cash balance available for investment purposes;
(f) Update the cash availability throughout the day as required by
the Fund's adviser;
(g) Calculate various contractual expenses (e.g., advisory and
custody fees);
(h) Monitor the expense accruals and notify Fund management of any
proposed adjustments;
(i) Control all disbursements from the Fund and authorize such
disbursements upon Written Instructions;
(j) Calculate capital gains and losses;
(k) Determine the Fund's net income;
(l) Obtain security market quotes from independent pricing services
approved by the Fund's adviser, or if such quotes are
unavailable, then obtain such prices from the Fund's adviser, and
in either case calculate the market value of the Fund's
investments;
(m) Transmit or mail copy of the daily portfolio valuation to the
Fund's adviser;
2
<PAGE>
(n) Compute the net asset value of the Fund; and
(o) Compute the Fund's yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average
dollar-weighted maturity.
3. DESCRIPTION OF ADMINISTRATIVE SERVICES.
The Administrator will perform the following administrative
services:
(a) Furnish the Fund with office facilities at Administrator's
offices, including such space, furniture, equipment and supplies
as well as personnel sufficient to carry out the necessary
administrative, clerical and bookkeeping functions for the Fund;
(b) Prepare quarterly broker security transaction summaries;
(c) Prepare monthly security transaction listings and financial
statements which will include the following items: Schedule of
Investments, Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets, Cash Statement
and Schedule of Capital Gains and Losses;
(d) Prepare for the execution and filing of the Fund's federal and
state income tax returns and Federal excise tax return;
(e) Supply various Fund statistical data as requested on an ongoing
basis;
(f) Assist in the preparation of the Fund's semi-annual reports with
the SEC on Form N- SAR;
(g) Assist in the preparation of the Fund's annual and semi-annual
shareholder reports;
(h) Assist in the preparation of registration statements and other
filings related to the registration of Shares; and
(i) Monitor the Fund's status as a regulated investment company
under Sub-Chapter M of the Internal Revenue Code of 1986, as
amended.
3
<PAGE>
4. DESCRIPTION OF TRANSFER AGENT SERVICES.
The Administrator will perform the following Transfer Agent services:
(a) Issue, transfer and cancel stock certificates;
(b) Maintain all shareholder accounts;
(c) Prepare annual shareholder meeting lists;
(d) Mail, receive and tabulate proxies;
(e) Mail shareholder reports and prospectuses;
(f) Withhold taxes on non-resident alien accounts;
(g) Disburse income dividends and capital gains distributions;
(h) Prepare and file U.S. Treasury Department Form 1099 for all
shareholders;
(i) Prepare and mail confirmation forms to shareholders for all
purchases and redemptions of Fund shares and other confirmable
transactions in shareholders' accounts;
(j) Record reinvestment of dividends and distributions in Fund
shares; and
(k) Cause redemptions of shares and disbursements to be made to
redeeming shareholders.
5. COMPLIANCE WITH GOVERNMENT RULES AND REGULATIONS.
The Administrator undertakes to comply with all applicable requirements
of the 1933 Act, the 1934 Act, the 1940 Act, and any laws, rules and regulations
of governmental authority having jurisdiction with respect to all duties to be
performed by the Administrator hereunder. Except as specifically set forth
herein, the Administrator assumes no responsibility for such compliance by the
Fund.
4
<PAGE>
6. EQUIPMENT FAILURE.
The Administrator shall enter into with appropriate parties an agreement
making reasonable provisions for the emergency use of electronic data processing
equipment to the extent appropriate equipment is available. In the event of
equipment failures, the Administrator shall, at no additional expense to the
Fund, take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto.
7. FEES OF THE ADMINISTRATOR.
For the services and facilities to be furnished by the Administrator
hereunder, the Fund shall pay an annual fee of: 0.25% of the weekly average net
asset value of each Portfolio of the Fund as ascertained each business day and
paid monthly. Upon any termination of this Agreement before the end of any
month, compensation for the period from the end of the last month ending prior
to such termination to the date of termination shall be prorated according to
the proportion which such period bears to a full month and shall be payable upon
the date of termination. For the purpose of the Administrator's compensation,
the net asset value of the Fund's Portfolios shall be computed in the manner
specified in its Bylaws in connection with the determination of the net asset
value of its shares.
8. INDEPENDENT CONTRACTOR.
The Administrator shall, for all purposes herein, be an independent
contractor and shall have no authority to act for or represent the Fund in any
way unless otherwise provided. No agreement, bid, offer, commitment, contract or
other engagement entered into by the Administrator whether on behalf of the
Administrator or whether purported to have been entered into on behalf of the
Fund shall be binding upon the Fund without its approval, and all acts
authorized to be done by the
5
<PAGE>
Administrator under this Agreement shall be done by it as an independent
contractor and not as an agent.
9. NON-EXCLUSIVE SERVICES OF THE ADMINISTRATOR.
Except to the extent necessary for performance of the Administrator's
obligations hereunder, nothing shall restrict the right of the Administrator or
any of its directors, officers or employees who may be directors, officers or
employees of the Fund to engage in any other business or to devote time and
attention to the management or other aspects of any other business whether of a
similar or dissimilar nature or to render services of any kind to any other
corporation, firm, individual or association. The services of the Administrator
to the Fund hereunder are not to be deemed exclusive, and the Administrator
shall be free to render similar services to others so long as its services
hereunder be not impaired thereby.
10. DURATION AND TERMINATION.
This Agreement shall continue until terminated by the Fund or by the
Administrator on sixty (60) days prior written notice to the other party.
11. INDEMNIFICATION.
Administrator shall not be responsible and the Fund shall indemnify and
hold Administrator harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability which may be asserted
against Administrator or for which it may be held to be liable, arising out of
or in any way attributable to:
(a) All actions of Administrator required to be taken by
Administrator pursuant to this Agreement provided that
Administrator has acted in good faith and with due diligence.
6
<PAGE>
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's negligence or willful
misconduct or which arise out of the breach of any representation
or warranty of the Fund hereunder.
(c) The reliance on, or the carrying out of, any instructions or
requests of the Fund.
(d) Defaults by dealers with respect to payment for share orders
previously entered.
(e) The offer or sale of the Fund's shares in violation of any
requirement under federal securities laws or regulations or the
securities laws or regulations of any state or in violation of
any stop order or other determination or ruling by any federal
agency or state, with respect to the offer or sale of such
shares, in such state (unless such violation results from
Administrator's failure to comply with written instructions of
the Fund or of any officer of the Fund that no offers or sales
be made in or to residents of such state).
Administrator shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of Administrator's willful failure to comply
with the terms of this Agreement or which arise out of Administrator's gross
negligence or willful misconduct.
At any time Administrator may apply to any officer of the Fund for
instructions, and may consult with legal counsel for the Fund or its own legal
counsel, at the expense of the Fund, with respect to any matter arising in
connection with the services to be performed by Administrator under this
Agreement and Administrator shall not be liable and shall be indemnified by the
Fund for any action taken or omitted by it in good faith in reliance upon such
instructions or upon the opinion of such counsel. Administrator shall be
protected and indemnified in acting upon any paper or document believed by it to
be genuine and to have been signed by the proper person or persons and
7
<PAGE>
shall not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. Administrator shall also be
protected and indemnified in recognizing stock certificates which Administrator
reasonably believes to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper counter-signature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
In no event and under no circumstances shall either party to this
Agreement be liable to the other party for consequential damages under any
provision of this Agreement or for any act or failure to act hereunder.
12. SAFEKEEPING OF BOOKS AND RECORDS.
Administrator hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms, and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of such certificates,
uncertificated shares, forms and devices. To the extent required by Section 31
of the Investment Company Act of 1940 and Rules thereunder, Administrator agrees
that all records maintained by Administrator under this Agreement are the
property of the Fund and will be preserved and will be surrendered promptly to
the Fund on request. Administrator and the Fund agree that all books, records,
information and the date pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation of and the carrying out of
this Agreement shall remain confidential, and shall not be voluntarily disclosed
to any other person.
8
<PAGE>
13. AMENDMENT OF THE AGREEMENT.
This Agreement or any part hereof may be changed or waived only by
written amendment, signed by the party against whom enforcement of such change
or waiver is sought.
14. MISCELLANEOUS.
This Agreement embodies the entire agreement and understanding between
the parties and supersedes all prior agreements and understandings relating to
the subject matter hereof.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
Without prior written consent of the parties hereto, this Agreement may
not be assigned by any of the parties hereto.
This Agreement shall be deemed to be a contract made in Nebraska and
governed by Nebraska law. If any provision of this agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
and shall inure to the benefit of the parties hereto and their respective
successors.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their proper officers all as of the day and year first above
written.
STRATUS FUND, INC.
By /s/ Michael S. Dunlap
-----------------------
LANCASTER ADMINISTRATIVE
SERVICES, INC.
By /s/ Chad Melcher
--------------------------
10
CONSENT
We hereby consent to the use of our name under the caption "Counsel" in the
Statement of Additional Information contained in Post-Effective Amendment No. 18
to the Registration Statement on Form N-1A of Stratus Fund, Inc. (Registration
No. 33-37928) filed under the Securities Act of 1933 and Amendment No. 19 under
the Investment Company Act of 1940.
/s/ Ballard Spahr Andrew & Ingersoll, LLP
August 27, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000870156
<NAME> STRATUS FUND, INC.
<SERIES>
<NUMBER> 2
<NAME> INTERMEDIATE GOVERNMENT BOND PORTFOLIO INSTITUTIONAL CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 2,981,470
<INVESTMENTS-AT-VALUE> 3,015,945
<RECEIVABLES> 59,713
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,075,658
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,182
<TOTAL-LIABILITIES> 4,182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,152,650
<SHARES-COMMON-STOCK> 291,243
<SHARES-COMMON-PRIOR> 378,308
<ACCUMULATED-NII-CURRENT> 23
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 115,672
<ACCUM-APPREC-OR-DEPREC> 34,475
<NET-ASSETS> 3,071,476
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 212,144
<OTHER-INCOME> 0
<EXPENSES-NET> 41,684
<NET-INVESTMENT-INCOME> 170,460
<REALIZED-GAINS-CURRENT> 205
<APPREC-INCREASE-CURRENT> (19,797)
<NET-CHANGE-FROM-OPS> 150,868
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 169,995
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,290
<NUMBER-OF-SHARES-REDEEMED> 105,298
<SHARES-REINVESTED> 14,943
<NET-CHANGE-IN-ASSETS> (87,065)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 115,876
<GROSS-ADVISORY-FEES> 23,320
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 41,684
<AVERAGE-NET-ASSETS> 3,590,864
<PER-SHARE-NAV-BEGIN> 10.60
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> (.10)
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000870156
<NAME> STRATUS FUND, INC.
<SERIES>
<NUMBER> 2
<NAME> INTERMEDIATE GOVERNMENT BOND PORTFOLIO RETAIL CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 2,981,470
<INVESTMENTS-AT-VALUE> 3,015,945
<RECEIVABLES> 59,713
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,075,658
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,182
<TOTAL-LIABILITIES> 4,182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,152,650
<SHARES-COMMON-STOCK> 1,277
<SHARES-COMMON-PRIOR> 2,760
<ACCUMULATED-NII-CURRENT> 23
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 115,672
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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