As filed with the Securities and Exchange Commission on March 23, 2000.
Securities Act Registration No. ________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. ____ Post-effective Amendment No. ____
(Check appropriate box or boxes)
STRATUS FUND, INC.
-----------------------------------------
(Exact Name of Registrant as Specified in Charter)
P.O. Box 82535
LINCOLN, NEBRASKA 68501-2535
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(402) 476-3000
Name and Address of Agent for Service: Copy to:
THOMAS C. SMITH THOMAS H. DUNCAN, ESQUIRE
Stratus Fund, Inc. Ballard Spahr Andrews & Ingersoll, LLP
P.O. Box 82535 1225 17th Street
Lincoln, NE 68501-2535 Suite 2300
Denver, CO 80202
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective under the Securities Act of
1933.
It is proposed that this filing will become effective on April 24, 2000
pursuant to Rule 488.
The title of the securities being registered is GROWTH PORTFOLIO Retail
Class A shares and Institutional Class shares and GOVERNMENT SECURITIES
PORTFOLIO Retail Class A and Institutional Class shares. No filing fee is due in
reliance on Section 24(f) of the Securities Act of 1933.
1
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
INTERMEDIATE GOVERNMENT BOARD PORTFOLIO
Portfolios of
STRATUS FUND, INC.
P.O. Box 82535
Lincoln, Nebraska 68501-2535
April __, 2000
Dear Shareholder:
Enclosed is a combined proxy statement and prospectus seeking your
approval of a proposed combination of Capital Appreciation Portfolio with Growth
Portfolio and a proposed combination of Intermediate Government Bond Portfolio
with Government Securities Portfolio. Capital Appreciation Portfolio and
Intermediate Government Bond Portfolio (the "Acquired Portfolios") are
investment portfolios of Stratus Fund, Inc. ("Stratus Fund"), a Minnesota
corporation. Growth Portfolio and Government Securities Portfolio (the
"Acquiring Portfolios") are also investment portfolios of Stratus Fund.
The investment objective and strategies of each Acquired Portfolio are
similar to the investment objective and strategies of the Acquiring Portfolio
with which it will combine. Union Bank and Trust Company serves as the
investment adviser to the Acquired Portfolios and the Acquiring Portfolios. As
discussed in the accompanying document, the Acquiring Portfolios are
substantially larger than the Acquired Portfolios and the Acquired Portfolios
are not expected to experience a significant growth in assets. The Acquiring
Portfolios have better or comparable performance histories and generally lower
operating expense ratios than the Acquired Portfolios. The accompanying document
describes the proposed transactions and compares the investment policies,
operating expenses and performance histories of the Acquired Portfolios and
Acquiring Portfolios.
Shareholders of Capital Appreciation Portfolio and Intermediate
Government Bond Portfolio are being asked to approve a Plan of Reclassification
that will govern the reorganization of the Acquired Portfolios into the
Acquiring Portfolios. After careful consideration, the Board of Directors of
Stratus Fund has unanimously approved the proposals and recommends that you read
the enclosed materials carefully and then vote FOR the proposals.
Your vote is important. Please take a moment now to sign and return your
proxy cards in the enclosed postage paid return envelope.
Sincerely,
Michael S. Dunlap
Chairman
1
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIOS OF
STRATUS FUND, INC.
P.O. BOX 82535
LINCOLN, NEBRASKA 68501-2535
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [MAY 25, 2000]
TO THE SHAREHOLDERS OF CAPITAL APPRECIATION PORTFOLIO AND INTERMEDIATE
GOVERNMENT BOND PORTFOLIO:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Capital
Appreciation Portfolio and Intermediate Government Bond Portfolio (the "Acquired
Portfolios"), investment portfolios of Stratus Fund, Inc. ("Stratus Fund"), will
be held at 6801 S. 27th, Lincoln, Nebraska, on [MAY 25, 2000], at [3:00 P.M.],
local time, for the following purposes:
1. To approve a Plan of Reclassification (the "Plan") that provides
for the combination of Capital Appreciation Portfolio with Growth
Portfolio and the combination of Intermediate Government Bond
Portfolio with Government Securities Portfolio (the
"Reorganizations"). The Reorganizations will be effected through
an amendment to the articles of incorporation of Stratus Fund.
Pursuant to the Plan,
o the shares of the Acquired Portfolios will be reclassified
as shares of the Acquiring Portfolios and Stratus Fund will
issue Retail Class A shares of the Acquiring Portfolio to
the Acquired Portfolio's Retail Class A shareholders and
Institutional Class shares of the Acquiring Portfolio to the
Acquired Portfolio's Institutional Class shareholders,
o all of the assets of an Acquired Portfolio will be
transferred to the Acquiring Portfolio with which it will
combine, and
o the Acquiring Portfolio will assume all of the liabilities
of the Acquired Portfolio.
The value of each Acquired Portfolio shareholder's account with
the Acquiring Portfolio immediately after the Reorganization will
be the same as the value of such shareholder's account with the
Acquired Portfolio immediately prior to the Reorganization. The
Reorganizations have been structured as tax-free transactions. No
initial sales charge will be imposed in connection with the
Reorganizations.
2. To transact any other business, not currently contemplated, that
may properly come before the Special Meeting, in the discretion
of the proxies or their substitutes.
Shareholders of record as of the close of business on [APRIL
__,2000], are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
2
<PAGE>
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE
MANAGEMENT OF STRATUS FUND. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A
QUORUM AT THE SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY
ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY, BY
GIVING WRITTEN NOTICE OF REVOCATION TO STRATUS FUND, INC. AT ANY TIME BEFORE THE
PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
MICHAEL S. DUNLAP
PRESIDENT AND SECRETARY
[APRIL __,2000]
3
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
GROWTH PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIOS OF
STRATUS FUND, INC.
P.O. BOX 82535
LINCOLN, NEBRASKA 68501-2535
(402) 476-3000
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: [APRIL __,2000]
This document is being furnished in connection with a special meeting of
shareholders of CAPITAL APPRECIATION PORTFOLIO and INTERMEDIATE GOVERNMENT BOND
PORTFOLIO (the "Acquired Portfolios"), investment portfolios of Stratus Fund,
Inc. ("Stratus Fund"), a Minnesota corporation, to be held on [MAY 25, 2000]
(the "Special Meeting"). At the Special Meeting, the shareholders of the
Acquired Portfolios are being asked to consider and approve a Plan of
Reclassification (the "Plan") which provides for the combination of CAPITAL
APPRECIATION PORTFOLIO with GROWTH PORTFOLIO, and the combination of
INTERMEDIATE GOVERNMENT BOND PORTFOLIO with GOVERNMENT SECURITIES PORTFOLIO (the
"Reorganizations"). The Board of Directors of Stratus Fund has unanimously
approved the Plan and the Reorganizations as being in the best interest of the
shareholders of each of the Acquired Portfolios.
Pursuant to the Plan, and the amendment of the Articles of Incorporation
of Stratus Fund described in the Plan, the shares of the Acquired Portfolios
will be reclassified as shares of the Acquiring Portfolios and Stratus Fund will
issue Retail Class A shares of the Acquiring Portfolio to the Acquired
Portfolio's Retail Class A shareholders and Institutional Class shares of the
Acquiring Portfolio to the Acquired Portfolio's Institutional Class
shareholders. All of the assets of an Acquired Portfolio will be transferred to
the Acquiring Portfolio with which it will combine, the Acquiring Portfolio will
assume all of the liabilities of the Acquired Portfolio. The value of each
Acquired Portfolio shareholder's account with the Acquiring Portfolio
immediately after a Reorganization will be the same as the value of such
shareholder's account with the Acquired Portfolio immediately prior to the
Reorganization. The Reorganizations have been structured as tax- free
transactions. No initial sales charge will be imposed in connection with the
Reorganizations.
Each of the Acquiring Portfolios and the Acquired Portfolios is a series
portfolio of Stratus Fund, an open-end, series management investment company.
The investment objective and strategies of each Acquiring Portfolio are similar
to those of the Acquired Portfolio with which it will combine.
<PAGE>
GROWTH PORTFOLIO seeks capital appreciation and income. CAPITAL
APPRECIATION PORTFOLIO seeks capital appreciation.
GOVERNMENT SECURITIES PORTFOLIO seeks to provide a high total return
consistent with the preservation of capital. INTERMEDIATE GOVERNMENT BOND
PORTFOLIO seeks current income, some or all of which is exempt from state income
tax, consistent with the preservation of capital. See "Comparison of Investment
Objectives and Policies."
This Combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus") sets forth the information that a shareholder of the
Acquired Portfolios should know before voting on the Agreement. It should be
read and retained for future reference.
The current Prospectuses of Stratus Fund, each dated November 1, 1999
(the "Prospectuses"), together with the related Statement of Additional
Information also dated November 1, 1999, and the Semi-Annual Reports of Stratus
Fund dated December 31, 1999 are on file with the Securities and Exchange
Commission (the "SEC") and are incorporated by reference herein. A copy of the
Prospectus for the Retail Class A shares of Stratus Fund is attached as Appendix
II to this Proxy Statement/Prospectus. Such documents are available without
charge by writing to Stratus Fund, Inc., P.O. Box 82535, Lincoln, Nebraska
68501-2535 or by calling (402) 476-3000. The SEC maintains a Web site at
http://www.sec.gov that contains the prospectuses and statements of additional
information described above, material incorporated by reference, and other
information about Stratus Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
INTRODUCTION...................................................................1
SYNOPSIS.......................................................................2
The Reorganizations....................................................2
Reasons for the Reorganizations........................................2
Comparison of the Acquiring Portfolios and the Acquired Portfolios.....3
RISK FACTORS...................................................................6
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES.............................8
Investment Objectives of Growth Portfolio and
Capital Appreciation Portfolio..................................8
Investment Objectives of Government Securities Portfolio and
Intermediate Government Bond Portfolio..........................9
Other Differences in Investment Policies and Restrictions.............11
Portfolio Management..................................................11
Management Discussion and Analysis of Performance.....................12
FINANCIAL HIGHLIGHTS..........................................................12
Growth Portfolio......................................................12
Government Securities Portfolio.......................................15
ADDITIONAL INFORMATION ABOUT THE PLAN.........................................18
Terms of the Reorganizations..........................................18
The Reorganizations...................................................18
Board Considerations..................................................19
Other Terms...........................................................21
Federal Tax Consequences..............................................21
Accounting Treatment..................................................24
OWNERSHIP OF THE ACQUIRING PORTFOLIOS AND THE
ACQUIRED PORTFOLIOS SHARES............................................24
Significant Holders...................................................24
Ownership of Officers and Directors/Trustees..........................25
CAPITALIZATION................................................................25
LEGAL MATTERS.................................................................27
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.................27
i
<PAGE>
ADDITIONAL INFORMATION ABOUT THE ACQUIRING PORTFOLIOS AND
THE ACQUIRED PORTFOLIOS...............................................27
APPENDIX I ......Agreement and Plan of Reorganization
APPENDIX II......Prospectus for Retail Class A Shares of the Acquired Funds and
Acquired Funds
APPENDIX III.....Discussion and Analysis for the Acquired Funds and
Acquired Funds
ii
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Stratus Fund from the
shareholders of the Acquired Portfolios for use at the special meeting of
shareholders to be held at 6801 S. 27th, Lincoln, Nebraska, on [MAY 25, 2000],
at [3:00 P.M.], local time (such meeting and any adjournments thereof are
referred to as the "Special Meeting").
All properly executed and unrevoked proxies received in time for the
Special Meeting will be voted in accordance with the instructions contained
therein. If no instructions are given, shares represented by proxies will be
voted FOR the proposal to approve the Plan and in accordance with management's
recommendation on other matters. The presence in person or by proxy of ten
percent of the outstanding shares of an Acquired Portfolio at the Special
Meeting will constitute a quorum ("Quorum"). Approval of the Plan by an Acquired
Portfolio requires the affirmative vote of a majority of the shares cast by
shareholders of that Acquired Portfolio. The Plan may be approved by one of the
Acquired Portfolios and the Reorganization of that Acquired Portfolio may be
completed even though the Plan is not approved by shareholders of the other
Acquired Portfolio. Abstentions and broker non-votes will be counted as shares
present at the Special Meeting for quorum purposes, but will not be considered
votes cast at the Special Meeting. Broker non-votes arise from a proxy returned
by a broker holding shares for a customer which indicates that the broker has
not been authorized by the customer to vote on a proposal. Any person giving a
proxy has the power to revoke it at any time prior to its exercise by executing
a superseding proxy or by submitting a notice of revocation to the Secretary of
Stratus Fund. In addition, although mere attendance at the Special Meeting will
not revoke a proxy, a shareholder present at the Special Meeting may withdraw
his proxy and vote in person. Shareholders may also transact any other business
not currently contemplated that may properly come before the Special Meeting in
the discretion of the proxies or their substitutes.
Shareholders of record as of the close of business on [APRIL __, 2000]
(the "Record Date"), are entitled to vote at the Special Meeting. On the Record
Date, there were __________ Retail Class A shares and _____ Institutional Class
shares of CAPITAL APPRECIATION PORTFOLIO outstanding, and __________ Retail
Class A shares and _____ Institutional Class shares of INTERMEDIATE GOVERNMENT
BOND PORTFOLIO outstanding. Each share is entitled to one vote for each full
share held, and a fractional vote for a fractional share held.
Stratus Fund expects to solicit proxies principally by mail, but may
also solicit proxies by telephone, facsimile, telegraph or personal interview.
Stratus Fund's officers will not receive any additional or special compensation
for any such solicitation. Each of the Acquired Portfolios will bear its own
costs and expenses incurred in connection with the Reorganizations.
Stratus Fund intends to mail this Proxy Statement/Prospectus and the
accompanying proxy on or about [APRIL 27, 2000].
1
<PAGE>
SYNOPSIS
THE REORGANIZATIONS
The Reorganizations will result in the combination of CAPITAL
APPRECIATION PORTFOLIO with GROWTH PORTFOLIO and the combination of INTERMEDIATE
GOVERNMENT BOND PORTFOLIO with GOVERNMENT SECURITIES PORTFOLIO. The Acquired
Portfolios and the Acquiring Portfolios are portfolios of Stratus Fund, a
Minnesota corporation.
If shareholders of an Acquired Portfolio approve the Agreement and other
closing conditions are satisfied, the Articles of Incorporation of Stratus Fund
will be amended to reclassify the shares of the Acquired Portfolios as shares of
the Acquiring Portfolios and Stratus Fund will issue Retail Class A shares of
the Acquiring Portfolio to the Acquired Portfolio's Retail Class A shareholders
and Institutional Class shares of the Acquiring Portfolio to the Acquired
Portfolio's Institutional Class shareholders. All of the assets of that Acquired
Portfolio will be transferred to the Acquiring Portfolio with which it will
combine, the Acquiring Portfolio will assume all of the liabilities of the
Acquired Portfolio, The shares of an Acquiring Portfolio issued in a
Reorganization will have an aggregate net asset value equal to the value of the
Acquired Portfolio's net assets transferred to the Acquiring Portfolio.
Shareholders will not pay any initial sales charge for shares of the Acquiring
Portfolios received in connection with the Reorganizations. The value of each
shareholder's account with an Acquiring Portfolio immediately after a
Reorganization will be the same as the value of such shareholder's account with
the Acquired Portfolio immediately prior to the Reorganization. A copy of the
Plan is attached as Appendix I to this Proxy Statement/ Prospectus. See
"Additional Information About the Plan" below.
The Acquired Portfolios will receive an opinion of Ballard Spahr Andrews
& Ingersoll, LLP, to the effect that the Reorganizations will constitute
tax-free reorganizations for Federal income tax purposes. Thus, shareholders
will not have to pay Federal income taxes as a result of the Reorganizations.
See "Additional Information About the Plan - Federal Tax Consequences" below.
The Board of Directors of Stratus Fund, including the independent
Directors, has determined that the Reorganizations are in the best interests of
all of the portfolios and their shareholders and that the interests of the
shareholders of each portfolio will not be diluted as a result of the
Reorganizations.
REASONS FOR THE REORGANIZATIONS
The Reorganizations are being proposed because the Acquired Portfolios
have not generally been perceived by investors as attractive investment
alternatives. As a result, the Acquired Portfolios' investment adviser, Union
Bank and Trust Company, does not anticipate that there will be any significant
future growth in the assets of the Acquired Portfolios. In addition, the
Acquiring Portfolios have larger asset bases, lower expenses and better or
comparable performance histories than the Acquired Portfolios. See "Additional
Information About the Plan" below.
2
<PAGE>
COMPARISON OF THE ACQUIRING PORTFOLIOS AND THE ACQUIRED PORTFOLIOS
INVESTMENT OBJECTIVE AND STRATEGIES
The investment objective and strategies of each Acquiring Portfolio are
similar to the investment objective and strategies of the Acquired Portfolio
with which it will combine.
GROWTH PORTFOLIO seeks to provide capital appreciation and income.
CAPITAL APPRECIATION PORTFOLIO seeks capital appreciation.
GOVERNMENT SECURITIES PORTFOLIO seeks to provide a high total return
consistent with the preservation of capital. INTERMEDIATE GOVERNMENT BOND
PORTFOLIO seeks current income, some or all of which is exempt from state income
tax, consistent with the preservation of capital. See "Comparison of Investment
Objectives and Strategies" below.
INVESTMENT ADVISORY SERVICES
Union Bank and Trust Company (the "Adviser") serves as investment
adviser to the Acquired Portfolios and the Acquiring Portfolios.
PERFORMANCE
Average annual total returns for the periods indicated for each of the
Acquiring Portfolios and the Acquired Portfolios, including sales charges, are
shown below. Past performance cannot guarantee comparable future results.
<TABLE>
<CAPTION>
Growth Portfolio Capital Appreciation Portfolio
Retail Institutional Retail Institutional
Class A Shares Class Shares Class A Shares Class Shares
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
1 Year Ended December 31, 1999 22.04% 22.41% 3.97% 4.34%
3 Years Ended December 31, 1999 N/A 23.3% N/A 2.90%
5 Years Ended December 31, 1999 N/A 24.36% N/A 13.07%
Since inception 22.71% 19.80% 2.67% 7.83%
3
<PAGE>
Government Securities Intermediate Government Bond
Portfolio Portfolio
Retail Institutional Retail Institutional
Class A Shares Class Shares Class A Shares Class Shares
-------------- ------------ -------------- ------------
1 Year Ended December 31, 1999 1.49% 1.77% 1.74% 2.03%
3 Years Ended December 31, 1999 N/A 5.10% N/A 4.70%
5 Years Ended December 31, 1999 N/A 6.33% N/A 5.89%
Since inception 3.43% 4.46% 3.49% 5.60%
</TABLE>
EXPENSES
A comparison of annual operating expenses as a percentage of net assets
("Expense Ratio") for the Retail Class A and Institutional Class shares of the
Acquiring Portfolios for their fiscal year ended June 30, 1999 and for the
Retail Class A and Institutional Class shares of the Acquired Portfolios for
their fiscal year ended June 30, 1999 are shown below. Expense Ratios are shown
net of any voluntary fee waivers and expense reimbursements.
<TABLE>
<CAPTION>
GROWTH PORTFOLIO AND CAPITAL APPRECIATION PORTFOLIO
Capital Appreciation Growth Portfolio
Growth Portfolio Portfolio Pro Forma Estimated
---------------- --------- -------------------
Retail Class A Institutional Retail Class A Institutional Retail Class A Institutional
Shares Class Shares Shares Class Shares Shares Class Shares
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchase of 4.5% none 4.5% none 4.5% none
shares (as a percentage of offering price)
Deferred Sales Load (as a percentage of
original purchase price or redemption none none none none none none
proceeds, as as applicable)
ANNUAL OPERATING EXPENSES (AS A % OF
NET ASSETS)
Management fees................... .75% .75% 1.40%(2) 1.40%(2) .75% .75%
Rule 12b-1 distribution plan payments .50% none .50% none .50% none
All other expenses................ .30% .30% .55% .55% .32% .32%
Total portfolio operating expenses (1) 1.55% 1.05% 2.45% 1.95% 1.55% 1.07%
</TABLE>
(1) Total actual annual operating expenses for the Retail Class A shares of
GROWTH and CAPITAL APPRECIATION for the most recent fiscal year were
less than the amount shown above because the portfolios are currently
paying only a portion of the total 12b-1 fee authorized for payment to
the Distributor. With the reduced payments to the Distributor, GROWTH'S
actual total operating expenses for its Retail Class A shares were 1.35%
and CAPITAL APPRECIATION'S actual total operating expenses for its
Retail Class A shares were 1.45%.
4
<PAGE>
(2) CAPITAL APPRECIATION 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 as low as 0.40%. The management fees for CAPITAL
APPRECIATION have been restated to reflect the basic fee of 1.40%
without adjustment.
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO AND INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Intermediate Government Securities Portfolio
Government Securities Portfolio Bond Portfolio Pro Forma Estimated
------------------------------- -------------- -------------------
Retail Class A Institutional Retail Class A Institutional Retail Class A Institutional
Shares Class Shares Shares Class Shares Shares Class Shares
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchase of 3.0% none 3.0% none 3.0% none
shares (as a percentage of offering price)
Deferred Sales Load (as a percentage
original purchase price or redemption none none none none none none
procees, as applicable)
ANNUAL OPERATING EXPENSES (AS A % OF NET
ASSETS)
Management fees................... .50% .50% .65% .65% .50% .50%
Rule 12b-1 distribution plan payments .50% none .50% none .50% none
All other expenses................ .30% .30% .51% .51% .31% .31%
Total portfolio operating 1.30% .80% 1.66% 1.16% 1.31% .81%
expenses(1).......................
</TABLE>
(1) Total actual annual operating expenses for the Retail Class A shares of
GOVERNMENT SECURITIES and INTERMEDIATE GOVERNMENT BOND for the most
recent fiscal year were less than the amount shown above because the
portfolios are currently paying only a portion of the total 12b-1 fee
authorized for payment to the Distributor. With the reduced payments to
the Distributor, GOVERNMENT SECURITIES' actual total operating expenses
for its Retail Class A shares were 1.10% and INTERMEDIATE GOVERNMENT
BOND'S actual total operating expenses for its Retail Class A shares
were 1.46%.
SALES CHARGES
No sales charges are applicable to shares of the Acquiring Portfolios
received in connection with the Reorganizations.
The GROWTH PORTFOLIO Retail Class A shares, which will be issued to the
CAPITAL APPRECIATION PORTFOLIO Retail Class A shareholders pursuant to the Plan,
are sold at net asset value plus an initial sales charge of 4.5% for purchases
of less than $50,000, 3.5% for purchases of $50,000 but less than $100,000, 2.5%
for purchases of $100,000 but less than $250,000 and 0% for purchases of
$250,000 or more. The GROWTH PORTFOLIO Institutional Class shares are offered at
net asset value, without an initial sales charge.
5
<PAGE>
The GOVERNMENT SECURITIES Retail Class A shares, which will be issued to
the INTERMEDIATE GOVERNMENT BOND Retail Class A shareholders pursuant to the
Plan, are sold at net asset value plus an initial sales charge of 3.0% for
purchases of less than $50,000, 2.5% for purchases at $50,000 but less than
$100,000, 1.5% for purchases of $100,000 but less than $250,000 and 0% for
purchases of $250,000 or more. The GOVERNMENT SECURITIES PORTFOLIO Institutional
Class shares are offered at net asset value, without an initial sales charge.
The Retail Class A shares of CAPITAL APPRECIATION PORTFOLIO are sold at
net asset value plus an initial sales charge of 4.5% for purchases of less than
$50,000, 3.5% for purchases of $50,000 but less than $100,000, 2.5% for
purchases of $100,000 but less than $250,000 and 0% for purchases of $250,000 or
more. The CAPITAL APPRECIATION PORTFOLIO Institutional Class shares are offered
at net asset value without an initial sales charge.
The INTERMEDIATE GOVERNMENT BOND PORTFOLIO Retail Class A shares are
sold at net asset value plus an initial sales charge of 3.0% for purchases of
less than $50,000, 2.5% for purchases of $50,000 but less than $100,000, 1.5%
for purchases of $100,000 but less than $250,000 and 0% for purchases of
$250,000 or more. The INTERMEDIATE GOVERNMENT BOND PORTFOLIO Institutional Class
shares are offered at net asset value, without an initial sales charge.
The Acquired Portfolios and the Acquiring Portfolios are authorized to
pay a fee in the amount of 0.50% per annum of average daily net assets of their
Retail Class A shares to SMITH HAYES for distribution services. SMITH HAYES
currently waives a portion of that distribution fee and collects only 0.30% of
the average daily net assets of the Acquired Portfolios and the Acquiring
Portfolios. The Acquired Portfolios Institutional Class shares do not pay
distribution fees.
DISTRIBUTION; PURCHASE, EXCHANGE AND REDEMPTION
Shares of the Acquiring Portfolios and the Acquired Portfolios are both
distributed by SMITH HAYES. Purchase and redemption procedures are the same for
the Acquiring Portfolios and the Acquired Portfolios. Shares of the Acquiring
Portfolios and the Acquired Portfolios may be exchanged for shares of other
portfolios of Stratus Fund of the same class.
RISK FACTORS
The Acquiring Portfolios and the Acquired Portfolios are subject to
substantially similar investment risks. The price of an Acquired Portfolio and
an Acquiring Portfolio 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. The principal risks to GROWTH PORTFOLIO and
GOVERNMENT SECURITIES PORTFOLIO are described below.
6
<PAGE>
GROWTH PORTFOLIO is a diversified portfolio that invests primarily in
common stocks. The prices of equity securities change in response to many
factors including:
o STOCK MARKET VOLATILITY - 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.
o ISSUER-SPECIFIC RISK - 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.
o GROWTH INVESTING - GROWTH PORTFOLIO invests in growth stocks.
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.
GOVERNMENT SECURITIES invests primarily in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and other
highly rated, marketable debt obligations. The price of debt securities changes
in response to many factors including:
o INTEREST RATE CHANGES - Debt securities have varying levels of
sensitivity to changes in interest rates. Generally, the price of
a debt security falls 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.
o PREPAYMENT RISK - 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 the portfolio's average weighted maturity to fluctuate, and
may require the portfolio to invest the resulting proceeds at
lower interest rates. As a result, the portfolio may experience a
decline in income and lose the opportunity for additional price
appreciation associated with falling interest rates.
o CREDIT RISK - Credit risk is the risk that an issuer will be
unable to make timely payments of either principal or interest.
If this occurs, the portfolio's return could be lower.
7
<PAGE>
o U.S. GOVERNMENT SECURITIES - 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.
o ISSUER-SPECIFIC RISK. The value of an individual issuer's
security can be more volatile than the market as a whole and can
perform differently than the market as a whole. Debt obligations
rated within the lowest of the four highest debt ratings have
speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weaker capacity
of the issuers to make principal and interest payments than would
be the case with higher rated securities.
o INCOME RISK. Falling interest rates will cause the portfolio's
income to decline.
COMPARISON OF INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVES OF GROWTH PORTFOLIO AND CAPITAL APPRECIATION PORTFOLIO
INVESTMENT OBJECTIVES
The investment objective of GROWTH PORTFOLIO is to provide capital
appreciation and income.
CAPITAL APPRECIATION PORTFOLIO seeks to provide capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES OF GROWTH PORTFOLIO
To achieve its investment objective, GROWTH PORTFOLIO invests 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 and money market instruments.
GROWTH PORTFOLIO invests principally in medium and large capitalization
companies having a market capitalization greater than $1 billion. 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 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
8
<PAGE>
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.
The Adviser has engaged in active trading of securities held by GROWTH
PORTFOLIO. The portfolio's turnover rate for its last fiscal year was 194%.
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.
PRINCIPAL INVESTMENT STRATEGIES OF CAPITAL APPRECIATION PORTFOLIO
To achieve its objective, the CAPITAL APPRECIATION PORTFOLIO invests 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. 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 attempts to select those companies whose shares, in its estimation, are
most attractively priced.
The Adviser has engaged in active trading of securities held by CAPITAL
APPRECIATION PORTFOLIO. The portfolio's turnover rate for its last fiscal year
was 109%. 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.
INVESTMENT OBJECTIVES OF GOVERNMENT SECURITIES PORTFOLIO AND INTERMEDIATE
GOVERNMENT BOND PORTFOLIO
INVESTMENT OBJECTIVES
The investment objective of GOVERNMENT SECURITIES PORTFOLIO is to
provide a high total return consistent with the preservation of capital.
INTERMEDIATE GOVERNMENT BOND PORTFOLIO seeks current income, some or all
of which is exempt from state income tax, consistent with the preservation of
capital.
9
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES OF GOVERNMENT SECURITIES PORTFOLIO
To achieve its objective, GOVERNMENT SECURITIES PORTFOLIO invests 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 at 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, GOVERNMENT SECURITIES
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 utilizes 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%. GOVERNMENT SECURITIES PORTFOLIO is not a money market fund and
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.
PRINCIPAL INVESTMENT STRATEGIES OF INTERMEDIATE GOVERNMENT BOND PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO invests 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.
INTERMEDIATE GOVERNMENT BOND 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, INTERMEDIATE GOVERNMENT BOND
PORTFOLIO normally purchases securities with a view to holding them rather than
selling them to achieve
10
<PAGE>
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.
INTERMEDIATE GOVERNMENT BOND 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%.
OTHER DIFFERENCES IN INVESTMENT POLICIES AND RESTRICTIONS
GOVERNMENT SECURITIES PORTFOLIO may enter into repurchase agreements for
U.S. Government Securities. A repurchase agreement involves the purchase 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 its
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, the portfolio would
suffer a loss.
In addition GOVERNMENT SECURITIES PORTFOLIO'S fundamental investment
restriction with respect to portfolio diversification is less restrictive than
INTERMEDIATE GOVERNMENT BOND PORTFOLIO'S fundamental investment restriction with
respect to portfolio diversification. GOVERNMENT SECURITIES PORTFOLIO is
restricted with respect to 75% of the value of its total assets and INTERMEDIATE
GOVERNMENT BOND PORTFOLIO is restricted with respect to 100% of its total
assets, from investing 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.
PORTFOLIO MANAGEMENT
William S. Eastwood and Jon C. Gross are responsible for the day-to-day
management of the Acquiring Portfolios and the Acquired Portfolios. Mr. Eastwood
has been affiliated with Union Bank and Trust Company and the management of
Stratus 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 income common funds at that
bank from 1979 to 1995. Mr. Eastwood holds the Chartered Financial Analyst (CFA)
professional designation. Mr. 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 Stratus Fund since 1991. Mr. Gross holds
the Chartered Financial Analyst (CFA) professional designation.
11
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF PERFORMANCE
A discussion of the performance of the Acquiring Portfolios and the
Acquired Portfolios for the fiscal year ended June 30, 1999, is set forth in
Appendix III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO
Shown below are financial highlights for an Institutional Class share of
Growth Portfolio outstanding during the six months ended December 31, 1999 and
during each of the years in the five year period ended June 30, 1999, and for a
Retail Class A share of Growth Portfolio outstanding during the six months ended
December 31, 1999 and during the one year period ended June 30, 1999 and the
period January 7, 1998 (commencement of class) through June 30, 1998. This
information (other than the information for the six months ended December 31,
1999) has been audited by Stratus Fund's independent accountants whose
unqualified reports on the financial statements of GROWTH PORTFOLIO are included
in its annual report to shareholders for the fiscal year ended June 30, 1999.
GROWTH PORTFOLIO's semi-annual report to shareholders dated December 31, 1999,
and its annual report to shareholders dated June 30, 1999, are available without
charge upon request made to Stratus Fund at the address or telephone number
appearing on the cover page of this Proxy Statement/Prospectus.
12
<PAGE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO - INSTITUTIONAL CLASS SHARES
---------------------------------------------
Six months ended December 31, 1999 and years ended June 30, 1999,
1998, 1997, 1996 and 1995
SIX MONTHS
ENDED
Net asset value: DECEMBER 31, 1999 1999 1998 1997 1996 1995
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning of period: $19.51 $18.53 $17.07 $13.67 $11.47 $9.84
------ ------ ------ ------ ----- -----
Income from investment operations:
Net investment income 0.00 0.06 0.11 0.22 0.23 0.22
Net realized and unrealized gain
(loss) on investments 1.77 2.53 3.45 3.99 2.36 1.72
---- ---- ---- ---- ---- ----
Total income from
investment operations 1.77 2.59 3.56 4.21 2.59 1.94
---- ---- ---- ---- ---- ----
Less distributions:
Dividends from net investment 0.00 (0.06) (0.11) (0.22) (0.22) (0.22)
income
Distributions from capital gains (2.75) (1.55) (1.99) (0.59) (0.17) (0.09)
------ ------ ------ ------ ----- ------
Total distributions (2.75) (1.61) (2.10) (0.81) (0.39) (0.31)
------ ------ ------ ------ ----- ------
End of period $18.53 $19.51 $18.53 $17.07 $13.67 $11.47
====== ====== ====== ====== ===== ======
TOTAL RETURN 21.28% 16.3% 22.3% 32.6% 22.6% 20.3%
====== ===== ===== ===== ===== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $67,833,437 $65,011 $63,097 $46,189 $24,628 $12,813
Ratio of expense to average net assets 1.10%(a) 1.05% 0.76% 0.72% 0.71% 0.82%
Ratio of net income to average net assets (0.05%)(a) 0.31% 0.18% 1.46% 1.78% 2.14%
Portfolio turnover rate 64.53% 194.23% 137.03% 88.53% 92.72% 19.89%
(a) ANNUALIZED FOR THOSE PERIODS LESS THAN TWELVE MONTHS IN DURATION.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO - RETAIL CLASS A SHARES
----------------------------------------
Six months ended December 31, 1999 and year ended
June 30, 1999 and for the period from January 7, 1998
(commencement of class shares) to June 30, 1998
SIX MONTHS PERIOD
ENDED ENDED
DECEMBER 31, JUNE 30,
1999 1999 1998
---- ---- ----
NET ASSET VALUE:
<S> <C> <C> <C>
Beginning of period $19.51 $18.52 $15.86
------ ------ ------
Income from investment operations:
Net investment income (0.03) - 0.04
Net realized and unrealized
loss on investments 1.77 2.47 2.66
---- ----- -----
Total income from 1.74 2.47 2.70
---- ---- ----
investment operations
Less distributions:
Dividends from net investment income - - (0.04)
Distributions from capital gains (2.76) (1.48) -
------ ------ -------
Total distributions (2.76) (1.48) (0.04)
------ ------ ------
End of period $18.49 (a) $19.51 (a) $18.52 (a)
====== ====== ======
TOTAL RETURN 20.90% 16.09% (a) 16.89% (a)(b)
====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,507,130 $1,292,742 $784,176
Ratio of expenses to average net assets 1.40%(c) 1.35% 1.50% (c)
Ratio of net income to average net assets (0.35%)(c) 0.01% 0.13% (c)
Portfolio turnover rate 64.53% 194.23% 137.03%
(a) Excludes maximum sales load of 4.5%.
(b) Total return is not annualized, as it may not be representative of the total
return for the year
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
14
<PAGE>
GOVERNMENT SECURITIES PORTFOLIO
Shown below are financial highlights for an Institutional Class share of
GOVERNMENT SECURITIES PORTFOLIO outstanding during the six months ended December
31, 1999 and during each of the years in the five year period ended June 30,
1999, and for a Retail Class A share of GOVERNMENT SECURITIES PORTFOLIO
outstanding during the six months ended December 31, 1999 and during the one
year period ended June 30, 1999, and the period January 13, 1998 (commencement
of class) through June 30, 1998. This information (other than the information
for the six months ended December 31, 1999) has been audited by Stratus Fund
independent accountants whose unqualified reports on the financial statements of
GOVERNMENT SECURITIES PORTFOLIO are included in its annual report to
shareholders for the fiscal year ended June 30, 1999. GOVERNMENT SECURITIES
PORTFOLIO'S semi-annual report to shareholders dated December 31, 1999, and the
annual report to shareholders dated June 30, 1999, are available without charge
upon request made to Stratus fund at the address or telephone number appearing
on the cover page of this Proxy Statement/Prospectus.
15
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO - INSTITUTIONAL CLASS SHARES
------------------------------------------------------------
Six month period ended December 31, 1999 and years
ended June 30, 1999, 1998, 1997, 1996 and 1995
SIX MONTHS
ENDED
DECEMBER 31,
NET ASSET VALUE: 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning of period: $9.79 $9.88 $9.72 $9.64 $9.77 $9.40
----- ----- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income 0.26 0.51 0.51 0.51 0.49 0.45
Net realized and unrealized gain
(loss) on investments (0.13) (0.09) 0.16 0.08 (0.13) 0.37
------ ------ ---- ---- ------ ----
Total income from
investment operations 0.13 0.42 0.67 0.59 0.36 0.82
---- ---- ---- ---- ---- ----
Less distributions from net investment
income (0.26) (0.51) (0.51) (0.51) (0.49) (0.45)
------ ------ ------ ------ ---- ----
End of period $9.66 $9.79 $9.88 $9.72 $9.64 $9.77
===== ===== ===== ===== ===== ======
TOTAL RETURN 2.61% 4.3% 7.0% 6.3% 3.7% 9.0%
===== ==== ==== ==== ==== ====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $31,452 $29,321 $30,368 $26,534 $23,043 $13,885
Ratio of expense to average net assets 0.84%(a)
0.80% 0.82% 0.71% 0.69% 0.80%
Ratio of net income to average net assets 5.23%(a)
5.13% 5.17% 5.21% 5.04% 4.82%
Portfolio turnover rate 8.89% 18.66% 2.07% 27.20% 40.61% 33.88%
(a) Annualized for those periods less than twelve months in duration.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO - RETAIL CLASS A SHARES
-------------------------------------------------------
Six months ended December 31, 1999 and year ended
June 30, 1999 and for the period from January 13, 1998
(commencement of class shares) to June 30, 1998
SIX MONTHS PERIOD
ENDED ENDED
DECEMBER 31, JUNE 30,
1999 1999 1998
---- ---- ----
NET ASSET VALUE:
<S> <C> <C> <C>
Beginning of period $9.79 $9.89 $9.97
----- ----- -----
Income from investment operations:
Net investment income 0.24 0.48 0.25
Net realized and unrealized loss on (0.13) (0.09) (0.08)
------ ------ ------
investments
Total income from investment 0.11 0.39 0.17
---- ---- ----
operations
Less distributions:
Dividends from net investment income (0.24) (0.49) (0.25)
------ ------ ------
Distributions from capital gains - - -
------ ------- ------
Total distributions (0.24) (0.49) (0.25)
------ ------ ------
End of period $9.66 (a) $9.79 $9.89
===== ===== =====
TOTAL RETURN 2.33% (a)(b) 3.96% (a) 1.58% (a)(b)
===== ===== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $210,027 $167,494 $139,164
Ratio of expenses to average net assets 1.14% (c) 1.10% 1.21% (c)
Ratio of net income to average net assets 4.93% (c) 4.83% 5.49% (c)
Portfolio turnover rate 8.89% 18.66% 2.07%
(a) Excludes maximum sales load of 4.5%.
(b) Total return is not annualized, as it may not be representative of the total
return for the year
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
17
<PAGE>
ADDITIONAL INFORMATION ABOUT THE PLAN
TERMS OF THE REORGANIZATIONS
The terms and conditions under which the Reorganizations may be
consummated are set forth in the Plan. Significant provisions of the Plan are
summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix I to this Proxy
Statement/Prospectus.
THE REORGANIZATIONS
The Plan provides for an amendment to the Articles of Incorporation of
Stratus Fund providing that each issued and outstanding share of the Acquired
Portfolios will be reclassified and change into a share of the respective
Acquiring Portfolio with which it will combine. Consummation of each
Reorganization (the "Closing") is expected to occur on [MAY 26, 2000], at 5:00
p.m. Central Time (the "Effective Time") on the basis of values calculated as of
the close of regular trading on the NYSE on that business day.
At the Effective Time, all of the assets of CAPITAL APPRECIATION PORTFOLIO
shall be credited by the Custodian to the account of GROWTH PORTFOLIO in
exchange for the assumption by GROWTH PORTFOLIO of all of the liabilities of any
kind of CAPITAL APPRECIATION PORTFOLIO and delivery by Stratus Fund directly to
(i) the CAPITAL APPRECIATION Retail Class A shareholders of a number of GROWTH
PORTFOLIO Retail Class A shares (including, if applicable, fractional shares
rounded to the nearest thousandth) and to (ii) the CAPITAL APPRECIATION
PORTFOLIO Institutional Class shareholders of a number of GROWTH PORTFOLIO
Institutional Class shares (including, if applicable, fractional shares rounded
to the nearest thousandth) having an aggregate net asset value equal to the net
value of the assets of CAPITAL APPRECIATION PORTFOLIO so transferred, assigned
and delivered.
At the Effective Time, all of the assets of INTERMEDIATE GOVERNMENT BOND
PORTFOLIO shall be credited by the Custodian to the account of GOVERNMENT
SECURITIES PORTFOLIO in exchange for the assumption by GOVERNMENT SECURITIES
PORTFOLIO of all of the liabilities of any kind of INTERMEDIATE GOVERNMENT BOND
PORTFOLIO and delivery by Stratus Fund directly to (i) the INTERMEDIATE
GOVERNMENT BOND PORTFOLIO Retail Class A shareholders of a number of GOVERNMENT
SECURITIES PORTFOLIO Retail Class A shares (including, if applicable, fractional
shares rounded to the nearest thousandth), and to (ii) the INTERMEDIATE
GOVERNMENT BOND PORTFOLIO Institutional Class shareholders of a number of
GOVERNMENT SECURITIES PORTFOLIO Institutional Class shares (including, if
applicable, fractional shares rounded to the nearest thousandth) having an
aggregate net asset value equal to the net value of the assets of INTERMEDIATE
GOVERNMENT BOND PORTFOLIO so transferred, assigned and delivered.
Consummation of the Reorganization of CAPITAL APPRECIATION PORTFOLIO is
not conditioned upon consummation of the Reorganization of INTERMEDIATE
GOVERNMENT BOND PORTFOLIO, and consummation of the Reorganization of
INTERMEDIATE GOVERNMENT BOND PORTFOLIO is not conditioned upon consummation of
the Reorganization of CAPITAL APPRECIATION PORTFOLIO.
18
<PAGE>
BOARD CONSIDERATIONS
The Board of Directors of Stratus Fund has determined that the
Reorganizations of the Acquired Portfolios are in the best interests of the
shareholders of each of the Acquired Portfolios, and recommended approval of the
Plan by the shareholders of the Acquired Portfolios at the Special Meeting. A
summary of the information that was presented to, and considered by, the Board
of Directors in making their determination is provided below.
At a meeting of the Board of Directors held on March 21, 2000, the Adviser
proposed that the Board of Directors approve the Reorganizations of the Acquired
Portfolios into the Acquiring Portfolios. The Directors received from the
Adviser written materials that contained information concerning the Acquired
Portfolios and the Acquiring Portfolios, including comparative total return and
fee and expense information and a comparison of the investment objectives of the
Acquired Portfolios and the Acquiring Portfolios.
In considering the Reorganizations, the Board of Directors noted that
CAPITAL APPRECIATION PORTFOLIO and GROWTH PORTFOLIO have similar investment
objectives and strategies, as do INTERMEDIATE GOVERNMENT BOND PORTFOLIO and
GOVERNMENT SECURITIES PORTFOLIO. The Board of Directors also noted that the
expense ratios of the Acquired Portfolios are higher than the expense ratios of
the Acquiring Portfolios, as shown below.
<TABLE>
<CAPTION>
Comparative Operating Expenses At June 30, 1999
Growth Portfolio Capital Appreciation Portfolio
---------------- ------------------------------
Retail Class A Institutional Retail Class A Institutional
Shares Class Shares Shares Class Shares
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
Total Expense Ratio 1.55% 1.05% 2.45% 1.95%
Government Securities Portfolio Intermediate Government Bond Portfolio
------------------------------- --------------------------------------
Retail Class A Institutional Retail Class A Institutional
Shares Class Shares Shares Class Shares
------ ------------ ------ ------------
Total Expense Ratio 1.30% .80% 1.66% 1.16%
</TABLE>
The Board of Directors also considered the performance of the Acquired
Portfolios in relation to the performance of the Acquiring Portfolios. The Board
noted that GROWTH PORTFOLIO has provided a higher return to its shareholders
than CAPITAL APPRECIATION PORTFOLIO has, and that INTERMEDIATE GOVERNMENT BOND
PORTFOLIO has provided its shareholders with a return comparable to the return
provided by GOVERNMENT SECURITIES PORTFOLIO.
19
<PAGE>
The Adviser also noted that CAPITAL APPRECIATION PORTFOLIO had about $6
million in assets, compared with $69 million in assets for GROWTH PORTFOLIO and
that it does not anticipate that there will be any significant growth in the
assets of Capital Appreciation Portfolio. The Adviser further indicated that
GROWTH PORTFOLIO'S superior historic performance and lower expense ratios make
GROWTH PORTFOLIO a potentially better investment for shareholders than CAPITAL
APPRECIATION PORTFOLIO. The Reorganization of CAPITAL APPRECIATION PORTFOLIO
into GROWTH PORTFOLIO would benefit shareholders by lowering the expense ratios
for shareholders of CAPITAL APPRECIATION PORTFOLIO without imposing any tax
consequences. The Board discussed these matters and agreed that the impact of
the Reorganization of CAPITAL APPRECIATION PORTFOLIO into GROWTH PORTFOLIO on
shareholders was favorable in general. The Adviser noted that the expenses
incurred by CAPITAL APPRECIATION PORTFOLIO in connection with the Reorganization
would be offset by lower management fees and total expenses after the
Reorganization.
The Adviser reported that INTERMEDIATE GOVERNMENT BOND PORTFOLIO'S assets
totaled about $2 million, compared with $32 million for GOVERNMENT SECURITIES
PORTFOLIO, and that it does not anticipate that there will be any significant
growth in the assets of INTERMEDIATE GOVERNMENT BOND PORTFOLIO. The Adviser
indicated that GOVERNMENT SECURITIES PORTFOLIO'S performance was generally
comparable to that of INTERMEDIATE GOVERNMENT BOND PORTFOLIO and that GOVERNMENT
SECURITIES PORTFOLIO had generally lower expense ratios. The Adviser explained
that the Reorganization would result in lost revenues for Union Bank, since the
Adviser would receive lower management fees on the assets presently held by
INTERMEDIATE GOVERNMENT BOND. The Board agreed that the impact of the
Reorganization of INTERMEDIATE GOVERNMENT BOND PORTFOLIO on shareholders was
favorable in general. The Adviser noted that the expenses incurred by
INTERMEDIATE GOVERNMENT BOND PORTFOLIO in connection with the Reorganization
would be offset by lower management fees and expenses after the Reorganization.
In addition, the Board of Directors noted that no initial sales or other
charges would be imposed on any of the shares of the Acquiring Portfolios issued
to the shareholders of the Acquired Portfolios in connection with the
Reorganizations. At the meeting, the Adviser also provided the Board of
Directors with written materials concerning the structure of the proposed
Reorganizations and the Federal tax consequences of the Reorganizations. The
Board of Directors noted that the Acquired Portfolios would be provided with an
opinion of counsel that the Reorganizations would be tax-free as to each
Acquired Portfolio and its shareholders.
Based on the foregoing, and their evaluation of the information presented
to them, the Board of Directors determined that the Reorganizations will not
dilute the interests of the shareholders of either of the Acquired Portfolios
and are in the best interest of the Shareholders of each of the Acquired
Portfolios. Therefore, the Board of Directors recommended the approval of the
Reorganizations by the shareholders of each Acquired Portfolio.
20
<PAGE>
OTHER TERMS
The Plan may be amended by Stratus Fund without shareholder approval. If
any amendment is made to the Plan which effects a material change to the Plan
and the Reorganizations, such change will be submitted to the affected
shareholders for their approval.
The Plan contains provisions that are customary in matters such as the
Reorganizations. Under the Plan, the Acquired Portfolios and Acquiring
Portfolios are subject to various conditions, including the following: (a) the
assets of the Acquired Portfolio to be acquired by the Acquiring Portfolio with
which it will be combined shall constitute at least 90% of the fair market value
of the net assets and at least 70% of the fair market value of the gross assets
held by each of the Acquired Portfolios immediately prior to the
Reorganizations; (b) Stratus Fund's Registration Statement on Form N-14 under
the Securities Act of 1933 (the "1933 Act") shall have been filed with the SEC
and such Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have been
issued, and no proceeding for that purpose shall have been initiated or
threatened by the SEC (and not withdrawn or terminated); (c) the shareholders of
the Acquired Portfolio shall have approved the Plan, and (d) Stratus Fund shall
have received an opinion from Ballard Spahr Andrews & Ingersoll, LLP, that the
Reorganizations will not result in the recognition of gain or loss for Federal
income tax purposes for the Acquired Portfolio, the Acquiring Portfolio or their
shareholders.
The Acquired Portfolios and the Acquiring Portfolios will each bear their
own expenses in connection with the Reorganizations.
The Plan may be terminated and the Reorganizations may be abandoned by
Stratus Fund at any time in the event that the Acquired Portfolios shareholders
do not approve the Plan or if the Board of Directors determines that proceeding
with the Reorganizations would be inadvisable.
FEDERAL TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganizations and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and judicial decisions, all of which are subject to
change. The principal Federal income tax consequences that are expected to
result from the Reorganizations, under currently applicable law, are as follows:
o the Reorganizations will each qualify as a "reorganization"
within the meaning of Section 368(a) of the Code;
o no gain or loss will be recognized by each Acquired Portfolio
upon the transfer of its assets to an Acquiring Portfolio in
exchange for shares of the Acquiring Portfolio and the Acquiring
Portfolio's assumption of the Acquired Portfolio's liabilities;
21
<PAGE>
o no gain or loss will be recognized by any shareholder of an
Acquired Portfolio upon the exchange of shares of an Acquired
Portfolio solely for shares of an Acquiring Portfolio;
o the tax basis of the shares of an Acquiring Portfolio to be
received by a shareholder of an Acquired Portfolio will be the
same as the tax basis of the shares of the Acquired Portfolio
surrendered in exchange therefor;
o the holding period of the shares of an Acquiring Portfolio to be
received by a shareholder of an Acquired Portfolio will include
the holding period for which such shareholder held the shares of
the Acquired Portfolio exchanged therefor, provided that such
shares of the Acquired Portfolio are capital assets in the hands
of such shareholder as of the Closing;
o no gain or loss will be recognized by an Acquiring Portfolio on
the receipt of assets of an Acquired Portfolio in exchange for
shares of the Acquiring Portfolio and the Acquiring Portfolio's
assumption of the Acquired Portfolio's liabilities;
o the tax basis of the assets of each Acquired Portfolio in the
hands of an Acquiring Portfolio will be the same as the tax basis
of such assets in the hands of the Acquired Portfolio immediately
prior to the Reorganization; and
o the holding period of the assets of an Acquired Portfolio to be
received by each Acquiring Portfolio will include the holding
period of such assets in the hands of the Acquired Portfolio
immediately prior to the Reorganization.
As a condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will
render an opinion to Stratus Fund as to the foregoing Federal income tax
consequences of the Reorganizations, which opinion will be conditioned upon the
accuracy, as of the date of Closing, of certain representations of Stratus Fund
upon which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering its
opinion, which representations include, but are not limited to, the following
(taking into account for purposes thereof any events that are part of the plan
of reorganization):
o there is no plan or intention by the shareholders of the Acquired
Portfolios to redeem a number of shares of the Acquiring
Portfolios received in the Reorganizations that would reduce an
Acquired Portfolio shareholders' ownership of Acquiring Portfolio
shares to a number of shares having a value, as of the Closing
Date, of less than 50% of the value of all of the formerly
outstanding shares of the respective Acquired Portfolio as of the
Closing Date;
o following the Reorganizations, each Acquiring Portfolio will
continue the historic business of the respective Acquired
Portfolio (for this purpose "historic business" shall mean the
business most recently conducted by each Acquired Portfolio which
22
<PAGE>
was not entered into in connection with the Reorganizations) or
use a significant portion of such Acquired Portfolio's historic
business assets in its business;
o at the direction of the Acquired Portfolios, the Acquiring
Portfolios will issue directly to each Acquired Portfolio's
shareholders pro rata the shares of the Acquiring Portfolio that
each respective Acquired Portfolio constructively receives in the
Reorganization and each Acquired Portfolio will distribute its
other properties (if any) to its shareholders on, or as promptly
as practicable after, the Closing;
o the Acquiring Portfolios have no plan or intention to reacquire
any of their shares issued in the Reorganizations, except to the
extent that the Acquiring Portfolios are required by the
Investment Company Act of 1940 (the "1940 Act") to redeem any of
their shares presented for redemption;
o the Acquiring Portfolios do not plan or intend to sell or
otherwise dispose of any of the assets of the Acquired Portfolios
acquired in the Reorganizations, except for dispositions made in
the ordinary course of their business or dispositions necessary
to maintain their status as a "regulated investment company"
("RIC") under the Code;
o the Acquiring Portfolios, the Acquired Portfolios and the
shareholders of the Acquired Portfolios will pay their respective
expenses, if any, incurred in connection with the
Reorganizations;
o each Acquiring Portfolio will acquire at least 90 percent of the
fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, held by each respective
Acquired Portfolio immediately before the Reorganizations,
including for this purpose any amounts used by each Acquired
Portfolio to pay its reorganization expenses and all redemptions
and distributions made by the Acquired Portfolio immediately
before the Reorganizations (other than redemptions pursuant to a
demand of a shareholder in the ordinary course of the Acquired
Portfolio's business as an open-end diversified management
investment company under the 1940 Act and regular, normal
dividends not in excess of the requirements of Section 852 of the
Code); and
o the Acquiring Portfolios and the Acquired Portfolios have each
elected to be taxed as a RIC under Section 851 of the Code and
will each have qualified for the special Federal tax treatment
afforded RICs under the Code for all taxable periods (including
the last short taxable period of the Acquired Portfolios ending
on the Closing and the taxable year of the Acquiring Portfolios
that includes the Closing).
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATIONS IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF THE ACQUIRED PORTFOLIOS. THE ACQUIRED PORTFOLIOS
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
23
<PAGE>
ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE REORGANIZATIONS,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
ACCOUNTING TREATMENT
The Reorganizations will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to the Acquiring Portfolios of the assets of
the Acquired Portfolios will be the same as the book cost basis of such assets
to the Acquired Portfolios.
OWNERSHIP OF THE ACQUIRING PORTFOLIOS AND THE
ACQUIRED PORTFOLIOS SHARES
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who
as of [____________ __, 2000], to the knowledge of AIF, owned beneficially 5% or
more of any class of the outstanding shares of the Acquired Portfolios:
CAPITAL APPRECIATION PORTFOLIO
Percent
Class of Number of Shares Beneficial
Name and Address Shares Owned Ownership
- ---------------- -------- ---------------- -----------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Percent
Class of Number of Shares Beneficial
Name and Address Shares Owned Ownership
- ---------------- -------- ---------------- -----------
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<PAGE>
Listed below is the name, address and percent ownership of each person who
as of [_____________ __, 2000] to the knowledge of AIMF, owned beneficially 5%
or more of the outstanding shares of the Acquiring Portfolios:
GROWTH PORTFOLIO
Number Percent
Class of of Shares Beneficial
Name and Address Shares Owned Ownership
- ---------------- -------- ---------------- -----------
GOVERNMENT SECURITIES PORTFOLIO
Number Percent
Class of of Shares Beneficial
Name and Address Shares Owned Ownership
- ---------------- -------- ---------------- -----------
OWNERSHIP OF OFFICERS AND DIRECTORS/TRUSTEES
To the best of the knowledge of Stratus Fund, the beneficial ownership of
shares of the Acquiring Portfolios by officers and directors of Stratus Fund as
a group constituted less than 1% of the outstanding shares of each such fund as
of [____________ __, 2000].
CAPITALIZATION
The following table sets forth as of December 31, 1999, (i) the
capitalization of the Acquiring Portfolios' Retail Class A shares and the
Acquiring Portfolios Institutional Class shares, and (ii) the capitalization of
the Acquired Portfolios' Retail Class A and Institutional Class shares. The
table also shows the capitalization of the Acquiring Portfolios' Retail Class A
and Institutional Class Shares on a combined pro forma basis after the
Reorganizations.
25
<PAGE>
<TABLE>
<CAPTION>
GROWTH PORTFOLIO AND CAPITAL APPRECIATION PORTFOLIO
Pro Forma
Capital Appreciation Growth Portfolio
Growth Portfolio Portfolio Retail Class A Shares
Retail Class A Shares Retail Class A Shares as Adjusted
--------------------- --------------------- -----------
<S> <C> <C> <C>
Net Assets $1,507,130 $192,457 $1,699,587
Shares Outstanding 81,490 13,873 91,919
Net Asset Value Per Share $18.49 $13.87 $18.49
Pro Forma
Growth Portfolio Capital Appreciation Growth Portfolio
Institutional Portfolio Institutional Institutional Class
Class Shares Class Shares Shares as Adjusted
------------ ------------ ------------------
Net Assets $67,833,437 $5,910,952 $73,744,389
Shares Outstanding 3,660,223 424,020 3,979,730
Net Asset Value Per Share $18.53 $13.94 $18.53
GOVERNMENT SECURITIES PORTFOLIO AND INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Pro Forma
Intermediate Government Securities
Government Securities Government Bond Portfolio
Portfolio Portfolio Retail Retail Class A
Retail Class A Shares Class A Shares Shares as Adjusted
--------------------- -------------- ------------------
Net Assets $210,027 $14,316 $224,343
Shares Outstanding 21,741 1,378 23,244
Net Asset Value Per Share $9.66 $10.39 $9.66
Pro Forma
Government Securities
Government Securities Intermediate Portfolio
Portfolio Government Bond Institutional
Institutional Portfolio Institutional Class Shares
Class Shares Class Shares as Adjusted
------------ ------------ -----------
Net Assets $31,451,572 $2,225,025 $33,676,597
Shares Outstanding 3,254,961 214,113 3,486,190
Net Asset Value Per Share $9.66 $10.39 $9.66
</TABLE>
LEGAL MATTERS
Certain legal matters concerning Stratus Fund and its participation in the
Reorganizations, the issuance of shares of the Acquiring Portfolios in
connection with the Reorganizations and the tax consequences of the
Reorganizations will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP,
1735 Market Street, 51st Floor, Philadelphia, PA 19103-7599.
INFORMATION FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual and semi-annual reports
which Stratus Fund has filed with the SEC pursuant to the requirements of the
1933 Act and the 1940 Act, to which reference is hereby made. The SEC file
number for Stratus Fund's registration statement containing the Prospectus and
Statement of Additional Information relating to the Acquired Portfolios is
Registration No. 811-6259. Such Prospectus and Statement of Additional
Information are incorporated herein by reference.
Stratus Fund is subject to the informational requirements of the 1940 Act
and in accordance therewith files reports and other information with the SEC.
Reports, proxy statements, registration statements and other information filed
by Stratus Fund (including the Registration Statement of Stratus Fund relating
to the Acquiring Portfolios on Form N-14 of which this Proxy
Statement/Prospectus is a part and which is hereby incorporated by reference)
may be inspected without charge and copied at the public reference facilities
maintained by the SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW,
Washington, DC 20549, and at the following regional offices of the SEC: 7 World
Trade Center, New York, New York 10048; and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a Web site at
http://www.sec.gov that contains information regarding AIMF, AIF and other
registrants that file electronically with the SEC.
ADDITIONAL INFORMATION ABOUT THE ACQUIRING PORTFOLIOS AND
THE ACQUIRED PORTFOLIOS
For more information with respect to Stratus Fund and the Acquiring
Portfolios and Acquired Portfolios concerning the following topics, please refer
to the Acquiring Portfolios and Acquired Portfolios Prospectuses as indicated:
(i) see "Introduction and Fund Summary," for further information regarding
Stratus Fund and the Acquiring Portfolios and Acquired Portfolios; (ii) see
"Introduction and Fund Summary," "More Information about Investment Objectives
and Strategies," "More Information About Risk," "Each Portfolios Other
Investments," and "Fund Management" for further information regarding management
of the Acquiring Portfolios and the Acquired Portfolios; (iii) see "Introduction
and Fund Summary," "Shareholder Information," "Fund Distribution,"
26
<PAGE>
"Dividends and Capital Gain Distributions," and "Tax Consequences" for further
information regarding the capital stock of the Acquiring Portfolios and the
Acquired Portfolios; and (iv) see "Shareholder Information," and "Fund
Distribution" for further information regarding the purchase, redemption and
repurchase of Acquiring Portfolios shares.
27
<PAGE>
APPENDIX I
PLAN OF RECLASSIFICATION
for
CAPITAL APPRECIATION PORTFOLIO AND
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Investment Portfolios of
Stratus Fund, Inc.
This Plan of Reclassification provides for the reclassification of the
shares of Capital Appreciation Portfolio ("Capital Appreciation") and
Intermediate Government Bond Portfolio ("Intermediate Government Bond"),
investment portfolios of Stratus Fund, Inc. ("Stratus Fund"), as shares of
Growth Portfolio ("Growth") and Government Securities Portfolio ("Government
Securities"), also investment portfolios of Stratus Fund.
WHEREAS, Stratus Fund is a Minnesota corporation and a registered
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, Capital Appreciation, Growth, Intermediate Government Bond and
Government Securities are each investment portfolios of Stratus Fund
representing separate series of shares of the capital stock of Stratus Fund;
WHEREAS, the Board of Directors of Stratus Fund has determined that it
would be in the best interests of the Capital Appreciation and Intermediate
Government Bond shareholders to reorganize Capital Appreciation and Intermediate
Government Bond by reclassifying the shares of Capital Appreciation and
Intermediate Government Bond as Growth shares and Government Securities shares,
respectively, pursuant to an amendment to the Articles of Incorporation of
Stratus Fund, all in the manner described below.
NOW, THEREFORE, Capital Appreciation and Intermediate Government Bond
shall be reorganized into Growth and Government Securities, respectively, on the
following terms and conditions.
1. PLAN OF REORGANIZATION.
(a) RECLASSIFICATION OF SHARES. At the Effective Time described in
Section 3 below:
(i) all of the issued and outstanding Retail Class A
shares of Capital Appreciation shall be reclassified and changed
into and become Retail Class A shares of Growth based upon their
respective net asset values, and thereafter shall have the
attributes of Retail Class A shares of Growth;
(ii) all of the issued and outstanding Institutional
Class shares of Capital Appreciation shall be reclassified and
changed into and become
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<PAGE>
Institutional Class shares of Growth based upon their respective
net asset values, and thereafter shall have the attributes of
Institutional Class shares of Growth;
(iii) all of the issued and outstanding Retail Class A
shares of Intermediate Government Bond shall be reclassified and
changed into and become Retail Class A shares of Government
Securities based upon their respective net asset values, and
thereafter shall have the attributes of Retail Class A shares of
Government Securities; and
(iv) all of the issued and outstanding Institutional Class
shares of Intermediate Government Bond shall be reclassified and
changed into and become Institutional Class shares of Government
Securities based upon their respective net asset values, and
thereafter shall have the attributes of Institutional Class
shares of Government Securities.
All authorized but unissued shares of Capital Appreciation and
Intermediate Government Bond shall be reclassified as authorized
shares of Stratus Fund without further designation or
classification. The stock transfer books of Capital Appreciation
and Intermediate Government Bond will be permanently closed at
the Effective Time and only requests for the redemption of shares
of Capital Appreciation and Intermediate Government Bond received
in proper form prior to the close of trading on the New York
Stock Exchange on the date of the Effective Time shall be
accepted. Thereafter, redemption requests received by Capital
Appreciation and Intermediate Government Bond shall be deemed to
be redemption requests for the Growth and Government Securities
shares into which such Capital Appreciation and Intermediate
Government Bond shares were reclassified under this Plan of
Reclassification.
(b) ATTRIBUTION OF ASSETS AND LIABILITIES. At the Effective
Time described in Section 3 below:
(i) the proportionate undivided interest in the net assets
of Capital Appreciation attributable to its Retail Class A shares
shall become a part of the proportionate undivided interest in
the net assets of Growth attributable to its Retail Class A
shares, and the expenses, costs, charges and reserves allocated
to the Retail Class A shares of Capital Appreciation immediately
prior to the Effective Time shall become expenses, costs, charges
and reserves of Retail Class A shares of Growth;
(ii) the proportionate undivided interest in the net
assets of Capital Appreciation attributable to its Institutional
Class shares shall become a part of the proportionate undivided
interest in the net assets of Growth attributable to its
Institutional Class shares, and the expenses, costs, charges and
reserves allocated to the Institutional Class shares of Capital
Appreciation immediately prior to the
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2
<PAGE>
Effective Time shall become expenses, costs, charges and reserves
of Institutional Class shares of Growth;
(iii) the proportionate undivided interest in the net
assets of Intermediate Government Bond attributable to its Retail
Class A shares shall become a part of the proportionate undivided
interest in the net assets of Government Securities attributable
its Retail Class A shares, and the expenses, costs, charges and
reserves allocated to the Retail Class A shares of Intermediate
Government Bond immediately prior to the Effective Time shall
become expenses, costs, charges and reserves of Retail Class A
shares of Government Securities; and
(iv) the proportionate undivided interest in the net
assets of Intermediate Government Bond attributable to its
Institutional Class shares shall become a part of the
proportionate undivided interest in the net assets of Government
Securities attributable to its Institutional Class shares, and
the expenses, costs, charges and reserves allocated to the
Institutional Class shares of Intermediate Government Bond
immediately prior to the Effective Time shall become expenses,
costs, charges and reserves of Institutional Class shares of
Government Securities.
Stratus Fund shall instruct its custodian to reflect in the custodian's
records for Growth and Government Securities the attribution of the
assets of Capital Appreciation and Intermediate Government Bond,
respectively, in the manner described above. Additionally, the books and
records of Capital Appreciation and Intermediate Government Bond will
become the books and records of Growth and Government Securities,
respectively, upon reclassification of the Capital Appreciation and
Intermediate Government Bond shares.
(c) SHAREHOLDER ACCOUNTS. At the Effective Time described in
Section 3 below:
(i) each shareholder of record of Retail Class A shares of
Capital Appreciation will receive that number of Retail Class A
shares of Growth having an aggregate net asset value equal to the
aggregate net asset value of the Retail Class A shares of Capital
Appreciation held by such shareholder immediately prior to the
Effective Time;
(ii) each shareholder of record of Institutional Class
shares of Capital Appreciation will receive that number of
Institutional Class shares of Growth having an aggregate net
asset value equal to the aggregate net asset value of the
Institutional Class shares of Capital Appreciation held by such
shareholder immediately prior to the Effective Time;
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<PAGE>
(iii) each shareholder of record of Retail Class A shares
of Intermediate Government Bond will receive a number of Retail
Class A shares of Government Securities having an aggregate net
asset value equal to the aggregate net asset value of the Retail
Class A shares of Intermediate Government Bond held by such
shareholder immediately prior to the Effective Time; and
(iv) each shareholder of record of Institutional Class
shares of Intermediate Government Bond will receive a number of
Institutional Class shares of Government Securities having an
aggregate net asset value equal to the aggregate net asset value
of the Institutional Class shares of Intermediate Government Bond
held by such shareholder immediately prior to the Effective Time.
Stratus Fund's transfer agent will establish an open account on the records of
Growth and Government Securities in the name of each shareholder of Capital
Appreciation and Intermediate Government Bond to which will be credited the
respective number of shares of Growth and Government Securities due such
shareholder. Fractional shares of Growth and Government Securities will be
carried to the third decimal place. Certificates representing shares of Growth
and Government Securities will not be issued. The net asset value of the shares
of Capital Appreciation and Growth and Intermediate Government Bond and
Government Securities will be determined at the Effective Time in accordance
with the policies and procedures of Stratus Fund.
2. AMENDMENT TO ARTICLES. Stratus Fund shall effect the reclassification
of Capital Appreciation and Intermediate Government Bond by amending its
Articles of Incorporation to provide for the reclassification of Retail Class A
and Institutional Class shares of Capital Appreciation and Intermediate
Government Bond as Retail Class A and Institutional Class shares of Growth and
Government Securities, respectively, based upon their respective net asset
values in the manner provided in paragraph 1.
3. EFFECTIVE TIME OF THE RECLASSIFICATION. The reclassification of
Capital Appreciation contemplated by this Plan of Reclassification shall occur
on May 26, 2000 at 5:00 p.m. Eastern Time, or such later date and time as the
officers of Stratus Fund shall determine (the "Effective Time").
4. APPROVAL OF SHAREHOLDERS. A meeting of the holders of Capital
Appreciation shares and Intermediate Government Bond shares shall be duly called
and constituted for the purpose of acting upon this Plan of Reclassification and
the transactions contemplated herein, including approval of the amendment to the
Articles of Incorporation of Stratus Fund described above. Approval by such
shareholders of this Plan of Reclassification shall authorize Stratus Fund to
take the actions required to effect the Plan of Reclassification.
5. CONDITIONS PRECEDENT. Stratus Fund will consummate the Plan of
Reclassification only after satisfaction of each of the following conditions:
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4
<PAGE>
(a) The amendment to the Articles of Incorporation of Stratus
Fund described in paragraph 2 shall have been filed with the Minnesota Secretary
of State specifying the Effective Time as the effective date thereof.
(b) All consents, approvals, permits and authorizations required
to be obtained from governmental authorities, including the Securities and
Exchange Commission and state securities commissions, to permit the parties to
carry out the transactions contemplated by this Plan of Recapitalization shall
have been received.
(c) This Plan of Reclassification, the amendment to the Articles
of Incorporation and related corporate matters shall have been approved by the
shareholders of Capital Appreciation and Intermediate Government Bond at a
special meeting by the affirmative vote of a majority of the total number of
votes entitled to be cast.
(d) The assets of Capital Appreciation to be acquired by Growth
shall constitute at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by Capital
Appreciation immediately prior to the reclassification and the assets of
Intermediate Government Bond to be acquired by Government Securities shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Intermediate Government
Bond immediately prior to the reclassification. For purposes of this paragraph
5(d), assets used by Capital Appreciation or Intermediate Government Bond to pay
the expenses incurred by them in connection with this Plan of Reclassification
and to effect all shareholder redemptions and distributions (other than regular,
normal dividends and regular, normal redemptions pursuant to the 1940 Act, and
not in excess of the requirements of Section 852 of the Code, occurring in the
ordinary course of Capital Appreciation's or Intermediate Government Bond's
business as a series of an open-end management investment company) after the
date of this Plan of Reclassification shall be included as assets of Capital
Appreciation or Intermediate Government Bond, as the case may be, held
immediately prior to the reclassification.
(e) The dividend or dividends described in the last sentence of
paragraph 6(a) shall have been declared.
(f) Stratus Fund shall have received an opinion of Ballard Spahr
Andrews & Ingersoll, LLP ("BSA&I") to the effect that consummation of the
transactions contemplated by this Plan of Reclassification will constitute a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code (the "Code"), and that the shareholders of Capital Appreciation or
Intermediate Government Bond will recognize no gain or loss to the extent that
they receive shares of Growth or Government Securities in exchange for their
shares of Capital Appreciation and Intermediate Government Bond in accordance
with this Plan of Reclassification. In rendering such opinion, BSA&I may request
and rely upon representations contained in certificates of officers of Stratus
Fund and others, and the officers of Stratus Fund shall use their best efforts
to make available such truthful certificates.
3/20/00
5
<PAGE>
(g) Stratus Fund shall have received an opinion of BSA&I, dated
as of the Effective Time, addressed to and in form and substance satisfactory to
Stratus Fund, to the effect that this Plan of Reclassification has been duly
authorized and approved by all requisite action of Stratus Fund and the holders
of the shares of Capital Appreciation and Intermediate Government Bond.
At any time prior to the Effective Time, any of the foregoing conditions
may be waived by Stratus Fund if, in the judgment of its Board of Directors,
such waiver will not have a material adverse effect on the benefits intended
under this Plan of Reclassification for the Capital Appreciation and
Intermediate Government Bond shareholders.
6. CAPITAL APPRECIATION TAX MATTERS.
(a) Capital Appreciation and Intermediate Government Bond have
each elected to be a regulated investment company under Subchapter M of the
Code. Capital Appreciation and Intermediate Government Bond have qualified as
such for each taxable year since inception and that has ended prior to the
Effective Time and will have satisfied the requirements of Part I of Subchapter
M of the Code to maintain such qualification for the period beginning on the
first day of their respective current taxable years and ending at the Effective
Time. Capital Appreciation and Intermediate Government Bond have no earnings and
profits accumulated in any taxable year in which the provisions of Subchapter M
of the Code did not apply to them. In order to (i) insure continued
qualification of Capital Appreciation and Intermediate Government Bond as
"regulated investment companies" for tax purposes and (ii) eliminate any tax
liability of Capital Appreciation and Intermediate Government Bond arising by
reason of undistributed investment company taxable income or net capital gain,
Capital Appreciation and Intermediate Government Bond will declare on or prior
to the Effective Time to the shareholders of Capital Appreciation and
Intermediate Government Bond, respectively, a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Capital Appreciation's and Intermediate Government Bond's investment
company taxable income (determined without regard to any deductions for
dividends paid) for the taxable year ended December 31, 1999 and for the short
taxable year beginning on January 1, 2000 and ending at the Effective Time and
(B) all of Capital Appreciation's and Intermediate Government Bond's net capital
gain recognized in their respective taxable years ended December 31, 1999 and in
such short taxable year (after reduction for any capital loss carryover).
(b) Capital Appreciation and Intermediate Government Bond have
timely filed all tax returns required to be filed by them and all taxes with
respect thereto have been paid. No deficiencies for any taxes have been
proposed, assessed or asserted in writing by any taxing authority against
Capital Appreciation or Intermediate Government Bond, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a material
adverse effect on the condition, financial or otherwise, property, assets or
prospects of Capital Appreciation or Intermediate Government Bond.
3/20/00
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(c) The respective fiscal years of Capital Appreciation and
Intermediate Government Bond have not been changed for tax purposes since the
date on which they commenced operations.
7. GROWTH AND GOVERNMENT SECURITIES TAX MATTERS.
(a) Growth and Government Securities have each elected to be
treated as a regulated investment companies under Subchapter M of the Code and
have each qualified as such for each taxable year since inception that has ended
prior to the Effective Time and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for their current
taxable years. Growth and Government Securities have no earnings or profits
accumulated in any taxable year in which the provisions of Subchapter M of the
Code did not apply to them.
(b) Growth and Government Securities have timely filed all
returns required to be filed by them and all taxes with respect thereto have
been paid. No deficiencies for any taxes have been proposed, assessed or
asserted in writing by any taxing authority against Growth or Government
Securities, and no deficiency has been proposed, assessed or asserted, in
writing, where such deficiency would reasonably be expected, individually or in
the aggregate, to have a material adverse effect on the condition, financial or
otherwise, property, assets or prospects of Growth or Government Securities.
(c) The respective fiscal years of Growth and Government
Securities have not been changed for tax purposes since the date on which they
commenced operations.
8. TRANSACTIONS INDEPENDENT. Consummation of the reclassification of
Capital Appreciation under this Plan of Reclassification is not conditioned upon
consummation of the reclassification of Intermediate Government Bond under this
Plan of Reclassification, and consummation of the reclassification of
Intermediate Government Bond is not conditioned upon consummation of the
reclassification of Capital Appreciation. Accordingly, the occurrence or
non-occurrence of an event that would result in any of the conditions precedent
to the Reclassification of Capital Appreciation not being satisfied will not
affect consummation of the reclassification of Intermediate Government Bond
(assuming that all of the conditions precedent to such reclassification had been
satisfied), and the occurrence or non-occurrence of an event that would result
in any of the conditions precedent to the reclassification of Intermediate
Government Bond not being satisfied will not affect consummation of the
reclassification of Capital Appreciation (assuming that all of the conditions
precedent to such reclassification had been satisfied).
9. TERMINATION. Stratus Fund may terminate this Plan of Reclassification
with the approval of its Board of Directors at any time prior to the Effective
Time, notwithstanding approval thereof by Capital Appreciation or Intermediate
Government Bond shareholders if, in the judgment of the Board, proceeding with
the Plan of Reclassification would be inadvisable. In
3/20/00
7
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addition, the Board may terminate this Plan of Reclassification with respect to
either Capital Appreciation or Intermediate Government Bond individually,
without terminating the Plan of Reclassification with respect to the other
portfolio.
10. FURTHER ASSURANCES. Stratus Fund shall take such further action as
may be necessary or desirable and proper to consummate the transactions
contemplated hereby.
11. EXPENSES. Capital Appreciation, Intermediate Government Bond, Growth
and Government Securities shall each bear any expenses it incurs in connection
with this Plan of Reclassification and the transactions contemplated hereby.
This Plan of Reclassification was approved and adopted by the Board of
Directors of Stratus Fund on the 21st day of March, 2000.
3/20/00
8
<PAGE>
APPENDIX II
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
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TABLE OF CONTENTS
Introduction and Fund Summary.................................................3
More Information About Investment Objectives and Strategies..................20
More Information About Risk..................................................25
Each Portfolio's Other Investments...........................................28
Shareholder Information......................................................29
Fund Distribution............................................................33
Dividends and Capital Gains Distributions....................................35
Tax Consequences.............................................................36
Fund Management..............................................................36
Financial Highlights.........................................................38
2
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INTRODUCTION AND FUND SUMMARY
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.
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 Intermediate Government Bond Portfolio is subject to the following principal
investment risks any one of which could cause you to lose money:
o INTEREST RATE CHANGES. Interest rate increases can cause the price of
a debt security to decrease.
3
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o PREPAYMENT RISK. If during periods of falling interest rates an issuer
of a debt security held by the Portfolio repays a higher yielding bond
before its maturity date, the Portfolio will reinvest these
unanticipated proceeds at lower rates. As a result the Portfolio would
experience a decline in income and lose the opportunity for additional
price appreciation associated with falling interest rates.
o U.S. GOVERNMENT SECURITIES RISK. 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.
o ISSUER-SPECIFIC RISK. The value of an individual issuer's security can
be more volatile than the market as a whole and can perform
differently than the market as a whole.
o INCOME RISK. Falling interest rates will cause the portfolio's income
to decline.
o CREDIT RISK. If the issuer of a debt security fails to pay interest or
principal in a timely manner, the Portfolio's return will be lower.
When you sell your shares of the Portfolio, they could be worth less than what
you paid for them.
PERFORMANCE
The following information provides some indication of the risks of investing in
the Intermediate Government Bond Portfolio by showing changes in the Portfolio's
performance from year to year and comparing the Portfolio's performance to the
performance of a broad based market index over various periods of time. Returns
are based on past results and are not necessarily an indication of future
performance.
Retail Class A shares of the Intermediate Government Bond Portfolio were first
sold to the public in January, 1998. Since that time, the Portfolio's highest
return for a quarter was 2.9% (quarter ending September 30, 1998) and the lowest
return for a quarter was 0.20% (quarter ending June 30, 1999).
The year-to-date return as of September 30, 1999 for Intermediate Government
Bond Portfolio was 1.20%.
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:
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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
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)*
Management Fees .65%
Distribution 12b-1 Fees .50%
Other Expenses .51%
----
Total Portfolio Operating Expenses 1.66%
=====
* 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 by the Portfolio to the Distributor. Although the Portfolio may
increase the payments to the Distributor to the amount shown above at any
time, such an increase is not expected during the Portfolio's current
fiscal year. With the reduced payments to the Distributor, the Portfolio's
actual total operating expenses were 1.46%.
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:
5
<PAGE>
1 Year 3 Years 5 Years 10 Years
$166 $515 $887 $1,933
6
<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 Selecting securities that will provide a high total return consistent
with the Portfolio's investment objective taking into consideration
both current income and the potential for appreciation of value.
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 any one of which could cause you to lose money:
o INTEREST RATE CHANGES. Interest rate increases can cause the price of
a debt security to decrease.
o PREPAYMENT RISK. If during periods of falling interest rates an issuer
of a debt security held by the Portfolio repays a higher yielding bond
before its maturity date, the Portfolio will reinvest these
unanticipated proceeds at lower rates. As a result the Portfolio would
experience a decline in income and lose the opportunity for additional
price appreciation associated with falling interest rates.
o ISSUER-SPECIFIC RISK. The value of an individual issuer's security can
be more volatile than the market as a whole and can perform
differently than the market as a whole. Debt obligations rated within
the lowest of the four highest debt ratings have speculative
characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weaker capacity of the
issuer to make principal and interest payments than would be the case
with higher rated securities. If after acquisition by the Portfolio, a
7
<PAGE>
change in the credit quality of a debt security causes the security to
fall below investment grade, the investment adviser will consider
selling the security if the sale will not have an adverse effect on the
portfolio.
o CREDIT RISK. If the issuer of a debt security fails to pay interest or
principal in a timely manner, the Portfolio's return will be lower.
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 less than what you
paid for them.
PERFORMANCE
The following information provides some indication of the risk of investing in
the Government Securities Portfolio by showing changes in the Portfolio's
performance from year to year and comparing the Portfolio's performance to the
performance of a broad based market index over various periods of time. Returns
are based on past results and are not an indication of future performance.
Retail Class A shares of the Government Securities Portfolio were first sold to
the public in January, 1998. Since that time, the Portfolio's highest return for
a quarter was 3.29% (quarter ending September 30, 1998) and the lowest return
for a quarter was 0.20% (quarter ending June 30, 1999).
The year-to-date return as of September 30, 1999 for Government Securities
Portfolio was 1.15%.
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:
8
<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
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)*
Management Fees .50%
Distribution 12b-1 Fees .50%
Other Expenses .30%
----
Total Portfolio Operating Expenses 1.30%
=====
* 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 by the Portfolio to the Distributor. Although the Portfolio may
increase the payments to the Distributor to the amount shown above at any
time, such an increase is not expected during the Portfolio's current
fiscal year. With the reduced payments to the Distributor, the Portfolio's
actual total operating expenses were 1.10%.
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:
9
<PAGE>
1 Year 3 Years 5 Years 10 Years
$130 $405 $700 $1,539
10
<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. The Adviser's strategies may involve
active trading in the Portfolio's securities and may result in a higher
Portfolio turnover rate.
PRINCIPAL INVESTMENT RISKS
The Growth Portfolio is subject to the following principal investment risks any
one of which could cause you to lose money:
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 issuer's security
can be more volatile than the market as a whole and can perform
differently than 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.
When you sell your shares of the Portfolio, they could be worth less than what
you paid for them.
PERFORMANCE
The following information provides some indication of the risks of investing in
the Growth Portfolio by showing changes in the Portfolio's performance from year
to year and comparing the Portfolio's performance to the performance of a broad
based market index over various
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periods of time. Returns are based on past results and are not an indication of
future performance.
Retail Class A shares of the Growth Portfolio were first sold to the public in
January, 1998. Since that time, the Portfolio's highest return for a quarter was
19.17% (quarter ending December 31, 1998) and the lowest return for a quarter
was -11.77% (quarter ending September 30, 1998).
The year-to-date return as of September 30, 1999 for Growth Portfolio was 2.66%
FEE TABLE
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Growth Portfolio:
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
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)*
Management Fees .75%
Distribution 12b-1 Fees .50%
Other Expenses .30%
----
Total Portfolio Operating Expenses 1.55%
=====
* 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 by the Portfolio to the Distributor. Although the Portfolio may
increase the payments to the Distributor to the amount shown above at any
time, such an increase is not expected during the Portfolio's current
fiscal year. With the
12
<PAGE>
reduced payments to the Distributor, the Portfolio's actual total operating
expenses were 1.35%.
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:
1 Year 3 Years 5 Years 10 Years
$155 $481 $830 $1,814
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<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 having a market capitalization
of $5 billion or less that the Adviser believes will have higher
earnings growth potential than that of the general market and have
attractive stock prices in relation to their growth potential. The
Adviser's strategy may involve active trading in the Portfolio's
securities and may result in a higher Portfolio turnover rate.
PRINCIPAL INVESTMENT RISKS
The Capital Appreciation Portfolio is subject to the following principal
investment risks any one of which could cause you to lose money:
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 issuer's security
can be more volatile than the market as a whole and can perform
differently than 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.
When you sell your shares of the Portfolio, they could be worth less than what
you paid for them.
PERFORMANCE
The following information provides some indication of the risks of investing in
the Capital Appreciation Portfolio by showing changes in the Portfolio's
performance from year to year and comparing the Portfolio's performance to the
performance of a broad based market index over various periods of time. Returns
are based on past results and are not an indication of future performance.
14
<PAGE>
Retail Class A shares of the Capital Appreciation Portfolio were first sold to
the public in January, 1998. Since that time, the Portfolio's highest return for
a quarter was 17.53% (quarter ending December 31, 1998) and the lowest return
for a quarter was -20.85% (quarter ending September 30, 1998).
The year-to-date return as of September 30, 1999 for Capital Appreciation
Portfolio was -8.40%.
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:
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 Sales Charge None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)*
Management Fees 1.40%
Distribution 12b-1 Fees .50%
Other Expenses .55%
----
Total Portfolio Operating Expenses 2.45%
=====
* 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 by the Portfolio to the Distributor. Although the Portfolio may
increase the payments to the Distributor to the amount shown above at any
time, such an increase is not expected during the Portfolio's current
fiscal year. With the
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reduced payments to the Distributor, the Portfolio's actual total operating
expenses were 1.41%.
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:
1 Year 3 Years 5 Years 10 Years
$245 $754 $1,289 $2,751
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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 Investing the remainder of its assets in investment grade debt
securities.
o Maintaining a globally diversified portfolio of equity and debt
securities that will include investments in equity and debt securities
of companies located in developing countries. In determining the
appropriate distribution of investments among various countries and
geographic regions, the Sub-Adviser will consider a variety of factors
including prospects for economic growth, expected levels of inflation,
government policies and currency relationships.
PRINCIPAL INVESTMENT RISKS
The International Portfolio is subject to the following risks any of which could
cause you to lose money:
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 issuer's security
can be more volatile than the market as a whole and can perform
differently than 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 EMERGING MARKET RISK. The Portfolio may invest up to 30% of its assets
in securities issued by foreign companies located in developing
countries in various regions of the world. Investing in developing
countries involves risk of high inflation, high sensitivity to
commodity prices and government ownership of the biggest industries in
that country. Generally, investing in developing countries involves a
higher probability of occurrence of the risks of investing in foreign
securities.
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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.
When you sell your shares of the Portfolio, they could be worth less than what
you paid for them.
PERFORMANCE
The following information provides some indication of the risks of investing in
the International Portfolio by showing changes in the International Portfolio's
performance from year to year and comparing the Portfolio's performance of a
broad based market index over various periods of time. Returns are based on past
results and are not an indication of future performance.
Retail Class A shares of the International Portfolio were first sold to the
public in January, 1998. Since that time, the Portfolio's highest return for a
quarter was 16.30% (quarter ending December 31, 1998) and the lowest return for
a quarter was -12.02% (quarter ending September 30, 1998).
The year-to-date return as of September 30, 1999 for International Portfolio was
3.83%.
FEE TABLE
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the International Portfolio:
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 Sales Charge None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee None
Exchange fee None
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)*
Management Fees 1.15%
Distribution 12b-1 Fees .50%
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Other Expenses .38%
Total Portfolio Operating Expenses 2.03%
* 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 by the Portfolio to the Distributor. Although the Portfolio may
increase the payments to the Distributor to the amount shown above at any
time, such an increase is not expected during the Portfolio's current
fiscal year. With the reduced payments to the Distributor, the Portfolio's
actual total operating expenses were 1.83%.
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:
1 Year 3 Years 5 Years 10 Years
$203 $627 $1,077 $2,324
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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.
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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.
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<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 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.
The Adviser has engaged in active trading of securities held by the
Growth Portfolio. The Portfolio's turnover rate for its last fiscal year was
194%. 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 Growth Portfolio is a fundamental policy
that may not be changed without shareholder approval
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<PAGE>
CAPITAL APPRECIATION PORTFOLIO
INVESTMENT OBJECTIVE
The Investment objective of the Capital Appreciation Portfolio is
capital appreciation.
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 109%. 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 International Portfolio currently
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<PAGE>
purchases securities of foreign issuers only if they are traded on U.S.
registered exchanges, over-the-counter markets or in the form of American
Depository Receipts ("ADRs"). The Portfolio also purchases 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.
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.
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<PAGE>
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.
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 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.
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<PAGE>
CREDIT RISK
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
Credit risk is the risk that an issuer will be unable to make timely
payments of either principal or interest. If this occurs, the Portfolios' return
could be lower.
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 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.
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<PAGE>
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.
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
27
<PAGE>
financial information available, relatively illiquid markets, and the
possibility of adverse government action.
PORTFOLIO TURNOVER RATE RISK
CAPITAL APPRECIATION PORTFOLIO
GROWTH PORTFOLIO
A higher portfolio turnover rate results in increased brokerage and
other costs and ran results in shareholders receiving distributions of capital
gains that are subject to taxation.
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.
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.
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<PAGE>
SHAREHOLDER INFORMATION
BUYING SHARES
SMITH HAYES Financial Services Corporation ("SMITH HAYES") acts as the
principal distributor of the Fund's shares. You may purchase a share at an
offering price that is the sum of the net asset value of the share 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.
6801 S. 27th
PO Box 82535
Lincoln, Nebraska 68501-2535
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.
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.
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<PAGE>
The wire should be addressed as follows:
UNION BANK AND TRUST COMPANY
Lincoln, Nebraska
Fund Department, ABA #104910795
Lincoln, Nebraska 68506 Account of STRATUS
FUND, Inc.
-----------------------------
FBO (Account Registration name)
#_____________________________
3. 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.
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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
receipt of 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.
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
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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.
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
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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 New York Stock Exchange is
closed on all National Holidays and Good Friday. 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.
Because the International Portfolio may invest in securities that are primarily
listed on foreign exchanges, the value of the International Portfolio's shares
may change on days when you will not be able to purchase or redeem shares.
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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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
- --------------------------------------------------------------------------------
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%
- --------------------------------------- -------------------- ------------------
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.
34
<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.
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
35
<PAGE>
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
Union Bank and Trust Company, 6801 S. 27th, P.O. Box 82535, Lincoln,
Nebraska 68501 serves as investment adviser to the Fund. Union Bank has been
managing the Fund since 1991 and as of June 30, 1999, had approximately $2
billion in assets under management. 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:
36
<PAGE>
Intermediate Government Bond Portfolio .65%
Government Securities Portfolio .50%
Growth Portfolio .75%
Capital Appreciation Portfolio .56%
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.
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
37
<PAGE>
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 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.
38
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO - RETAIL CLASS SHARES
Year ended June 30, 1999 and for the period from January 27,
1998 (commencement of class shares) to June 30, 1998
Period
Ended
June 30,
1999 1998
NET ASSET VALUE: ------ --------
<S> <C> <C>
Beginning of period $10.59 $10.63
------ ------
Income from investment operations:
Net investment income 0.47 0.29
Net realized and unrealized loss on investments (0.09) (0.04)
------ ------
Total income from investment operations 0.38 0.25
Less distributions:
Dividends from net investment income (0.47) 0.29
Distributions from capital gains - -
Total distributions (0.97) 0.29
------ ------
End of period $10.50 (a) $10.59 (a)
====== ======
TOTAL RETURN 3.73% (a) 1.69% (a)(b)
===== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $13,408 $29,240
Ratio of expenses to average net assets 1.46% 1.63% (c)
Ratio of net income to average net assets 4.45% 5.18%
Portfolio turnover rate - -
(a) Excludes maximum sales load of 3%.
(b) Total return is not annualized, as it may not be representative of the total
return for the year.
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
GOVERNMENT SECURITIES PORTFOLIO - RETAIL CLASS SHARES
Year ended June 30, 1999 and for the period from January 13,
1998 (commencement of class shares) to June 30, 1998
Period
Ended
June 30,
1999 1998
NET ASSET VALUE: ---- ---------
<S> <C> <C>
Beginning of period $9.89 $9.97
----- -----
Income from investment operations:
Net investment income 0.48 0.25
Net realized and unrealized loss on investments (0.09) (0.08)
------ ------
Total income from investment operations 0.39 0.17
Less distributions:
Dividends from net investment income (0.49) (0.25)
Distributions from capital gains - -
Total distributions (0.49) (0.25)
End of period $9.79 $9.89
===== =====
TOTAL RETURN 3.96% (a) 1.58% (a)(b)
===== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $167,494 $139,164
Ratio of expenses to average net assets 1.10% 1.21% (c)
Ratio of net income to average net assets 4.83% 5.49% (c)
Portfolio turnover rate 18.66% 2.07%
(a) Excludes maximum sales load of 3%.
(b) Total return is not annualized, as it may not be representative of the total
return for the year
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
GROWTH PORTFOLIO - RETAIL CLASS SHARES
Year Ended June 30, 1999 and for the period from January 7,
1998 (commencement of class shares) to June 30, 1998
1999 Period
---- Ended
June 30,
1998
NET ASSET VALUE: ------=
<S> <C> <C>
Beginning of period $18.52 $15.86
------ ------
Income from investment operations:
Net investment income 0.00 0.04
Net realized and unrealized loss on investments 2.47 2.66
----- -----
Total income from investment operations 2.47 2.70
Less distributions:
Dividends from net investment income - (0.04)
Distributions from capital gains (1.48) -
Total distributions (1.48) (0.04)
End of period $19.51 (a) $18.52 (a)
====== ======
TOTAL RETURN 16.09% (a) 16.89% (a)(b)
====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,292,742 $784,176
Ratio of expenses to average net assets 1.35% 1.50% (c)
Ratio of net income to average net assets 0.01% 0.13%
Portfolio turnover rate 194.23% 137.03%
(a) Excludes maximum sales load of 4.5%.
(b) Total return is not annualized, as it may not be representative of the total
return for the year
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CAPITAL APPRECIATION PORTFOLIO - RETAIL CLASS SHARES
Year Ended June 30, 1999 and for the period from January 7,
1998 (commencement of class shares) to June 30, 1998
1999 Period
---- Ended
June 30,
1998
NET ASSET VALUE: ------
<S> <C> <C>
Beginning of period $14.39 $13.21
------ ------
Income from investment operations:
Net investment income (0.10) (0.03)
Net realized and unrealized loss on investments (1.21) 1.21
------ ----
Total income from investment operations (1.31) 1.18
Less distributions:
Dividends from net investment income - -
Distributions from capital gains (0.04) -
Total distributions (0.04) -----
End of period $13.04 (a) $14.39 (a)
====== ======
TOTAL RETURN 9.07% (a) 8.93% (a)(b)
===== =====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $243,894 $220,123
Ratio of expenses to average net assets 1.41% 1.25% (c)
Ratio of net income (loss) to average net assets (0.79%) (0.18%)
Portfolio turnover rate 109.49% 277.31%
(a) Excludes maximum sales load of 4.5%
(b) Total return is not annualized, as it may not be representative of the total
return for the year
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INTERNATIONAL PORTFOLIO - RETAIL CLASS SHARES
Year Ended June 30, 1999 and for the period from January 7,
1998 (commencement of class shares) to June 30, 1998
1999 Period
----- Ended
June 30,
1998
NET ASSET VALUE: ------
<S> <C> <C>
Beginning of period $11.75 $10.33
------ ------
Income from investment operations:
Net investment income 0.02 0.03
Net realized and unrealized loss on investments 0.09 1.42
---- ----
Total income from investment operations 0.11 1.45
---- ----
Less distributions:
Dividends from net investment income (0.02) (0.03)
Distributions from capital gains (0.22) -
------ -------
Total distributions (0.24) (0.03)
End of period $11.62 (a) $11.75 (a)
====== ======
TOTAL RETURN 1.07% (a) 13.88% (a)(b)
===== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $172,430 $125,157
Ratio of expenses to average net assets 1.83% 1.94% (c)
Ratio of net income to average net assets 0.19% 0.27%
Portfolio turnover rate 40.00% 52.92%
(a) Excludes maximum sales load of 4.5%.
(b) Total return is not annualized, as it may not be representative of the total
return for the year.
(c) Annualized for those periods less than twelve months in duration.
</TABLE>
43
<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.
6801 S. 27th
PO Box 82535
Lincoln, Nebraska 68501-2535
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.
44
<PAGE>
APPENDIX III
STRATUS FUND DISCUSSION AND ANALYSIS
REPRODUCED BELOW IS A DISCUSSION OF THE PERFORMANCE OF THE
ACQUIRED PORTFOLIOS AND THE ACQUIRING PORTFOLIOS FOR THE YEAR
ENDED JUNE 30, 1999, THAT WAS PREPARED BY ITS OFFICERS AND UNION
BANK AND TRUST COMPANY AND INCLUDED IN ITS ANNUAL REPORT DATED
JUNE 30, 1999.
The economy continues to perform at a very high level with above average
growth and low inflation. Gross Domestic Product has recorded above average
growth with considerable variability from quarter to quarter. 1999's first
quarter GDP rose at a 4.3% pace while second quarter growth slowed to 2.3%.
Responsible for the slowing has been the draw down of inventories built during
the first quarter. Consumer fundamentals remain very strong and the industrial
side of the economy is doing better. International economies are showing signs
of bottoming out particularly those that were hurt by the Asian contagion.
Domestic economic growth could be around the 3% level in the second half of
1999. Planning and fears regarding Y2K could affect economic growth short term.
The positive economic climate has helped the stock market to perform
favorably through the first half of 1999. Big cap stocks performed better during
the first quarter, while leadership broadened during the second quarter with
value stocks, and small cap stocks doing significantly better. International
stocks saw mixed performance. In contrast to last year, Europe lagged while Asia
bounced back from the effects of the Asian contagion.
During the second quarter, the Dow Jones Industrial Index established a
series of new highs as money continued to pour into equity mutual funds. The
high for the first half of 1999 came on May 13th when the DJIA closed at 11,107.
This index stood at 10,970 on June 30, 1999.
The two bond funds, managed by Stratus, performed in line with other bond
funds with the same investment objective as higher interest rates reduced
returns. The Stratus Government Securities Portfolio achieved a total rate of
return of 1.4% this past fiscal year, while the Stratus Intermediate Government
Bond Portfolio appreciated 4.0%. For comparison purposes, the Merrill Lynch U.
S. Treasury Intermediate Term Index returned 2.4% during the recently completed
fiscal year.
The strategy employed by the Intermediate Government Bond Portfolio is to
buy only U.S. Government Obligations or money market instruments that invest
exclusively in U. S. Treasury Obligations. As a normal operating practice, the
Intermediate Government Bond Portfolio invests in a 1-5 year ladder of
maturities.
The strategy for the Government Securities Portfolio is essentially the
same regarding the use of high quality government securities. It differs in that
bonds as long as ten years may be used and the average maturity will generally
be greater. Corporate bonds of trust quality may also be used.
Appendix III - page 1
<PAGE>
Emphasis will be on a total return as opposed to income generation and the
average maturity will vary with existing and anticipated interest rates. The
Stratus Growth fund completed a successful fiscal year which also ended June 30,
1999. With investors favoring large cap stocks most of the year, the Stratus
Growth Portfolio provided a total return of 16.3% for the fiscal year. The
strategy employed in this fund is to invest primarily in large capitalization
stocks with an emphasis on growth companies. The over weighting in technology
helped performance considerably as technology stocks were in favor most of the
year. Although the Growth fund did not match the performance of the S & P Index,
it did better than the majority of funds in its category. In the Wall Street
Journal's Mutual Funds Report for the second quarter of 1999, the Stratus Growth
fund earned an A ranking for one year performance versus comparable funds. Even
more importantly an A ranking for 3 years and 5 years was earned for the Stratus
Growth Portfolio.
The Capital Appreciation Portfolio, which invests primarily in smaller
capitalization stocks, returned (8.8%) for the year ended June 30, 1999. From
July 1998 to March 1999, smaller stocks continued their relative under
performance as the market remained concentrated on the stocks of larger
companies for much of the fiscal year. In the second quarter of 1999, the market
did begin to broaden its focus to include many secondary issues which would
generally prove beneficial for smaller companies and the Portfolio Fund
performance relative to the Russell 2000, up 1.4% for the year, was also
impacted by the Fund's substantial under weighting in speculative Internet
stocks, which fueled much of the Russell's rise in the first half of 1999. The
return on the S&P Small Cap Index was (2.3%) for the same time period.
Appendix III - page 2
<PAGE>
GROWTH PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIOS OF
STRATUS FUND, INC.
P.O. Box 82535
Lincoln, Nebraska 68501-2535
(402) 476-3000
STATEMENT OF ADDITIONAL INFORMATION
(2000 Special Meeting of Shareholders of Capital Appreciation Portfolio and
Intermediate Government Bond Portfolio)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
April __, 2000 of Stratus Fund, Inc. (the "Company") for use in connection with
the Special Meeting of Shareholders of Capital Appreciation Portfolio and
Intermediate Government Bond Portfolio (the "Acquired Funds") to be held on May
25, 2000. Copies of the Combined Proxy Statement and Prospectus may be obtained
at no charge by writing the Company at the address shown above or by calling
(402) 476-3000. Unless otherwise indicated, capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in the
Combined Proxy Statement and Prospectus. A Statement of Additional Information
for the Company dated November 1, 1999, has been filed with the Securities and
Exchange Commission and is attached hereto as Appendix I which is incorporated
herein by this reference.
The date of this Statement of Additional Information is April __, 2000.
TABLE OF CONTENTS
THE COMPANY.................................................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS........................................S-2
DIRECTORS AND OFFICERS OF THE COMPANY.......................................S-2
ADVISORY AND MANAGEMENT - RELATED SERVICES AGREEMENTS AND PLANS OF
DISTRIBUTION.......................................................S-2
PORTFOLIO TRANSACTIONS......................................................S-2
DESCRIPTION OF SHARES.......................................................S-2
PURCHASE, REDEMPTION, AND PRICING OF SHARES.................................S-2
TAXES.......................................................................S-2
PERFORMANCE DATA............................................................S-3
FINANCIAL INFORMATION.......................................................S-3
Appendix I - Stratus Fund, Inc. Statement of Additional Information
Appendix II - Stratus Fund, Inc. Semiannual Report
Appendix III - Annual Report of Stratus Fund, Inc.
<PAGE>
THE COMPANY
This Statement of Additional Information relates to Stratus Fund, Inc. (the
"Company") and two of its investment portfolios, Growth Portfolio and Government
Securities Portfolio (the "Acquiring Funds"). The Company is registered as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"). Growth Portfolio and Government Securities
Portfolio are separate series of shares of capital stock of the Company.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Acquiring Funds adopted by the Company's Board of Directors, see heading
"Additional Information About the Portfolios' Investment Objectives, Policies
and Risks" in the Company's Statement of Additional Information attached hereto
as Appendix I.
DIRECTORS AND OFFICERS OF THE COMPANY
For a disclosure of the names and a brief occupational biography of each of the
Company's officers and directors identifying those who are interested persons of
the Company as well as stating their aggregate renumeration, see heading
"Directors and Executive Officers" in the Company's Statement of Additional
Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT - RELATED SERVICES AGREEMENTS AND PLANS OF
DISTRIBUTION
For a discussion of the Company's advisory and management-related services
agreements and plans of distribution, see heading "Investment Advisory and Other
Services," in the Company's Statement of Additional Information attached hereto
as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Company's brokerage policy, see heading "Portfolio
Transactions and Brokerage Allocations" in the Company's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Company's authorized securities and the characteristics
of the Company's shares of capital stock, see heading "Capital Stock" in the
Company's Statement of Additional Information attached hereto as Appendix I.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
For a discussion of the Company's valuation and pricing procedures and a
description of its purchase and redemption procedures, see headings "Investment
Advisory and Other Services - Distributor" and "Redemption of Shares and
Exchanges Between Classes" in the Company's Statement of Additional Information
attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Company's
shares, see heading "Tax Status" in the Company's Statement of Additional
information attached hereto as Appendix I.
S-2
<PAGE>
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Company,
see heading "Calculations of Performance Data" in the Company's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of GROWTH PORTFOLIO and GOVERNMENT SECURITIES
PORTFOLIO and the report thereon by Deloitte & Touche LLP, are set forth in the
Company's Annual Report dated June 30, 1999, attached hereto as Appendix III.
The unaudited interim financial statements for GROWTH PORTFOLIO and GOVERNMENT
SECURITIES PORTFOLIO for the six-month period ended December 31, 1999, are set
forth in the Semiannual Report of Stratus Fund, Inc. which is attached hereto as
Appendix II.
The audited financial statements of CAPITAL APPRECIATION PORTFOLIO and
INTERMEDIATE GOVERNMENT BOND PORTFOLIO and the report thereon by Deloitte &
Touche LLP, are set forth in the Annual Report of Stratus Fund, Inc., dated June
30, 1999, which is incorporated herein by reference and attached hereto as
Appendix III. The unaudited interim financial statements for CAPITAL
APPRECIATION PORTFOLIO and INTERMEDIATE GOVERNMENT BOND PORTFOLIO for the
six-month period ended December 31, 1999, are set forth in the Semiannual Report
of Stratus Fund, Inc., which is attached hereto as Appendix II.
S-3
<PAGE>
PART C. OTHER INFORMATION
Item 15. 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 Incorporated (Exhibit 1(e)), Article
XIII of the Bylaws of Registrant (Exhibit 2 hereto), to Section 10 of
the Underwriting Agreement (Exhibit 7) and to Section 8 of the Transfer
Agent and Administrative Services Agreement (Exhibit 13) 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 16. EXHIBITS.
---------
1. (a) Articles of Incorporation of New Horizon Fund, Inc., dated
October 26, 1990, were filed 1 (a) electronically as an Exhibit
to Post-Effective Amendment No. 11 on October 25, 1995.
(b) 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.
(c) 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
(d) 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
(e) 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.
2. By-Laws of Stratus Fund, Inc., as amended, dated as of January
15, 1991, were filed 2 (a) electronically as an Exhibit to
Post-Effective Amendment No. 11 on October 25, 1995, and are
hereby incorporated by reference.
1
<PAGE>
3. Voting Trust Agreements - None.
4. A copy of the form of Plan of Reclassification of Stratus Fund,
Inc. is attached as Appendix 1 to the Prospectus contained in
this Registration Statement.
5. None
6. (a) (1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
7. Underwriting and Distribution Agreement between Apex
Fund, Inc., and Smith Hayes Financial Services dated May 12, 1991
was filed electronically as an Exhibit to Post-Effective
Amendment No. 11 on October 25, 1995.
8. None.
9. 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.
10. (a) 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.
(b) 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.
11. Opinion and consent of Ballard Spahr Andrews & Ingersoll, LLP, as
to the legality of the securities being registered is filed
herewith electronically.
12. Opinion and consent of Ballard Spahr Andrews & Ingersoll, LLP,
supporting the tax matters and consequences to shareholders
discussed in the prospectus will be filed as an Exhibit to a
Post-Effective Amendment.
13. Transfer and Administrative Services Agreement between
Stratus Fund, Inc., and Lancaster Administrative Services, Inc.
dated July 1, 1999, was filed electronically as an Exhibit to
Post-Effective Amendment No. 18 on August 27, 1999 and is hereby
incorporated by reference.
14. Consent of Deloitte & Touche LLP is filed herewith
electronically.
15. Financial Statements - None.
16. None.
17. Form of Proxy.
Item 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CRF
203.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the registrant, in the City of Lincoln, State of
Nebraska, on the 23rd day of March, 2000.
STRATUS FUND, INC.
Registrant
By: /s/ Michael S. Dunlap
----------------------------
Michael S. Dunlap
President
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
By: /s/ Michael S. Dunlap President and Secretary March 23, 2000
--------------------------
Michael S. Dunlap
By: /s/ Thomas C. Smith Chief Financial Officer and March 22, 2000
-------------------------- Treasurer
Thomas C. Smith
By: Director March __, 2000
-------------------------
Stan Schrier
By: Director March __, 2000
--------------------------
Dr. Paul Hoff
By: /s/ Edson L. Bridges III Director March 23, 2000
--------------------------
Edson L. Bridges III
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11. Opinion of Counsel and Consent of Ballard Spahr Andrews &
Ingersoll, LLP as to securities registered
14. Consent of Deloitte & Touche LLP
17. Form of Proxy
March 23, 2000
Ballard Spahr Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, Colorado 80202
Stratus Fund, Inc.
P.O. Box 82535
Lincoln, Nebraska 68501-2535
Re: Shares of Stock of Stratus Fund, Inc.
Gentlemen:
We have acted as counsel to Stratus Fund, Inc., a Minnesota
corporation (the "Company"), in connection with that certain Plan of
Reclassification of the Company (the "Plan"), and the consummation of the
transactions contemplated therein. The Plan provides for the combination of
Capital Appreciation Portfolio and Intermediate Government Bond Portfolio (the
"Acquired Portfolios") with Growth Portfolio and Government Securities Portfolio
(the "Acquiring Portfolios"), respectively (the "Reorganizations"). The Acquired
Portfolios and the Acquiring Portfolios are each investment portfolios of the
Company.
Pursuant to the Plan, the Articles of Incorporation of the
Company will be amended to reclassify the shares of the Acquired Portfolio as
shares of the Acquiring Portfolio and the Company will issue Retail Class A
shares of the Acquiring Portfolio to the Acquired Portfolio's Retail Class A
shareholders, and Institutional Class Shares of the Acquiring Portfolio to the
Acquired Portfolio's Institutional Class shareholders. All of the assets of an
Acquired Portfolio will be transferred to the Acquiring Portfolio, with which it
will combine, the Acquiring Portfolio will assume all of the liabilities of the
Acquired Portfolio. The value of each Acquired Portfolio shareholder's account
with the Acquiring Portfolio immediately after the Reorganization will be the
same as the value of such shareholder's account with the Acquired Portfolio
immediately prior to the Reorganization.
The opinion expressed below is based on the assumption that a
Registration Statement on Form N-14 with respect to the Retail Class A and
Institutional Class Shares of the Acquiring Portfolios to be issued pursuant to
the Plan (the "Acquiring Portfolio Shares") will have been filed by the Company
with the Securities and Exchange Commission and will have become effective
before the Reorganizations occur. Based on the foregoing, we are of the
<PAGE>
Stratus Fund, Inc.
March 23, 2000
Page 2
opinion that the Acquiring Portfolios Shares, when issued by the
Company directly to the shareholders of the Acquired Portfolios in accordance
with the terms and conditions of the Plan, will be legally issued, fully paid
and non-assessable.
We express no opinion concerning the laws of any jurisdiction
other than the federal law of the United States of America and the Business
Corporation Act of the State of Minnesota without considering the effect of case
law or other statutory law on the Minnesota Business Corporation Act. We consent
to the filing of this opinion as Exhibit 11 to the Company's Registration
Statement on Form N-14 and to the references to this firm in such Registration
Statement.
Very truly yours,
/S/ Ballard Spahr Andrews & Ingersoll, LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Stratus Fund, Inc. on Form N-14 of our report dated July 23, 1999 appearing in
the Annual Report dated June 30, 1999, and to the reference to us in the
Statement of Additional Information, which is a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
March 20, 2000
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY!
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
PROXY CARD PROXY CARD
Capital Appreciation Portfolio
(A portfolio of Stratus Fund, Inc)
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MAY 25, 2000
The undersigned hereby appoints Michael S. Dunlap proxy with the power of
substitution and hereby authorizes him to represent and to vote, as designated
below, at the Special Meeting of Shareholders on May 25, 2000, at 3:00 p.m.,
Central time, and at any adjournment thereof, all of the shares of the portfolio
which the undersigned would be entitled to vote if personally present. IF THIS
PROXY IS SIGNED AND RETURNED WITH NO CHOICES INDICATED, THE SHARES WILL BE VOTED
"FOR" THE APPROVAL OF THE PROPOSAL.
CONTROL NUMBER:
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
ON THIS PROXY CARD. All joint owners should
sign. When signing as executor, administrator,
attorney, trustee or guardian or as custodian
for a minor, please give full title as such. If
a corporation, please sign in full corporate
name and indicate the signer's office. If a
partner, sign in the partnership name.
---------------------------------------------
Signature
---------------------------------------------
Signature (if held jointly)
---------------------------------------------
Dated
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE DIRECTORS
RECOMMEND VOTING "FOR" THE PROPOSAL. TO VOTE, FILL IN BOX COMPLETELY.
EXAMPLE: [ ]
1. To approve a Plan of Reclassification that provides for the combination
of Stratus Fund, Inc. Capital Appreciation Portfolio with Stratus Fund,
Inc. Growth Portfolio.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. IN THE DISCRETION OF SUCH PROXIES, UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY!
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
PROXY CARD PROXY CARD
Intermediate Government Bond Portfolio
(A portfolio of Stratus Fund, Inc)
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MAY 25, 2000
The undersigned hereby appoints Michael S. Dunlap proxy with the power of
substitution and hereby authorizes him to represent and to vote, as designated
below, at the Special Meeting of Shareholders on May 25, 2000, at 3:00 p.m.,
Central time, and at any adjournment thereof, all of the shares of the portfolio
which the undersigned would be entitled to vote if personally present. IF THIS
PROXY IS SIGNED AND RETURNED WITH NO CHOICES INDICATED, THE SHARES WILL BE VOTED
"FOR" THE APPROVAL OF THE PROPOSAL.
CONTROL NUMBER:
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
ON THIS PROXY CARD. All joint owners should
sign. When signing as executor, administrator,
attorney, trustee or guardian or as custodian
for a minor, please give full title as such. If
a corporation, please sign in full corporate
name and indicate the signer's office. If a
partner, sign in the partnership name.
---------------------------------------------
Signature
---------------------------------------------
Signature (if held jointly)
---------------------------------------------
Dated
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE DIRECTORS
RECOMMEND VOTING "FOR" THE PROPOSAL. TO VOTE, FILL IN BOX COMPLETELY.
EXAMPLE: [ ]
1. To approve a Plan of Reclassification that provides for the combination
of Stratus Fund, Inc. Intermediate Government Bond Portfolio with
Stratus Fund, Inc. Government Securities Portfolio.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. IN THE DISCRETION OF SUCH PROXIES, UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
