<PAGE> 1
As filed with the Securities and Exchange Commission
on May 16, 1996
1933 Act Registration Number 33-85982
1940 Act Registration Number 811-8846
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ x ]
Pre-Effective Amendment [ ]
-----
Post-Effective Amendment No. 4 [ x ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ x ]
Amendment No. 5 [ x ]
__________________________________________
FIRST OMAHA FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
ONE FIRST NATIONAL CENTER
OMAHA, NE 68102-1596
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(402) 341-0500
MARC M. DIEHL
ONE FIRST NATIONAL CENTER
OMAHA, NE 68102-1596
(Name and Address of Agent for Service)
__________________________________________
Copies of all communications to:
DONALD F. BURT, ESQ.
CLINE, WILLIAMS, WRIGHT, RANDY M. PAVLICK
JOHNSON & OLDFATHER SUNSTONE FINANCIAL GROUP, INC.
1900 FIRSTIER BANK BUILDING 207 E. BUFFALO, SUITE 400
LINCOLN, NE 68508 MILWAUKEE, WI 53202
Approximate Date of Proposed Public Offering: as soon as practicable after the
Registration Statement becomes effective.
__________________________________________
It is proposed that this filing will become effective 75 days after filing
pursuant to paragraph (a)(ii) of Rule 485.
This Registration Statement relates to an indefinite number of shares of the
Registrant pursuant to Rule 24f-2 under the Securities Act of 1933. The
Registrant filed its notice pursuant to Rule 24f-2(a)(1) on or about
May 25, 1996 for the fiscal year ended March 31, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
First Omaha Funds, Inc.
PART A
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Fee Table
3. Condensed Financial Information . . . . . . . . Not Applicable
4. General Description of Registrant . . . . . . . The Company; Investment Objectives and Policies; Investment
Restrictions; General Information - Description of the Company
and Its Shares
5. Management of the Fund . . . . . . . . . . . . . Management of the Company; General Information - Custodian;
General Information - Transfer Agency and Fund Accounting Services
5A. Management's Discussion of
Fund Performance . . . . . . . . . . . . . . Not Applicable
6. Capital Stock and Other Securities . . . . . . . How to Purchase and Redeem Shares; Dividends and Taxes;
General Information - Description of the Company and Its Shares;
General Information - Miscellaneous
7. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . Valuation of Shares; How to Purchase and Redeem Shares;
Management of the Company - Distribution Plan
8. Redemption or Repurchase . . . . . . . . . . . . How to Purchase and Redeem Shares
9. Pending Legal Proceedings . . . . . . . . . . . Inapplicable
</TABLE>
<PAGE> 3
PART B
<TABLE>
<CAPTION>
Location in Statement of Additional
Information
------------------------------------
<S> <C> <C>
10. Cover page . . . . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . . . The Company
13. Investment Objective and Policies . . . . . . . Investment Objectives and Policies
14. Management of the Fund . . . . . . . . . . . . . Management of the Company - Directors and Officers
15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . Additional Information - Ownership of Shares
16. Investment Advisory and Other
Services . . . . . . . . . . . . . . . . . . Management of the Company - Investment Adviser; Administrator/Fund
Accountant; Administrative Services Plan; Custodian; Transfer
Agency Services
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . . . Management of the Company - Portfolio Transactions
18. Capital Stock and Other Securities . . . . . . . Additional Information - Organization and Capital Structure
19. Purchase, Redemption and Pricing
Of Securities Being Offered . . . . . . . . Net Asset Value; Additional Purchase and Redemption Information
20. Tax Status . . . . . . . . . . . . . . . . . . . Additional Information - Additional Tax Information
21. Underwriters . . . . . . . . . . . . . . . . . . Management of the Company - Distributor
22. Calculations of Performance Data . . . . . . . . Additional Information - Yield of the Money Market Fund; Yield
of the Short/Intermediate Fund and the Fixed Income Fund;
Calculation of Total Return; Distribution Rates; Performance
Comparisons
23. Financial Statements . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 4
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE> 5
First Omaha Funds Prospectus
<TABLE>
<S> <C> <C>
First Omaha Funds, Inc. First National Bank of Omaha For current yield, purchase,
One First National Center Investment Adviser and redemption information,
Omaha, Nebraska 68102-1596 Custodian and Transfer Agent call (800) OMAHA-03
</TABLE>
First Omaha Funds, Inc. (the "Company") is an open-end management investment
company. The Directors of the Company have divided the Company's common stock
("Shares") into series, each of which relates to a mutual fund with its own
investment objectives and policies. This Prospectus relates to the following
Funds, each of which is a no-load diversified investment Fund.. First National
Bank of Omaha, Omaha, Nebraska (the "Adviser"), a subsidiary of First National
of Nebraska, Inc. ("FNN"), acts as the investment adviser to the Fund.
FIRST OMAHA EQUITY FUND (the "Equity Fund") seeks as its investment objective,
long-term growth of capital.
FIRST OMAHA SMALL CAP VALUE FUND (the "Small Cap Value Fund") seeks as its
investment objective long-term capital appreciation.
FIRST OMAHA BALANCED FUND (the "Balanced Fund") seeks as its investment
objective capital appreciation and current income.
FIRST OMAHA SHORT/INTERMEDIATE FIXED INCOME FUND (the "Short/ Intermediate
Fund") seeks as its investment objective, to generate current income consistent
with preservation of capital.
FIRST OMAHA FIXED INCOME FUND (the "Fixed Income Fund") seeks as its investment
objective, to generate current income consistent with preservation of capital.
FIRST OMAHA U.S. GOVERNMENT OBLIGATIONS FUND (the "Money Market Fund") seeks as
its investment objective to maximize current income to the extent consistent
with the preservation of capital and maintenance of liquidity. THE MONEY
MARKET FUND SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE,
BUT THERE CAN BE NO ASSURANCE THE NET ASSET VALUE WILL NOT VARY. AN INVESTMENT
IN THE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE FIRST NATIONAL BANK OF OMAHA, ITS PARENT, FIRST NATIONAL OF
NEBRASKA, INC. OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read
this Prospectus and retain it for future reference. Additional information
about the Funds, contained in a Statement of Additional Information, has been
filed with the Securities and Exchange Commission and is available upon request
without charge by writing to the Funds at their address or by calling the Funds
at the telephone number shown above. The Statement of Additional Information
bears the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
Page
----
Prospectus Summary
Fee Table
Financial Highlights
Performance Information
Investment Objectives and Policies
Investment Restrictions
Valuation of Shares
How to Purchase and Redeem Shares
Dividends and Taxes
Management of the Company
General Information
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
-2-
<PAGE> 7
PROSPECTUS SUMMARY
SHARES OFFERED: Shares of common stock ("Shares") of the Equity
Fund, the Small Cap Value Fund, the Balanced Fund,
the Short/Intermediate Fund, the Fixed Income Fund
and the Money Market Fund, each a separate
investment portfolio of First Omaha Funds, Inc., a
Nebraska corporation.
OFFERING PRICE: The public offering price of each Fund is equal
to its net asset value per Share.
MINIMUM PURCHASE: The minimum initial investment is $500 with $50
minimum subsequent investments. Such minimum
initial investment is reduced to $100 for investors
using the Auto Invest Plan described herein, and
the minimum subsequent investment may be waived if
purchases are made in connection with an IRA. Both
minimum initial and subsequent investments may be
waived if purchases are made pursuant to a payroll
deduction plan.
TYPE OF COMPANY: Each Fund is a no-load, diversified series of an
open-end, management investment company.
INVESTMENT OBJECTIVE:
For the Equity Fund, long-term growth of capital.
For the Small Cap Value Fund, long-term capital
appreciation.
For the Balanced Fund, capital appreciation and
current income.
For the Short/Intermediate Fund and the Fixed
Income Fund, generation of current income and
preservation of capital.
For the Money Market Fund, maximization of current
income, preservation of capital and maintenance of
liquidity.
INVESTMENT POLICY:
Under normal market conditions, the Equity Fund
will invest at least 65% of its total assets in
common stocks and securities convertible into
common stocks but may also invest in other equity
securities and in fixed income securities.
-3-
<PAGE> 8
Under normal market conditions, the Small Cap Value
Fund will invest at least 65% of its total assets
in common stocks and securities convertible into
common stocks issued by companies having small
market capitalizations, but may also invest in
other equity securities and in fixed income
securities.
Under normal market conditions, the Balanced Fund
will invest in common stock, securities convertible
into common stock, investment grade corporate debt,
U.S. Treasury obligations or obligations issued by
the U.S. government, its agencies and
instrumentalities and cash equivalents. The assets
of the Balanced Fund will be allocated among these
classes of securities based on the Advisor's
assessment of market conditions.
Under normal market conditions, the
Short/Intermediate Fund will invest at least 65% of
its total assets in investment grade fixed income
securities and will maintain a dollar-weighted
average portfolio maturity of two to five years.
Under normal market conditions, the Fixed Income
Fund will invest at least 65% of its total assets
in investment grade fixed income securities.
Under normal market conditions, the Money Market
Fund will invest exclusively in short-term (397
days or less) high quality money market
instruments, principally U.S. Government
obligations, having a dollar-weighted average
maturity of 90 days or less and will attempt to
maintain a constant net asset value of $1.00 per
share.
RISK FACTORS
AND SPECIAL
CONSIDERATIONS: An investment in the Funds is subject to certain
risks, as set forth in detail under "INVESTMENT
OBJECTIVES AND POLICIES." As with other mutual
funds, there can be no assurance that the Funds
will achieve their investment objectives. Some or
all of the Funds, to the extent set forth under
"INVESTMENT OBJECTIVES AND POLICIES," may engage in
the following practices: the use of repurchase and
reverse repurchase agreements, investing in foreign
securities, the lending of portfolio securities,
investing in derivatives and the purchase of
securities on a when-issued or delayed-delivery
basis.
INVESTMENT ADVISER: First National Bank of Omaha (the "Adviser").
-4-
<PAGE> 9
DIVIDENDS: Dividends from net investment income are declared
and paid monthly, except that the Money Market Fund
will declare income dividends daily. Net realized
capital gains are distributed at least annually.
ADMINISTRATOR/
DISTRIBUTOR: Sunstone Financial Group, Inc. (the "Administrator"
or the "Distributor," as the context indicates).
-5-
<PAGE> 10
FEE TABLE
<TABLE>
<CAPTION>
Small
Cap Short/ Fixed Money
Equity Value Balanced Intermediate Income Market
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases 0% 0% 0% 0% 0% 0%
(as a percentage of offering price)
Maximum Sales Load Imposed on 0% 0% 0% 0% 0% 0%
Reinvested Dividends
(as a percentage of offering price)
Deferred Sales Load (as a percentage of 0% 0% 0% 0% 0% 0%
original purchase price or redemption
proceeds, as applicable)
Redemption Fees (as a percentage of amount 0% 0% 0% 0% 0% 0%
redeemed, if applicable)
Exchange Fee 0% 0% 0% 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(1) .75% .85% .70% .45% .55% .25%
12b-1 Fees(2) n/a n/a n/a n/a n/a n/a
Other Expenses After Voluntary Fee .24 .74 .89 .44 .28 .29
Reduction, including administration fees,
administrative servicing fees and other
expenses(1,3)
Total Fund Operating Expenses After .99% 1.59% 1.59% .89% .83% .54%
Voluntary Fee
Reduction
- -------------
</TABLE>
(1) The Adviser and the Administrator, respectively, have agreed with the
Company to reduce voluntarily the amount of the investment advisory,
administration, custodian and administrative servicing fees for the Funds until
further notice. Absent the voluntary investment advisory, administration,
custodian and administrative servicing fee reductions, Management Fees, Other
Expenses and Total Fund Operating Expenses as a percentage of average net
assets for the period ended March 31, 1996 for the Equity Fund would have been
.75%, .32% and 1.07%, respectively. For the Short/Intermediate Fund they would
have been .50%, .52%, and 1.02%., respectively. For the Fixed Income Fund they
would have been .60%, .36% and .96%, respectively. For the Money Market Fund
they would have been .25%, .34% and .59%, respectively. Management Fees, Other
Expenses and Total Fund Operating Expenses for the Small Cap Value Fund and
Balanced Fund, absent the voluntary fee reductions are estimated to be .85%,
.78% and 1.63% for the Small Cap Value Fund and .75%, .93% and 1.68% for the
Balanced Fund. (See "MANAGEMENT OF THE COMPANY-Investment Adviser" and
"Administrative Services Plan.")
(2) The Company has adopted a Rule 12b-1 Plan pursuant to which each of the
Funds is authorized to pay a periodic amount, representing distribution
expenses, calculated at an annual rate not to exceed .25% of the average daily
net asset value of such Fund. As of the date of this Prospectus, however, there
are no Related Agreements under the Rule 12b-l Plan with respect to the Funds
in effect and no fees under the Rule 12b-l Plan are being paid by the Funds.
(3) "Other Expenses" include administration fees and legal, accounting and
other miscellaneous expenses to be incurred during the fiscal year. As of the
date of this Prospectus, no administrative servicing fees were being paid by
the Funds.
-6-
<PAGE> 11
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C>
Equity Fund $10 $32 $55 $122
Small Cap Value Fund $16 $51 $88 $191
Balanced Fund $16 $51 $88 $191
Short/Intermediate
Fund $ 9 $29 $50 $110
Fixed Income Fund $ 9 $27 $46 $103
Money Market Fund $ 6 $17 $30 $ 68
</TABLE>
The purpose of the above tables is to assist a potential purchaser of a Fund's
Shares in understanding the various costs and expenses that an investor in such
Fund will bear directly or indirectly. "Other Expenses" for the Small Cap
Value Fund and Balanced Fund have been estimated. Expenses do not include any
fees charged by the Adviser or any of its affiliates or any Banks or their
affiliates to their customer accounts for automatic investment, cash management
and other services. See "How to Purchase and Redeem Shares - Minimum
Investment." See "MANAGEMENT OF THE COMPANY" and "GENERAL INFORMATION" for a
more complete discussion of the Shareholder transaction expenses and annual
operating expenses for each of the Funds.
-7-
<PAGE> 12
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction with
the Funds' financial statements, the related notes thereto and the independent
auditors' report of KPMG Peat Marwick LLP appearing in the Statement of
Additional Information. The Small Cap Value Fund has not commenced operations.
Further information about the Funds' performance is contained in the Company's
annual report to shareholders, which may be obtained without charge by calling
or writing the Company at the telephone number or address on the first page of
this Prospectus.
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS FUND
---------------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED YEAR ENDED DEC. 4, 1991
TO TO JUNE 30, JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 1993 JUNE 30, 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income From Investment Operations:
Net investment income 0.05 0.04 0.03 0.03 0.02
Net realized and unrealized gains
on investments -- -- -- -- --
----- ----- ----- ----- -----
Total from investment operations 0.05 0.04 0.03 0.03 0.02
----- ----- ----- ----- -----
Less Distributions to Shareholders:
Dividends from net investment income 0.05 0.04 0.03 0.03 0.02
Distributions from capital gains -- -- -- -- --
----- ----- ----- ----- -----
Total distributions 0.05 0.04 0.03 0.03 0.02
----- ----- ----- ----- -----
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return(3) 5.14% 3.51% 2.74% 2.72% 2.15%
Supplemental Data and Ratios:
Net assets, end of period (000s) $87,715 $76,105 $89,195 $91,785 $81,152
Ratio of net expenses to average net assets(4) 0.54% 0.63% 0.60% 0.61% 0.46%
Ratio of net investment income to
average net assets(4) 5.12% 4.46% 2.68% 2.67% 3.65%
Ratio of net expenses to average net assets(4)(5) 0.59% 1.23% 1.13% 0.96% 0.98%
Ratio of net investment income to
average net assets(4)(5) 5.07% 3.86% 2.15% 2.32% 3.13%
Portfolio turnover rate(3) -- -- -- -- --
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
-8-
<PAGE> 13
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE FIXED INCOME FUND
------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED DEC. 13, 1992
TO TO JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 JUNE 30, 1993
------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $9.66 $9.62 $10.18 $10.00
Income From Investment Operations:
Net investment income 0.51 0.42 0.55 0.33
Net realized and unrealized gains
on investments 0.18 0.05 (0.56) 0.16
----- ----- ------ ------
Total from investment operations 0.69 0.47 (0.01) 0.49
----- ----- ------ ------
Less Distributions to Shareholders:
Dividends from net investment income 0.50 0.43 0.55 0.31
Distributions from capital gains -- -- -- --
----- ----- ------ ------
Total distributions 0.50 0.43 0.55 0.31
----- ----- ------ ------
Net Asset Value, End of Period $9.85 $9.66 $9.62 $10.18
===== ===== ===== ======
Total return(3) 7.24% 5.05% (0.22)% 5.00%
Supplemental Data and Ratios:
Net assets, end of period (000s) $22,056 $22,130 $21,938 $24,581
Ratio of net expenses to average net assets(4) 0.89% 0.88% 0.83% 0.79%
Ratio of net investment income to
average net assets(4) 5.23% 5.63% 5.44% 5.91%
Ratio of net expenses to average net assets(4)(5) 1.02% 1.51% 1.38% 1.19%
Ratio of net investment income to
average net assets(4)(5) 5.10% 5.00% 4.89% 5.51%
Portfolio turnover rate(3) 41.45% 9.93% 20.52% 15.58%
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
-9-
<PAGE> 14
[FIRST OF OMAHA FAMILY OF FUNDS LOGO]
<TABLE>
<CAPTION>
FIXED INCOME FUND
-----------------------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED DEC. 13, 1992
TO TO JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 JUNE 30, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.63 $9.58 $10.49 $10.00
Income From Investment Operations:
Net investment income 0.58 0.51 0.67 0.39
Net realized and unrealized gains
on investments 0.36 0.07 (0.88) 0.47
------ ----- ----- ------
Total from investment operations 0.94 0.58 (0.21) 0.86
------ ----- ----- ------
Less Distributions to Shareholders:
Dividends from net investment income 0.57 0.53 0.67 0.37
Distributions from capital gains -- -- 0.03 --
====== ===== ===== ======
Total distributions 0.57 0.53 0.70 0.37
------ ----- ----- ------
Net Asset Value, End of Period $10.00 $9.63 $9.58 $10.49
====== ===== ===== ======
Total return(3) 9.79% 6.35% (2.29)% 8.72%
Supplemental Data and Ratios:
Net assets, end of period (000s) $76,342 $66,488 $61,714 $59,178
Ratio of net expenses to average net assets(4) 0.83% 0.87% 0.86% 0.79%
Ratio of net investment income to
average net assets(4) 5.80% 6.98% 6.52% 6.89%
Ratio of net expenses to average net assets(4)(5) 0.96% 1.51% 1.41% 1.19%
Ratio of net investment income to
average net assets(4)(5) 5.67% 6.34% 5.97% 6.49%
Portfolio turnover rate(3) 37.35% 7.04% 13.09% 2.62%
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
-10-
<PAGE> 15
<TABLE>
<CAPTION>
EQUITY FUND
------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED DEC. 13, 1992
TO TO JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 JUNE 30, 1993
------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $11.39 $10.48 $10.55 $10.00
Income From Investment Operations:
Net investment income 0.28 0.21 0.20 0.11
Net realized and unrealized gains
on investments 2.13 1.48 0.15 0.54
------ ------ ------ ------
Total from investment operations 2.41 1.69 0.35 0.65
------ ------ ------ ------
Less Distributions to Shareholders:
Dividends from net investment income 0.28 0.22 0.20 0.10
Distributions from capital gains 0.45 0.56 0.22 --
------ ------ ------ ------
Total distributions 0.73 0.78 0.42 0.10
------ ------ ------ ------
Net Asset Value, End of Period $13.07 $11.39 $10.48 $10.55
====== ====== ====== ======
Total return(3) 21.52% 16.48% 3.34% 6.55%
Supplemental Data and Ratios:
Net assets, end of period (000s) $224,169 $161,323 $129,381 $111,059
Ratio of net expenses to average net assets(4) 0.99% 1.03% 1.04% 1.01%
Ratio of net investment income to
average net assets(4) 2.32% 2.50% 1.93% 1.90%
Ratio of net expenses to average net assets(4)(5) 1.07% 1.62% 1.54% 1.32%
Ratio of net investment income to
average net assets(4)(5) 2.24% 1.91% 1.43% 1.59%
Portfolio turnover rate(3) 26.60% 14.36% 15.86% 4.94%
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
-11-
<PAGE> 16
Performance Information
From time to time, performance information for the Equity, Small Cap Value,
Balanced, Short/Intermediate and Fixed Income Funds showing their respective
average annual total return, aggregate total return and/or yield may be
presented in advertisements, sales literature and Shareholder reports. SUCH
PERFORMANCE FIGURES ARE BASED ON HISTORIC EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. Average annual total return will be calculated
for the period since the commencement of operations for such Fund (including
its immediate predecessor). Average annual total return is measured by
comparing the value of an investment in a Fund at the beginning of the relevant
period to the redeemable value of the investment at the end of the period
(assuming immediate reinvestment of any dividends or capital gains
distributions), which figure is then annualized. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield
will be computed by dividing a Fund's net investment income per share (as
calculated on a yield to maturity basis) earned during a recent 30-day period
by that Fund's per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result.
From time to time the Money Market Fund may advertise its "yield," "effective
yield" and "average annual total return." THE YIELD FIGURES AND THE RETURN
FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The "yield" of the Money Market Fund refers to the income
generated by an investment therein over a seven-day period (which period will
be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of
the investment. The Money Market Fund may also present a 30-day yield which is
calculated similarly but instead refers to a 30-day period rather than a
seven-day period. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Money Market Fund is
assumed to be reinvested. The "effective yield" is slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment. For
the seven-day period ended April 30, 1996, the yield of the Money Market Fund
was 4.57% and its effective yield was 4.68%.
In addition, from time to time, the Funds may present their distribution rates
in supplemental sales literature and in Shareholder reports both of which must
be accompanied or preceded by a Prospectus. Distribution rates will be
computed by dividing the distributions per share made by a Fund over a 12-month
period by the maximum offering price per share. The calculation of income in
the distribution rate includes both income and capital gain dividends and does
not
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reflect unrealized gains or losses, although each Fund may also present a
distribution rate excluding the effect of capital gains. The distribution rate
differs from the yield, because it includes capital items which are often
non-recurring in nature, whereas yield does not include such items.
Distribution rate information will be accompanied by the standardized yield and
total return data.
Investors may also judge the performance of each Fund by comparing or
referencing its performance to the performance of other mutual funds with
comparable investment objectives and policies through various mutual fund or
market indices and to data prepared by various services which indices or data
may be published by such services or by other services or publications. For
example, the total return and yield of a Fund's Shares may be compared to data
prepared by Lipper Analytical Services, Inc. In addition, the total return of
a Fund may be compared to the S&P 500 Index, the S&P 400 Index, the Nasdaq
Composite Index, an index of unmanaged groups of common stocks of domestic
companies that are quoted on the National Association of Securities Dealers
Automated Quotation System, the Dow Jones Industrial Average, a recognized
unmanaged index of common stocks of 30 industrial companies listed on the New
York Stock Exchange, the Lehman Bros. Mutual Fund Short U.S. Gov't Index, or
the Lehman Bros. Gov't/Corp. Bond Index. Total Return and yield data as
reported in national financial publications, such as Money Magazine, Forbes,
Barron's, Morningstar Mutual Funds, The Wall Street Journal and the New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of the Funds. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, sales literature and reports to
Shareholders.
Yield and total return are generally functions of market conditions, interest
rates, types of investments held and operating expenses. Consequently, current
yields and total return will fluctuate and are not necessarily representative
of future results. Any fees charged by the Adviser or any of its affiliates
with respect to customer accounts for investing in Shares of any of the Funds
will not be included in performance calculations; such fees, if charged, will
reduce the actual performance from that quoted. In addition, if the Adviser
and Sunstone voluntarily reduce all or part of their respective fees for a
Fund, as discussed below, the yield and total return of that Fund will be
higher than it would otherwise be in the absence of such voluntary fee
reductions.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of the Equity Fund is long-term growth of capital.
The investment objective of the Small Cap Value Fund is capital appreciation.
The investment objective of the Balanced Fund is capital appreciation and
current income. The investment objective of each of the Short/Intermediate
Fund and the Fixed Income Fund is generation of current income consistent with
the preservation of capital. The investment objective of the Money Market Fund
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<PAGE> 18
is maximum current income to the extent consistent with the preservation of
capital and the maintenance of liquidity. These investment objectives are
fundamental policies and, as such, may not be changed without a vote of the
holders of a majority of the outstanding shares of that Fund (as defined in
"GENERAL INFORMATION-Miscellaneous"). There can be no assurance that the
investment objective of a Fund will be achieved.
THE EQUITY FUND
Under normal market conditions, the Equity Fund will invest at least 65% of the
value of its total assets in common stocks and securities convertible into
common stocks (i.e., convertible bonds, convertible preferred stock, warrants,
options and rights) of companies believed by the Adviser to be large
capitalization companies with a record of good earnings and/or dividend growth.
For purposes of the foregoing policy, "large capitalization" means companies
having market capital comparable to the market capitalization of the largest
one-third of the companies listed on the New York Stock Exchange. The Equity
Fund may also invest up to 35% of the value of its total assets in preferred
stocks, common stocks other than those described above, corporate bonds, notes,
warrants, and short-term obligations (with maturities of 12 months or less)
consisting of domestic and foreign commercial paper (including variable amount
master demand notes), bankers' acceptances, repurchase agreements, and
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Equity Fund will only invest in short-term obligations,
including securities of investment companies holding themselves out as "money
market" funds, for purposes of portfolio liquidity to meet redemption
requirements and short-term investment needs. During temporary defensive
periods as determined by the Adviser, the Equity Fund may hold up to 100% of
its total assets in high quality short-term obligations including obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, domestic bank certificates of deposit, bankers' acceptances
and repurchase agreements secured by bank instruments or U.S. government
obligations. However, to the extent that the Equity Fund is so invested in
debt obligations, such Fund may not achieve its investment objective.
Subject to the foregoing limitations, the Equity Fund will invest only in
corporate debt securities (including convertible securities) which are rated at
the time of purchase within the four highest rating groups assigned by one or
more nationally recognized statistical rating organizations ("NRSROs"), e.g.,
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P"), or, if unrated, which the Adviser deems present attractive
opportunities and are of comparable quality. For a description of the rating
symbols of the NRSROs, see the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the fourth
highest rating groups assigned by Moody's and S&P, see "Risk Factors" herein.
Equity securities such as those in which the Equity Fund may invest are more
volatile and carry more risk than some other investments, including investments
in high grade fixed income funds. Depending upon the performance of the Equity
Fund's investments, the net asset value per share of the Equity Fund may
fluctuate.
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<PAGE> 19
THE SMALL CAP VALUE FUND
Under normal market conditions, the Fund will invest at least 65% of its total
assets in common stocks and securities convertible into common stocks (such as
convertible bonds, convertible preferred stocks, warrants, options and rights)
issued by companies having small market capitalization. For these purposes
"small market capitalization" means market capitalization smaller than
approximately the largest one-fourth of companies listed on the New York Stock
Exchange, currently $1.5 billion or less. The Adviser expects that most of
such companies will have market capitalization in the $200 million - $1 billion
range. Although current dividend or interest income will not be a factor in
the selection of investments, the Adviser intends to seek companies whose
record of earnings and/or dividend growth may be indications of capital
appreciation potential. The Adviser will generally seek to invest in companies
whose stock is trading at prices below book value or the Adviser's perception
of actual value.
The Fund may also invest up to 35% of the value of its total assets in
preferred stocks, common stocks other than those described above, corporate
bonds, notes, warrants, and short-term obligations (with maturities of 12
months or less) consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, repurchase
agreements, and obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Fund will only invest in short-term
obligations, including securities of investment companies holding themselves
out as "money market" funds, for purposes of portfolio liquidity to meet
redemption requirements and short-term investment needs. During temporary
defensive periods as determined by the Adviser, the Fund may hold up to 100% of
its total assets in high quality short-term obligations including domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements secured
by bank instruments. However, to the extent that the Fund is so invested in
debt obligations, the Fund may not achieve its investment objective.
Subject to the foregoing limitations, the Fund will invest only in corporate
debt securities (including convertible securities) which are rated at the time
of purchase within the four highest rating groups assigned by one or more
nationally recognized statistical rating organizations ("NRSROs"), e.g.,
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P"), or, if unrated, which the Adviser deems present attractive
opportunities and are of comparable quality. For a description of the rating
symbols of the NRSROs, see the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the fourth
highest rating groups assigned by Moody's and S&P, see "Risk Factors" herein.
Equity securities such as those in which the Fund may invest are more volatile
and carry more risk than some other investments, including investments in high
grade fixed income securities. Depending upon the performance of the Fund's
investments, the net asset value per share of the Fund may fluctuate. The
emphasis on appreciation and smaller capitalization companies may result in
even greater risk than is inherent in other equity investment alternatives.
The Fund will likely have somewhat greater volatility than the stock market
generally, as measured by the S&P 500 Index.
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<PAGE> 20
Under normal market conditions, the Fund will invest primarily in common
stocks, some of which will be traded in the over-the-counter market. In
contrast to the securities exchanges, the over-the-counter market is not a
centralized facility which limits trading activity to securities of companies
which initially satisfy certain defined standards. Any security can be traded
in the over-the-counter market as long as an individual or firm is willing to
make a market in the security. Because there are no minimum requirements for a
company's assets or earnings or the number of its stockholders in order for its
stock to be traded over-the-counter, there is great diversity in the size and
profitability of companies whose stocks trade in this market, ranging from
relatively small little-known companies to well established corporations.
Generally, the volume of trading in an unlisted common stock is less than the
volume of trading in a listed common stock. This means that the degree of
market liquidity of some stocks in which the Fund invests may be relatively
limited. When the Fund disposes of such a stock it may have to offer the
shares at a discount from recent prices or sell the shares in small lots over
an extended period of time.
Some securities issued by companies with a small capitalization present greater
risks and may be subject to large, abrupt or erratic fluctuations in price due,
in part, to such factors as the issuer's dependence upon key personnel, the
lack of internal resources, the inability to obtain funds from external
sources, and dependence on a new product or service for which there is no
firmly established market. Fluctuations in the price of some of the stocks
owned by the Fund, therefore, could cause the net asset value of the Fund to
vary significantly.
THE BALANCED FUND
Under normal market conditions, the Balanced Fund will invest in common stocks
and securities convertible into common stocks (i.e., convertible bonds,
convertible preferred stock, warrants, options and rights). In addition, the
Balanced Fund will invest in corporate debt securities (including convertible
securities) which are rated at the time of purchase within the four highest
rating groups assigned by one or more nationally recognized statistical
organizations, e.g. Moody's and S&P or, if unrated, which the Adviser deems to
present attractive investment opportunities and are of comparable quality to
the rated securities. For a description of the rating categories of Moody's
and S&P, see the Appendix to the Statement of Additional Information. For a
discussion of the debt securities rated within the four highest rating groups
assigned by Moody's and S&P, see "Risk Factors" herein. In addition, the
Balanced Fund may invest in U.S. Treasury Obligations and other obligations
issued or guaranteed by the U.S. government, its agencies and
instrumentalities.
The Balanced Fund will use a disciplined approach of allocating assets among
the three major asset groups: common stocks, debt securities, and cash
equivalents. The allocations among these asset classifications will vary
depending upon the Advisor's assessment of market conditions. Under normal
market conditions, the Balanced Fund is expected to be allocated approximately
65% in stocks and securities convertible into common stocks and 35% in debt
securities.
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However, depending upon market conditions, the Balanced Fund may also be
allocated to cash equivalents. The range of allocation to stocks and
securities convertible into common stock is expected to be between 35% and 65%.
The Balanced Fund expects to invest a minimum of 25% of its total assets in
investment grade fixed income securities.
THE SHORT/INTERMEDIATE FUND AND THE FIXED INCOME FUND
Under normal market conditions, the Short/Intermediate Fund will invest at
least 65% of the value of its total assets in investment grade fixed income
securities consisting of bonds, debentures, notes, mortgage-related securities,
state, municipal or industrial revenue bonds, U.S. Treasury obligations,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and fixed income securities convertible into, or
exchangeable for, common stocks. However, up to 35% of the value of its total
assets may be invested in preferred stocks. In addition, a portion of the
Short/Intermediate Fund may, from time to time, be invested in income
participation loans and participation certificates in pools of mortgages issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Some of the securities in which the Short/Intermediate Fund invests may have
warrants or options attached. Under current market conditions, the
Short/Intermediate Fund expects to maintain a dollar-weighted average portfolio
maturity of two to five years. For purposes of calculating such average
maturity, the maturity of each instrument will be its ultimate maturity date,
unless it is probable the issuer will take advantage of a maturity-shortening
device such as a call, refunding or redemption provision, in which case the
probable date of use of such device will be used.
Under normal market conditions, the Fixed Income Fund will invest at least 65%
of the value of its total assets in investment grade fixed income securities
consisting of bonds, debentures, notes, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, and fixed income
securities convertible into, or exchangeable for, common stocks. However, up
to 35% of the value of its total assets may be invested in preferred stocks.
In addition, a portion of the Fixed Income Fund may, from time to time, be
invested in income participation loans and participation certificates in pools
of mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Some of the securities in which the Fixed Income Fund
invests may have warrants or options attached.
The Short/Intermediate Fund and the Fixed Income Fund each also expect to
invest in bonds, notes and debentures of a wide range of U.S. corporate
issuers. Such obligations, in the case of debentures, will represent unsecured
promises to pay, and in the case of notes and bonds, may be secured by
mortgages on real property or security interests in personal property and will
in most cases differ in their interest rates, maturities and times of issuance.
The Short/Intermediate Fund and the Fixed Income Fund will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating groups for
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<PAGE> 22
corporate debt securities assigned by one or more appropriate NRSROs or, if
unrated, which the Adviser deems present attractive opportunities and are of
comparable quality. For a description of the ratings of the NRSROs, see the
Appendix to the Statement of Additional Information. For a discussion of debt
securities rated within the fourth highest rating group assigned by the NRSROs,
see "Risk Factors" herein.
The Short/Intermediate Fund and the Fixed Income Fund may each also invest in
short-term obligations (with maturities of 12 months or less) consisting of
domestic and foreign commercial paper (including variable amount master demand
notes), bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
agreements. The Short/-Intermediate Fund and the Fixed Income Fund may also
each invest in securities of investment companies holding themselves out as
"money market" funds, subject to the limitations described more fully below.
The Short/Intermediate Fund and the Fixed Income Fund may each invest in
obligations of the Export-Import Bank of the United States, in U.S. dollar
denominated international bonds for which the primary trading market is in the
United States ("Yankee Bonds"), or for which the primary trading market is
abroad ("Eurodollar Bonds"), and in Canadian Bonds and bonds issued by
institutions organized for a specific purpose, such as the World Bank and the
European Economic Community, by two or more sovereign governments
("Supranational Agency Bonds").
Such Funds may invest in mortgage-related securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities or by nongovernmental
entities which are rated, at the time of purchase, within the four highest bond
rating categories assigned by one or more appropriate NRSROs, or, if unrated,
which the Adviser deems are of comparable quality. Under normal market
conditions, a Fund's investment in mortgage-related securities will not exceed
25% of the value of its total assets. Such mortgage-related securities have
mortgage obligations backing such securities, including among others,
conventional thirty year fixed rate mortgage obligations, graduated payment
mortgage obligations, fifteen year mortgage obligations and adjustable rate
mortgage obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools
are sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgage obligations vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have
an adverse impact on yields for pass-throughs purchased at a premium (i.e., a
price in excess of principal amount) and may involve additional risk of loss of
principal because the premium may
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<PAGE> 23
not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The
Short/Intermediate Fund and the Fixed Income Fund may each purchase
mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield
on such securities. Due to the prepayment feature and the need to reinvest
payments and prepayments of principal at current rates, mortgage-related
securities can be less effective than typical bonds of similar maturities at
maintaining yields during periods of declining interest rates. Like other
fixed income securities, when interest rates rise the value of a
mortgage-related security generally will decline; however, when rates decline
the value of a mortgage-related security with prepayment features may not
increase as much as that of other fixed income securities, as such securities
may be prone to prepayment, which decreases their life. Accordingly, such
securities may be more volatile than other fixed income securities.
Also included among the mortgage-related securities that such Funds may
purchase are collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs"). CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association, and their income streams. Certain CMOs and REMICs are
issued by private issuers. Such securities may be eligible for purchase by the
Short/Intermediate Fund and the Fixed Income Fund if: (1) the issuer has
obtained an exemptive order from the Commission regarding purchases by
investment companies of equity interests of other investment companies, or (2)
such purchase is within the limitations imposed by Section 12 of the 1940 Act.
The Short/Intermediate Fund and the Fixed Income Fund may also invest in
corporate fixed income securities (including bonds, debentures and notes) and
asset-backed securities such as Certificates of Automobile Receivables ("CARs")
and Certificates of Amortized Revolving Debts ("CARDs"), each of which must be
rated at the time of purchase within the four highest rating groups assigned by
one or more appropriate NRSROs. For a description of the fourth highest rating
group, see "Risk Factors" below.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs, asset-backed securities and securitized loan receivables, as
well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity dates.
As a result, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of compliance with stated
maturity policies and calculation of the Short/Intermediate Fund's and the
Fixed Income Fund's weighted average maturity, the effective maturity of such
securities will be used.
An increase in interest rates will generally reduce the value of the
investments in the Short/Intermediate Fund and the Fixed Income Fund, and a
decline in interest rates will generally increase the value of those
investments. Depending upon the prevailing market conditions, the Adviser may
purchase debt securities at a discount from face value, which produces a yield
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<PAGE> 24
greater than the coupon rate. Conversely, if debt securities are purchased at
a premium over face value, the yield will be lower than the coupon rate. In
making investment decisions, the Adviser will consider many factors other than
current yield, including the preservation of capital, maturity, and yield to
maturity.
THE MONEY MARKET FUND
The Money Market Fund invests exclusively in United States dollar-denominated
instruments which the Directors of the Company and the Adviser determine
present minimal credit risks and which at the time of acquisition are rated by
one or more appropriate NRSROs in one of the two highest rating categories for
short-term debt obligations or, if not rated, are determined to be of
comparable quality to those instruments so rated. The Fund will not invest
more than 5% of its assets in securities rated in the second highest category.
All securities or instruments in which the Money Market Fund invests have
remaining maturities of 397 calendar days or less. The dollar-weighted average
maturity of the securities in the Money Market Fund will not exceed 90 days.
The Money Market Fund may invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
obligations which are issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and which are backed by the full faith and credit
of the U.S. Government.
Obligations of the U.S. Treasury include "stripped" U.S. Treasury obligations
such as Treasury Receipts, representing either future interest or principal
payments. Stripped securities are issued at a discount to their "face value"
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are returned to investors.
Obligations of the agencies and instrumentalities of the U.S. Government which
are backed by the full faith and credit of the U.S. Government include those of
the Government National Mortgage Association and of the Export-Import Bank of
the United States. See the discussion of U.S. Government securities above
under "INVESTMENT OBJECTIVES AND POLICIES-The Short/Intermediate Fund and the
Fixed Income Fund."
OTHER INVESTMENT POLICIES
The Funds may also invest in securities described in the following paragraphs
to the extent indicated.
U.S. Government Securities Funds: The Funds may each invest in a variety of
U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, and other obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Obligations of the U.S.
Treasury include "stripped" U.S. Treasury obligations such as Treasury
Receipts, representing either future interest or principal payments. Stripped
securities are issued at a discount to their "face value" and may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. Stripped
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<PAGE> 25
U.S. Treasury obligations will include (1) coupons that have been stripped from
U.S. Treasury bonds, which may be held through the Federal Reserve Bank's
book-entry system called "Separate Trading of Registered Interest and Principal
of Securities" ("STRIPS") or through a program entitled "Coupon Under
Book-Entry Safekeeping" ("CUBES"), or (2) U.S. Treasury securities that are
stripped by investment banks and sold under proprietary names. Securities
stripped by investment banks may not be as liquid as STRIPS and CUBES and are
not viewed by the staff of the Securities and Exchange Commission
("Commission") as U.S. Government securities for purposes of the Investment
Company Act of 1940, as amended (the "1940 Act").
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association and the Federal Home Loan Banks, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Short/Intermediate Fund and the Fixed Income
Fund will invest in the obligations of such agencies or instrumentalities only
when the Adviser believes that the credit risk with respect thereto is minimal.
Repurchase Agreements: Securities held by each of the Funds may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities in exchange for cash from member banks of the Federal
Deposit Insurance Corporation and/or from registered broker-dealers which the
Adviser deems creditworthy under guidelines approved by the Company's Board of
Directors. The seller agrees to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price generally equals the price
paid by a Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. Securities subject to repurchase agreements must be of the same
type and quality as those in which a Fund may invest directly. The seller
under a repurchase agreement will be required to maintain at all times the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest) plus the transaction costs,
including loss of interest, that such Fund reasonably could expect to incur if
the seller defaults. This requirement will be continually monitored by the
Adviser. If the seller were to default on its repurchase obligation or become
insolvent, that Fund would suffer a loss if the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or the disposition of such securities by such Fund were delayed
pending court action. Repurchase agreements are considered to be loans by an
investment company under the 1940 Act. For further information about
repurchase agreements, see "INVESTMENT OBJECTIVES AND POLICIES-Additional
Information on Portfolio Instruments-Repurchase Agreements" in the Statement of
Additional Information.
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<PAGE> 26
Reverse Repurchase Agreements: Each of the Funds may borrow funds for
temporary purposes by entering into reverse repurchase agreements in accordance
with the investment restrictions described below. Pursuant to such agreements,
a Fund would sell certain of its securities to financial institutions such as
banks and broker-dealers, and agree to repurchase them at a mutually
agreed-upon date and price. The Funds intend to enter into reverse repurchase
agreements only to avoid otherwise selling securities during unfavorable market
conditions to meet redemptions. At the time a Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account assets
such as U.S. Government securities or other liquid high-grade debt securities
consistent with such Fund's investment restrictions having a value equal to the
repurchase price (including accrued interest), and will continually monitor the
account to ensure that such equivalent value is maintained at all times.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price at which such Fund is
obligated to repurchase the securities and that the buyer may default on its
obligation to sell such securities back to the Fund. Reverse repurchase
agreements are considered borrowings by an investment company under the 1940
Act. For further information about reverse repurchase agreements, see
"INVESTMENT OBJECTIVES AND POLICIES-Additional Information on Portfolio
Instruments-Reverse Repurchase Agreements" in the Statement of Additional
Information.
Except as otherwise disclosed to the Shareholders of a Fund, the Company will
not execute portfolio transactions through, acquire portfolio securities issued
by, make savings deposits in, or enter into repurchase or reverse repurchase
agreements with the Adviser, Sunstone, or their affiliates, and will not give
preference to the Adviser's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, and reverse repurchase
agreements.
Foreign Securities: Consistent with the foregoing investment policies, each of
the Funds (excluding the Money Market Fund) may invest up to 10% of its assets
in foreign securities, either directly or through the purchase of sponsored and
unsponsored American Depository Receipts ("ADRs"). Unsponsored ADRs may be
less liquid than sponsored ADRs, and there may be less information available
regarding the underlying foreign issuer for unsponsored ADRs. Investment in
foreign securities is subject to special investment risks that differ in some
respects from those related to investments in securities of U.S. domestic
issuers. Such risks include trade balances and imbalances, and related
economic policies, future adverse political, economic and social developments,
the possible imposition of withholding taxes on interest and dividend income,
possible seizure, nationalization, or expropriation of foreign investments or
deposits, currency blockage, less stringent disclosure requirements, the
possible establishment of exchange controls or taxation at the source, or the
adoption of other foreign governmental restrictions. In addition, foreign
branches of U.S. banks, foreign banks and foreign issuers may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of U.S. banks and U.S. domestic issuers, and securities markets in
foreign countries may be structured differently from and may not be as liquid
as the U.S. markets. Where purchases of foreign securities are made in foreign
currencies,
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a Fund may incur currency conversion costs and may be affected favorably or
unfavorably by changes in the value of foreign currencies against the U.S.
dollar.
When-Issued and Delayed-Delivery Transactions: Each Fund may purchase
securities on a when issued or delayed-delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. A Fund will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with and in furtherance of its investment objective and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than that available in the market when delivery takes place. A Fund will
generally not pay for such securities or start earning interest on them until
they are received on the settlement date. When a Fund agrees to purchase such
securities, however, the Custodian will set aside cash or liquid, high grade
debt obligations equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. In when-issued and delayed-delivery transactions, a Fund
relies on the seller to complete the transaction; the seller's failure to do so
may cause such Fund to miss a price or yield considered to be advantageous.
Each Fund's commitments to purchase when-issued securities will not exceed 25%
of the value of its total assets absent unusual market conditions.
Other: In order to generate additional income, each Fund (excluding the Money
Market Fund) may, from time to time, lend its portfolio securities to
broker-dealers, banks, or institutional borrowers of securities. A Fund must
receive 100% collateral in the form of cash or U.S. Government securities.
This collateral will be valued daily by the Adviser. Should the market value
of the loaned securities increase, the borrower must furnish additional
collateral to that Fund. During the time portfolio securities are on loan, the
borrower pays that Fund any dividends or interest received on such securities.
Loans are subject to termination by such Fund or the borrower at any time.
While a Fund does not have the right to vote securities on loan, each Fund
intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. In the event the borrower
would default in its obligations, such Fund bears the risk of delay in recovery
of the portfolio securities and the loss of rights in the collateral. A Fund
will enter into loan agreements only with broker-dealers, banks, or other
institutions that the Adviser has determined are creditworthy under guidelines
established by the Company's Board of Directors.
Consistent with each Fund's investment objective and policies the Equity, Small
Cap Value, Balanced, Short/Intermediate and the Fixed Income Funds each may
also invest up to 10% of the value of its total assets in the securities of
other investment companies, so long as the aggregate value of the shares
acquired from any one such investment company will not exceed 5% of the total
assets of such Fund. A Fund will incur additional expenses due to the
duplication of expenses as a result of investing in mutual funds. In order to
avoid the imposition of additional
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<PAGE> 28
fees as a result of investing in shares of the Money Market Fund, the Adviser,
the Administrator and their affiliates will reduce their fees charged to a Fund
by an amount equal to the fees charged by such service providers based on a
percentage of that Fund's assets attributable to such Fund's investment in the
Money Market Fund. Additional restrictions on the Funds' investments in the
securities of other mutual funds are contained in the Statement of Additional
Information.
Risk Factors: As described above, certain Funds may invest in debt securities
within the fourth highest rating group assigned by one or more appropriate
NRSROs and comparable unrated securities. Although investment grade, these
types of debt securities are considered by Moody's and S&P to have some
speculative characteristics, and are more vulnerable to changes in economic
conditions, higher interest rates or adverse issuer-specific developments which
are more likely to lead to a weaker capacity to make principal and interest
payments than comparable higher rated debt securities.
Should subsequent events cause the rating of a debt security purchased by one
of the Funds to fall below the fourth highest rating category, as the case may
be, the Adviser will consider such an event in determining whether that Fund
should continue to hold that security. The Adviser expects that it would not
retain more than 5% of the assets of any Fund in such downgraded securities.
In no event, however, would that Fund be required to liquidate any such
portfolio security where the Fund would suffer a loss on the sale of such
security.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of that Fund (see
"GENERAL INFORMATION-Miscellaneous").
Each of the Funds will not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities, if, immediately after such purchase: (a) more than
5% of the value of such Fund's total assets would be invested in such
issuer, or (b) such Fund would hold more than 10% of the outstanding
voting securities of such issuer, except that up to 25% of the value
of a Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets that may
be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
2. Purchase any securities which would cause more than 25% of the value
of a Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the
U.S.
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Government or its agencies or instrumentalities, and repurchase
agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their
services. For example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry.
3. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of such Fund's total assets at the time
of its borrowing. A Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) exceed 5% of its
total assets.
4. Make loans, except that each Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its
investment objective and policies, and may enter into repurchase
agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund. Each Fund may not purchase
or otherwise acquire any securities if, as a result, more than 5% of that
Fund's net assets would be invested in securities that are illiquid.
In addition to the above investment restrictions, each Fund is subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES
AND POLICIES-Investment Restrictions" in the Funds' Statement of Additional
Information.
Irrespective of fundamental investment restriction number 1 above, and pursuant
to Rule 2a-7 under the 1940 Act, the Money Market Fund will, with respect to
100% of its total assets, limit its investment in the securities of any one
issuer in the manner provided by such Rule, which limitations are referred to
above under the caption "INVESTMENT OBJECTIVES AND POLICIES-In General."
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced as of
4:00 p.m. (except the Money Market Fund, which is also priced at 11:00 a.m.
Eastern Time) (the "Valuation Time") on each Business Day. A "Business Day" of
a Fund is a day on which the New York Stock Exchange is open for trading and
any other day (other than a day on which no Shares of such Fund are tendered
for redemption and no order to purchase Shares is received) during which there
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<PAGE> 30
is sufficient trading in that Fund's portfolio instruments that its net asset
value per Share might be materially affected. The New York Stock Exchange will
not be open in observation of the following holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Share for purposes of
pricing purchases and redemptions is calculated by dividing the value of all
securities and other assets belonging to a Fund, less the liabilities charged
to that Fund, by the number of that Fund's outstanding Shares. The net asset
value per share of the Equity Fund, the Short/Intermediate Fund and the Fixed
Income Fund will fluctuate as the value of the investment portfolio of a Fund
changes.
The assets in the Money Market Fund are valued based upon the amortized cost
method which the Directors of the Company believe fairly reflects the
market-based net asset value per Share. Pursuant to the rules and regulations
of the Commission regarding the use of the amortized cost method, the Money
Market Fund will maintain a dollar-weighted average portfolio maturity of 90
days or less. Although the Company seeks to maintain the Money Market Fund's
net asset value per Share at $1.00, there can be no assurance that net asset
value will not vary.
The securities of each other Fund will be valued at market value. If market
quotations are not available, securities will be valued by a method which the
Board of Directors believes accurately reflects a fair value. For further
information about valuation of investments, see "NET ASSET VALUE" in the
Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
Distributor: Shares in each Fund are sold on a continuous basis by the
Company's Distributor, Sunstone Financial Group, Inc. The principal office of
the Distributor is 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin
53202. If you wish to purchase Shares, telephone the Company at (800)
OMAHA-03.
Purchases of Shares: Shares may be purchased directly by investors or through
procedures established by the Distributor in connection with requirements of
qualified accounts maintained by or on behalf of certain persons ("Customers")
by the Adviser or its correspondent or affiliated banks (collectively, the
"Banks"). In the case of the Money Market Fund, these procedures may include
instructions under which a Customer's account is "swept" automatically no less
frequently than weekly and amounts in excess of a minimum amount agreed upon by
the Bank and the Customer are invested by the Distributor in Shares of the
Money Market Fund.
Shares of the Funds sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares of the Funds so sold, it
is the responsibility of the particular Bank to transmit purchase or redemption
orders to the Company and to deliver federal funds for purchase on a timely
basis. Beneficial ownership of Shares will be recorded by the Banks and
reflected in the account
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<PAGE> 31
statements provided by the Banks to Customers. A Bank will exercise voting
authority for those Shares for which it is granted authority by the Customer.
Investors may also purchase Shares of the Funds by completing and signing a
Purchase Application and mailing it, together with a check (or other negotiable
bank draft or money order) in at least the minimum initial purchase amount,
payable to the appropriate Fund, to the First Omaha Funds, Inc., P.O. Box
419022, Kansas City, Missouri 64141-6022. Subsequent purchases of Shares of
that Fund may be made at any time by mailing a check (or other negotiable bank
draft or money order) payable to the appropriate Fund, to the above address.
If a Purchase Application has been previously received by the Company,
investors may also purchase Shares by wiring funds to the Funds' Custodian.
Prior to wiring any such funds and in order to ensure that wire orders are
invested promptly, investors must call the Company at (800) OMAHA-03 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Shares of each of the Funds are purchased at the net asset value per Share (see
"VALUATION OF SHARES") next determined after receipt by the Company of an order
to purchase Shares. Purchases of Shares of a Fund will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of that Fund. An order
received prior to the Valuation Time on any Business Day will be executed at
the net asset value determined as of the Valuation Time on the date of receipt.
An order received after the Valuation Time on any Business Day will be executed
at the net asset value determined as of the Valuation Time on the next Business
Day of that Fund.
Minimum Investment: Except as otherwise discussed below under "Auto Invest
Plan," the minimum investment is $500 for the initial purchase of Shares of
each Fund and $50 for subsequent purchases. The subsequent purchase minimum
may be waived if purchases are made in connection with an Individual Retirement
Account ("IRA") and both the initial and subsequent minimum investments may be
waived if purchases are made in connection with a payroll deduction plan.
There is no initial sales charge imposed by the Funds in connection with the
purchase of Shares. Depending upon the terms of a particular Customer's
account, the Banks or their affiliates may charge a Customer account fees for
automatic investment and other cash management services provided in connection
with investment in a Fund. Information concerning these services and any
charges may be obtained from the Banks. This Prospectus should be read in
conjunction with any such information received from the Banks.
Miscellaneous: The Fund reserves the right to reject any order for the
purchase of its Shares in whole or in part. Transactions as a result of the
automatic reinvestment of dividends and capital gains distributions, as well as
the Fund's Auto Invest Plan and Auto Withdrawal Plan transactions, will be
confirmed quarterly on the quarterly statements rather than after each
transaction.
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<PAGE> 32
Shareholders wishing to confirm these transactions before the end of a calendar
quarter may do so by calling the Fund at 1-800-OMAHA-03 after the date of the
transaction. Dividends are reinvested monthly - generally during the last week
of each month. Auto Invest Plan and Auto Withdrawal Plan transactions occur in
accordance with the Shareholder's instructions when establishing these plans.
Every Shareholder will receive a confirmation of each new transaction in his or
her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. These confirmations will include all
account activity during the current year. Reports of transactions by Banks on
behalf of their Customers will be sent by the Banks to their Customers.
Shareholders may rely on these statements in lieu of certificates.
Certificates representing Shares will not be issued.
Auto Invest Plan: The Company's Auto Invest Plan enables Shareholders to make
regular monthly or quarterly purchases of Shares of a Fund through automatic
deduction from their bank accounts, provided that the Shareholder's bank is a
member of the Federal Reserve and the Automated Clearing House (ACH) system.
With Shareholder authorization the Transfer Agent will deduct the amount
specified (subject to the applicable minimums) from the Shareholder's bank
account which proceeds will automatically be invested in Shares of the
designated Fund at the public offering price on the date of such deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $100; the minimum amount for subsequent investments is $50. To
participate in the Auto Invest Plan, Shareholders should complete the
appropriate section of the Purchase Application which can be acquired by
calling the Company at (800) OMAHA-03. For a Shareholder to change the Auto
Invest instructions, the request must be made in writing to the Company at:
P.O. Box 419022, Kansas City, Missouri 64141-6022.
Exchange Privilege: Shares of a Fund may be exchanged without payment of any
fees for Shares of each of the other First Omaha Funds at respective net asset
values, provided the amount to be exchanged meets the applicable minimum
investment requirements and the exchange is made in states where it is legally
authorized. An exchange is considered a sale of Shares and will result in a
capital gain or loss for federal income tax purposes.
A Shareholder wishing to exchange his or her Shares may do so by contacting the
Company at (800) OMAHA-03 or by providing written instructions to the Company.
Any Shareholder who wishes to make an exchange should review information in the
Company's current Prospectus regarding the First Omaha Fund in which he or she
wishes to invest before making the exchange. For a discussion of risks
associated with unauthorized telephone exchanges, see "Redemption by Telephone"
below.
The Company reserves the right to modify or terminate the expanded exchange
privilege upon 60 days written notice to each Shareholder prior to the
modification or termination taking effect.
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<PAGE> 33
Redemption of Shares: Shares may ordinarily be redeemed by mail or by
telephone. However, all or part of a Customer's Shares may be redeemed in
accordance with instructions and limitations pertaining to his or her account
at a Bank. For example, if a Customer has agreed with a Bank to maintain a
minimum balance in his or her account with the Bank, and the balance in that
account falls below that minimum, the Customer may be obliged to redeem, or the
Bank may redeem on behalf of the Customer, all or part of the Customer's Shares
of a Fund to the extent necessary to maintain the required minimum balance.
The minimum balance required by any such Bank may be higher than the minimum
required by the Company.
Redemption by Mail: A written request for redemption must be received by the
Transfer Agent in order to honor the request. The Transfer Agent's address is:
First National Bank of Omaha, P.O. Box 419022, Kansas City, Missouri
64141-6022. The Transfer Agent will require a signature guarantee by an
eligible guarantor institution. The signature guarantee requirement will be
waived if the following conditions apply: (1) the redemption check is payable
to the Shareholder(s) of record, and (2) the redemption check is mailed to the
Shareholder(s) at the address of record or mailed or wired to a commercial bank
account previously designated on the Purchase Application. There is no charge
for having redemption proceeds mailed to a designated bank account. To change
the address to which a redemption check is to be mailed, a written request
therefor must be received by the Transfer Agent. In connection with such
request, the Transfer Agent will require a signature guarantee by an eligible
guarantor institution. For purposes of this policy, the term "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Act of 1934. The
Transfer Agent reserves the right to reject any signature guarantee if: (1) it
has reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000.
Redemption by Telephone: If a Shareholder has so designated on the Purchase
Application, a Shareholder may request the redemption of Shares by telephone
and have the payment of redemption requests sent through ACH to a federally
insured depository account previously designated by the Shareholder on the
Purchase Application or mailed directly to the Shareholder at the Shareholder's
address as recorded by the Transfer Agent. If you have payment sent through
ACH, please allow 24 to 48 hours for available funds. There is currently no
charge for having payment of redemption requests mailed or sent through ACH to
a designated bank account. Such ACH redemption requests may be made by the
Shareholder by telephone to the Company. For telephone redemptions, call the
Company at (800) OMAHA-03.
Neither the Funds nor their service providers will be liable for any loss,
damages, expense or cost arising out of any telephone redemption effected in
accordance with the Funds' telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. Each Fund will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, such Fund or its
service providers may be liable
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<PAGE> 34
for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all telephone conversations, sending confirmations
to Shareholders within 72 hours of the telephone transaction, verification of
account name and account number or tax identification number, and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, Shareholders may also mail the redemption
request to the Transfer Agent at the address listed above under "HOW TO
PURCHASE AND REDEEM SHARES-Redemption by Mail."
Auto Withdrawal Plan: The Auto Withdrawal Plan enables Shareholders of each of
the Funds to make regular monthly or quarterly redemptions of Shares. With
Shareholder authorization, the Transfer Agent will automatically redeem Shares
at the net asset value on the dates of the withdrawal and have a check in the
amount specified mailed to the Shareholder. The required minimum withdrawal is
$100. To participate in the Auto Withdrawal Plan, Shareholders should call
(800) OMAHA-03 for more information. Purchases of additional Shares concurrent
with withdrawals may be disadvantageous to certain Shareholders because of tax
liabilities. For a Shareholder to change the Auto Withdrawal instructions, the
request must be made in writing to the Company.
Payments to Shareholders: Redemption orders are effected at the net asset
value per Share next determined after the Shares are properly tendered for
redemption, as described above. Payment to Shareholders for Shares redeemed
will be made within seven days after receipt by the Distributor of the request
for redemption. However, to the greatest extent possible, a Fund will attempt
to honor requests from Shareholders for next day payments upon redemption of
Shares if the request for redemption is received by the Distributor before 4:00
p.m. (11:00 a.m. for the Money Market Fund), Eastern Time, on a Business Day
or, if the request for redemption is received after 4:00 p.m. (11:00 a.m. for
the Money Market Fund), Eastern Time, to honor requests for payment on the
second Business Day, unless it would be disadvantageous to that Fund or the
Shareholders of that Fund to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner.
At various times, the Company may be requested to redeem Shares for which it
has not yet received good payment. In such circumstances, the Company may
delay the forwarding of proceeds for up to 15 days until payment has been
collected for the purchase of such Shares. The Company intends to pay cash for
all Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Company may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price, which portfolio
securities may or may not be liquid. In such cases, an investor may incur
brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, each Fund
reserves the right to redeem, at net asset value, the Shares of that Fund of
any Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market prices
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<PAGE> 35
of such Shares or the establishment of an account with less than $500 using the
Auto Invest Plan or pursuant to a payroll deduction plan), the account of such
Shareholder has a value of less than $500. Accordingly, an investor purchasing
Shares of a Fund in only the minimum investment amount may be subject to such
involuntary redemption if he or she thereafter redeems some of his or her
Shares. Before a Fund exercises its right to redeem such Shares and to send
the proceeds to the Shareholder, the Shareholder will be given notice that the
value of the Shares in his or her account is less than the minimum amount and
will be allowed 60 days to make an additional investment in an amount which
will increase the value of the account to at least $500.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Company may suspend the right
of redemption in light of the Company's responsibilities under the 1940 Act.
DIVIDENDS AND TAXES
Dividends: The net investment income of each Fund is declared monthly as a
dividend to Shareholders (except for the Money Market Fund, which declares
income dividends daily). Such dividends are generally declared at the close of
business on the day of declaration and paid monthly. Distributable net
realized capital gains are distributed at least annually. A Shareholder of a
Fund will automatically receive all distributions in additional full and
fractional Shares of that Fund at the net asset value as of the date of payment
unless the Shareholder elects to receive such dividends in cash. Such
election, or any revocation thereof, must be made in writing to the appropriate
Fund, addressed to the First Omaha Funds, Inc., P.O. Box 419022, Kansas City,
Missouri 64141-6022, and will become effective with respect to dividends having
record dates after its receipt by the Transfer Agent. Dividends are paid in
cash not later than seven Business Days after a Shareholder's complete
redemption of the Shares in a Fund.
Federal Taxes: Each of the Funds of the Company is treated as a separate
entity for federal income tax purposes and each intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), for so long as such qualification is in the best interest
of such Fund's Shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that the regulated investment
company distribute to its Shareholders at least 90% of its investment company
taxable income. Each Fund contemplates declaring as dividends 100% of that
Fund's investment company taxable income (before deduction of dividends paid).
Because all of the Money Market Fund's net investment income is expected to be
derived from earned interest and short-term capital gains, it is anticipated
that no part of any distribution will be eligible for the dividends-received
deduction for corporations. The Money Market Fund does not expect to realize
any long-term capital gains and, therefore, does not foresee paying any
"capital gains dividends" as described in the Code.
In order to avoid the imposition of an excise tax, each Fund is required to
distribute annually, prior to calendar year end, 98% of taxable ordinary income
on a calendar year basis, 98% of
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<PAGE> 36
capital gain net income realized in the 12 months preceding October 31, and the
balance of undistributed taxable ordinary income and capital gain net income
from the prior calendar year. If distributions during the calendar year are
less than the required amounts, that Fund would be subject to a nondeductible
4% excise tax on the deficiency.
A Shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term capital loss would treat it as a
receipt of ordinary income even if paid in additional Shares and not in cash.
Shareholders not subject to federal income tax on their income will not,
however, be required to pay federal income tax on any amounts distributed to
them. The dividends-received deduction for corporations will apply to the
aggregate of such ordinary income distributions in the same proportion as the
aggregate dividends, if any, qualifying for the dividends-received deduction
received by a Fund bear to its gross income.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to Shareholders as long-term capital gain in
the year in which it is received, regardless of how long the Shareholder has
held shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a Share is reduced below the Shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although
taxable as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of
such dividends or distributions, although in effect a return of capital, is
subject to tax.
State Taxes: Even though a substantial portion of distributions of net income
by the Money Market Fund to its Shareholders, and lesser amounts of
distributions to other Fund Shareholders, will be attributable to interest on
U.S. Treasury obligations, which may be exempt from state or local tax if
received directly by a Shareholder, Shareholders of a Fund may be subject to
state and local taxes with respect to their ownership of Shares or their
receipt of distributions from such Fund. In addition, to the extent
Shareholders receive distributions of income attributable to investments in
repurchase agreements by a Fund, such distribution may also be subject to state
or local taxes.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting each Fund and its Shareholders. Potential
investors in each Fund are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
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Shareholders will be advised at least annually as to the income tax
consequences of distributions made to them during the year.
MANAGEMENT OF THE COMPANY
Directors of the Company: Overall responsibility for management of the Company
rests with the Board of Directors, who are elected by the Shareholders of the
Company's Funds. The Company will be managed by the Directors in accordance
with the laws of Nebraska governing corporations. The Directors, in turn,
elect the officers of the Company to supervise the day-to-day operations.
The Directors receive fees and are reimbursed for their expenses in connection
with each meeting of the Board of Directors they attend. The officers of the
Company receive no compensation directly from the Company for performing the
duties of their offices. Sunstone receives fees from each of the Funds for
acting as Administrator and for providing certain fund accounting services.
Investment Adviser: First National Bank of Omaha, One First National Center,
Omaha, Nebraska 68102, is the investment adviser of each of the Funds. The
Adviser is a subsidiary of First National of Nebraska, a Nebraska corporation,
with total assets of approximately $___ billion as of December 31, 1995. The
Adviser provides a full range of financial and trust services to businesses,
individuals, and government entities and has been providing quality trust and
investment management service for over 60 years. The Adviser serves Nebraska,
as well as other areas of the Midwest. In addition, as of December 31, 1995,
the Adviser's Trust Division had approximately $___ billion of assets under
administration, including approximately $___ billion under management.
Subject to the general supervision of the Company's Board of Directors and in
accordance with the Funds' investment objectives and restrictions, the Adviser
manages the investments of each Fund, makes decisions with respect to and
places orders for all purchases and sales of each Fund's portfolio securities,
and maintains each Fund's records relating to such purchases and sales. All
investment decisions for each Fund are made by an investment committee, and no
person is primarily responsible for making recommendations to that committee.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Company, the Adviser receives a fee from the Equity
Fund, the Small Cap Value Fund, Balanced Fund, the Short/Intermediate Fund, the
Fixed Income Fund and the Money Market Fund, computed daily and paid monthly,
equal to the lesser of: (1) a fee at the annual rate of seventy-five
one-hundredths of one percent (.75%), eighty-five one-hundredths of one percent
(.85%), seventy-five one-hundredths of one percent (.75%), fifty
one-hundredths of one percent (.50%), sixty one-hundredths of one percent
(.60%) and twenty-five one-hundredths of one percent (.25%), respectively, of
that Fund's average daily net assets, or (2) such other fee as may be agreed
upon in writing from time to time by the Company and the Adviser. Investment
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<PAGE> 38
advisory fees of seventy-five one-hundredths of one percent (.75%) and higher
are higher than similar fees charged by most other mutual funds. The Adviser
may periodically voluntarily reduce all or a portion of its advisory fee with
respect to a Fund to increase the net income of that Fund available for
distribution as dividends. The Adviser may not seek reimbursement of such
voluntarily reduced fees at a later date. The reduction of such fee will cause
the yield and total return of that Fund to be higher than it would be in the
absence of such reduction.
Administrator and Distributor: Sunstone Financial Group, Inc. (the
"Administrator" or the "Distributor," as the context indicates), acts as
administrator and distributor for each of the Funds. Shares of the Funds are
sold by the Distributor on a continuous basis. As compensation for its
administrative services (which include clerical, compliance, regulatory, fund
accounting and other services) and the assumption of related expenses, the
Administrator is entitled to a fee, computed daily and payable monthly, at an
annual rate of .20% of each Fund's average net assets subject to a minimum fee
of $300,000 for the Equity, Short/Intermediate, Fixed Income and Money Market
Funds in the aggregate and to a minimum fee of $50,000 for each of the Small
Cap Value and Balanced Funds.
The Administrator may periodically voluntarily reduce all or a portion of its
administrative fee with respect to one or more Funds. These waivers may be
terminated at any time at the Administrator's discretion. The Administrator
may not seek reimbursement of such voluntarily reduced fees at a later date.
The reduction of such fee will cause the yield of that Fund to be higher than
it would be in the absence of such reduction. The Distributor receives no
compensation from the Funds under its Distribution Agreement with the Company,
but may receive compensation under the Distribution and Service Plan described
below.
Expenses: The Adviser and the Administrator each bear all expenses in
connection with the performance of their services as investment adviser and
administrator, respectively, other than the cost of securities (including
brokerage commissions, and issue and transfer taxes, if any) purchased for a
Fund. Each Fund will bear the following expenses relating to its operations:
organizational expenses, taxes, interest, any brokerage fees and commissions,
fees and expenses of the Directors of the Company, Commission fees, state
securities qualification fees, costs of preparing and printing Prospectuses for
regulatory purposes and for distribution to its current Shareholders, outside
auditing and legal expenses, advisory and administration fees, fees and
out-of-pocket expenses of the Administrator, Custodian and Transfer Agent,
costs for independent pricing service, certain insurance premiums, costs of
maintenance of the Company's existence, costs of Shareholders' and Directors'
reports and meetings, distribution expenses incurred pursuant to the
Distribution and Service Plan described below, and any extraordinary expenses
incurred in a Fund's operation.
Distribution Plan: Pursuant to Rule 12b-l under the 1940 Act, the Company has
adopted a Distribution and Service Plan (the "Plan"), under which each Fund is
authorized to pay a periodic amount representing distribution expenses
calculated at an annual rate not to exceed twenty-five one-hundredths of one
percent (.25%) of the average daily net assets of that Fund. Such amount
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<PAGE> 39
may be used to pay banks (including the Adviser), broker-dealers and other
institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between the Distributor
and the Participating Organization. Under the Plan, a Participating
Organization may include the Distributor, its subsidiaries and its affiliates.
As of the date of this Prospectus, however, there are no Rule 12b-l Agreements
in effect under the Plan with respect to the Funds, and no fees are being paid
by any Fund under the Plan.
Administrative Services Plan: The Company has adopted an Administrative
Services Plan (the "Services Plan") pursuant to which each Fund is authorized
to pay compensation to banks and other financial institutions, which may
include the Adviser, its correspondent and affiliated banks, and Sunstone (each
a "Service Organization"), which agree to provide certain ministerial, record
keeping and/or administrative support services for their customers or account
holders (collectively, "customers") who are the beneficial or record owner of
Shares of that Fund. In consideration for such services, a Service
Organization receives a fee from a Fund, computed daily and paid monthly at an
annual rate of up to twenty-five one-hundredths of one percent (.25%) of the
average daily net asset value of Shares of that Fund owned beneficially or of
record by such Service Organization's customers for whom the Service
Organization provides such services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, record keeping and/or administrative support
services with respect to the beneficial or record owners of Shares of the
Funds, such as processing dividend and distribution payments from the Fund on
behalf of customers, providing periodic statements to customers showing their
positions in the Shares of the Fund, providing sub-accounting with respect to
Shares beneficially owned by such customers and providing customers with a
service that invests the assets of their accounts in Shares of the Fund
pursuant to specific or pre-authorized instructions.
As authorized by the Services Plan, the Company has entered into a Servicing
Agreement with the Adviser pursuant to which the Adviser has agreed to provide
certain administrative support services in connection with Shares of the Funds
owned of record or beneficially by its customers. Such administrative support
services may include, but are not limited to: (1) processing dividend and
distribution payments from a Fund on behalf of customers; (2) providing
periodic statements to its customers showing their positions in the Shares; (3)
arranging for bank wires; (4) responding to routine customer inquiries relating
to services performed by the Adviser; (5) providing sub-accounting with respect
to the Shares beneficially owned by the Adviser's customers or the information
necessary for sub-accounting; (6) if required by law, forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
its customers; (7) aggregating and processing purchase, exchange and redemption
requests from customers and placing net purchase, exchange and redemption
orders for customers; and (8) providing customers with a service that invests
the assets of their account in the Shares pursuant to specific or
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<PAGE> 40
pre-authorized instructions. In consideration of such services, the Company,
on behalf of each of the Funds, may pay the Adviser a monthly fee, computed at
the annual rate of twenty-five one-hundredths of one percent (.25%) of the
average aggregate net asset value of Shares of that Fund held during the period
by customers for whom the Adviser has provided services under the Servicing
Agreement. However, the Servicing Agreement with the Adviser provides that no
payments may be made under the Services Plan until such time as the Board of
Directors of the Company authorizes the commencement of such payments. The
Adviser may periodically voluntarily reduce all or a portion of its
administrative services fee with respect to a Fund to increase the net income
of that Fund available for distribution as dividends. The reduction of such
fee will cause the yield and total return of that Fund to be higher than they
would be in the absence of such reduction.
Banking Laws: The Adviser believes that it possesses the legal authority to
perform the services for each Fund contemplated by the Plan adopted by the
Company, its Investment Advisory Agreement and its Custodian Agreement with the
Company and administrative support services contemplated by the Servicing
Agreement with the Company, as described in this Prospectus, without violation
of applicable banking laws and regulations, and has so represented in its
Investment Advisory Agreement, its Servicing Agreement and its Custodian
Agreement with the Company. Future changes in federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which the Adviser could continue to
perform such services for the Funds. It is not anticipated, however, that any
change in the Company's method of operations would affect its net asset value
per Share or result in financial losses to any Shareholder. See "MANAGEMENT OF
THE COMPANY-Glass-Steagall Act" in the Statement of Additional Information for
further discussion of applicable law and regulations.
GENERAL INFORMATION
Description of the Company and Its Shares: The Company was organized as a
Nebraska corporation on October 12, 1994. The Company and its Equity Fund,
Short/Intermediate Fund, Fixed Income Fund and Money Market Fund were organized
to acquire the assets and continue the business of the corresponding
substantially identical investment portfolios of The Sessions Group, an Ohio
business trust. References herein to the "immediate predecessor" of a Fund
refer to the investment portfolio of The Sessions Group which corresponds to
such Fund. On April 10, 1995 the Company acquired approximately $326.0 million
of assets from The Sessions Group in return for an equivalent dollar amount of
Shares of the Company. The Small Cap Value Fund was added and became effective
on March 29, 1996. The Balanced Fund became operational on the date of this
Prospectus. Each Share of a Fund represents an equal proportionate interest in
that Fund with other Shares of the same Fund, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared at the discretion of the Directors (see "Miscellaneous" below).
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<PAGE> 41
The Articles of Incorporation of the Company permit the Company, by resolution
of its Board of Directors, to create new series of common shares relating to
new investment portfolios or to subdivide existing series of Shares into
subseries or classes. Classes could be utilized to create differing expense
and fee structures for investors in the same Fund. Differences could exist,
for example, in the sales load, Rule 12b-1 fees or service plan fees applicable
to different classes of Shares offered by a particular Fund. Such an
arrangement could enable the Company to tailor its marketing efforts to a
broader segment of the investing public with a goal of attracting additional
investments in the Funds.
While the Board of Directors of the Company has not created any such subseries
or classes, it could do so in the future without Shareholder approval.
However, any such creation of classes would require compliance with regulations
the Commission has adopted under the 1940 Act.
Shareholders are entitled to one vote for each Share owned and a proportionate
fractional vote for any fraction of a Share owned, and will vote in the
aggregate and not by series or Fund except as otherwise expressly required by
law. For example, Shareholders of each of the Funds will vote in the aggregate
with other Shareholders of the Company with respect to the election of
Directors and ratification of the selection of independent accountants.
However, Shareholders of each of the Funds will vote as a series, and not in
the aggregate with other Shareholders of the Company, for purposes of approval
of such Fund's Investment Advisory Agreement and the Plan. In connection with
any election of Directors, Shareholders are entitled to cumulate their votes by
casting the number of votes equal to the number of directorships being filled
multiplied by the number of Shares held, and to cast all of such votes for one
candidate or to distribute them among several candidates as the Shareholder
sees fit.
As of June 30, 1996, Miriam M. Allison owned 100% of the outstanding
shares of the Balanced Fund. It is anticipated that subsequent to the date
hereof and the commencement of the public offering of the shares of the
Balanced Fund that Ms. Allison's holdings will be reduced to less than 5% of
the total Shares outstanding of the Balanced Fund. The Adviser will possess,
in a fiduciary capacity on behalf of its underlying accounts, voting or
investment power with respect to a substantial majority of the outstanding
Shares of each of the Funds and therefore, will be presumed to control each of
the Funds within the meaning of the 1940 Act.
Overall responsibility for the management of each of the Funds is vested in the
Board of Directors of the Company. See "MANAGEMENT OF THE COMPANY-Directors
and Officers." Individual Directors are elected by the Shareholders of the
Company and may be removed by the Board of Directors or Shareholders of the
Company in accordance with the provisions of the Articles of Incorporation and
Bylaws of the Company and Nebraska law. See "ADDITIONAL
INFORMATION-Miscellaneous" in the Statement of Additional Information for
further information.
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<PAGE> 42
An annual or special meeting of Shareholders to conduct necessary business is
not required by the Articles of Incorporation, the 1940 Act or other authority
except, under certain circumstances, to elect Directors, amend the Articles of
Incorporation, the Investment Advisory Agreement, the Plan or a Fund's
fundamental policies and to satisfy certain other requirements. To the extent
that such a meeting is not required, the Company may elect not to have an
annual or special meeting. However, the Company has undertaken to hold a
meeting of Shareholders to consider the removal of any Director if requested by
the holders of at least 10% of the Company's outstanding Shares.
Custodian: First National Bank of Omaha (the "Custodian") serves as Custodian
for each of the Funds. Pursuant to the Custodian Agreement with the Company,
the Custodian receives compensation from each of the Funds for such services in
an amount equal to a fee, computed daily and paid monthly, at the annual rate
of three one-hundredths of one percent (.03%) of each Fund's average daily net
assets.
Transfer Agency Services: First National Bank of Omaha, One First National
Center, Omaha, Nebraska 68102, serves as the Funds' Transfer Agent pursuant to
a Transfer Agency Agreement with the Company. Pursuant to such Agreement, the
Transfer Agent, among other things, provides, or agrees to cause others to
provide, the following services in connection with each Fund's Shareholders of
record: maintenance of shareholder records for each of the Fund's Shareholders
of record; processing shareholder purchase and redemption orders; processing
transfers and exchanges of shares of the Fund on the shareholder files and
records; processing dividend payments and reinvestments; and assistance in the
mailing of shareholder reports and proxy solicitation materials. For such
services First National Bank of Omaha receives a fee from the Funds based on
the number of Shareholders of record, subject to certain minimum amounts from
each Fund.
DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105, serves as
sub-transfer agent for the Funds pursuant to a Sub-Transfer Agency Agreement
with First National Bank of Omaha. DST Systems, Inc. performs the principal
services as Transfer Agent for the Funds under such Agreement and receives a
fee from First National Bank of Omaha for such services.
Miscellaneous: Shareholders will receive unaudited semi-annual reports and
annual reports audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a Fund" means the consideration received by a Fund upon
the issuance or sale of shares in that fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale, exchange, or liquidation of such investments, and
any funds or amounts derived from any reinvestment of such proceeds, and any
general assets of the Company not readily identified as belonging to a
particular Fund that are allocated to such Fund by the Company's Board of
Directors. The Board of Directors may allocate such general assets in any
manner it deems fair and equitable. Determinations by the Board of Directors
of the
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<PAGE> 43
Company as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect
to the Funds are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of: (1) 67% or
more of the votes of Shareholders of a Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
such Fund are represented in person or by proxy, or (2) the holders of more
than 50% of the outstanding Shares of a Fund.
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<PAGE> 44
INVESTMENT ADVISER AND CUSTODIAN
First National Bank of Omaha
Attention: Trust Division
One First National Center
Omaha, Nebraska 68102
ADMINISTRATOR AND DISTRIBUTOR
Sunstone Financial Group, Inc.
207 E. Buffalo St., Suite 400
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Cline, Williams, Wright, Johnson & Oldfather
13th & M Streets
Lincoln, Nebraska 68508
AUDITORS
KPMG Peat Marwick LLP
Two Central Park Plaza, Suite 1501
Omaha, Nebraska 68102
For more information
call 1-800-OMAHA-03
or write to:
First Omaha Funds
P.O. Box 419022
Kansas City, Missouri 64141-6022
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<PAGE> 45
First Omaha U.S. Government Obligations Fund
First Omaha Equity Fund
First Omaha Small Cap Value Fund
First Omaha Balanced Fund
First Omaha Short/Intermediate Fixed Income Fund
First Omaha Fixed Income Fund
Each an Investment Portfolio of
FIRST OMAHA FUNDS, INC.
Statement of Additional Information
July 29, 1996
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus (the "Prospectus") of First Omaha U.S.
Government Obligations Fund (the "Money Market Fund"), First Omaha Equity Fund
(the "Equity Fund"), First Omaha Small Cap Value Fund ("Small Cap Value Fund"),
First Omaha Balanced Fund ("Balanced Fund") First Omaha Short/Intermediate
Fixed Income Fund (the "Short/Intermediate Fund"), and First Omaha Fixed Income
Fund (the "Fixed Income Fund") (the Money Market Fund, the Equity Fund, the
Small Cap Value Fund, the Balanced Fund, the Short/Intermediate Fund and the
Fixed Income Fund hereinafter collectively referred to as the "Funds" and
singly, a "Fund") dated as of the date hereof. The Funds are each separate
investment portfolios of First Omaha Funds, Inc. (the "Company"). This
Statement of Additional Information is incorporated in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing the Company,
P.O. Box 419022, Kansas City, Missouri, 64141-6022, or by telephoning toll free
(800) OMAHA-03.
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<PAGE> 46
TABLE OF CONTENTS
Page
----
THE COMPANY ............................................................ B-3
INVESTMENT OBJECTIVES AND POLICIES ..................................... B-3
Additional Information on Portfolio Instruments .................... B-3
Investment Restrictions ............................................ B-12
Portfolio Turnover ................................................. B-14
NET ASSET VALUE ........................................................ B-15
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ......................... B-16
MANAGEMENT OF THE COMPANY .............................................. B-17
Directors and Officers ............................................. B-17
Investment Adviser ................................................. B-19
Portfolio Transactions ............................................. B-20
Glass-Steagall Act ................................................. B-21
Administrator/Fund Accountant ...................................... B-22
Expenses ........................................................... B-24
Distributor ........................................................ B-24
Administrative Services Plan ....................................... B-25
Custodian .......................................................... B-26
Transfer Agency Services ........................................... B-27
Auditors ........................................................... B-27
Legal Counsel ...................................................... B-27
ADDITIONAL INFORMATION ................................................. B-28
Organization and Capital Structure ................................. B-28
Shareholder Meetings ............................................... B-28
Ownership of Shares ................................................ B-29
Vote of a Majority of the Outstanding Shares ....................... B-29
Additional Tax Information ......................................... B-29
Yield of the Money Market Fund ..................................... B-30
Yield of the Short/Intermediate Fund and the Fixed Income Fund ..... B-31
Calculation of Total Return ........................................ B-31
Distribution Rates ................................................. B-32
Performance Comparisons ............................................ B-32
Miscellaneous ...................................................... B-33
Financial Statements ............................................... B-33
APPENDIX ............................................................... A-1
FINANCIAL STATEMENTS
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<PAGE> 47
STATEMENT OF ADDITIONAL INFORMATION
THE COMPANY
First Omaha Funds, Inc. (the "Company") is an open-end management
investment company which currently offers six diversified investment
portfolios: First Omaha U.S. Government Obligations Fund (the "Money Market
Fund"), First Omaha Equity Fund (the "Equity Fund"), First Omaha Small Cap
Value Fund ("Small Cap Value Fund"), First Omaha Balanced Fund ("Balanced
Fund"), First Omaha Short/Intermediate Fixed Income Fund (the
"Short/Intermediate Fund"), and First Omaha Fixed Income Fund (the "Fixed
Income Fund") (the Money Market Fund, the Equity Fund, the Small Cap Value
Fund, the Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund
hereinafter collectively referred to as the "Funds" and singularly referred to
as "Fund").
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the Funds.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of a Fund should be made without first reading such Fund's
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objective and policies of
each Fund as set forth in the Prospectus for such Fund.
Bank Obligations. Each of the Equity Fund, the Small Cap Value Fund, the
Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund may invest
in bank obligations such as bankers' acceptances, certificates of deposit, and
demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Bankers' acceptances
invested in by the Funds will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and
demand and time deposits will be those of domestic and foreign banks and
savings and loan associations, if (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b)
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<PAGE> 48
the principal amount of the instrument is insured in full by the Federal
Deposit Insurance Corporation.
The Equity Fund, the Small Cap Value Fund, the Balanced Fund, the
Short/Intermediate Fund and the Fixed Income Fund may also invest in Eurodollar
Certificates of Deposit, which are U.S. dollar denominated certificates of
deposit issued by offices of foreign and domestic banks located outside the
United States; Yankee Certificates of Deposit, which are certificates of
deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars
and held in the United States; Eurodollar Time Deposits ("ETDs"), which are
U.S. dollar denominated deposits in a foreign branch of a U. S. bank or a
foreign bank; and Canadian Time Deposits, which are basically the same as ETDs
except they are issued by Canadian offices of major Canadian banks.
Commercial Paper. Commercial paper consists of unsecured promissory notes
issued by corporations. Except as noted below with respect to variable amount
master demand notes, issues of commercial paper normally have maturities of
less than nine months and fixed rates of return.
The Equity Fund, the Small Cap Value Fund, the Balanced Fund, the
Short/Intermediate Fund and the Fixed Income Fund may invest in commercial
paper which need not be rated by any nationally recognized rating agency or if
rated, may be rated in any rating category. In general, investment in
lowerrated instruments is more risky than investment in instruments in
higher-rated categories. The Equity Fund, the Small Cap Value Fund, the
Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund may also
invest in Canadian commercial paper, which is commercial paper issued by a
Canadian corporation or a Canadian counterpart of a U.S. corporation, and in
Europaper, which is U.S. dollar denominated commercial paper of a foreign
issuer.
Variable Amount Master Demand Notes. Variable amount master demand notes,
in which the Equity Fund, the Small Cap Value Fund, the Balanced Fund, the
Short/Intermediate Fund and the Fixed Income Fund may invest, are unsecured
demand notes that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate according to the terms of the
instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. The Adviser will consider the earning power,
cash flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next interest rate adjustment or the period
of time remaining until the principal amount can be recovered from the issuer
through demand. Neither Fund will invest more than 5% of its assets in such
securities.
Foreign Investment. Investments in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including ADRs and
securities purchased on foreign securities exchanges, may subject the Funds to
investment risks that differ in some
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<PAGE> 49
respects from those related to investment in obligations of U.S. domestic
issuers or in U.S. securities markets. Such risks include future adverse
political and economic developments, possible seizure, nationalization, or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, or
the adoption of other foreign governmental restrictions. The Equity Fund, the
Short/Intermediate Fund and the Fixed Income Fund will acquire such securities
only when the Adviser believes the risks associated with such investments are
minimal.
U.S. Government Obligations. Each of the Funds may invest in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, including bills, notes and bonds issued by the U.S.
Treasury. The Money Market Fund may also invest in "stripped" U.S. Treasury
obligations such as Treasury Receipts issued by the U.S. Treasury representing
either future interest or principal payments. Stripped securities are issued
at a discount to their "face value" and may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal
and interest are returned to investors.
Obligations of certain agencies and instrumentalities of the U.S.
Government are supported by the full faith and credit of the U.S. Government,
such as those of the Government National Mortgage Association and the
Export-Import Bank of the United States; others are supported by the right of
the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not obligated to do so by law.
When-Issued Securities. As discussed in the Prospectus of the Funds, each
such Fund may purchase securities on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When a Fund
agrees to purchase securities on a "when-issued" basis, the Custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, the Custodian will set aside portfolio
securities to satisfy the purchase commitment, and in such a case, such Fund
may be required subsequently to place additional assets in the separate account
in order to assure that the value of the account remains equal to the amount of
a Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. In addition, because a
Fund will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described above, a Fund's liquidity and the ability
of the Adviser to manage it might be affected in the event its commitments to
purchase "when-issued" securities ever exceeded 25% of the value of its assets.
When a Fund engages in "when-issued" transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in a Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. Each of the
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<PAGE> 50
Funds will engage in "when-issued" delivery transactions only for the purpose
of acquiring portfolio securities consistent with the Fund's investment
objectives and policies and not for investment leverage.
Mortgage-Related Securities. The Balanced Fund, the Short/Intermediate
Fund and the Fixed Income Fund may, consistent with their respective investment
objective and policies, invest in mortgage-related securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
Mortgage-related securities, for purposes of such Funds' Prospectus and
this Statement of Additional Information, represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association and government-related organizations
such as the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation, as well as by non-governmental issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the
mortgages underlying the securities are prone to prepayment, thereby shortening
the average life of the security and shortening the period of time over which
income at the higher rate is received. Conversely, when interest rates are
rising, the rate of prepayment tends to decrease, thereby lengthening the
average life of the security and lengthening the period of time over which
income at the lower rate is received. For these and other reasons, a
mortgage-related security's average maturity may be shortened or lengthened as
a result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return to the Short/Intermediate Fund and the
Fixed Income Fund. In addition, regular payments received in respect of
mortgage-related securities include both interest and principal. No assurance
can be given as to the return the Funds will receive when these amounts are
reinvested.
The Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund
may also invest in mortgage-related securities which are collateralized mortgage
obligations structured on pools of mortgage pass-through certificates or
mortgage loans. Mortgage-related securities will be purchased only if rated in
the four highest bond rating categories assigned by one or more appropriate
NRSROs, or, if unrated, which the Adviser deems to present attractive
opportunities and are of comparable quality.
B-6
<PAGE> 51
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued
by the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the U.S. Government. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. Mortgage-related securities issued by the Federal National Mortgage
Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates
(also known as "Fannie Maes") which are solely the obligations of the FNMA and
are not backed by or entitled to the full faith and credit of the U.S.
Government. The FNMA is a government-sponsored organization owned entirely by
private stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCS"). The FHLMC
is a corporate instrumentality of the U.S. Government, created pursuant to an
Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed by the U.S. Government or by any Federal Home Loan
Banks and do not constitute a debt or obligation of the U.S. Government or of
any Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment
of interest, which is guaranteed by the FHLMC. The FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When the FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Other Asset-Backed Securities. The Balanced Fund, the Fixed Income Fund
and the Short/Intermediate Fund may also invest in interests in pools of
receivables, such as motor vehicle installment purchase obligations (known as
Certificates of Automobile Receivables or CARs) and credit card receivables
(known as Certificates of Amortizing Revolving Debts or CARDs). Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities may also be debt instruments which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities are not issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; however, the payment of principal and interest
on such obligations may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution (such as a
bank or insurance company) unaffiliated with the issuers of such securities.
Non-mortgage-backed securities will be purchased by the Short/Intermediate Fund
or the Fixed Income Fund only when rated in one of the four highest rating
categories for such securities by one or more appropriate NRSROs at the
B-7
<PAGE> 52
time of purchase. In addition, such securities generally will have remaining
estimated lives at the time of purchase of seven years or less.
The development of these asset-backed securities is at an early state
compared to mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities is not as well developed. The Adviser will limit purchases of
asset-backed securities to securities that are deemed to be readily marketable
by the Adviser at the time of purchase.
Asset-backed securities held by the Balanced Fund, the Short/Intermediate
Fund or Fixed Income Fund arise through the grouping by governmental,
government-related and private organizations of loans, receivables and other
assets originated by various lenders. Interests in pools of these assets differ
from other forms of debt securities, which normally provide for periodic payment
of interest in fixed amounts with principal paid at maturity or specified call
dates. Instead, asset-backed securities provide periodic payments which
generally consist of both interest and principal payments.
The estimated life of an asset-backed security may vary with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an asset-backed security, will be a function
of current market interest rates and other economic and demographic factors.
Since prepayment experience can vary, asset-backed securities may be a less
effective vehicle for locking in high long-term yields. None of these Funds
will invest more than 5% of its assets in such other asset-backed securities.
Medium-Grade Debt Securities. As stated in the Prospectus, the Equity
Fund, the Small Cap Value Fund, the Balanced Fund, the Short/Intermediate Fund
and the Fixed Income Fund may each invest in securities within the four highest
rating groups assigned by one or more appropriate NRSROs, including securities
rated in the fourth highest rating group or, if unrated, judged by the Adviser
to be of comparable quality ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are subject
to credit risk and market risk. Market risk relates to changes in a security's
value as a result of changes in interest rates. Credit risk relates to the
ability of the issuer to make payments of principal and interest. Medium-Grade
Securities are considered by Moody's to have speculative characteristics.
Medium-Grade Securities are generally subject to greater credit risk than
comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the price of Medium-Grade Securities is generally
subject to greater market risk and therefore reacts more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
B-8
<PAGE> 53
Because certain Medium-Grade Securities are traded only in markets where
the number of potential purchasers and sellers, if any, is limited, the ability
of the Equity Fund, the Small Cap Value Fund, the Balanced Fund, the
Short/Intermediate Fund and the Fixed Income Fund to sell such securities at
their fair value either to meet redemption requests or to respond to changes in
the financial markets may be limited.
Particular types of Medium-Grade Securities may present special concerns.
Some Medium-Grade Securities in which the Equity Fund, the Small Cap Value
Fund, the Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund
may invest may be subject to redemption or call provisions that may limit
increases in market value that might otherwise result from lower interest rates
while increasing the risk that such Funds may be required to reinvest
redemption or call proceeds during a period of relatively low interest rates.
The credit ratings issued by NRSROs are subject to various limitations.
For example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade Securities. In certain circumstances,
the ratings may not reflect in a timely fashion adverse developments affecting
an issuer. For these reasons, the Adviser conducts its own independent credit
analysis of Medium-Grade Securities.
Securities of Other Investment Companies. Each of the Equity Fund, the
Small Cap Value Fund, the Balanced Fund, the Short/Intermediate Fund and the
Fixed Income Fund may invest in securities issued by other investment
companies, including in Shares of the Money Market Fund. Each of the Equity
Fund, the Short/Intermediate Fund and the Fixed Income Fund currently intends
to limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by any of
these Funds. Except as described in the Prospectus with respect to an
investment in the Money Market Fund, as a shareholder of another investment
company, such a Fund would bear, along with other shareholders, its pro rata
portion of that company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that that Fund bears
directly in connection with its own operations. Investment companies in which
a Fund may invest, other than the Money Market Fund, may also impose a sales or
distribution charge in connection with the purchase or redemption of their
shares and other types of commissions or charges. Such charges will be payable
by that Fund and, therefore, will be borne directly by shareholders.
Income Participation Loans. The Balanced Fund, the Short/Intermediate
Fund and the Fixed Income Fund may make or acquire participation in privately
negotiated loans to borrowers. Frequently, such loans have variable interest
rates and may be backed by a bank letter of credit; in other cases they may be
unsecured. Such transactions may provide an opportunity to achieve higher
yields than those that may be available from other securities offered and sold
to the general public.
B-9
<PAGE> 54
Privately arranged loans, however, will generally not be rated by a credit
rating agency and will normally be liquid, if at all, only through a provision
requiring repayment following demand by the lender. Such loans made by the
Short/Intermediate Fund and the Fixed Income Fund may have a demand provision
permitting such Fund to require repayment within seven days. Participation in
such loans, however, may not have such a demand provision and may not be
otherwise marketable. To the extent these securities are not readily
marketable, they will be subject to the Fund's 5% limitation on investments in
illiquid securities. Recovery of an investment in any such loan that is
illiquid and payable on demand will depend on the ability of the borrower to
meet an obligation for full repayment of principal and payment of accrued
interest within the demand period, normally seven days or less (unless such
Fund determines that a particular loan issue, unlike most such loans, has a
readily available market). As it deems appropriate, the Company's Board of
Directors will establish procedures to monitor the credit standing of each such
borrower, including its ability to honor contractual payment obligations.
The Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund
will purchase income participation loans only if such instruments are, in the
opinion of the Adviser, of comparable quality to securities rated within the
four highest rating groups assigned by one or more appropriate NRSROs. None of
these Funds will invest more than 5% of its assets in such securities.
Repurchase Agreements. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation and registered broker-dealers which the Adviser deems
credit-worthy under guidelines approved by the Company's Board of Directors,
subject to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price would generally equal the
price paid by a Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements will be of
the same type and quality as those in which such Fund may invest directly. The
seller under a repurchase agreement will be required to maintain continually
the value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, a Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by such
Fund were delayed pending court action. Additionally, there is no controlling
legal precedent confirming that a Fund would be entitled, as against a claim by
such seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Directors of the Company believes that, under
the regular procedures normally in effect for custody of a Fund's securities
subject to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Company if presented with the question.
Securities subject to repurchase agreements will be held by that Fund's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements may be considered to be loans by a
Fund under the 1940 Act.
B-10
<PAGE> 55
Reverse Repurchase Agreements. As discussed in the Prospectus, each of
the Funds may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with that Fund's investment restrictions.
Pursuant to such agreements, a Fund would sell portfolio securities to
financial institutions such as banks and broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. Each Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions.
At the time a Fund enters into a reverse repurchase agreement, it will place in
a segregated custodial account assets such as U.S. Government securities or
other liquid, high grade debt securities consistent with such Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements may be considered to be borrowings
by a Fund under the 1940 Act.
Illiquid Securities. Each Fund may invest up to 5% of its net assets in
illiquid securities (i.e., securities that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which the
Fund has valued the securities). The Board of Directors has the ultimate
authority to determine which securities are liquid or illiquid for purposes of
this limitation. Certain securities ("restricted securities") exempt from
registration or issued in transactions exempt from registration under the
Securities Act of 1933, as amended ("Securities Act") (securities that may be
resold pursuant to Rule 144A or Regulation S under the Securities Act), may be
considered liquid. The Board has delegated to the Adviser the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. Although no
definite quality criteria are used, the Board of Directors has directed the
Adviser to look to such factors as (a) the nature of the market for a security
(including the institutional private or international resale market), (b) the
terms of these securities or other instruments allowing for the disposition to
a third party or the issuer thereof (e.g., certain repurchase obligations and
demand instruments), (c) the availability of market quotations (e.g., for
securities quoted in PORTAL system), and (d) other permissible relevant
factors. Certain securities, such as repurchase obligations maturing in more
than seven days, are currently considered illiquid.
Restricted securities may be sold only in privately negotiated or other
exempt transactions, qualified non-U.S. transactions, such as under Regulation
S, or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933. Where registration is required, a
Fund may be obligated to pay all or part of the registration expenses and a
considerable time may elapse between the decision to sell and the sale date.
If, during such period, adverse market conditions were to develop, that Fund
might obtain a less favorable price than prevailed when it decided to sell.
Restricted securities will be priced at fair value as determined in good faith
by the Board of Directors. If through the appreciation of illiquid securities
or the depreciation of liquid securities, a Fund should be in a position where
more than 5% of the value of its net assets is invested in illiquid assets,
including restricted securities which are not readily
B-11
<PAGE> 56
marketable, that Fund will take such steps as it deems advisable, if any, to
reduce the percentage of such securities to 5% or less of the value of its net
assets.
Investment Restrictions
Each Fund's investment objective is a fundamental policy and may not be
changed without a vote of the holders of a majority of such Fund's outstanding
Shares. In addition, the following investment restrictions may be changed with
respect to a particular Fund only by a vote of the majority of the outstanding
Shares of that Fund (as defined under "ADDITIONAL INFORMATION - Vote of a
Majority of the Outstanding Shares").
In addition to the investment restrictions set forth in the Prospectus,
the Money Market Fund may not:
1. Purchase securities on margin, sell securities short, participate on a
joint or joint and several basis in any securities trading account, or
underwrite the securities of other issuers, except to the extent that such Fund
may be deemed to be an underwriter under certain securities laws, in the
disposition of "restricted securities" acquired in accordance with that Fund's
investment objectives and policies;
2. Purchase or sell commodities, commodity contracts (including futures
contracts), oil, gas or mineral exploration or development programs, or real
estate (although investments by such Fund in marketable securities of companies
engaged in such activities are not hereby precluded);
3. Write or purchase put or call options;
4. Invest in any issuer for purposes of exercising control or management;
and
5. Purchase or retain securities of any issuer if the officers or
Directors of the Company or the officers or directors of its investment adviser
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities.
In addition, none of the Equity Fund, the Small Cap Value Fund, the
Balanced Fund, the Short/Intermediate Fund or the Fixed Income Fund may:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities;
2. Engage in any short sales;
B-12
<PAGE> 57
3. Underwrite the securities issued by other persons, except to the extent
that a Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities";
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectuses of the Funds; and
5. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities are not prohibited by this
restriction).
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of a Fund. The Money Market
Fund may not:
1. Invest in securities of other investment companies, except as such
securities may be acquired as part of a merger, consolidation, reorganization,
or acquisition of assets; and
2. Buy common stocks or voting securities.
In addition, none of the Equity Fund, the Small Cap Value Fund, the
Balanced Fund, the Short/Intermediate Fund or the Fixed Income Fund may:
1. Purchase participations or direct interests in oil, gas or other
mineral exploration or development programs (although investments by such Funds
in marketable securities of companies engaged in such activities are not
prohibited in this restriction);
2. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
a Fund may invest in other investment companies if, at the time of purchase (i)
the acquiring Fund will own no more than 3% of the shares of the investment
company selling such shares, (ii) the value of the investment company shares
acquired, when aggregated with the value of other shares of such investment
company held by the acquiring Fund, does not exceed 5% of the total assets of
the acquiring Fund, and (iii) the value of the investment company shares
acquired, when aggregated with the value of any other shares of investment
companies held by the acquiring Fund, does not exceed 10% of the total assets
of the acquiring Fund; and
3. Purchase or retain the securities of an issuer if, to the knowledge of
such Fund's management, the officers or Directors of the Company, and the
officers or directors of the Investment Adviser, who each owns beneficially
more than .5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such securities.
If any percentage restriction described above (and in the Prospectus) is
satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in asset value will not constitute a
violation of such restriction. However, should a change in net asset value or
other external events cause a Fund's investment in illiquid
B-13
<PAGE> 58
securities to exceed such Fund's limit on its investments in such securities,
that Fund will act to cause the aggregate amount of illiquid securities to come
within such limit as soon as reasonably practicable. In such an event,
however, a Fund would not be required to liquidate any portfolio securities
where such Fund would suffer a loss on the sale of such securities.
The Company, on behalf of the Equity Fund, the Small Cap Value Fund, the
Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund, has
represented to the Ohio Division of Securities that each of those Funds will
(1) not invest any of its assets in the securities of other investment
companies, except by purchase in the open market where no commission or profit
to a sponsor or dealer results from the purchase other than the customary
broker's commission, or except when the purchase is part of a plan of merger,
consolidation, reorganization, or acquisition; (2) limit its investments to 15%
in securities of any issuer which, together with any predecessors, have a
record of less than three years continuous operation and (3) limit its
investments to 5% in securities of issuers which are restricted as to
disposition. The Company intends to comply with these representations with
respect to each of the Equity Fund, the Small Cap Value Fund, the Balanced
Fund, the Short/Intermediate Fund and the Fixed Income Fund for so long as the
Shares of such Fund are registered for sale in the State of Ohio.
In addition, the Company, on behalf of the Equity Fund, the Small Cap
Value Fund, the Balanced Fund, the Short/Intermediate Fund and the Fixed Income
Fund, has represented to the Texas State Securities Board that each of those
Funds will (1) not invest in oil, gas or mineral leases or purchase or sell
real property (including limited partnership interests, but excluding readily
marketable securities of companies which invest in real estate) and (2) not
invest more than 5% of their net assets in warrants valued at the lower of cost
or market, provided, that included within that amount, but not to exceed 2% of
net assets, may be warrants which are not listed on the New York or American
Stock Exchanges. For purposes of restriction (2) above, warrants acquired in
units or attached to securities are deemed to be without value. The Company
intends to comply with these representations with respect to each of the Equity
Fund, the Small Cap Value Fund, the Balanced Fund, the Short/Intermediate Fund
and the Fixed Income Fund for so long as the Shares of such Fund are registered
for sale in the State of Texas.
Portfolio Turnover
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition were one year or less.
Because the Money Market Fund intends to invest entirely in securities
with remaining maturities of less than one year and because the Commission
requires such securities to be excluded from the calculation of portfolio
turnover rate, the portfolio turnover with respect to the Money Market Fund is
expected to be zero percent for regulatory purposes. The portfolio turnover
rate may vary greatly from year to year as well as within a particular year,
and may also be affected by cash requirements for
B-14
<PAGE> 59
redemptions of Shares. Portfolio turnover will not be a limiting factor in
making investment decisions.
B-15
<PAGE> 60
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Time on
each Business Day of the Company. A "Business Day" is a day on which the New
York Stock Exchange is open for trading and any other day (other than a day on
which no Shares of a Fund are tendered for redemption and no order to purchase
any Shares is received) during which there is sufficient trading in portfolio
instruments that such Fund's net asset value per share might be materially
affected. The New York Stock Exchange will not open in observance of the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Valuation of the Money Market Fund.
The Money Market Fund has elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price the Money Market Fund would receive if
it sold the instrument. The value of securities in the Money Market Fund can
be expected to vary inversely with changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Money Market
Fund's objective of maintaining a stable net asset value per share, provided
that the Money Market Fund will not purchase any security with a remaining
maturity of more than 397 days (13 months) (securities subject to repurchase
agreements may bear longer maturities) nor maintain a dollar-weighted average
portfolio maturity which exceeds 90 days. The Company's Board of Directors has
also undertaken to establish procedures reasonably designed, taking into
account current market conditions and the investment objective of the Money
Market Fund, to stabilize the net asset value per share of the Money Market
Fund for purposes of sales and redemptions at $1.00. These procedures include
review by the Directors, at such intervals as they deem appropriate, to
determine the extent, if any, to which the net asset value per share of the
Money Market Fund calculated by using available market quotations deviates from
$1.00 per Share. In the event such deviation exceeds one-half of one percent,
Rule 2a-7 requires that the Board of Directors promptly consider what action,
if any, should be initiated. If the Directors believe that the extent of any
deviation from the Money Market Fund's $1.00 amortized cost price per Share may
result in material dilution or other unfair results to new or existing
investors, they will take such steps as they consider appropriate to eliminate
or reduce, to the extent reasonably practicable, any such dilution or unfair
results. These steps may include selling portfolio instruments prior to
maturity, shortening the average portfolio maturity, withholding or reducing
dividends, reducing the number of the Money Market Fund's outstanding Shares
without monetary consideration, or utilizing a net asset value per share
determined by using available market quotations.
B-16
<PAGE> 61
Valuation of the Other Funds.
Each security traded on a U.S. national securities exchange or quoted on
the NASDAQ National Market System ordinarily will be valued on the basis of its
last sale price on the date of valuation or, if there are no sales that day, at
the closing bid quotation. Securities traded on exchanges located outside of
the U.S. will be valued on the basis of the price as of the most recent close
of business on the exchange preceding the time of valuation. Securities and
other assets for which quotations are not readily available are valued at their
fair value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Directors of the
Company. Short-term securities are valued at either amortized cost or original
cost plus accrued interest, which approximates current value.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by the Distributor, and
the Distributor has agreed to use appropriate efforts to solicit purchase
orders. In addition to purchasing Shares directly through the Distributor,
Shares may be purchased through procedures established by the Distributor in
connection with the requirements of accounts at the Adviser or the Adviser's
correspondent or affiliated banks. Customers purchasing Shares of the Funds
may include officers, directors, or employees of the Adviser or the Adviser's
correspondent or affiliated banks.
The Company may suspend the right of redemption or postpone the date of
payment for Shares of a Fund during any period when (a) trading on the New York
Stock Exchange is restricted by applicable rules and regulations of the
Commission, (b) the New York Stock Exchange is closed for other than customary
weekend and holiday closings, (c) the Commission has by order permitted such
suspension, or (d) an emergency exists as a result of which (i) disposal by the
Company of securities owned by it is not reasonably practical, or (ii) it is
not reasonably practical for the Company to determine the fair value of its net
assets.
The Company may redeem Shares of the Money Market Fund involuntarily if
redemption appears appropriate in light of the Company's responsibilities under
the 1940 Act. See "NET ASSET VALUE -Valuation of the Money Market Fund" in
this Statement of Additional Information.
B-17
<PAGE> 62
MANAGEMENT OF THE COMPANY
Directors and Officers
Overall responsibility for management of the Company rests with its Board
of Directors, which is elected by the Shareholders of the Company. The
Directors elect the officers of the Company to supervise actively its
day-to-day operations.
The names of the Directors and officers of the Company, their addresses,
and principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with the Company During Past 5 Years
- ---------------- -------------------- -------------------
<S> <C> <C>
David P. Greer* President and Trust Officer, First
3623 South 107th Avenue Director National Bank of Omaha
Omaha, NE 68124 (1987-1994); presently
retired
Randy M. Pavlick Secretary Vice President -
207 East Buffalo Street Director of Legal and
Suite 400 Compliance Services,
Milwaukee, WI 53202 Sunstone Financial
Group, Inc.
(1993-present);
previously in private
law practice with
Foley & Lardner
Richard P. Snyder Vice President and Client Services and
207 East Buffalo Street Treasurer Accounting Manager,
Suite 400 Sunstone Financial
Milwaukee, WI 53202 Group, Inc.
(1993-present);
previously Audit
Manager, Sta-Rite
Industries, Inc.
(1990-1993)
Joseph Caggiano Director Vice Chairman
302 South 36th Street (1967-1993), Chief
Omaha, NE 68131 Financial Officer
(1967-1991) and
Vice-Chairman Emeritus
(1993-present) of
Bozell Jacobs
M. T. Crummer Director Chief Investment
5115 Lafayette Avenue Officer, Mutual of
Omaha, NE 68132 Omaha Companies
(1982-1987); presently
retired
Harry A. Koch, Jr.* Director President and
P.O. Box 6215 Treasurer, The Harry
Omaha, NE 68106 A. Koch Co., insurance
agents and brokers
(1958-present)
Robert A. Reed Director President and Chief
2600 Dodge Street Executive Officer,
Omaha, NE 68131 Physicians Mutual
Insurance Company and
Physicians Life
Insurance Company
(1974-present)
</TABLE>
- ------------------
* Denotes "interested directors" as defined in the 1940 Act.
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<PAGE> 63
The following table sets forth certain information concerning compensation
to be paid by the Company to its Directors and officers in the fiscal year
ending March 31, 1996.
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits
Compensation Accrued Estimated
Name and to be Paid as Part of Annual Total Compensation
Position by Company Company Expenses Retirement Benefits From Company
- -------- -------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
David P. Greer $4,000 -0- -0- $4,000
President and
Director
Randy M. Pavlick -0- -0- -0- -0-
Secretary
Richard P. Snyder -0- -0- -0- -0-
Vice President and
Treasurer
Joseph Caggiano $4,000 -0- -0- $4,000
Director
M. T. Crummer $4,000 -0- -0- $4,000
Director
Harry A. Koch, Jr. $4,000 -0- -0- $4,000
Director
Robert A. Reed $4,000 -0- -0- $4,000
Director
</TABLE>
As of April 30, 1996, the Company's officers and Directors, as a group,
own less than 1% of each Fund's outstanding Shares.
The officers of the Company receive no compensation directly from the
Company for performing the duties of their offices. Sunstone Financial Group,
Inc. receives fees from each of the Funds for acting as Administrator and may
receive fees from each of the Funds pursuant to the Distribution and Service
Plan and the Administrative Services Plan described below. Messrs. Pavlick and
Snyder are employees of, and are compensated by, the Administrator.
B-19
<PAGE> 64
Investment Adviser
Investment advisory services are provided to each of the Funds by First
National Bank of Omaha, Omaha, Nebraska, the Adviser, pursuant to the
Investment Advisory Agreement dated as of December 20, 1994 as amended as of
December 5, 1995 and
(the "Investment Advisory Agreement"). The Adviser is a wholly owned
subsidiary of First National of Nebraska, Inc., a Nebraska corporation.
Under the Investment Advisory Agreement, the Adviser has agreed to provide
investment advisory services as described in the Prospectus of the Funds. For
the services provided and expenses assumed pursuant to the Investment Advisory
Agreement, the Money Market Fund, the Equity Fund, the Small Cap Value Fund,
the Balanced Fund, the Short/Intermediate Fund and the Fixed Income Fund pay
the Adviser a fee equal to the lesser of (a) a fee computed daily and paid
monthly, at an annual rate of twenty-five one-hundredths of one percent (.25%),
seventy-five one-hundredths of one percent (.75%), eighty-five one-hundredths
of one percent (.85%), seventy-five one-hundredths of one percent (.75%), fifty
one-hundredths of one percent (.50%) and sixty one-hundredths of one percent
(.60%), respectively, of the average daily net assets of that Fund, or (b) such
other fee as may be agreed upon from time to time in writing by the Company and
the Adviser. The Adviser may periodically voluntarily reduce all or a portion
of its advisory fee with respect to any Fund, which reduction would increase
the net income of that Fund available for distribution as dividends.
For the fiscal period ended March 31, 1996, the Adviser earned advisory
fees of $216,379 for the Money Market Fund, $1,433,904 for the Equity Fund,
$97,823 (net of $10,869 of fee waivers) for the Short/Intermediate Fund and
$396,808 (net of $36,073 of fee waivers) for the Fixed Income Fund.
Unless sooner terminated, the Investment Advisory Agreement for all Funds
except Balanced Fund, will continue in effect until June 30, 1996, and from
year to year thereafter, if, as to each Fund, such continuance is approved at
least annually by the Company's Board of Directors or by vote of a majority of
the outstanding Shares of that Fund (as defined under "GENERAL INFORMATION -
Miscellaneous" in the Prospectus), and a majority of the Directors who are not
parties to the Investment Advisory Agreement or interested persons (as defined
in the 1940 Act) of any party to the Investment Advisory Agreement by votes
cast in person at a meeting called for such purpose. The Balanced Fund's
Investment Advisory Agreement will continue until June 30, 1997, and from year
to year thereafter, subject to the identical renewal requirements. The
Investment Advisory Agreement is terminable as to a Fund at any time on 60 days
written notice without penalty by the Directors, by vote of a majority of the
outstanding Shares of that Fund, or by the Adviser. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
a Fund in connection with the performance of the Investment Advisory Agreement,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser
B-20
<PAGE> 65
in the performance of its duties, or from reckless disregard by the Adviser of
its duties and obligations thereunder.
The Adviser also serves as the Funds' custodian as more fully discussed
under "Custodian" below.
Portfolio Transactions
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Directors of the Company and
in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute such Fund's portfolio transactions. Purchases and sales of
fixed income debt securities acquired for the Money Market Fund, the Balanced
Fund, the Short/Intermediate Fund and the Fixed Income Fund usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of other portfolio securities for the
Funds generally include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Transactions on stock exchanges
involve the payment of negotiated brokerage commissions. Transactions in the
over-the-counter market are generally principal transactions with dealers.
With respect to the over-the-counter market, the Company, where possible, will
deal directly with dealers who make a market in the securities involved except
in those circumstances where better price and execution are available
elsewhere.
Allocation of transactions, including their frequency, to various brokers
and dealers is determined by the Adviser in its best judgment and in a manner
deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on
behalf of the Funds. Information so received is in addition to and not in lieu
of services required to be performed by the Adviser and does not reduce the
advisory fees payable to the Adviser by the Funds. Such information may be
useful to the Adviser in serving a Fund and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to the Adviser in carrying out its obligations to each of the
Funds. The Adviser may authorize a Fund to pay a commission in excess of the
commission another broker-dealer would have charged if the Adviser determines
in good faith that such commission is reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed
either in terms of that particular transaction or the Adviser's overall
responsibilities to the accounts it manages.
While the Adviser generally seeks competitive commissions, the Company may
not necessarily pay the lowest commission available on each brokerage
transaction, for reasons discussed above. For the fiscal period ended March
31, 1996, the Equity Fund paid $132,860 of brokerage commissions on total
transactions of $89,946,945.
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<PAGE> 66
Except as otherwise disclosed to the Shareholders of the Funds and as
permitted by applicable laws, rules and regulations, the Company will not, on
behalf of any of the Funds, execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with the Adviser, the Distributor,
or their affiliates, and will not give preference to the Adviser's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those for
the other Funds of the Company, any other investment company or account managed
by the Adviser. Any such other fund, investment company or account may also
invest in the same securities as the Company. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Fund and
another investment company or account, the transaction will be averaged as to
price, and available investments will be allocated as to amount in a manner
which the Adviser believes to be equitable to the Fund and such other
investment company or account. In some instances, this investment procedure
may adversely affect the price paid or received by a Fund or the size of the
position obtained by a Fund. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for the other investment companies or accounts in order to
obtain best execution. As provided by the Investment Advisory Agreement, in
making investment recommendations for each of the Funds, the Adviser will not
inquire or take into consideration whether an issuer of securities proposed for
purchase or sale by the Company is a customer of the Adviser, its parent or its
subsidiaries or affiliates and, in dealing with its customers, the Adviser, its
parent, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Funds.
Glass-Steagall Act
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statutes commonly referred to as the
Glass-Steagall Act prohibit a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation
and interpretation to the effect that the Glass-Steagall Act and such decision:
(a) forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing, or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but (b)
do not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent, and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board did not exceed
its authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies.
In the Board of Governors case, the Supreme Court also stated that if a
national bank complied with the restrictions imposed by the Board in its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to
B-22
<PAGE> 67
investment companies, a national bank performing investment advisory services
for an investment company would not violate the Glass-Steagall Act.
The Adviser believes that it possesses the legal authority to perform the
services for each of the Funds contemplated by the Prospectus, this Statement
of Additional Information, the Investment Advisory Agreement, the Custodian
Agreement and the Servicing Agreement without violation of applicable statutes
and regulations. The Adviser has been advised by its counsel that counsel
believes that such laws should not prevent the Adviser from providing the
services required of it under the Investment Advisory Agreement, the Custodian
Agreements, and the Servicing Agreement. Future changes in either Federal or
state statutes and regulations relating to the permissible activities of banks
or bank holding companies and the subsidiaries or affiliates of those entities,
as well as further judicial or administrative decisions or interpretations of
present and future statutes and regulations, could prevent or restrict the
Adviser from continuing to perform such services for the Company. Depending
upon the nature of any changes in the services which could be provided by the
Adviser, the Board of Directors of the Company would review the Company's
relationship with the Adviser and consider taking all action necessary in the
circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of the Adviser and its affiliated and
correspondent banks in connection with Customer purchases of Shares of any of
the Funds, those banks might be required to alter materially or discontinue the
services offered by them to Customers. It is not anticipated, however, that
any change in the Company's method of operations would affect its net asset
value per share or result in financial losses to any Customer.
Administrator/Fund Accountant
Sunstone Financial Group, Inc. serves as administrator and fund accountant
(the "Administrator") to each of the Funds pursuant to the Administration and
Fund Accounting Agreement dated April 10, 1995 and amended December 5, 1995 and
___________________________ (the "Administration Agreement"). The Administrator
assists in supervising all operations of each Fund (other than those performed
by the Adviser under the Investment Advisory Agreement, the Custodian Agreement
and the Transfer Agency Agreement). The Administrator is a broker-dealer
registered with the Commission, and is a member of the National Association of
Securities Dealers, Inc. The Administrator provides administration,
distribution and fund accounting services to other investment companies.
Under the Administration Agreement, the Administrator has agreed to
provide office space, facilities, equipment and personnel, compile data for and
prepare with respect to the Funds timely Notices to the Commission required
pursuant to Rule 24f-2 under the Act and semi-annual reports on Form N-SAR;
prepare and file all federal income and excise tax returns and state income tax
returns (and such other required tax filings as may be agreed to by the
parties) other than those required to be made by the Funds' custodian or
transfer agent; prepare compliance filings relating to the registration of the
securities of the Funds pursuant to state securities laws with the advice of
Funds' counsel; perform securities valuations; determine the income and expense
accruals of the Funds; calculate
B-23
<PAGE> 68
daily net asset values and income factors of the Funds; maintain all general
ledger accounts and related subledgers; prepare financial statements for the
Annual and Semi-Annual Reports required pursuant to Section 30(d) under the
Act; review the Registration Statement for the Funds (on Form N-1A or any
replacement therefor) and any amendments thereto, and proxy materials; prepare
and monitor each Fund's expense accruals and cause all appropriate expenses to
be paid from Fund assets on proper authorization from the Funds; assist in the
acquisition of First Omaha Funds' fidelity bond required by the Act, monitor
the amount of the bond and make the necessary Commission filings related
thereto; check each Fund's compliance with the policies and limitations
relating to portfolio investments as set forth in the Prospectus, Statement of
Additional Information and Articles of Incorporation and monitor each Fund's
status as a regulated investment company under Subchapter M of the Internal
Revenue Code, as amended; maintain, and/or coordinate with the other service
providers the maintenance of, the accounts, books and other documents required
pursuant to Rule 31a-1(a) and (b) under the Act; and generally assist in each
Fund's administrative operations.
The Administrator receives a fee from each Fund for its services as
administrator and fund accountant and expenses assumed pursuant to the
Administration Agreement, equal to the lesser of a fee calculated daily and
paid periodically, at the annual rate of twenty one-hundredths of one percent
(.20%) of that Fund's average daily net assets subject to a minimum fee of
$300,000 for the Money Market, Equity, Short/Intermediate and Fixed Income
Funds in the aggregate and to a minimum fee of $50,000 for each of the Small
Cap Value and Balanced Funds, or such other fee as may be agreed upon in
writing by the Company and the Administrator. The Administrator may
periodically voluntarily reduce all or a portion of its fee with respect to a
Fund in order to increase the net income of one or more of the Funds available
for distribution as dividends.
Unless sooner terminated as provided therein, the Administration Agreement
will continue in effect until December 20, 1998. The Administration Agreement
thereafter shall be renewed automatically for successive one-year terms, unless
earlier terminated. The Administration Agreement is terminable with respect to
a particular Fund only upon mutual agreement of the parties to the
Administration Agreement and, after the initial term, on not less than 90 days'
notice by the Company's Board of Directors or by the Administrator.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by any
of the Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder. For
the fiscal period ended March 31, 1996, the Administrator earned $134,426,
$296,944, $33,763, and $112,054 net of fee waivers of $38,677, $85,431, $9,714,
and $32,240 for the Money Market, Equity, Short/Intermediate and Fixed Income
Funds, respectively.
Expenses
B-24
<PAGE> 69
If total expenses borne by any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, the
Adviser will reimburse that Fund by the amount of such excess in proportion to
its respective fees. As of the date of this Statement of Additional
Information, the most restrictive expense limitation applicable to the Funds
limits each Fund's aggregate annual expenses, including management and advisory
fees but excluding interest, taxes, brokerage commissions, and certain other
expenses, to 2 1/2% of the first $30 million of a Fund's average net assets, 2%
of the next $70 million of such Fund's average net assets, and 1-1/2% of such
Fund's remaining average net assets. Any expense reimbursements will be
estimated daily and reconciled and paid on a monthly basis. Fees imposed upon
customer accounts by the Adviser or its affiliated or correspondent banks for
cash management services are not included within Fund expenses for purposes of
any such expense limitation.
Distributor
Sunstone Financial Group, Inc. serves as agent for each of the Funds in
the distribution of its Shares pursuant to a Distribution Agreement dated April
10, 1995 and amended as of December 5, 1995 and _____________ (the "Distribution
Agreement") . Unless otherwise terminated, the Distribution Agreement remains in
effect from year to year for successive annual periods ending on June 30 if
approved at least annually (a) by the Company's Board of Directors or by the
vote of a majority of the outstanding shares of the Company, and (b) by the vote
of a majority of the Directors of the Company who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement may be
terminated in the event of any assignment, as defined in the 1940 Act.
The Distributor solicits orders for the sale of Shares, advertises and
pays the costs of advertising, office space and the personnel involved in such
activities. The Distributor receives no compensation under the Distribution
Agreement with the Company, but may receive compensation under the Distribution
and Service Plan described below.
As described in the Prospectus, the Company has adopted a Distribution and
Service Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act under which
each Fund is authorized to make payments to banks, including the Adviser, other
institutions and broker-dealers, (with all of the foregoing organizations being
referred to as "Participating Organizations") for providing distribution or
shareholder service assistance. Payments to such Participating Organizations
may be made pursuant to agreements entered into upon the recommendation of the
Distributor. The Plan authorizes each Fund to make payments in an amount not
in excess, on an annual basis, of 0.25% of the average daily net assets of that
Fund. As required by Rule 12b-1, the Plan was approved by the sole shareholder
of each of the Funds and by the Board of Directors, including a majority of the
Directors who are not interested persons of any of the Funds and who have no
direct or indirect financial interest in the operation of the Plan (the
"Independent Directors"). The Plan may be terminated as to a Fund by vote of a
majority of the Independent Directors, or by vote of majority of the
outstanding Shares of that Fund. Any change in the Plan that would materially
increase the distribution cost to a Fund requires Shareholder approval. The
B-25
<PAGE> 70
Directors review quarterly a written report of such costs and the purposes for
which such costs have been incurred. The Plan may be amended by vote of the
Directors including a majority of the Independent Directors, cast in person at
a meeting called for that purpose. For so long as the Plan is in effect,
selection and nomination of those Directors who are not interested persons of
the Company shall be committed to the discretion of such disinterested persons.
All agreements with any person relating to the implementation of the Plan may
be terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Directors or by a vote of the
majority of the outstanding Shares of any of the Funds. The Plan will continue
in effect for successive one-year periods, provided that each such continuance
is specifically approved (a) by the vote of a majority of the Independent
Directors, and (b) by a vote of a majority of the entire Board of Directors
cast in person at a meeting called for that purpose. The Board of Directors
has a duty to request and evaluate such information as may be reasonably
necessary for them to make an informed determination of whether the Plan should
be implemented or continued. In addition, the Directors in approving the Plan
must determine that there is a reasonable likelihood that the Plan will benefit
each Fund and its Shareholders.
The Board of Directors of the Company believes that the Plan is in the
best interests of each Fund since it encourages Fund growth. As a Fund grows
in size, certain expenses, and therefore total expenses, per Share, may be
reduced and overall performance per Share may be improved.
As of the date of this Statement of Additional Information, the Company,
on behalf of the Funds, does not have a Rule 12b-l Agreement and does not pay
any fees under the Plan.
Administrative Services Plan
As described in the Prospectus, the Company has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Adviser, its
correspondent and affiliated banks, and the Distributor (a "Service
Organization"), to provide certain ministerial, record keeping, and
administrative support services to their customers who own of record or
beneficially Shares in a Fund. Payments to such service organizations are made
pursuant to Servicing Agreements between the Company and the Service
Organization. The Services Plan authorizes each Fund to make payments to
Service Organizations in an amount, on an annual basis, of up to 0.25% of the
average daily net assets of that Fund. The Services Plan has been approved by
the Board of Directors of the Company, including a majority of the Directors
who are not interested persons of the Company (as defined in the 1940 Act) and
who have no direct or indirect financial interest in the operation of the
Services Plan or in any Servicing Agreements thereunder (the "Disinterested
Directors"). The Services Plan may be terminated as to a Fund by a vote of a
majority of the Disinterested Directors. The Directors review quarterly a
written report of the amounts expended pursuant to the Services Plan and the
purposes for which such expenditures were made. The Services Plan may be
amended by a vote of the Directors, provided that any material amendments also
require the vote of a majority of the Disinterested Directors. For so long as
the
B-26
<PAGE> 71
Services Plan is in effect, selection and nomination of those Disinterested
Directors shall be committed to the discretion of the Company's Disinterested
Directors. All Servicing Agreements may be terminated at any time without the
payment of any penalty by a vote of a majority of the Disinterested Directors.
The Services Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved by a majority of
the Board of Directors, including a majority of the Disinterested Directors.
As authorized by the Services Plan, the Company has entered into a
Servicing Agreement with the Adviser pursuant to which the Adviser has agreed
to provide certain administrative support services in connection with Shares of
the Funds owned of record or beneficially by its customers. Such
administrative support services may include, but are not limited to, (a)
processing dividend and distribution payments from a Fund on behalf of
customers; (b) providing periodic statements to its customers showing their
positions in the Shares; (c) arranging for bank wires; (d) responding to
routine customer inquiries relating to services performed by the Adviser; (e)
providing sub-accounting with respect to the Shares beneficially owned by the
Adviser's customers or the information necessary for sub-accounting; (f) if
required by law, forwarding shareholder communications from a Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to its customers; (g) aggregating and
processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for customers; and (h)
providing customers with a service that invests the assets of their account in
the Shares pursuant to specific or preauthorized instructions. In
consideration of such services, the Company, on behalf of each Fund, may pay
the Adviser a monthly fee, computed at the annual rate of .25% of the average
aggregate net asset value of Shares of that Fund held during the period by
customers for whom the Adviser has provided services under the Servicing
Agreement. However, the Servicing Agreement with the Adviser provides that no
payments may be made under the Services Plan until such time as the Board of
Directors of the Company authorizes the commencement of such payments.
In addition, the Company, on behalf of a Fund, may enter into, from time
to time, other Servicing Agreements with other service organizations pursuant
to which such Service Organizations will provide similar services as those
discussed above.
Custodian
First National Bank of Omaha, One First National Center, Omaha, Nebraska
68102, in addition to serving as the investment adviser and transfer agent to
the Funds, also serves as custodian (the "Custodian") to each of the Funds
pursuant to the Custodian Agreement dated December 20, 1994 and amended as of
December 5, 1995 and ____________ (the "Custodian Agreement"). The Custodian's
responsibilities include safeguarding and controlling each Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest on each Fund's investments. In consideration of such services, each
Fund pays the Custodian a fee, computed daily and paid monthly, at the annual
rate of .03% of such Fund's average daily net assets.
B-27
<PAGE> 72
Unless sooner terminated, the Custodian Agreement will continue in effect
until terminated by either party upon 60 days advance written notice to the
other party. Notwithstanding the foregoing, the Custodian Agreement, with
respect to a Fund, will be approved at least annually by the Company's Board of
Directors or by vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectus), and a
majority of the Directors who are not parties to the Custodian Agreement or
interested persons (as defined in the 1940 Act) of any party to the Custodian
Agreement by votes cast in person at a meeting called for such purpose.
In the fiscal period ended March 31, 1996, the Custodian earned custody
fees of $25,965 for the Money Market Fund and earned and waived $49,446, $6,522
and $21,644 for the Equity, Short/Intermediate and Fixed Income Funds,
respectively.
In the opinion of the staff of the Commission, since the custodian is
serving as both the investment adviser and custodian of each of the Funds, each
of the Funds and the Custodian are subject to the requirements of Rule 17f-2
under the 1940 Act, and therefore the Funds and the Custodian will comply with
the requirements of such rule.
Transfer Agency Services
First National Bank of Omaha serves as Transfer Agent and dividend
disbursing agent (the "Transfer Agent") for the Company pursuant to the
Transfer Agency Agreement dated December 20, 1994 and amended as of December 5,
1995 and . Pursuant to such Agreement, the Transfer Agent, among other things,
performs the following services in connection with each Fund's shareholders of
record: maintenance of shareholder records for each of the Company's
shareholders of record; processing shareholder purchase and redemption orders;
processing transfers and exchanges of shares of the Company on the shareholder
files and records; processing dividend payments and reinvestments; and
assistance in the mailing of shareholder reports and proxy solicitation
materials. For such services the Transfer Agent receives a fee based on the
number of shareholders of record. Pursuant to authority in the Transfer Agency
Agreement the Transfer Agent has appointed as sub-transfer agent DST Systems,
Inc., 210 West 10th Street, Kansas City, Missouri 64105.
Auditors
The financial statements of each Fund as of ____________________, appearing
in this Statement of Additional Information have been audited by KPMG Peat
Marwick LLP, Two Central Park Plaza, Suite 1501, Omaha, Nebraska 68102, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report and on the authority of such firm as experts in auditing and
accounting.
Legal Counsel
Cline, Williams, Wright, Johnson & Oldfather, 1900 FirsTier Bank Building,
Lincoln, Nebraska 68508, is counsel to the Company and will pass upon the
legality of the Shares offered hereby.
B-28
<PAGE> 73
ADDITIONAL INFORMATION
Organization and Capital Structure
The Company is authorized to issue a total of 1,000,000,000 Shares of
common stock in series with a par value of $.00001 per share. Five Hundred
fifty million of these Shares have been authorized by the Board of Directors to
be issued in series designated for the existing six Funds. The Board of
Directors may authorize additional Shares in series, or may divide the Shares
of any existing or new series into two or more subseries or classes, all
without shareholder approval.
All Shares, when issued, will be fully paid and non-assessable and will be
redeemable and freely transferable. All Shares have equal voting rights. They
can be issued as full or fractional Shares. A fractional Share has pro rata
the same kind of rights and privileges as a full Share. The Shares possess no
preemptive or conversion rights.
Each Share of a Fund has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the Shares.
On some issues, such as the election of directors, all Shares of the Fund vote
together as one series. Cumulative voting is authorized. This means that in a
vote for the election of directors, Shareholders may multiply the number of
Shares they own by the number of directorships being filled and then allocate
such votes to one or more directors. On issues affecting only a particular
Fund, the Shares of the affected Fund vote as a separate series. An example of
such an issue would be a fundamental investment restriction pertaining to only
one Fund.
Shareholder Meetings
It is possible that the Fund will not hold annual or periodically
scheduled regular meetings of Shareholders. Annual meetings of Shareholders
will not be held unless called by the Shareholders pursuant to the Nebraska
Business Corporation Act or unless required by the Investment Company Act of
1940 and the rules and regulations promulgated thereunder. Special meetings of
the Shareholders may be held, however, at any time and for any purpose, if
called by (a) the Chairman of the Board, the President and two or more
directors, (b) by one or more Shareholders holding ten percent or more of the
Shares entitled to vote on matters presented to the meeting, or (c) if the
annual meeting is not held within any thirteen month period, the local district
court, upon application of any Shareholder, may summarily order that such
meeting be held. In addition, the 1940 Act requires a Shareholder vote for all
amendments to fundamental investment policies, investment advisory contracts
and amendments thereto.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each Fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a Fund will be required in
connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that
B-29
<PAGE> 74
the matter does not affect any interest of the Fund. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in investment policy
would be effectively acted upon with respect to a Fund only if approved by a
majority of the outstanding shares of such Fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants, the approval
of principal underwriting contracts, and the election of Directors may be
effectively acted upon by Shareholders of the Company voting without regard to
series.
Ownership of Shares
As of the date of this SAI, no person was known to own of record 5% or
more of the outstanding shares of any Fund, except the Balanced Fund as more
fully explained below. It is anticipated that subsequent to the date hereof
and the commencement of the public offering of the Shares of the Balanced Fund
that Ms. Allison's holdings will be reduced to less than 5% of the total Shares
outstanding of the Balanced Fund. The Adviser will possess, in a fiduciary
capacity on behalf of its underlying accounts, voting or investment power with
respect to a substantial majority of the outstanding Shares of each of the
Funds and therefore will be presumed to control each of the Funds within the
meaning of the 1940 Act.
Vote of a Majority of the Outstanding Shares
As used in the Prospectus and this Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or
more of the votes of Shareholders of such Fund present at a meeting at which
the holders of more than 50% of the votes attributable to Shareholders of
record of that Fund are represented in person or by proxy, or (b) the holders
of more than 50% of the outstanding Shares of that Fund.
Additional Tax Information
Although each Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located, or
in which it is otherwise deemed to be conducting business, a Fund may be
subject to the tax laws of such states or localities. In addition, if for any
taxable year that Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its Shareholders). In such event, dividend distributions would be taxable
to Shareholders to the extent of earnings and profits, and would be eligible
for the dividends received deduction for corporations.
Foreign taxes may be imposed on a Fund by foreign countries with respect
to its income from foreign securities. Since less than 50% in value of a
Fund's total assets at the end of its fiscal year are expected to be invested
in stocks or securities of foreign corporations, such Fund will not be entitled
under the Code to pass through to its
B-30
<PAGE> 75
Shareholders their pro rata share of the foreign taxes paid by the Fund. These
taxes will be taken as a deduction by such Fund.
Each Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends paid to any Shareholder who has
provided either an incorrect tax identification number or no number at all, or
who is subject to withholding by the Internal Revenue Service for failure
properly to include on their return payments of interest or dividends.
Information set forth in the Prospectus and this Statement of Additional
Information which relates to federal taxation is only a summary of some of the
important federal tax considerations generally affecting purchasers of Shares
of a Fund. No attempt has been made to present a detailed explanation of the
federal income tax treatment of a Fund or its Shareholders and this discussion
is not intended as a substitute for careful tax planning. Accordingly,
potential purchasers of Shares of a Fund are urged to consult their tax
advisers with specific reference to their own tax situation. In addition, the
tax discussion in the Prospectus and this Statement of Additional Information
is based on tax laws and regulations which are in effect on the date of the
Prospectus and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
Yield of the Money Market Fund
For the seven-day period ended April 30, 1996, the yield and effective
yield, respectively, of the Money Market Fund were 4.57% and 4.68%. For the
30-day period ended April 30, 1996, the yield for such Fund was 4.61%. In the
absence of fee waivers, the yields for the period ended April 30, 1996 would
have been 4.55%, 4.65% and 4.58% respectively. The standardized seven-day
yield for the Money Market Fund is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account in the Money Market Fund having a balance of one Share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
Shareholder accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7). The net change in the account
value of the Money Market Fund includes the value of additional Shares
purchased with dividends from the original Share, dividends declared on both
the original Share and any such additional Shares, and all fees, other than
non-recurring account or sales charges, that are charged to all Shareholder
accounts in proportion to the length of the base period and assuming the Money
Market Fund's average account size. The capital changes to be excluded from
the calculation of the net change in account value are realized gains and
losses from the sale of securities and unrealized appreciation and
depreciation. The 30-day yield and effective yield are calculated as described
above except that the base period is 30 days rather than seven days.
B-31
<PAGE> 76
The effective yield for the Money Market Fund is computed by compounding
the base period return, as calculated above, by adding 1 to the base period
return raising the sum to a power equal to 365 divided by seven and subtracting
1 from the result.
Yield of the Short/Intermediate Fund and the Fixed Income Fund
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yield of each of the Short/Intermediate Fund and the Fixed Income
Fund will be computed by annualizing net investment income per share for a
recent 30-day period and dividing that amount by such Share's net asset value
per share (reduced by any undeclared earned income expected to be paid shortly
as a dividend) on the last trading day of that period. Net investment income
will reflect amortization of any market value, premium or discount of fixed
income securities (except for obligations backed by mortgages or other assets)
and may include recognition of a pro rata portion of the stated dividend rate
of dividend paying portfolio securities. The yield of each of the
Short/Intermediate Fund and the Fixed Income Fund will vary from time to time
depending upon market conditions, the composition of such Fund's portfolio and
operating expenses of the Company allocated to such Fund. These factors and
possible differences in the methods used in calculating yield, should be
considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's shares and to the
relative risks associated with the investment objective and policies of each
Fund.
For the 30-day period ended April 30, 1996, the yields for the
Short/Intermediate Fund and the Fixed Income Fund were 5.60% and 6.01%,
respectively. In the absence of fee waivers, the yields for the
Short/Intermediate Fund and the Fixed Income Fund would have been 5.49% and
5.91%, respectively.
Calculation of Total Return
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value
of an investment in a Fund over the period covered, which assumes any dividends
or capital gains distributions are reinvested in such Fund immediately rather
than paid to the investor in cash. Average annual total return will be
calculated by: (a) adding to the total number of Shares purchased by a
hypothetical $10,000 investment in that Fund all additional Shares which would
have been purchased if all dividends and distributions paid or distributed
during the period had been immediately reinvested; (b) calculating the value of
the hypothetical initial investment of $10,000 as of the end of the period by
multiplying the total number of Shares owned at the end of the period by the
net asset value per share on the last trading day of the period; (c) assuming
redemption at the end of the period; and (d) dividing this account value for
the hypothetical investor by the initial $10,000 investment. Aggregate total
return is a measure of change in value of an investment in a Fund over the
relevant period and is similarly to average annual total return except that the
result is not annualized.
B-32
<PAGE> 77
For the one-year periods ended April 30, 1996, 1995 and 1994, the Money
Market Fund, the Equity Fund, the Short/Intermediate Fund and the Fixed Income
Fund, including their respective immediate predecessors, had average annual
total returns of 5.21%, 4.42%, and 2.58%; 19.51%, 20.78%, and 5.15%; 6.24%,
5.65% and 0.85%; and 7.60%, 6.44% and 0.71%, respectively.
Distribution Rates
The Equity Fund, the Small Cap Value Fund, the Balanced Fund, the
Short/Intermediate Fund and the Fixed Income Fund may from time to time
advertise current distribution rates which are calculated in accordance with
the method discussed in such Funds' Prospectus.
Performance Comparisons
Investors may judge the performance of each of the Funds by comparing them
to the performance of other mutual funds with comparable investment objectives
and policies through various mutual fund or market indices such as those
prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation and to data
prepared by Lipper Analytical Services, Inc., a widely recognized independent
service which monitors the performance of mutual funds. Comparisons may also
be made to indices or data published in Donoghue's MONEY MARKET REPORT, a
nationally recognized money market fund reporting service, Money Magazine,
Forbes, Barron's, The Wall Street Journal, Morningstar, Inc., Ibbotson
Associates, CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today
and local periodicals. In addition to performance information, general
information about each of the Funds that appears in a publication such as those
mentioned above may be included in advertisements, in sales literature and in
reports to Shareholders.
From time to time, each of the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices
or the features or performance of alternative investments, in advertisements,
sales literature and reports to Shareholders. A Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of performance of any of the Funds.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield
or total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
total return are functions of a Fund's quality, composition and maturity, as
well as expenses allocated to such Fund. Fees imposed upon Customer accounts
by the Adviser or its affiliated or correspondent banks for cash management
services will reduce a Fund's effective yield and total return to Customers.
B-33
<PAGE> 78
Miscellaneous
The Prospectus and this Statement of Additional Information omit certain
of the information contained in the Registration Statement filed with the
Commission. Copies of such information may be obtained from the commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized
to give any information or make any representation other than those contained
in the Prospectus and this Statement of Additional Information.
Financial Statements
The following audited financial statements are attached hereto:
Small Cap Value Fund
1. Independent Auditors' Report
2. Statement of Assets and Liabilities as of March 31, 1996
3. Notes to Financial Statement
The following unaudited financial statements are attached hereto:
Money Market, Equity, Short/Intermediate and Fixed Income Funds
1. Statements of Assets and Liabilities as of March 31, 1996
2. Statements of Operations for the period ended March 31, 1996
3. Statements of Changes in Net Assets for the period ended
March 31, 1996
4. Financial Highlights
5. Schedules of Investments as of March 31, 1996
6. Notes to the Financial Statements
B-34
<PAGE> 79
FIRST OMAHA FUNDS - ANNUAL REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Sole Shareholder
of the First Omaha Small Cap Value Fund
We have audited the accompanying statement of assets and liabilities of the
First Omaha Small Cap Value Fund as of March 31, 1996. This statement of assets
and liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this statement of assets and
liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our operation.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the First
Omaha Small Cap Value Fund as of March 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
April 12, 1996
Omaha, Nebraska
B-35
<PAGE> 80
FIRST OMAHA SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
ASSETS:
Unamortized organization costs $ 5,146
Prepaid initial registration expense 1,000
Cash 500
- ------------------------------------------------------------------------------
Total assets 6,646
- ------------------------------------------------------------------------------
Liabilities:
Organization fees payable 5,146
Payable to Administrator 1,000
- ------------------------------------------------------------------------------
Total liabilities 6,146
- ------------------------------------------------------------------------------
Net assets $ 500
- ------------------------------------------------------------------------------
Represented by:
Capital stock, $0.00001 par value;
50,000,000 shares authorized
50 shares outstanding (note 8) $ -
Paid-in capital 500
- ------------------------------------------------------------------------------
$ 500
- ------------------------------------------------------------------------------
Offering price, redemption price and
net asset value per share (based
on shares of capital stock issued
and outstanding) $ 10.00
- ------------------------------------------------------------------------------
See accompanying notes to financial statement.
B-36
<PAGE> 81
FIRST OMAHA SMALL CAP VALUE FUND
Notes to Financial Statement
March 31, 1996
- ------------------------------------------------------------------------------
(1) ORGANIZATION
First Omaha Funds, Inc. (the "Company") was organized in October 1994
as a Nebraska corporation and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company issuing its shares in series, each series
representing a distinct portfolio with its own investment objectives
and policies. At March 31, 1996, the only series presently authorized
are the U.S. Government Obligations Fund, the Short/Intermediate Fixed
Income Fund; the Fixed Income Fund, the Equity Fund, and the Small Cap
Value Fund. This financial statement presents the financial position
of only the Small Cap Value Fund (the "Fund"), which has had no
operations other than the sale of the shares to capitalize the Fund
which were sold to Miriam M. Allison (president of the Administrator
and Distributor) on March 31, 1996 for cash in the amount of $500.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) FEDERAL INCOME TAXES
The Fund intends to comply with the requirements of the Internal
Revenue Code necessary to qualify as a regulated investment
company and to make the requisite distributions of the income to
its shareholders which will be sufficient to relieve it from all
or substantially all federal income taxes.
(b) ORGANIZATION COSTS
Costs incurred by the Fund in connection with its organization,
registration and the initial public offering of shares have been
deferred and will be amortized on a straight-line basis over a
period of five years from the date upon which the Fund commences
its investment activities. If any of the original shares of the
Fund purchased by Miriam M. Allison are redeemed by any holder
thereof prior to the end of the amortization period, the
redemption proceeds will be reduced by the pro rata share of the
unamortized expenses as of the date of redemption. The pro rata
share by which the proceeds are reduced will be derived by
dividing the number of original shares of the Fund by the total
number of original shares outstanding at the time of redemption.
(3) INVESTMENT ADVISER
The Fund has an agreement with First National Bank of Omaha ("FNBO") to
furnish investment advisory services to the Fund. Under the terms of
this agreement, the Fund will pay FNBO a monthly fee at the annual rate
of 0.85 percent of the Fund's average daily net assets.
FNBO also serves as custodian for the Fund. FNBO receives compensation
from the Fund for such services in an amount equal to a fee, computed
daily and paid monthly, at the annual rate of 0.03 percent of the Fund's
average daily net assets.
B-37
<PAGE> 82
FIRST OMAHA SMALL CAP VALUE FUND
Notes to Financial Statement
- ------------------------------------------------------------------------------
(4) ADMINISTRATOR AND DISTRIBUTOR
Sunstone Financial Group, Inc. (the "Administrator" or the
"Distributor") acts as administrator and distributor for the Fund. As
compensation for its administrative services and the assumption of
certain administrative expenses, the Administrator is entitled to a fee,
computed daily and payable monthly, at an annual rate of 0.20 percent of
the Fund's average net assets, subject to a minimum fee of $50,000.
The Administrator may periodically volunteer to reduce all or a portion
of its administrative fee with respect to the Fund. These waivers may
be terminated at any time at the Administrator's discretion. The
Administrator may not seek reimbursement of such voluntarily reduced
fees at a later date. The reduction of such fee will cause the yield of
the Fund to be higher than it would be in the absence of such reduction.
The Distributor receives no compensation from the Fund under its
Distribution Agreement with the Company, but may receive compensation
under the Distribution and Shareholder Service Plan.
(5) DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Company has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which the
Fund is authorized to pay a periodic amount representing distribution
expenses calculated at an annual rate not to exceed 0.25 percent of the
Fund's average daily net assets. Such amount may be used to pay banks
(including FNBO), broker-dealers and other institutions (a
"Participating Organization") for distribution and/or shareholder
service assistance pursuant to an agreement between the Distributor and
the Participating Organization. Under the Plan, a Participating
Organization may include the Distributor, its subsidiaries and its
affiliates. As of the date of this financial statement, there are no
12b-1 Agreements with any Participating Organization.
(6) ADMINISTRATIVE SERVICES PLAN
The Company has adopted an Administrative Services Plan pursuant to
which the Fund is authorized to pay compensation to banks and other
financial institutions, which may include FNBO, its correspondent and
affiliated banks and the Distributor (each a "Service Organization").
Such Service Organizations agree to provide certain ministerial, record
keeping and/or administrative support services for their customers or
account holders who are the beneficial or record owner of shares of the
Fund. In consideration for such services, a Service Organization
receives a fee from the Fund, computed daily and paid monthly at an
annual rate of up to 0.25 percent of the average daily net asset value
of shares of the Fund owned beneficially or of record by such Service
Organization's customers for whom the Service Organization provides such
services. As of the date of this financial statement, the Board of
Directors has not authorized payments under the Administrative Services
Plan.
B-38
<PAGE> 83
FIRST OMAHA SMALL CAP VALUE FUND
Notes to Financial Statement
- ------------------------------------------------------------------------------
(7) RELATED PARTY INFORMATION
At the date of the Fund's capitalization, Miriam M. Allison, president of
the Administrator and Distributor, owns all of the outstanding shares of the
Fund.
(8) CAPITAL STOCK
The Funds are authorized to issue a total of 1,000,000,000 shares of
common stock in series with a par value of $0.00001 per share. The Board of
Directors has authorized 500,000,000 of these shares to be issued in total for
the series designated Small Cap Value Fund, Equity Fund, Short/Intermediate
Fixed Income Fund, Fixed Income Fund and U.S. Government Obligations Fund
Shares. The Board of Directors is empowered to issue other series of the
Funds' shares without shareholder approval.
Each share of stock will have a pro rata interest in the assets of the
Fund to which the stock of that series relates and will have no interest in the
assets of any other Fund.
B-39
<PAGE> 84
[FIRST OMAHA FAMILY OF FUNDS LOGO]
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1996 -
<TABLE>
<CAPTION>
U.S. GOVERNMENT SHORT/INTERMEDIATE
OBLIGATIONS FIXED INCOME FIXED INCOME EQUITY
FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at market value
(cost $69,459,524, $21,764,795,
$75,280,955 and $189,234,895,
respectively) $69,459,524 $21,676,048 $75,234,390 $223,956,234
Repurchase agreements, at market value
(cost $18,582,550, $0, $0 and $0,
respectively) 18,582,550 -- -- --
Interest and dividends receivable 37,923 358,236 1,102,869 265,488
Organizational expenses, net of
accumulated amortization 27,977 27,977 27,977 27,977
Other assets 36,741 17,640 34,056 72,398
----------- ----------- ----------- ------------
Total Assets 88,144,715 22,079,901 76,399,292 224,322,097
=========== =========== =========== ============
LIABILITIES:
Dividend payable 346,027 -- -- --
Accrued expenses and other liabilities 65,492 22,201 49,546 120,884
Accrued investment advisory fee 18,463 1,888 7,827 32,400
----------- ----------- ----------- ------------
Total Liabilities 429,982 24,089 57,373 153,284
----------- ----------- ----------- ------------
NET ASSETS $87,714,733 $22,055,812 $76,341,919 $224,168,813
=========== =========== =========== ============
NET ASSETS CONSIST OF:
Capital stock 877 22 76 171
Paid-in-capital in excess of par 87,727,924 22,384,852 76,461,891 182,273,939
Undistributed net investment income 1,970 23,078 84,938 31,943
Undistributed net realized gain (loss)
on investments (16,038) (263,393) (158,421) 7,141,421
Net unrealized appreciation (depreciation)
on investments -- (88,747) (46,565) 34,721,339
----------- ----------- ----------- ------------
Net Assets $87,714,733 $22,055,812 $76,341,919 $224,168,813
=========== =========== =========== ============
CAPITAL STOCK, $0.00001 par value
Authorized 300,000,000 50,000,000 50,000,000 50,000,000
Issued and outstanding 87,730,683 2,238,496 7,633,734 17,149,232
NET ASSET VALUE, REDEMPTION PRICE,
AND OFFERING PRICE PER SHARE
(NET ASSETS/SHARES OUTSTANDING) $1.00 $9.85 $10.00 $13.07
===== ===== ====== ======
</TABLE>
See notes to financial statements.
B-40
<PAGE> 85
FIRST OMAHA FUNDS - ANNUAL REPORT
SCHEDULE OF PORTFOLIO INVESTMENTS
U.S. GOVERNMENT OBLIGATIONS FUND
March 31, 1996 -
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
<S> <C>
U.S. TREASURY BILLS 73.52%
$15,000,000 4/18/96 $14,963,314
5,000,000 4/25/96 4,982,303
10,000,000 5/2/96 9,957,120
5,000,000 5/16/96 4,970,128
10,000,000 5/30/96 9,916,177
10,000,000 6/20/96 9,885,670
5,000,000 8/8/96 4,914,899
5,000,000 8/29/96 4,900,003
-----------
Total U.S. Treasury Bills
(cost $64,489,614) 64,489,614
-----------
U.S. TREASURY NOTE 5.66%
5,000,000 8.25%, 2/15/97 4,969,910
-----------
Total U.S. Treasury Notes
(cost $4,969,910) 4,969,910
-----------
REPURCHASE AGREEMENTS 21.19%
10,582,550 G.X. Clarke & Co.,
5.00%, dated 3/29/96,
repurchase price $10,586,959,
maturing 4/1/96
(collateralized by U.S.
Treasury Bills, 7/25/96) 10,582,550
8,000,000 HSBC Securities, Inc.,
5.25%, dated 3/29/96,
repurchase price $8,003,500,
maturing 4/1/96
(collateralized by U.S.
Treasury Notes, 6.875%,
3/31/97) 8,000,000
-----------
Total Repurchase Agreements
(cost $18,582,550) 18,582,550
-----------
Total Investments 100.37%
(cost $88,042,074) $88,042,074
Liabilities,
less Other Assets (0.37)% (327,341)
-----------
NET ASSETS 100.00% $87,714,733
===========
</TABLE>
See notes to financial statements.
B-41
<PAGE> 86
[FIRST OMAHA FAMILY OF FUNDS LOGO]
SCHEDULE OF PORTFOLIO INVESTMENTS
SHORT/INTERMEDIATE FIXED INCOME FUND
March 31, 1996 -
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
<S> <C>
CORPORATE BONDS 73.82%
CONSUMER GOODS & SERVICES 2.77%
$ 605,000 World Book Finance, Inc.,
8.125%, 9/1/96 $ 611,431
-----------
ELECTRICAL EQUIPMENT 3.52%
775,000 General Electric Co.,
7.875%, 5/1/96 775,969
-----------
FINANCIAL SERVICES 6.92%
750,000 General Electric Capital Corp.,
6.875%, 4/15/00 764,063
750,000 John Deere Capital Corp.,
7.20%, 5/15/97 762,667
-----------
1,526,730
-----------
FOOD PRODUCTS 4.57%
1,000,000 Anheuser-Busch Cos., Inc.,
6.90%, 10/1/02 1,008,750
-----------
PHARMACEUTICALS 13.75%
1,000,000 Eli Lilly & Co.,
8.125%, 12/1/01 1,080,000
1,000,000 SmithKline Beecham Corp.,
6.625%, 10/1/05 973,750
1,000,000 Upjohn Co.,
5.875%, 4/15/00 978,750
-----------
3,032,500
-----------
RETAIL 4.49%
1,000,000 Wal-Mart Stores, Inc.,
6.50%, 6/1/03 990,000
-----------
UTILITIES - ELECTRIC SERVICES 16.70%
1,000,000 Alabama Power Co.,
5.50%, 2/1/98 987,500
1,000,000 Florida Power & Light Co.,
5.50%, 7/1/99 977,500
750,000 Gulf Power Co.,
5.875%, 8/1/97 748,125
$1,000,000 Monongahela Power Co.,
5.625%, 4/1/00 $ 971,250
-----------
3,684,375
-----------
UTILITIES - ELECTRIC & OTHER SERVICES
COMBINED 8.71%
1,000,000 Northern States Power Co.,
5.75%, 10/1/03 945,000
1,000,000 Wisconsin Electric Power Co.,
5.125%, 9/15/98 975,000
-----------
1,920,000
-----------
UTILITIES - NATURAL GAS 3.38%
750,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 746,250
-----------
UTILITIES - TELECOMMUNICATIONS 9.01%
1,000,000 Chesapeake & Potomac
Telephone Co. of Maryland,
5.875%, 9/15/99 987,500
1,000,000 GTE California, Inc.,
6.25%, 1/15/98 998,750
-----------
1,986,250
-----------
Total Corporate Bonds
(cost $16,302,214) 16,282,255
-----------
</TABLE>
B-42
<PAGE> 87
FIRST OMAHA FUNDS - ANNUAL REPORT
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------
<S> <C>
U.S. TREASURY BILLS 2.26%
$ 500,000 4/18/96 $ 498,836
-----------
Total U.S. Treasury Bills
(cost $498,836) 498,836
-----------
U.S. TREASURY NOTES 7.76%
1,000,000 5.875%, 2/15/04 969,600
750,000 5.125%, 3/31/98 740,842
Total U.S. Treasury Notes
(cost $1,718,636) 1,710,442
-----------
U.S. TREASURY STRIPS 13.75%
1,085,000 2/15/99 918,366
1,520,000 8/15/00 1,173,774
1,345,000 2/15/02 939,724
-----------
Total U.S. Treasury Strips
(cost $3,092,458) 3,031,864
-----------
<CAPTION>
NUMBER
OF SHARES
- ---------
<S> <C>
INVESTMENT COMPANIES 0.69%
152,651 Goldman Sachs ILA Treasury
Obligations Portfolio 152,651
-----------
Total Investment Companies
(cost $152,651) 152,651
-----------
Total Investments 98.28%
(cost $21,764,795) 21,676,048
Other Assets,
less Liabilities 1.72% 379,764
-----------
NET ASSETS 100.00% $22,055,812
===========
</TABLE>
See notes to financial statements.
B-43
<PAGE> 88
[FIRST OMAHA FAMILY OF FUNDS LOGO]
SCHEDULE OF PORTFOLIO INVESTMENTS
FIXED INCOME FUND
March 31, 1996 -
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------
<S> <C>
CORPORATE BONDS 66.26%
COMMUNICATIONS EQUIPMENT 3.20%
$2,500,000 Motorola, Inc.,
6.50%, 3/1/08 $2,443,750
----------
ELECTRICAL EQUIPMENT 3.10%
2,500,000 General Electric Co.,
5.50%, 11/1/01 2,368,750
----------
FOOD PRODUCTS 3.24%
2,500,000 Anheuser-Busch Cos., Inc.,
7.25%, 9/15/15 2,471,875
----------
FOREST PRODUCTS 6.34%
2,500,000 Kimberly-Clark Corp.,
6.875%, 2/15/14 2,350,000
2,500,000 Weyerhaeuser Co.,
7.25%, 7/1/13 2,490,625
----------
4,840,625
----------
GOVERNMENTS - FOREIGN 2.61%
2,000,000 Ontario Hydro,
5.80%, 3/31/98 1,992,500
----------
INDUSTRIAL GOODS & SERVICES 5.12%
2,000,000 Air Products & Chemicals, Inc.,
6.25%, 6/15/03 1,935,000
2,000,000 Monsanto Co.,
6.00%, 7/1/00 1,970,000
----------
3,905,000
----------
OIL & GAS EXPLORATION &
PRODUCTION 3.99%
2,000,000 Amoco Canada Petroleum
Co. Ltd., 6.75%, 2/15/05 2,005,000
1,000,000 BP America, Inc.,
8.875%, 12/1/97 1,042,500
----------
3,047,500
----------
PHARMACEUTICALS 2.57%
2,000,000 Eli Lilly & Co.,
6.25%, 3/15/03 1,962,500
----------
RAILROADS 0.69%
$ 500,000 Southern Railway Co.,
7.75%, 8/1/99 $ 524,375
----------
RETAIL 5.50%
2,000,000 J.C. Penney Co., Inc.,
6.00%, 5/1/06 1,867,500
2,500,000 Wal-Mart Stores, Inc.,
5.875%, 10/15/05 2,334,375
----------
4,201,875
----------
SOAPS & CLEANING AGENTS 1.99%
1,500,000 Colgate-Palmolive Co.,
6.85%, 11/24/99 1,520,625
----------
UTILITIES - ELECTRIC SERVICES 2.58%
2,000,000 Union Electric Co.,
6.75%, 5/1/08 1,972,500
----------
UTILITIES - ELECTRIC & OTHER SERVICES
COMBINED 6.80%
2,500,000 Citizens Utilities Co.,
7.60%, 6/1/06 2,643,750
1,500,000 Iowa Southern Utilities Co.,
7.375%, 2/1/03 1,524,375
1,000,000 Louisville Gas & Electric Co.,
7.50%, 7/1/02 1,018,750
----------
5,186,875
----------
UTILITIES - NATURAL GAS 9.73%
1,000,000 Consolidated Natural Gas Co.,
9.375%, 2/1/97 1,027,500
2,500,000 Indiana Gas Co.,
6.625%, 12/1/97 2,518,750
2,500,000 Laclede Gas Co.,
6.50%, 11/15/10 2,390,625
1,500,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 1,492,500
----------
7,429,375
----------
</TABLE>
B-44
<PAGE> 89
FIRST OMAHA FUNDS - ANNUAL REPORT
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------
<S> <C>
Utilities - Telecommunications 8.80%
$ 2,000,000 AT&T CORP.,
7.75%, 3/1/07 $ 2,140,000
2,500,000 Chesapeake & Potomac
Telephone Co. of Maryland,
5.25%, 5/1/05 2,262,500
1,000,000 Southern Bell Telephone &
Telegraph Co., 4.75%,
9/1/00 922,500
1,500,000 Southern Bell Telephone &
Telegraph Co., 6.00%,
10/1/04 1,395,000
-----------
6,720,000
-----------
Total Corporate Bonds
(cost $50,843,417) 50,588,125
-----------
U.S. GOVERNMENT AGENCIES 2.79%
2,000,000 Federal National Mortgage
Association, 8.625%,
11/10/04 2,129,240
-----------
Total U.S. Government Agencies
(cost $1,999,690) 2,129,240
-----------
U.S. TREASURY BILLS 1.96%
1,500,000 4/18/96 1,496,327
-----------
Total U.S. Treasury Bills
(cost $1,496,327) 1,496,327
-----------
U.S. TREASURY NOTES 2.77%
1,000,000 8.125%, 2/15/98 1,040,580
1,000,000 8.875%, 2/15/99 1,076,340
-----------
Total U.S. Treasury Notes
(cost $2,207,500) 2,116,920
-----------
U.S. TREASURY STRIPS 16.83%
$ 1,785,000 8/15/01 $ 1,290,519
2,122,000 5/15/02 1,455,819
4,983,000 2/15/05 2,817,686
6,513,000 2/15/07 3,191,370
12,114,000 2/15/12 4,089,564
-----------
Total U.S. Treasury Strips
(cost $12,734,536) 12,844,958
-----------
U.S. TREASURY BONDS 4.43%
1,000,000 7.875%, 11/15/07 1,082,350
1,000,000 8.75%, 11/15/08 1,134,740
1,000,000 9.125%, 5/15/09 1,162,870
-----------
Total U.S. Treasury Bonds
(cost $3,320,625) 3,379,960
-----------
<CAPTION>
NUMBER
OF SHARES
- ---------
<S> <C>
INVESTMENT COMPANIES 3.51%
2,678,860 Goldman Sachs ILA Treasury
Obligations Portfolio 2,678,860
-----------
Total Investment Companies
(cost $2,678,860) 2,678,860
-----------
Total Investments 98.55%
(cost $75,280,955) 75,234,390
-----------
Other Assets,
less Liabilities 1.45% 1,107,529
-----------
NET ASSETS 100.00% $76,341,919
===========
</TABLE>
See notes to financial statements.
B-45
<PAGE> 90
[FIRST OMAHA FAMILY OF FUNDS LOGO]
SCHEDULE OF PORTFOLIO INVESTMENTS
EQUITY FUND
March 31, 1996 -
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
- -----------------------------------------------------------
<S> <C>
COMMON STOCKS 81.67%
COMMUNICATIONS EQUIPMENT 2.93%
124,100 Motorola, Inc. $ 6,577,300
------------
COMPUTERS & PERIPHERALS 2.39%
48,200 International Business
Machines Corp. 5,356,225
------------
COSMETICS 4.32%
35,400 International Flavors &
Fragrances, Inc. 1,694,775
170,700 Tambrands, Inc. 7,980,225
------------
9,675,000
------------
ELECTRICAL EQUIPMENT 8.10%
55,600 Emerson Electric Co. 4,489,700
58,900 General Electric Co. 4,586,838
164,200 Honeywell, Inc. 9,072,050
------------
18,148,588
------------
ENVIRONMENTAL CONTROL 0.90%
165,600 Calgon Carbon Corp. 2,007,900
------------
FOOD PROCESSING & PACKAGING 2.81%
90,700 CPC International, Inc. 6,292,313
------------
HEAVY MACHINERY 3.28%
180,200 Ingersoll-Rand Co. 7,343,150
------------
INSURANCE 10.23%
230,300 American Financial Group, Inc. 6,966,575
141,800 American General Corp. 4,892,100
60,900 Marsh & McLennan
Cos., Inc. 5,656,087
161,600 SAFECO Corp. 5,413,600
------------
22,928,362
------------
MEDICAL SUPPLIES 2.15%
59,000 Becton, Dickinson & Co. 4,830,625
------------
MOTOR VEHICLE PARTS & ACCESSORIES 1.53%
158,200 CLARCOR, Inc. 3,440,850
------------
OIL 8.34%
70,000 Exxon Corp. $ 5,713,750
80,100 Texaco, Inc. 6,888,600
182,600 Unocal Corp. 6,094,275
------------
18,696,625
------------
OILFIELD EQUIPMENT & SERVICES 2.53%
71,600 Schlumberger, Ltd. 5,665,350
------------
PACKAGING & CONTAINERS 2.70%
222,400 Sonoco Products Co. 6,060,400
------------
PHARMACEUTICALS 3.33%
115,000 Eli Lilly & Co. 7,475,000
------------
PHOTOGRAPHY 2.77%
87,600 Eastman Kodak Co. 6,219,600
------------
PUBLISHING 2.84%
184,900 R.R. Donnelley & Sons Co. 6,379,050
------------
RETAIL 7.23%
150,000 J.C. Penney Co., Inc. 7,462,500
283,000 Rite Aid Corp. 8,737,625
------------
16,200,125
------------
SOAPS & CLEANING AGENTS 2.37%
68,100 Colgate-Palmolive Co. 5,303,287
------------
TEXTILE MANUFACTURING 2.57%
371,300 Kellwood Co. 5,755,150
------------
TOBACCO 3.04%
270,900 Universal Corp. 6,806,363
------------
UTILITIES - ELECTRIC SERVICES 5.31%
244,200 DPL, Inc. 5,830,275
147,000 Texas Utilities Co. 6,082,125
------------
11,912,400
------------
Total Common Stocks
(cost $148,319,724) 183,073,663
------------
</TABLE>
B-46
<PAGE> 91
FIRST OMAHA FUNDS - ANNUAL REPORT
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------
<S> <C>
U.S. TREASURY BILLS 14.90%
$5,000,000 6/6/96 $ 4,951,795
5,000,000 7/5/96 4,931,807
6,000,000 7/25/96 5,900,683
5,000,000 8/1/96 4,912,326
5,000,000 8/15/96 4,902,507
8,000,000 9/19/96 7,805,120
------------
Total U.S. Treasury Bills
(cost $33,436,838) 33,404,238
------------
<CAPTION>
NUMBER
OF SHARES
- ---------
<S> <C>
INVESTMENT COMPANIES 3.34%
7,478,333 Goldman Sachs ILA Treasury
Obligations Portfolio 7,478,333
------------
Total Investment Companies
(cost $7,478,333) 7,478,333
------------
Total Investments 99.91%
(cost $189,234,895) 223,956,234
Other Assets,
less Liabilities 0.09% 212,579
------------
NET ASSETS 100.00% $224,168,813
============
</TABLE>
See notes to financial statements.
B-47
<PAGE> 92
[FIRST OMAHA FAMILY OF FUNDS LOGO]
STATEMENTS OF OPERATIONS
For the period from April 10, 1995(1) to March 31, 1996 -
<TABLE>
<CAPTION>
U.S. GOVERNMENT SHORT/INTERMEDIATE
OBLIGATIONS FIXED INCOME FIXED INCOME EQUITY
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $4,910,772 $1,332,377 $4,796,262 $1,759,320
Dividends (net of withholding tax of
$0, $0, $0 and $17,556, respectively) -- -- -- 4,584,921
---------- ---------- ---------- -----------
4,910,772 1,332,377 4,796,262 6,344,241
---------- ---------- ---------- -----------
EXPENSES:
Investment advisory fees 216,379 108,692 432,881 1,433,904
Fund administration and accounting fees 173,103 43,477 144,294 382,375
Shareholder servicing fees 35,174 27,326 31,953 49,446
Custody fees 25,965 6,522 21,644 57,355
Federal and state registration fees 21,699 6,810 12,193 30,608
Professional fees 9,334 10,674 13,352 29,221
Reports to shareholders 7,160 3,737 9,784 26,546
Amortization of organization expenses 6,794 6,794 6,794 6,794
Directors' fees 4,957 1,664 5,289 13,521
Insurance 4,742 1,373 4,139 10,110
Pricing fees 247 2,963 5,068 1,773
Other expenses 3,555 1,535 5,391 5,665
---------- ---------- ---------- -----------
Total expenses before waiver 509,109 221,567 692,782 2,047,318
Less: Waiver of expenses (38,677) (27,105) (89,957) (142,786)
---------- ---------- ---------- -----------
Net Expenses 470,432 194,462 602,825 1,904,532
---------- ---------- ---------- -----------
NET INVESTMENT INCOME 4,440,340 1,137,915 4,193,437 4,439,709
---------- ---------- ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments -- (84,610) 29,482 14,388,259
Change in unrealized appreciation
(depreciation) on investments -- 527,854 2,450,307 18,465,419
---------- ---------- ---------- -----------
Net Gain on Investments -- 443,244 2,479,789 32,853,678
---------- ---------- ---------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $4,440,340 $1,581,159 $6,673,226 $37,293,387
========== ========== ========== ===========
</TABLE>
(1) Commencement of operations
See notes to financial statements.
B-48
<PAGE> 93
FIRST OMAHA FUNDS - ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
For the period from April 10, 1995(1) to March 31, 1996 -
<TABLE>
<CAPTION>
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 4,440,340 $ 1,137,915 $ 4,193,437 $ 4,439,709
Net realized gain (loss) on investments -- (84,610) 29,482 14,388,259
Change in unrealized appreciation
(depreciation) on investments -- 527,854 2,450,307 18,465,419
------------- ----------- ----------- ------------
Net increase in net assets
resulting from operations 4,440,340 1,581,159 6,673,226 37,293,387
------------- ----------- ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (4,440,340) (1,116,807) (4,110,469) (4,409,736)
Net capital gains -- -- -- (7,246,838)
------------- ----------- ----------- ------------
Total Distributions (4,440,340) (1,116,807) (4,110,469) (11,656,574)
------------- ----------- ----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 388,060,722 5,409,677 15,431,739 48,686,735
Net assets resulting from conversion 76,094,844 22,125,516 66,377,812 161,426,537
Proceeds from reinvestment
of dividends 1,141,735 1,111,654 4,090,974 11,645,208
Redemption of shares (377,600,568) (7,056,387) (12,122,363) (23,306,480)
------------- ----------- ----------- ------------
Net increase from share transactions 87,696,733 21,590,460 73,778,162 198,452,000
------------- ----------- ----------- ------------
TOTAL INCREASE IN NET ASSETS 87,696,733 22,054,812 76,340,919 224,088,813
NET ASSETS:
Beginning of period 18,000 1,000 1,000 80,000
------------- ----------- ----------- ------------
End of period $ 87,714,733 $22,055,812 $76,341,919 $224,168,813
============= =========== =========== ============
Undistributed net investment
income, end of period $ 1,970 $ 23,078 $ 84,938 $ 31,943
============= =========== =========== ============
</TABLE>
(1) Commencement of operations
See notes to financial statements.
B-49
<PAGE> 94
[FIRST OMAHA FAMILY OF FUNDS LOGO]
FINANCIAL HIGHLIGHTS(1)
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS FUND
---------------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED YEAR ENDED DEC. 4, 1991
TO TO JUNE 30, JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 1993 JUNE 30, 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income From Investment Operations:
Net investment income 0.05 0.04 0.03 0.03 0.02
Net realized and unrealized gains
on investments -- -- -- -- --
----- ----- ----- ----- -----
Total from investment operations 0.05 0.04 0.03 0.03 0.02
----- ----- ----- ----- -----
Less Distributions to Shareholders:
Dividends from net investment income 0.05 0.04 0.03 0.03 0.02
Distributions from capital gains -- -- -- -- --
----- ----- ----- ----- -----
Total distributions 0.05 0.04 0.03 0.03 0.02
----- ----- ----- ----- -----
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return(3) 5.14% 3.51% 2.74% 2.72% 2.15%
Supplemental Data and Ratios:
Net assets, end of period (000s) $87,715 $76,105 $89,195 $91,785 $81,152
Ratio of net expenses to average net assets(4) 0.54% 0.63% 0.60% 0.61% 0.46%
Ratio of net investment income to
average net assets(4) 5.12% 4.46% 2.68% 2.67% 3.65%
Ratio of net expenses to average net assets(4)(5) 0.59% 1.23% 1.13% 0.96% 0.98%
Ratio of net investment income to
average net assets(4)(5) 5.07% 3.86% 2.15% 2.32% 3.13%
Portfolio turnover rate(3) -- -- -- -- --
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
B-50
<PAGE> 95
First Omaha Funds - Annual Report
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE FIXED INCOME FUND
------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED DEC. 13, 1992
TO TO JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 JUNE 30, 1993
------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $9.66 $9.62 $10.18 $10.00
Income From Investment Operations:
Net investment income 0.51 0.42 0.55 0.33
Net realized and unrealized gains
on investments 0.18 0.05 (0.56) 0.16
----- ----- ------ ------
Total from investment operations 0.69 0.47 (0.01) 0.49
----- ----- ------ ------
Less Distributions to Shareholders:
Dividends from net investment income 0.50 0.43 0.55 0.31
Distributions from capital gains -- -- -- --
----- ----- ------ ------
Total distributions 0.50 0.43 0.55 0.31
----- ----- ------ ------
Net Asset Value, End of Period $9.85 $9.66 $9.62 $10.18
===== ===== ===== ======
Total return(3) 7.24% 5.05% (0.22)% 5.00%
Supplemental Data and Ratios:
Net assets, end of period (000s) $22,056 $22,130 $21,938 $24,581
Ratio of net expenses to average net assets(4) 0.89% 0.88% 0.83% 0.79%
Ratio of net investment income to
average net assets(4) 5.23% 5.63% 5.44% 5.91%
Ratio of net expenses to average net assets(4)(5) 1.02% 1.51% 1.38% 1.19%
Ratio of net investment income to
average net assets(4)(5) 5.10% 5.00% 4.89% 5.51%
Portfolio turnover rate(3) 41.45% 9.93% 20.52% 15.58%
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
B-51
<PAGE> 96
[FIRST OF OMAHA FAMILY OF FUNDS LOGO]
FINANCIAL HIGHLIGHTS (CONT'D.)(1)
<TABLE>
<CAPTION>
FIXED INCOME FUND
-----------------------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED DEC. 13, 1992
TO TO JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 JUNE 30, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.63 $9.58 $10.49 $10.00
Income From Investment Operations:
Net investment income 0.58 0.51 0.67 0.39
Net realized and unrealized gains
on investments 0.36 0.07 (0.88) 0.47
------ ----- ----- ------
Total from investment operations 0.94 0.58 (0.21) 0.86
------ ----- ----- ------
Less Distributions to Shareholders:
Dividends from net investment income 0.57 0.53 0.67 0.37
Distributions from capital gains -- -- 0.03 --
====== ===== ===== ======
Total distributions 0.57 0.53 0.70 0.37
------ ----- ----- ------
Net Asset Value, End of Period $10.00 $9.63 $9.58 $10.49
====== ===== ===== ======
Total return(3) 9.79% 6.35% (2.29)% 8.72%
Supplemental Data and Ratios:
Net assets, end of period (000s) $76,342 $66,488 $61,714 $59,178
Ratio of net expenses to average net assets(4) 0.83% 0.87% 0.86% 0.79%
Ratio of net investment income to
average net assets(4) 5.80% 6.98% 6.52% 6.89%
Ratio of net expenses to average net assets(4)(5) 0.96% 1.51% 1.41% 1.19%
Ratio of net investment income to
average net assets(4)(5) 5.67% 6.34% 5.97% 6.49%
Portfolio turnover rate(3) 37.35% 7.04% 13.09% 2.62%
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
B-52
<PAGE> 97
First Omaha Funds - Annual Report
<TABLE>
<CAPTION>
EQUITY FUND
------------------------------------------------------------------
APRIL 10, 1995(2) JULY 1, 1994 YEAR ENDED DEC. 13, 1992
TO TO JUNE 30, TO
MARCH 31, 1996 APRIL 9, 1995 1994 JUNE 30, 1993
------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $11.39 $10.48 $10.55 $10.00
Income From Investment Operations:
Net investment income 0.28 0.21 0.20 0.11
Net realized and unrealized gains
on investments 2.13 1.48 0.15 0.54
------ ------ ------ ------
Total from investment operations 2.41 1.69 0.35 0.65
------ ------ ------ ------
Less Distributions to Shareholders:
Dividends from net investment income 0.28 0.22 0.20 0.10
Distributions from capital gains 0.45 0.56 0.22 --
------ ------ ------ ------
Total distributions 0.73 0.78 0.42 0.10
------ ------ ------ ------
Net Asset Value, End of Period $13.07 $11.39 $10.48 $10.55
====== ====== ====== ======
Total return(3) 21.52% 16.48% 3.34% 6.55%
Supplemental Data and Ratios:
Net assets, end of period (000s) $224,169 $161,323 $129,381 $111,059
Ratio of net expenses to average net assets(4) 0.99% 1.03% 1.04% 1.01%
Ratio of net investment income to
average net assets(4) 2.32% 2.50% 1.93% 1.90%
Ratio of net expenses to average net assets(4)(5) 1.07% 1.62% 1.54% 1.32%
Ratio of net investment income to
average net assets(4)(5) 2.24% 1.91% 1.43% 1.59%
Portfolio turnover rate(3) 26.60% 14.36% 15.86% 4.94%
</TABLE>
(1) Performance data for each Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
(2) Commencement of operations
(3) Not annualized
(4) Annualized
(5) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
See notes to financial statements.
B-53
<PAGE> 98
[FIRST OMAHA FAMILY OF FUNDS LOGO]
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(1) ORGANIZATION
First Omaha Funds, Inc. (the "Company") was organized in October, 1994 as a
Nebraska corporation and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
issuing its shares in series, each series representing a distinct portfolio
with its own investment objectives and policies. At March 31, 1996, the only
series presently authorized are the U.S. Government Obligations Fund, the
Short/Intermediate Fixed Income Fund, the Fixed Income Fund, the Equity Fund
(the "Funds"), and the Small Cap Value Fund. These financial statements only
present the financial position of the Funds.
On April 9, 1995, each of the Short/Intermediate Fixed Income Fund, the Fixed
Income Fund and the Equity Fund completed an exchange of all their outstanding
shares as follows:
<TABLE>
<CAPTION>
Pre-Exchange Post-Exchange
- ---------------------------------------------------------------------------
<S> <C> <C>
Short/Intermediate Fixed Income Fund
Shares Outstanding 100 104
NAV per share $10.00 $9.66
Fixed Income Fund
Shares Outstanding 100 104
NAV per share $10.00 $9.63
Equity Fund
Shares Outstanding 8,000 7,024
NAV per share $10.00 $11.39
</TABLE>
On April 10, 1995, each series of the Company acquired all of the net assets of
the respective series of The Sessions Group, pursuant to a plan of
reorganization approved by each series of The Sessions Group's shareholders on
April 5, 1995. The acquisition was accomplished by a tax-free exchange of
shares on a 1 for 1 basis, as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SHORT/INTERMEDIATE
OBLIGATIONS FIXED INCOME FIXED INCOME EQUITY
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares exchanged 76,107,938 2,290,324 6,894,181 14,178,204
Value of shares exchanged $76,094,844 $22,125,516 $66,377,812 $161,426,537
</TABLE>
B-54
<PAGE> 99
Each series of The Sessions Group's net assets at that date was combined with
those of each series of the Company. The aggregate net assets of each series
immediately before and after the acquisition were as follows:
<TABLE>
<CAPTION>
Before After
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Sessions Group First Omaha U.S. Government Obligations Fund $76,094,844 --
First Omaha Funds, Inc. - First Omaha U.S. Government Obligations Fund 18,000 $76,112,844
The Sessions Group First Omaha Short/Intermediate Fixed Income Fund 22,125,516 --
First Omaha Funds, Inc. - First Omaha Short/Intermediate Fixed Income Fund 1,000 22,126,516
The Sessions Group First Omaha Fixed Income Fund 66,377,812 --
First Omaha Funds, Inc. - First Omaha Fixed Income Fund 1,000 66,378,812
The Sessions Group First Omaha Equity Fund 161,426,537 --
First Omaha Funds, Inc. - First Omaha Equity Fund 80,000 161,506,537
</TABLE>
Each series of The Sessions Group's net assets included the following:
<TABLE>
<CAPTION>
U. S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Undistributed net realized (loss) $(15,950) $(178,976) $ (187,903) --
Net unrealized appreciation (depreciation)
on investments -- (616,601) (2,496,872) $16,255,920
</TABLE>
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
(a) INVESTMENT VALUATION
Securities traded over-the-counter or on a national securities
exchange are valued on the basis of market value in their
principal and most representative market. Securities where the
principal and most representative market is a national securities
exchange are valued at the latest reported sale price on such
exchange. Exchange-traded securities for which there were no
transactions are valued at the latest reported bid price.
Securities traded on only over-the-counter markets are valued at
the latest bid price. Debt securities (other than short-term
instruments) are valued at prices furnished by a pricing service,
subject to review by the Funds' investment adviser, First National
Bank of Omaha (the "Adviser"), and determination of the
appropriate price whenever a furnished price is significantly
different from the previous day's furnished
B-55
<PAGE> 100
[FIRST OMAHA FAMILY OF FUNDS LOGO]
price. Short-term obligations (maturing within 60 days) are valued on
an amortized cost basis. Securities for which quotations are not readily
available and other assets are valued at fair value as determined in good
faith by the Adviser under the supervision of the Board of Directors.
Pursuant to Rule 2a-7 of the 1940 Act, investments of the U.S.
Government Obligations Fund are valued at either amortized cost, which
approximates market value, or at original cost, which combined with accrued
interest, approximates market value. Under the amortized cost valuation
method, discount or premium is amortized on a constant basis to the
maturity of the security. In addition, the Fund may not (i) purchase any
instrument with a remaining maturity greater than 13 months unless such
investment is subject to a demand feature, or (ii) maintain a
dollar-weighted average portfolio maturity which exceeds 90 days.
(b) REPURCHASE AGREEMENTS
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker/dealers which the Adviser deems creditworthy under
guidelines approved by the Board of Directors, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price generally equals the price paid by each Fund
plus interest negotiated on the basis of current short-term rates, which
may be more or less than the rate on the underlying portfolio securities.
The seller, under a repurchase agreement, is required to maintain the value
of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Funds' custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by the Funds under the 1940 Act.
(c) ORGANIZATION COSTS
Costs incurred by the Funds in connection with their organization,
registration and the initial public offering of shares have been deferred
and will be amortized on a straight-line basis over a period of five years
from the date upon which the Funds commence their investment activities.
Organization costs have been allocated equally among the respective Funds
or by specific identification, as applicable. If any of the original
shares of a Fund are redeemed by any holder thereof prior to the end of the
amortization period, the redemption proceeds will be reduced by the pro
rata share of the unamortized expenses as of the date of redemption. The
pro rata share by which the proceeds are reduced will be derived by
dividing the number of original shares of the Fund being redeemed by
the total number of original shares outstanding at the time of redemption.
(d) EXPENSES
The Funds are charged for those expenses that are directly attributable
to each portfolio, such as advisory and custodian fees. Expenses that are
not directly attributable to a portfolio are typically allocated among the
portfolios in proportion to their respective net assets.
B-56
<PAGE> 101
FIRST OMAHA FUNDS - ANNUAL REPORT
(e) DISTRIBUTIONS TO SHAREHOLDERS
The U.S. Government Obligations Fund declares dividends of net
investment income daily. The remaining Funds declare dividends monthly;
all of the Funds pay dividends of net investment income monthly.
Distributions of net realized capital gains, if any, will be declared at
least annually. Distributions to shareholders are recorded on the
ex-dividend date.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income, expense or gain items for financial statement and tax purposes.
Where appropriate, reclassifications between net asset accounts are made
for such differences that are permanent in nature. Accordingly, at March
31, 1996, reclassifications were recorded to increase undistributed net
investment income by $1,970 for each Fund; increase (decrease) accumulated
net realized loss on investments by $88 and $(193) for the U.S. Government
Obligations and Short/Intermediate Fixed Income Funds, respectively; and
decrease paid-in-capital in excess of par by $1,882, $2,163, $1,970 and
$1,970 for the U.S. Government Obligations, Short/Intermediate Fixed
Income, Fixed Income and Equity Funds, respectively.
For the year ended March 31, 1996, 0%, 0%, 0% and 100% of dividends paid
from net investment income, excluding short-term capital gains, qualifies
for the dividends received deduction available to corporate shareholders of
the U.S. Government Obligations, Short/Intermediate Fixed Income, Fixed
Income and Equity Funds, respectively.
(f) FEDERAL INCOME TAXES
Each Fund intends to comply with the requirements of the Internal
Revenue Code necessary to qualify as a regulated investment company and to
make the requisite distributions of the income to its shareholders which
will be sufficient to relieve it from all or substantially all federal
income taxes.
As of March 31, 1996, each of the U.S. Government Obligations,
Short/Intermediate Fixed Income and Fixed Income Funds had a federal income
tax capital loss carryforward of $16,038, $263,393 and $158,421,
respectively. The entire federal income tax loss carryforward for the U.S.
Government Obligations and Fixed Income Funds expire in 2003. The $263,393
federal income tax loss carryforward for the Short/Intermediate Fixed
Income Fund expires as follows: $31,092 in 2002, $147,691 in 2003 and
$84,610 in 2004. The Fixed Income Fund utilized $29,482 of previous
federal income tax loss carryforwards.
(g) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported changes in net assets
during the reporting period. Actual results could differ from those
estimates.
(h) OTHER
Investment transactions are accounted for on the trade date plus one.
The Funds determine the gain or
B-57
<PAGE> 102
[FIRST OMAHA FAMILY OF FUNDS LOGO]
loss realized from investment transactions by comparing the original cost
of the security lot sold with the net sale proceeds. Dividend income is
recognized on the ex-dividend date and interest income is recognized on an
accrual basis.
(3) INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have an agreement with the Adviser to furnish investment advisory
services to the Funds. Under the terms of this agreement, the Funds will pay
the Adviser a monthly fee at the annual rate of the following percentages on
average daily net assets: 0.25% for the U.S. Government Obligations Fund, 0.50%
for the Short/Intermediate Fixed Income Fund, 0.60% for the Fixed Income Fund,
and 0.75% for the Equity Fund. Advisory fees of $10,869 and $36,073 were
waived in the Short/Intermediate Fixed Income Fund and the Fixed Income Fund,
respectively.
First National Bank of Omaha also serves as custodian for each of the Funds.
The custodian receives compensation from each of the Funds for such services in
an amount equal to a fee, computed daily and paid monthly at the annual rate of
0.03% of each Fund's average daily net assets. Custody fees of $6,522, $21,644
and $57,355 were waived in the Short/Intermediate Fixed Income Fund, the Fixed
Income Fund and the Equity Fund, respectively.
Sunstone Financial Group, Inc. (the "Administrator" or the "Distributor") acts
as Administrator and Distributor for each of the Funds. As compensation for
its administrative services and the assumption of certain administrative
expenses, the Administrator is entitled to a fee, computed daily and payable
monthly, at an annual rate of 0.20% of each Fund's average net assets, subject
to a minimum fee of $300,000 in the aggregate for all Funds. Administrative
fees of $38,677, $9,714, $32,240 and $85,431 were waived in the U.S. Government
Obligations Fund, the Short/Intermediate Fixed Income Fund, the Fixed Income
Fund and the Equity Fund, respectively.
The Administrator may periodically volunteer to reduce all or a portion of its
administrative fee with respect to one or more Funds. These waivers may be
terminated at any time at the Administrator's discretion. The Administrator
may not seek reimbursement of such voluntarily reduced fees at a later date.
The reduction of such fee will cause the yield of that Fund to be higher than
it would be in the absence of such reduction. The Distributor receives no
compensation from the Funds under its Distribution Agreement with the Company,
but may receive compensation under the Distribution and Service Plan.
(4) DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Company has adopted a
Distribution and Service Plan (the "Plan"), under which each Fund is authorized
to pay a periodic amount representing distribution expenses calculated at an
annual rate not to exceed 0.25% of the average daily net assets of that Fund.
Such amount may be used to pay banks, broker/dealers and other institutions
which may include the Adviser, its correspondent and affiliated banks and the
Administrator (each a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between the Distributor
and the Participating Organization. As of the
B-58
<PAGE> 103
FIRST OMAHA FUNDS - ANNUAL REPORT
date of these financial statements, there are no 12b-1 Agreements with any
Participating Organizations.
(5) ADMINISTRATIVE SERVICES PLAN
The Company has adopted an Administrative Services Plan pursuant to which each
Fund is authorized to pay compensation to banks and other financial
institutions, which may include the Adviser, its correspondent and affiliated
banks and the Administrator (each a "Service Organization"). Such Service
Organizations agree to provide certain ministerial, record keeping and/or
administrative support services for their customers or account holders who are
the beneficial or record owner of shares of that Fund. In consideration for
such services, a Service Organization receives a fee from a Fund, computed
daily and paid monthly at an annual rate of up to 0.25% of the average daily
net asset value of shares of that Fund owned beneficially or of record by such
Service Organization's customers for whom the Service Organization provides
such services. Currently, the Board of Directors has not authorized payments
under the Administrative Services Plan.
(6) CAPITAL STOCK
The Funds are authorized to issue a total of 1,000,000,000 shares of common
stock in series with a par value of $0.00001 per share. The Board of Directors
is empowered to issue other series of the Company's shares without shareholder
approval.
Each share of stock will have a pro rata interest in the assets of the Fund to
which the stock of that series relates and will have no interest in the assets
of any other Fund.
Transactions in shares of the Funds for the period from April 10, 1995 to March
31, 1996 were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SHORT/INTERMEDIATE
OBLIGATIONS FIXED INCOME FIXED INCOME EQUITY
FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 388,063,353 544,882 1,516,636 3,883,570
Shares issued in conversion 76,107,938 2,290,324 6,894,181 14,178,204
Shares issued to holders in reinvestment
of dividends 1,141,960 112,230 403,885 919,982
Shares redeemed (377,600,568) (709,044) (1,181,072) (1,839,548)
------------- --------- ---------- ----------
Net increase 87,712,683 2,238,392 7,633,630 17,142,208
============= ========= ========== ==========
</TABLE>
B-59
<PAGE> 104
[FIRST OMAHA FAMILY OF FUNDS LOGO]
(7) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the period from April 10, 1995 to March 31, 1996
were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SHORT/INTERMEDIATE
OBLIGATIONS FIXED INCOME FIXED INCOME EQUITY
FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases
U.S. Government -- $4,856,628 $11,933,340 --
Other -- 3,941,500 20,392,969 $51,871,280
Sales
U.S. Government -- 4,142,326 16,259,362 --
Other -- 4,795,933 10,068,520 43,329,502
At March 31, 1996, gross unrealized appreciation and depreciation of investments were as follows:
<CAPTION>
U.S. GOVERNMENT SHORT/INTERMEDIATE
OBLIGATIONS FIXED INCOME FIXED INCOME EQUITY
FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Appreciation -- $184,929 $1,055,866 $38,198,786
(Depreciation) -- (273,676) (1,102,431) (3,477,447)
Net appreciation (depreciation) ---------- ---------- ---------- -----------
on investments -- $(88,747) $ (46,565) $34,721,339
========== ========== ========== ===========
</TABLE>
As of March 31, 1996, the cost of investments for federal income tax purposes
is substantially the same as for financial statement purposes.
B-60
<PAGE> 105
APPENDIX
Commercial Paper Ratings. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debt considered short-term in the relevant market. Commercial paper rated
A-1 by S&P indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted A-l+. Commercial paper rated A-2 by S&P indicates
that capacity for timely payment on issues is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1.
Commercial paper rated A-3 by S&P indicates adequate capacity for timely
payment. Such paper is, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Commercial paper rated B by S&P is regarded as having only speculative capacity
for timely payment. Commercial paper rated C by S&P is regarded as short-term
obligations with a doubtful capacity for payment. Commercial paper rated D by
S&P is in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
Moody's Investors Service, Inc.'s ("Moody's") commercial paper rating are
opinions of the ability of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year. The rating Prime-1 is
the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1
(or supporting institutions) are considered to have a superior capacity for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established
access to a range of financial markets and assured sources of alternate
liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics of Prime-1 rated issuers,
but to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variations. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternative
liquidity is maintained. Issuers rated Prime-3 (or supporting institutions)
have a strong ability for repayment of senior short-term debt obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained. Issuers
rated Not Prime do not fall within any of the Prime rating categories.
Commercial paper rated F-l+ by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-1 by Fitch is regarded as having an assurance of
timely payment only slightly less than the strongest rating, i.e., F-l+.
Commercial paper rated F-2 by Fitch is regarded as having a satisfactory degree
of assurance of timely payment, but the margin of safety is not as great as for
issues assigned F-l+ or F-1 ratings. Commercial paper rated F-3 by Fitch is
regarded as having characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes could cause
these securities to be rated below investment grade. Commercial paper rated
F-S by Fitch is regarded as
A-1
<PAGE> 106
having characteristics suggesting a minimal degree of assurance for
timely payment and is vulnerable to near term adverse changes in financial and
economic conditions. Commercial paper rated D by Fitch is in actual or
imminent payment default.
The description of the three highest short-term debt ratings by Duff &
Phelps, Inc. ("Duff") (Duff incorporates gradations of "1+" (one plus) and "1-"
(one minus) to assist investors in recognizing quality differences within the
highest rating category) are as follows. Duff 1+ is regarded as having the
highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations. Duff 1 is regarded as having a very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor. Duff 1- is regarded as having a
high certainty of timely payment. Liquidity factors are strong and supported
by good fundamental protection factors. Risk factors are minor. Duff 2 is
regarded as having a good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small. Duff 3 is regarded as having a satisfactory liquidity and other
protection factors qualify issue as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is
expected. Duff 4 is considered as having speculative investment
characteristics. Liquidity is not sufficient to insure against disruption in
debt service. Operating factors and market access may be subject to a high
degree of variation. Duff 5 indicates that the issuer has failed to meet
scheduled principal and/or interest payments.
Commercial paper rated A1 by IBCA Limited and its affiliate, IBCA Inc.
(collectively "IBCA") is regarded by IBCA as obligations supported by the
highest capacity for timely repayment. Where issues possess a particularly
strong credit feature, a rating of Al+ is assigned. Obligations rated A2 are
supported by a good capacity for timely repayment. Obligations rated A3 are
supported by a satisfactory capacity for timely repayment. Obligations rated B
are those for which there is an uncertainty as to the capacity to ensure timely
repayment. Obligations rated C are those for which there is a high risk of
default or which are currently in default.
The following summarizes the description of the three highest short-term
ratings of Thomson BankWatch, Inc. ("Thomson"). TBW-1 is the highest category
and indicates a very high likelihood that principal and interest will be paid
on a timely basis. TBW-2 is the second highest category indicating that while
the degree of safety regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as for issues rated
"TBW-1." TBW-3 is the lowest investment grade category and indicates that
while more susceptible to adverse developments (both internal and external)
than obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate. TBW-4 is the lowest
rating category and is regarded as non-investment grade and therefore
speculative.
The plus (+) sign is used after a rating symbol to designate the relative
position of an issuer within the rating category.
A-2
<PAGE> 107
Corporate Debt Ratings. A S&P corporate debt rating is a current
assessment of the credit-worthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong. Debt rated AA has a
very strong capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
The following summarizes the four highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues. Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Bonds that are rated A by Moody's possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future. Bonds that are rated Baa by Moody's are
considered as medium grade obligations, i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through Baa. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
The following summarizes the four highest long-term debt ratings by Duff.
Debt rated AAA has the highest credit quality. The risk factors are negligible
being only slightly more than for risk-free U.S. Treasury debt. Debt rated AA
has a high credit quality and protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions. Debt
rated A has protection factors that are average but adequate. However, risk
factors are more variable and greater in periods of economic stress. Debt
rated BBB has below average protection factors but is still considered
sufficient for prudent investment. However, there is considerable variability
in risk during economic cycles.
A-3
<PAGE> 108
To provide more detailed indications of credit quality, the ratings from
AA to BBB may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
The following summarizes the four highest long-term debt ratings by Fitch
(except for AAA ratings, plus or minus signs are used with a rating symbol to
indicate the relative position of the credit within the rating category).
Bonds rated AAA are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
rated "F-1+". Bonds rated as A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings for
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
The following summarizes IBCA's four highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
rated AA are those for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic, or financial conditions may increase
investment risk albeit not very significantly. Obligations rated A are those
for which there is a low expectation of investment risk. Capacity for timely
repayment of principal and interest is strong, although adverse changes in
business, economic or financial conditions may lead to increased investment
risk. Obligations rated BBB are those for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic, or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
The following summarizes Thomson's description of its four highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A
is the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB is the lowest investment grade category and indicates an acceptable
capacity to repay principal and interest. Issues rated BBB are,
A-4
<PAGE> 109
however, more vulnerable to adverse developments (both internal and external)
than obligations with higher ratings.
Municipal Obligations Ratings
The following summarizes the three highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 or
VMIG-1 designations are of the best quality, enjoying strong protection by
established cash flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing. Obligations rated MIG-2 or VMIG-2 denote
high quality with ample margins of protection although not so large as in the
preceding rating group. Obligations bearing MIG-3 or VMIG-3 denote favorable
quality. All security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be less
well established.
S&P SP-1, SP-2, and SP-3 municipal note ratings (the three highest ratings
assigned) are described as follows:
"SP-1": Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
"SP-2": Satisfactory capacity to pay principal and interest.
"SP-3": Speculative capacity to pay principal and interest.
The following summarizes the four highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
"Aa": Bonds judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
"A": Bonds which possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
A-5
<PAGE> 110
"Baa": Bonds which are considered as medium grade obligations, i.e,
they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
The following summarizes the four highest ratings used by S&P for state
and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
"AA": Debt which has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small
degree.
"A": Debt which has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
"BBB": Debt which has adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Definitions of Certain Money Market Instruments
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity.
A-6
<PAGE> 111
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association, the
Tennessee Valley Authority, the Farmers Home Administration, the Federal Home
Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as
those of the Government National Mortgage Association, are supported by the
full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association, are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Student Loan
Marketing Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks, are supported only by the credit of the
instrumentality. No assurance can be given that the U. S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law.
A-7
<PAGE> 112
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Not applicable.
(2) Included in Part B:
A. Small Cap Value Fund (Audited)
Accountants' Report dated April 12, 1996.
Statements of Assets and Liabilities as of
March 31, 1996.
Notes to Financial Statements dated
March 31, 1996.
B. Remaining Funds (Unaudited)
Statements of Assets and Liabilities as of
March 31, 1996.
Statements of Operations for the period ended
March 31, 1996.
Statements of Changes in Net Assets for the
period ended March 31, 1996.
Financial Highlights.
Notes to Financial Statements.
Schedules of Investments.
(b) Exhibits
Exhibit No. Description
1. Articles of Incorporation
(incorporated by reference to exhibit 1
to Original Form N-1A Registration
Statement filed November 1, 1994).
2. Bylaws
(incorporated by reference to exhibit 2
to Original Form N-1A Registration
Statement filed November 1, 1994).
3. None.
4. None.
5.1 Investment Advisory Agreement
(incorporated by reference to exhibit 5
to Original Form N-1A Registration
Statement filed November 1, 1994).
EX-99.B5.2 Form of Amended Schedule A to the
Investment Advisory Agreement Between
First Omaha Funds, Inc. and First
National Bank of Omaha dated as of
December 20, 1994.
6.1 Distribution Agreement (incorporated by
reference to exhibit 6 to original Form
N-1A Registration Statement filed
November 1, 1994).
EX-99.B6.2 Form of Amended Schedule A to the
Distribution Agreement by and between
First Omaha Funds, Inc. and Sunstone
Financial Group Inc.
7. None.
8.1 Custodian Agreement (incorporated by
reference to exhibit 8 to Original Form
N-1A Registration Statement filed
November 1, 1994).
EX-99.B8.2 Form of Amended Schedule A to the
Custodian Agreement between First Omaha
Funds, Inc. and First National Bank of
Omaha dated as of December 20, 1994.
9.1 Administration and Fund Accounting
Agreement (incorporated by reference to
exhibit 9(a) to Original Form N-1A
Registration Statement filed November 1,
1994).
EX-99.B9.2 Form of Amended Schedule A to the
Administration and Fund Accounting
Agreement by and between First Omaha
Funds, Inc. and Sunstone Financial
C-1
<PAGE> 113
<TABLE>
<CAPTION>
<S> <C> <C>
9.3 Administrative Services Plan and
Servicing Agreement (incorporated by
reference to exhibit 9(b) to
Pre-Effective Amendment No. 1 to Form
N-1A Registration Statement filed
February 13, 1995).
EX-99.B9.4 Form of Amended Appendix A to Servicing
Agreement for Administrative Servicing
Plan for First Omaha Funds, Inc.
10. Opinion and Consent of Messrs. Cline,
Williams, Wright, Johnson & Oldfather
(incorporated by reference to exhibit 10
to Pre-Effective Amendment No. 1 to Form
N-1A Registration Statement filed
February 13, 1995).
EX-99.B11. Consent of Independent Certified Public
Accountants
12. None.
13. Subscription Agreement of Miriam M.
Allison (incorporated by reference to
exhibit 13 to Pre-Effective Amendment
No. 1 to Form N-1A Registration
Statement filed February 13, 1995).
14. None.
15. Distribution and Service Plan
(incorporated by reference to exhibit 15
to Original Form N-1A Registration
Statement filed November 1, 1994).
16. Computation of Performance Figures.
18. None.
EX-27. First Omaha U.S. Gov't Fund
EX-27.1 First Omaha Short Interm. Fund
EX-27.2 First Omaha Fixed Income Fund
EX-27.3 First Omaha Equity Fund
EX-27.4 First Omaha Small Cap Fund
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of
Record Holders
Title of Class As of March 31, 1996
-------------- -----------------------
<S> <C>
U.S. Government Obligations
Fund 73
Equity Fund 1,125
Short/Intermediate Fixed
Income Fund 193
Fixed Income Fund 258
Small Cap Value Fund 1
</TABLE>
Item 27. Indemnification
Section 21-2004(15) of the Nebraska Business Corporation Act allows
indemnification of officers and directors of the Registrant under circumstances
set forth therein. The Registrant has made such indemnification mandatory.
Reference is made to Article 8-D of the Articles of Incorporation (Exhibit 1),
Article XIII of the Bylaws of Registrant (Exhibit 2).
The general effect of such provision is to require indemnification of
persons who are in an official capacity with the corporation against judgments,
penalties, fines and reasonable expenses including attorneys' fees incurred by
said person if: (1) the person has not been indemnified by another organization
for the same judgments, penalties, fines and expenses for the same acts or
omissions; (2) the person acted in good faith; (3)
C-2
<PAGE> 114
the person received no improper personal benefit; (4) in the case of a criminal
proceeding, the person had no reasonable cause to believe the conduct was
unlawful; and (5) in the case of directors, officers and employees of the
corporation, such persons reasonably believed that the conduct was in the best
interests of the corporation, or in the case of directors, officers or
employees serving at the request of the corporation for another organization,
such person reasonably believed that the conduct was not opposed to the best
interests of the corporation. A corporation is permitted to maintain insurance
on behalf of any officer, director, employee or agent of the corporation, or
any person serving as such at the request of the corporation, against any
liability of such person.
Nevertheless, Article 8-D of the Articles of Incorporation prohibits
any indemnification which would be in violation of Section 17(h) of the
Investment Company Act of 1940, as now enacted or hereafter amended and Article
XIII of the Fund's Bylaws prohibits any indemnification inconsistent with the
guidelines set forth in Investment Company Act Releases No. 7221 (June 9, 1972)
and No. 11330 (September 2, 1980). Such Releases prohibit indemnification in
cases involving willful misfeasance, bad faith, gross negligence and reckless
disregard of duty and establish procedures for the determination of entitlement
to indemnification and expense advances.
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.
In addition to the indemnification provisions contained in the
Registrant's Articles and Bylaws, there are also indemnification and hold
harmless provisions contained in the Investment Advisory Agreement,
Distribution Agreement, Administration and Fund Accounting Agreement and
Custodian Agreement. Finally, the Registrant has also included in its Articles
of Incorporation (See Article X of the Articles of Incorporation (Exhibit 1)) a
provision which eliminates the liability of outside directors to monetary
damages for breach of fiduciary duty by such directors. Pursuant to Neb. Rev.
Stat. Section 21-2035(2), such limitation of liability does not eliminate or
limit liability of such directors for any act or omission not in good faith
which involves intentional misconduct or a knowing violation of law, any
transaction from which such director derived an improper direct or indirect
financial benefit, for paying a divided or approving a stock repurchase which
was in violation of the Nebraska Business Corporation Act and for any act or
C-3
<PAGE> 115
omission which violates a declaratory or injunctive order obtained by the
Registrant or its shareholders.
Item 28. Business and Other Connections of Investment Adviser
First National Bank of Omaha (the "Adviser") is the investment adviser
for First Omaha Small Cap Value Fund, First Omaha U.S. Government Obligations
Fund, First Omaha Equity Fund, First Omaha Short/Intermediate Fixed Income
Fund, and First Omaha Fixed Income Fund. The Adviser is a subsidiary of First
National of Nebraska, Inc., a Nebraska corporation with total assets of
approximately $5.3 billion as of December 31, 1994. The Adviser provides a
full range of financial and trust services to businesses, individuals, and
government entities. The Adviser serves Nebraska, as well as other areas of
the Midwest. As of December 31, 1994, the Adviser's Trust Division had
approximately $5.2 billion of assets under administration, including
approximately $1.9 billion under management.
To the knowledge of Registrant, none of the directors or officers of
the Adviser is or has been at any time during the past two fiscal years engaged
in any other business, profession, vocation or employment of a substantial
nature, except that certain officers and directors of the Adviser also hold
positions with the Adviser's parent, First National of Nebraska, Inc., or its
subsidiaries or affiliates.
Item 29. Principal Underwriters
(a) Sunstone Financial Group, Inc. currently serves as
administrator and distributor of the shares of Haven Capital
Management Trust, Van Wagoner Funds, Inc. and Northern Funds
Trust.
(b) To the best of Registrant's knowledge, the directors and
executive officers of Sunstone Financial Group, Inc.,
distributor for Registrant, are as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
<S> <C> <C>
Miriam M. Allison President and None
207 E. Buffalo Street Director
Suite 400
Milwaukee, WI 53202
Daniel S. Allison Secretary and None
1241 N. Franklin Place Director
Milwaukee, WI 53202
</TABLE>
C-4
<PAGE> 116
<TABLE>
<S> <C> <C>
Theresa A. Ladwig Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Mary M. Tenwinkel Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Randy M. Pavlick Vice President Secretary
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Anita M. Zagrodnik Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Fayez N. Akhras Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
(c) None.
</TABLE>
Item 30. Location of Accounts and Records
Records relating to Sunstone Financial Group, Inc.'s functions as
distributor, fund accountant and administrator for the Registrant are located
at 207 E. Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202. All other
accounts, books and other documents required to be maintained under Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are in the physical possession of the Adviser, One First National
Center, Omaha, Nebraska 68102 or DST Systems, Inc., 210 W. 10th Street, Kansas
City, Missouri 64105.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
The Registrant undertakes to provide a copy of its Annual Report to
Shareholders upon request and without charge to each person to whom the
Prospectus of the Funds has been delivered.
C-5
<PAGE> 117
The Registrant undertakes, if requested to do so by the holders of at
least 10% of Registrant's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal of any director and to
assist in communications with other shareholders as required by Section 16(c).
Registrant undertakes to file a post-effective amendment, using
financial statements of the Balanced Fund which need not be certified, within
four to six months from the effective date of this Amendment.
C-6
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Omaha and the State of Nebraska, on the 15th day of May, 1996.
FIRST OMAHA FUNDS, INC.
By: /s/ Marc M Diehl
------------------------------
David P. Greer, President
by Marc M Diehl, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on May 15, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
__
President, Principal |
- ------------------------------- Executive, Financial |
David P. Greer & Accounting Officer |
& Director |
|
|
Director |
- ------------------------------- |
Joseph Caggiano |
|
Director |
- ------------------------------- |
Robert A. Reed | /s/ Marc M Diehl
| ---------------------------------
| by Marc M Diehl, attorney-in-fact
|
|
Director |
- ------------------------------- |
M. T. Crummer |
|
Director |
- ------------------------------- |
Harry A. Koch, Jr. __|
</TABLE>
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C> <C>
1. Articles of Incorporation (incorporated
by reference to exhibit 1 to Original
Form N-1A Registration Statement filed
November 1, 1994).
2. Bylaws (incorporated by reference to
exhibit 2 to Original Form N-1A
Registration Statement filed November 1,
1994).
3. None.
4. None.
5.1 Investment Advisory Agreement
(incorporated by reference to exhibit 5
to Original Form N-1A Registration
Statement filed November 1, 1994).
EX-99.B5.2 Form of Amended Schedule A to the
Investment Advisory Agreement Between
First Omaha Funds, Inc. and First
National Bank of Omaha dated as of
December 20, 1994.
6.1 Distribution Agreement (incorporated by
reference to exhibit 6 to Original Form
N-1A Registration Statement filed
November 1, 1994).
EX-99.B6.2 Form of Amended Schedule A to the
Distribution Agreement by and between
First Omaha Funds, Inc. and Sunstone
Financial Group, Inc.
7. None.
8.1 Custodian Agreement (incorporated by
reference to exhibit 8 to Original Form
N-1A Registration Statement filed
November 1, 1994).
EX-99.B8.2 Form of Amended Schedule A to the
Custodian Agreement between First Omaha
Funds, Inc. and First National Bank of
Omaha Dated as of December 20, 1994.
9.1 Administration and Fund Accounting
Agreement (incorporated by reference to
exhibit 9(a) to Original Form N-1A
Registration Statement filed November 1,
1994).
EX-99.B9.2 Form of Amended Schedule A to the
Administration and Fund Accounting
Agreement by and between First Omaha
Funds, Inc. and Sunstone Financial
Group, Inc.
9.3 Administrative Services Plan and
Servicing Agreement (incorporated by
reference to exhibit 9(b) to
Pre-Effective Amendment No. 1 to Form
N-1A Registration Statement filed
February 13, 1995).
EX-99.B9.4 Form of Amended Appendix A to Servicing
Agreement for Administrative Servicing
Plan for First Omaha Funds, Inc.
10. Opinion and Consent of Messrs. Cline,
Williams, Wright, Johnson & Oldfather
(incorporated by reference to exhibit 10
to Pre-Effective Amendment No. 1 to Form
N-1A Registration Statement filed
February 13, 1995).
EX-99.B11. Consent of Independent Certified
Public Accountants.
12. None.
13. Subscription Agreement of Miriam M.
Allison (incorporated by reference to
exhibit 13 to Pre-Effective Amendment
No. 1 to Form N-1A Registration
Statement filed February 13, 1995).
14. None.
15. Distribution and Service Plan
(incorporated by reference to exhibit 15
to Original Form N-1A Registration
Statement filed November 1, 1994).
16. Not applicable.
18. None.
EX-27. First Omaha U.S. Gov't Fund
EX-27.1 First Omaha Short Interm. Fund
EX-27.2 First Omaha Fixed Income Fund
EX-27.3 First Omaha Equity Fund
EX-27.4 First Omaha Small Cap Fund
</TABLE>
<PAGE> 1
Exhibit 5.2
Dated December 20, 1994
Schedule A
to the
Investment Advisory Agreement
Between First Omaha Funds, Inc. and
First National Bank of Omaha
dated as of December 20, 1994
<TABLE>
<CAPTION>
Name of Company Compensation* Date
--------------- ------------- ----
<S> <C> <C>
First Omaha Equity Annual rate of seventy-five December 20, 1994
Company one-hundredths of one percent
(.75%) of the average daily
net assets of such Company
First Omaha Short/ Annual rate of fifty December 20, 1994
Intermediate Fixed one-hundredths of
Income Company one percent (.50%) of the
average daily net assets
of such Company
First Omaha Fixed Annual rate of sixty December 20, 1994
Income Company one-hundredths of one
percent (.60%) of the
average daily net assets
of such Company
First Omaha Govern- Annual rate of twenty-five December 20, 1994
ment Obligations one-hundredths of one
Company percent (.25%) of the
average daily net assets
of such Company
</TABLE>
- -----------
* All fees are computed daily and paid monthly
-7-
<PAGE> 2
<TABLE>
<S> <C> <C>
First Omaha Small Cap Annual rate of eighty-five December 5, 1995
Value Fund one-hundredths of one percent
(.85%) of the average daily
net assets of such Company.
First Omaha Balanced Annual rate of seventy-five
Fund one-hundredths of one percent
(.75%) of the average
daily net assets of such
Company.
</TABLE>
FIRST OMAHA FUNDS, INC.
By:
----------------------
Name: David P. Greer
Title: President
FIRST NATIONAL BANK OF OMAHA
By:
----------------------
Name: Marc M Diehl
Title: Trust Division Head
- -----------
* All fees are computed daily and paid monthly
-8-
<PAGE> 1
Exhibit 6.2
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
FIRST OMAHA FUNDS, INC.
AND
SUNSTONE FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
Name of Fund Effective Date
------------ --------------
<S> <C>
U.S. Government Obligations Fund April 10, 1995
Equity Fund April 10, 1995
Short/Intermediate Fixed Income Fund April 10, 1995
Fixed Income Fund April 10, 1995
Small Cap Value Fund December 5, 1995
Balanced Fund
</TABLE>
Dated: April 10, 1995
Revised: December 5, 1995
FIRST OMAHA FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: By:
--------------------- ----------------------
David P. Greer Miriam M. Allison
President President
<PAGE> 1
Exhibit 8.2
Dated: December 20, 1994
Schedule A
to the
Custodian Agreement
between First Omaha Funds, Inc. and
First National Bank of Omaha
Dated as of December 20, 1994
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
------------ ------------- ----
<S> <C> <C>
First Omaha Equity Fund Annual rate of three December 20, 1994
one-hundredths of
one percent (.03%) of
the average daily net
assets of such Fund
First Omaha Short/ Annual rate of three December 20, 1994
Intermediate Fixed one-hundredths of one
Income Fund percent (.03%) of the
average daily net assets
of such Fund
First Omaha Fixed Annual rate of three December 20, 1994
Income Fund one-hundredths of one
percent (.03%) of the average
daily net assets of such Fund
First Omaha U.S. Annual rate of three one- December 20, 1994
Government Obligations hundredths of one percent
Fund (.03%) of the average daily
net assets of such Fund
First Omaha Small Cap Annual rate of three December 5, 1995
Value Fund one-hundredths of one
percent (.03%) of the
average daily net assets
of such Fund
First Omaha Annual rate of three
Balanced Fund one-hundredths of one
percent (.03%) of the
average daily net assets
of such Fund
</TABLE>
FIRST OMAHA FUNDS, INC.
By
-------------------------------
David P. Greer, President
FIRST NATIONAL BANK OF OMAHA
By
-------------------------------
Marc M. Diehl, Trust Division Head
- --------------------------
*All fees, are computed daily and paid monthly.
-23-
<PAGE> 1
Exhibit 9.2
SCHEDULE A
TO THE
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
BY AND BETWEEN
FIRST OMAHA FUNDS, INC.
AND
SUNSTONE FINANCIAL GROUP, INC.
<TABLE>
<CAPTION>
Name of Fund Effective Date
------------ --------------
<S> <C>
U.S. Government Obligations Fund April 10, 1995
Equity Fund April 10, 1995
Short/Intermediate Fixed Income Fund April 10, 1995
Fixed Income Fund April 10, 1995
Small Cap Value Fund December 5, 1995
Balanced Fund
</TABLE>
Dated: April 10, 1995
Revised: December 5, 1995
FIRST OMAHA FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: By:
------------------------------ --------------------------
David P. Greer Miriam M. Allison
President President
<PAGE> 1
Exhibit 9.4
APPENDIX A
TO SERVICING AGREEMENT FOR ADMINISTRATIVE SERVICING PLAN
FOR FIRST OMAHA FUNDS, INC.
First Omaha U.S. Government Obligations Fund
First Omaha Equity Fund
First Omaha Short/Intermediate Fixed Income Fund
First Omaha Fixed Income Fund
First Omaha Small Cap Value Fund
First Omaha Balanced Fund
Signed:
--------------------------------
(Title)
Dated: December 5, 1995
---------------------------------
<PAGE> 1
[PEAT MARWICK LLP LETTERHEAD]
Exhibit 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
of First Omaha Funds, Inc.:
We consent to the use of our report dated April 12, 1996 included
herein and to the reference to our firm under the Captions "Financial
Highlights" and "Auditors" in this post-effective amendment #4 of Form N-1(a)
Registration Statement of First Omaha Funds, Inc.
KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Omaha, Nebraska
May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932381
<NAME> FIRST OMAHA FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> FIRST OMAHA U.S. GOVERNMENT OBLIGATIONS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-10-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 88,042,074
<INVESTMENTS-AT-VALUE> 88,042,074
<RECEIVABLES> 37,923
<ASSETS-OTHER> 64,718
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,144,715
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 429,982
<TOTAL-LIABILITIES> 429,982
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,728,801
<SHARES-COMMON-STOCK> 87,730,683
<SHARES-COMMON-PRIOR> 18,000
<ACCUMULATED-NII-CURRENT> 1,970
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (16,038)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 87,714,733
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,910,772
<OTHER-INCOME> 0
<EXPENSES-NET> (470,432)
<NET-INVESTMENT-INCOME> 4,440,340
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,440,340
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