<PAGE> 1
As filed with the Securities and Exchange Commission
on March 29, 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 No. _____ [ ]
Post-Effective Amendment No. 3 [x]
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 4 [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. RANDY M. PAVLICK
CLINE, WILLIAMS, WRIGHT, SUNSTONE FINANCIAL GROUP, INC.
JOHNSON & OLDFATHER 207 E. BUFFALO STREET, SUITE 400
1900 FIRSTIER BANK BUILDING MILWAUKEE, WI 53202
LINCOLN, NE 68508
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 March 29, 1996 pursuant
to paragraph (b) 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 has not filed a notice pursuant to Rule 24f-2(a)(1) for the reason
that Registrant sold no securities in reliance upon Rule 24f-2 during its
fiscal year ended March 31, 1995.
<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 Small Cap Value Fund, the Equity Fund, 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 SMALL CAP VALUE FUND
March 29, 1996
First National Bank of Omaha For current yield, purchase,
Investment Adviser and redemption information,
Custodian and Transfer Agent call (800) OMAHA-03
First Omaha Funds, Inc. (the "Company") is an open-end management
investment company. The Company includes the First Omaha Small Cap Value Fund,
the First Omaha Equity Fund, the First Omaha Short/Intermediate Fixed Income
Fund, the First Omaha Fixed Income Fund and the First Omaha U.S. Government
Obligations Fund (such Funds are hereinafter singularly referred to as a "Fund"
and collectively referred to as the "First Omaha Funds" or the "Funds"), each
of which is a no-load, diversified investment portfolio of the Company. The
Directors of the Company have divided the Company's common stock ("Shares")
into series, each of which relates to a particular Fund. This Prospectus
relates only to the Shares of the First Omaha Small Cap Value Fund.
FIRST OMAHA SMALL CAP VALUE FUND (the "Fund" or the "Small Cap Value
Fund") seeks as its investment objective long-term capital appreciation. The
Fund will invest primarily in common stocks and securities that are convertible
into common stocks issued by companies having small market capitalizations.
The Fund may also invest, under normal market conditions, in other equity
securities and in fixed income securities. The Fund's net asset value will
fluctuate as the value of its portfolio changes in response to changing market
prices and other factors.
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.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE FIRST NATIONAL BANK OF OMAHA, FNN 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 THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Investors should
read this Prospectus and retain it for future reference. Additional
information about the Fund, 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 Fund at its address or by calling
the Fund 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.
<PAGE> 6
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.
-2-
<PAGE> 7
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . 4
The Company . . . . . . . . . . . . . . . . . . . . . . . . . 5
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Performance Information . . . . . . . . . . . . . . . . . . . 6
Investment Objectives and Policies . . . . . . . . . . . . . 9
Investment Restrictions . . . . . . . . . . . . . . . . . . . 20
Valuation of Shares . . . . . . . . . . . . . . . . . . . . . 22
How to Purchase and Redeem Shares . . . . . . . . . . . . . . 23
Dividends and Taxes . . . . . . . . . . . . . . . . . . . . . 33
Management of the Company . . . . . . . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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 Fund
or its Distributor. This Prospectus does not constitute an offering by the
Fund or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
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<PAGE> 8
<TABLE>
<CAPTION>
PROSPECTUS SUMMARY
<S> <C>
Shares Offered . . . . . . . . . . . . . Shares of common stock ("Shares")
of the Small Cap Value Fund, a
separate investment portfolio of
First Omaha Funds, Inc., a
Nebraska corporation.
Offering Price . . . . . . . . . . . . . The public offering price of the
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 . . . . . . . . . . . . . The Fund is a no-load,
diversified series of an
open-end, management investment
company.
Investment Objective . . . . . . . . . . Long-term capital appreciation.
Investment Policy . . . . . . . . . . . . Under normal market conditions,
the 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, may also invest
in other securities and in fixed
income securities.
Risk Factors and Special
Considerations . . . . . . . . . . . . . An investment in the Fund 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 Fund
will achieve its investment
objective. The Fund, 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.
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
Investment Adviser . . . . . . . . . . . First National Bank of Omaha (the
"Adviser").
Dividends . . . . . . . . . . . . . . . . Dividends from net investment
income are declared and paid
monthly. Net realized capital
gains are distributed at least
annually.
Administrator/Distributor . . . . . . . . Sunstone Financial Group, Inc.
(the "Administrator" or the
"Distributor" as the context
indicates).
</TABLE>
THE COMPANY
The Company was organized to acquire the assets, and continue the
business, of four investment portfolios of The Sessions Group, an Ohio business
trust, which acquisition occurred on April 10, 1995. The Fund was created by
action of the Company's Board of Directors on December 5, 1995.
FEE TABLE
<TABLE>
<CAPTION>
FIRST OMAHA
SMALL CAP
VALUE FUND
----------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . . 0%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) . . . . . . . . . . . . . . . . . . 0%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable) . . . . . . . . . 0%
Redemption Fees (as a percentage of amount redeemed,
if applicable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85%
12b-1 Fees2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Other Expenses After Voluntary Fee Reduction,
including administration fees, administrative
servicing fees and other expenses1,3 . . . . . . . . . . . . . . . . . .63%
Total Fund Operating Expenses After Voluntary
Fee Reduction1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.48%
=====
</TABLE>
- - ---------------
(1) The Adviser and the Administrator, respectively, have agreed
with the Company to reduce voluntarily the amount of the
administration, custodian and administrative servicing fees.
Absent the voluntary administration, custodian and
administrative servicing fee reductions, Other Expenses and
Total Fund Operating Expenses as a percentage of average net
assets for the Fund are estimated to be .69% and 1.54%,
respectively. (See "MANAGEMENT OF THE COMPANY--Investment
Adviser" and "Administrative Services Plan.")
(2) The Company has adopted a Rule 12b-1 Plan pursuant to which
the Fund 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 the Fund.
As of the date of this Prospectus, however, there are no
Related Agreements under the Rule 12b-l Plan with respect to
the Fund in effect and no fees under the Rule 12b-l Plan are
being paid by the Fund.
(3) "Other Expenses" include administration fees and estimates of
legal, accounting and miscellaneous expenses to be incurred
during the current fiscal year. As of the date of this
Prospectus, no administrative servicing fees were being paid
by the Fund.
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<PAGE> 10
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return
and (2) redemption at the end of each time period. . . . . . . . . . . . . $15 $47 $82 $179
</TABLE>
The purpose of the above table is to assist a potential purchaser of
the Fund's Shares in understanding the various costs and expenses that an
investor in the Fund will bear directly or indirectly. Such 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 the Fund.
PERFORMANCE INFORMATION
From time to time, performance information for the Fund showing its
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 the Fund. Average
annual total
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<PAGE> 11
return is measured by comparing the value of an investment in the 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 the Fund's net investment income per share
(as calculated on a yield to maturity basis) earned during a recent 30-day
period by the 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.
In addition, from time to time, the Fund may present its distribution
rate 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 distribution per share made by the 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 reflect unrealized gains or losses, although the 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.
-7-
<PAGE> 12
Investors may also judge the performance of the 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 the Fund's Shares may be compared to
data prepared by Lipper Analytical Services, Inc. In addition, the total
return of the 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 or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed
on the New York Stock Exchange. 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 Fund. In addition to performance information, general
information about the Fund 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 the Fund will not be included in performance calculations; such
-8-
<PAGE> 13
fees, if charged, will reduce the actual performance from that quoted. In
addition, if the Adviser and Administrator voluntarily reduce all or part of
their respective fees for the Fund, as discussed above, the yield and total
return of the 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 Small Cap Value Fund is long-term
capital appreciation. This investment objective is a fundamental policy and,
as such, may not be changed without a vote of the holders of a majority of the
outstanding Shares of the Fund (as defined in "GENERAL INFORMATION-
Miscellaneous"). There can be no assurance that the investment objective of
the Fund will be achieved.
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 -
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<PAGE> 14
$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
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<PAGE> 15
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.
OTHER INVESTMENT POLICIES
The Fund may also invest in securities described in the following
paragraphs to the extent indicated.
-11-
<PAGE> 16
U.S. GOVERNMENT SECURITIES
The Fund may 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 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
-12-
<PAGE> 17
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 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 the Fund may be subject to repurchase agreements.
Under the terms of a repurchase agreement, the 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 the 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 the 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 the Fund
reasonably could expect to incur if the seller defaults. This requirement will
be continually monitored by the Adviser. If the seller
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<PAGE> 18
were to default on its repurchase obligation or become insolvent, the 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 the 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.
REVERSE REPURCHASE AGREEMENTS
The Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, the 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 Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
selling securities during unfavorable market conditions to meet redemptions.
At the time the 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 the 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 the Fund may
decline below the price at which
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<PAGE> 19
the 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 the 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, the Administrator, 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, the 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
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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, the 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
The Fund may purchase securities on a when-issued or delayed-delivery
basis. These transactions are arrangements in which the Fund purchases
securities with payment and delivery scheduled for a future time. The 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
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<PAGE> 21
takes place. The Fund will generally not pay for such securities or start
earning interest on them until they are received on the settlement date. When
the 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, the Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause the Fund to miss a price
or yield considered to be advantageous. The 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, the Fund may, from time to
time, lend its portfolio securities to broker-dealers, banks, or institutional
borrowers of securities. The 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 the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While the Fund does not have the right to
vote securities on loan, the 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
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would default in its obligations, the Fund bears the risk of delay in recovery
of the portfolio securities and the loss of rights in the collateral. The 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 the Fund's investment objective and policies, the Fund
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 the Fund. The 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 fees as a result of investing in shares of
the First Omaha U.S. Government Obligations Fund, the Adviser, the
Administrator and their affiliates will reduce their fees charged to the Fund
by an amount equal to the fees charged by such service providers based on a
percentage of the Fund's assets attributable to the Fund's investment in the
First Omaha U.S. Government Obligations Fund. Additional restrictions on the
Fund's investments in the securities of other mutual funds are contained in the
Statement of Additional Information.
RISK FACTORS
As described above, the Fund 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
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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 the Fund to fall below the fourth highest rating category, as the case may
be, the Adviser will consider such an event in determining whether the Fund
should continue to hold that security. The Adviser expects that it would not
retain more than 5% of the assets of the Fund in such downgraded securities.
In no event, however, would the Fund be required to liquidate any such
portfolio security where the Fund would suffer a loss on the sale of such
security.
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.
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<PAGE> 24
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.
INVESTMENT RESTRICTIONS
The 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 the Fund (see
"GENERAL INFORMATION-Miscellaneous").
The Fund 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
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after such purchase, (a) more than 5% of the value of the Fund's total assets
would be invested in such issuer or (b) the Fund would hold more than 10% of
the outstanding voting securities of such issuer, except that up to 25% of the
value of the 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 the 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. 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 the 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
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<PAGE> 26
10% of the value of the Fund's total assets at the time of its borrowing. The
Fund will not purchase securities while its borrowings (including reverse
repurchase agreements) exceed 5% of its total assets.
4. Make loans, except that the 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 the Fund. The Fund may not
purchase or otherwise acquire any securities if, as a result, more than 5% of
the Fund's net assets would be invested in securities that are illiquid.
In addition to the above investment restrictions, the Fund is subject
to certain other investment restrictions set forth under "INVESTMENT OBJECTIVES
AND POLICIES-Investment Restrictions" in the Statement of Additional
Information.
VALUATION OF SHARES
The net asset value of the Fund is determined and its Shares are
priced as of 4:00 p.m. (Eastern Time) (the "Valuation Time") on each Business
Day. A "Business Day" of the 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 the Fund are tendered for redemption and no order to purchase Shares
is received) during which there is sufficient trading in
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the Fund's portfolio instruments that its net asset value per Share might be
materially affected. The New York Stock Exchange will not be opened 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 the Fund, less the liabilities charged to the Fund, by the
number of the Fund's outstanding Shares. The net asset value per share of the
Fund will fluctuate as the value of its investment portfolio changes.
The securities of the 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 of the 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.
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<PAGE> 28
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").
Shares of the Fund 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 Fund 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 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 Fund 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 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 Fund, to the above address.
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<PAGE> 29
If a Purchase Application has been previously received by the
Company, investors may also purchase Shares by wiring funds to the Fund's
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 the Fund 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 the Fund will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of the 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 the Fund.
There is no initial sales charge imposed by the Fund 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 the 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.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the
minimum investment is $500 for the initial purchase of Shares of the 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.
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AUTO INVEST PLAN
The Company's Auto Invest Plan enables Shareholders to make regular
monthly or quarterly purchases of Shares of the 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)
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from the Shareholder's bank account which proceeds will automatically be
invested in Shares of the 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 the Fund may be exchanged without payment of any fees for
Shares of each of the other First Omaha Funds at their 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.
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<PAGE> 32
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.
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 the 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
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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
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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 Fund nor its service providers will be liable for any
loss, damages, expense or cost arising out of any telephone redemption effected
in accordance with the Fund's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Fund will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, the Fund or its
service providers may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures include recording all phone
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 the Fund 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
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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, the 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., Eastern Time, on a
Business Day or, if the request for redemption is received after 4:00 p.m.,
Eastern Time, to honor requests for payment on the second Business Day, unless
it would be disadvantageous to the Fund or the Shareholders of the 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
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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, the
Fund reserves the right to redeem, at net asset value, the Shares 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 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 the 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 the 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.
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.
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.
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<PAGE> 37
DIVIDENDS AND TAXES
DIVIDENDS
The net investment income of the Fund is declared monthly as a
dividend to Shareholders. 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 the
Fund will automatically receive all distributions in additional full and
fractional Shares of the 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 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 the Fund.
FEDERAL TAXES
The Fund is treated as a separate entity for federal income tax
purposes and 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 the 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. The Fund
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contemplates declaring as dividends 100% of the Fund's investment company
taxable income (before deduction of dividends paid).
In order to avoid the imposition of an excise tax, the Fund is
required to distribute annually, prior to calendar year end, 98% of taxable
ordinary income on a calendar year basis, 98% of 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, the 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 the Fund bear to its gross income.
Distribution by the 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.
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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 portion of distributions of net income by the Fund to
its 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 the Fund may be subject to state and local taxes
with respect to their ownership of Shares or their receipt of distributions
from the Fund. In addition, to the extent Shareholders receive distributions
of income attributable to investments in repurchase agreements by the 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 the Fund and its Shareholders.
Potential investors in
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<PAGE> 40
the 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.
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.
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<PAGE> 41
INVESTMENT ADVISER
First National Bank of Omaha, One First National Center, Omaha,
Nebraska 68102, is the investment adviser of the Fund. The Adviser is a
subsidiary of First National of Nebraska, a Nebraska corporation, with total
assets of approximately $4.5 billion as of June 30, 1994. 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, 1994, the
Adviser's Trust Division had approximately $5.2 billion of assets under
administration, including approximately $1.9 billion under management.
Subject to the general supervision of the Company's Board of Directors
and in accordance with the Fund's investment objective and restrictions, the
Adviser manages the investments of the Fund, makes decisions with respect to
and places orders for all purchases and sales of the Fund's portfolio
securities, and maintains the Fund's records relating to such purchases and
sales. All investment decisions for the 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 Fund, computed daily and paid monthly, equal to the lesser of: (1) a fee at
the annual rate of eighty-five one-hundredths of one percent (.85%) (which is
higher than the fee charged
-37-
<PAGE> 42
by most mutual funds), or (2) such other fee as may be agreed upon in writing
from time to time by the Company and the Adviser. The Adviser may periodically
voluntarily reduce all or a portion of its advisory fee with respect to the
Fund to increase the net income of the 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 the 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 the Fund. Shares of the Fund 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 the Fund's
average net assets subject to a minimum fee of $50,000.
The Administrator may periodically voluntarily 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
-38-
<PAGE> 43
with the Company, but may receive compensation under the Distribution and
Shareholder 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 the Fund. The
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 the Fund's 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 Shareholder Service Plan described below, and any
extraordinary expenses incurred in the Fund's operation.
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<PAGE> 44
DISTRIBUTION PLAN
Pursuant to Rule 12b-l 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 twenty-five one-hundredths of one
percent (.25%) of the average daily net assets of the Fund. Such amount 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 Fund, and no fees are
being paid by the Fund under the Plan.
ADMINISTRATIVE SERVICES PLAN
The Company has adopted an Administrative Services Plan (the "Services
Plan") pursuant to which the Fund is authorized to pay compensation to banks
and other financial institutions, which may include the Adviser, its
correspondent and affiliated banks, and the Distributor (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
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<PAGE> 45
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 twenty-five one-hundredths of one percent (.25%) 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.
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 Fund, 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 Fund 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 the 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
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<PAGE> 46
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 the 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
pre-authorized instructions. In consideration of such services, the Company,
on behalf of the Fund, has agreed to 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 the 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 Service 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 the Fund to increase the net income
of the Fund available for distribution as dividends. The reduction of such fee
will cause the yield and total return of the Fund to be higher than they would
be in the absence of such reduction.
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<PAGE> 47
BANKING LAWS
The Adviser believes that it possesses the legal authority to perform
the services for the Fund contemplated by the Rule 12b-1 Distribution 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 Fund. 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.
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<PAGE> 48
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY AND ITS SHARES
The Company was organized as a Nebraska corporation on October 12,
1994. The Company consists of five funds, each having its own series of
Shares. Each Share represents an equal proportionate interest in a 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).
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
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<PAGE> 49
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.
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 of the Company." 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> 50
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
the 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.
As of the date of this Prospectus, Miriam M. Allison, President of the
Distributor, owned all of the outstanding Shares of the Fund. It is
contemplated that the public offering of the Shares of the Fund will reduce Ms.
Allison's holdings to less than 5% of the total Shares outstanding.
Thereafter, it is likely that the Adviser will possess, on behalf of its
underlying accounts, voting or investment power with respect to a substantial
majority of the outstanding Shares of the Fund and therefore will be presumed
to control the Fund within the meaning of the 1940 Act.
CUSTODIAN
First National Bank of Omaha (the "Custodian") serves as custodian for
the Fund. Pursuant to the Custodian Agreement with the Company, the Custodian
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 three
one-hundredths of one percent (.03%) of the Fund's average daily net assets.
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<PAGE> 51
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
First National Bank of Omaha, One First National Center, Omaha,
Nebraska 68102, will serve as the Fund's transfer agent pursuant to a Transfer
Agency Agreement with the Company dated as of December 20, 1994. Pursuant to
such Agreement, the Transfer Agent, among other things, provides, or agrees to
cause others to provide, the following services in connection with the Fund's
Shareholders of record: maintenance of shareholder records for 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 Fund based on the number of Shareholders of record, subject to certain
minimum amounts from the Fund.
DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105,
will serve as sub-transfer agent for the Funds pursuant to a Sub-Transfer
Agency Agreement dated as of December 20, 1994 with First National Bank of
Omaha. DST Systems, Inc. will perform the principal services as transfer
agent for the Fund under such Agreement and will receive a fee from First
National Bank of Omaha for such services.
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<PAGE> 52
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 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 the 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 the Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
Shareholders of record of the Fund are represented in person or by proxy, or
(2) the holders of more than 50% of the outstanding Shares of the Fund.
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<PAGE> 53
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
1900 FirsTier Bank Bldg.
Lincoln, Nebraska 68508
AUDITORS
KPMG Peat Marwick LLP
Two Central Park Plaza, Suite 1501
Omaha, Nebraska 68102
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . 4
The Company . . . . . . . . . . . . . . . . . . . 5
Fee Table . . . . . . . . . . . . . . . . . . . . 5
Performance Information . . . . . . . . . . . . . 6
Investment Objectives and Policies . . . . . . . 9
Investment Restrictions . . . . . . . . . . . . . 20
Valuation of Shares . . . . . . . . . . . . . . . 22
How to Purchase and Redeem Shares . . . . . . . . 23
Dividends and Taxes . . . . . . . . . . . . . . . 33
Management of the Company . . . . . . . . . . . . 36
General Information . . . . . . . . . . . . . . . 44
</TABLE>
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 NO BE RELIEF 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.
FIRST OMAHA(SM)
SMALL CAP VALUE FUND
_________________
PROSPECTUS DATED MARCH 29, 1996
__________________
<PAGE> 54
NO-LOAD
FIRST OMAHA
EQUITY FUND(R)
FIRST OMAHA
SHORT/INTERMEDIATE
FIXED INCOME FUND(R)
FIRST OMAHA
FIXED INCOME FUND(R)
FIRST OMAHA
U.S. GOVERNMENT
OBLIGATIONS FUND(R)
[FIRST OMAHA FAMILY OF FUNDS LOGO]
First National Bank of Omaha - Adviser Prospectus dated September 18, 1995
<PAGE> 55
SEPTEMBER 18, 1995 FIRST OMAHA FUNDS - PROSPECTUS
First National Bank of Omaha For current yield, purchase,
Investment Adviser and redemption information,
Custodian and Transfer Agent call (800) OMAHA-03
First Omaha Funds, Inc. (the "Company") is an open-end management investment
company. The Company includes the First Omaha Equity Fund, the First Omaha
Short/Intermediate Fixed Income Fund, the First Omaha Fixed Income Fund and the
First Omaha U.S. Government Obligations Fund (such Funds are hereinafter
singularly referred to as a "Fund" and collectively referred to as the "First
Omaha Funds" or the "Funds"), each of which is a no-load, diversified
investment portfolio of the Company. The Directors of the Company have divided
the Company's common stock ("Shares") into series, each of which relates to a
particular Fund.
FIRST OMAHA EQUITY FUND (the "Equity Fund") seeks as its investment objective,
long-term growth of capital. The Equity Fund will invest primarily in common
stocks and securities that are convertible into common stocks, but may also
invest, under normal market conditions, in other equity securities and in fixed
income securities. The Equity Fund's net asset value per share will fluctuate
as the value of its portfolio changes in response to changing market prices and
other factors.
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. The Short/Intermediate Fund will invest primarily in
investment grade fixed income securities, as more fully described below, and,
under normal market conditions, will maintain a dollar-weighted average
portfolio maturity of two to five years.
FIRST OMAHA FIXED INCOME FUND (the "Fixed Income Fund") seeks as its investment
objective, to generate current income consistent with preservation of capital.
The Fixed Income Fund will invest primarily in investment grade fixed income
securities, as more fully described below. The Short/Intermediate Fund's and
the Fixed Income Fund's net asset value per share will fluctuate as the value
of its portfolio changes in response to changing market rates of interest and
other factors. However, these Funds will seek to preserve capital by not
sacrificing safety of principal in order to maximize yield on investments.
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 will limit its investments to high quality money market instruments
including U.S. Treasury bills and notes, other obligations 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 and repurchase agreements
relating to such securities. Normally, the Money Market Fund will invest at
least 65% of its total assets in U.S. Government Securities. 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> 56
[FIRST OMAHA FAMILY OF FUNDS LOGO]
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary 3
The Company 5
Fee Table 6
Financial Highlights 8
Performance Information 9
Investment Objectives and Policies 10
Investment Restrictions 19
Valuation of Shares 20
How to Purchase and Redeem Shares 21
Dividends and Taxes 26
Management of the Company 27
General Information 31
</TABLE>
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.
<PAGE> 57
FIRST OMAHA FUNDS - PROSPECTUS
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
SHARES OFFERED . . . . . . . . Shares of common stock ("Shares") of the Equity 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 $5O 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 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.
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.
</TABLE>
3
<PAGE> 58
[FIRST OMAHA FAMILY OF FUNDS LOGO]
<TABLE>
<S> <C>
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").
DIVIDENDS . . . . . . . . . . . Dividends from net investment income are declared monthly, except that the Money Market
Fund will declare income dividends daily. Income dividends are paid monthly. Net
realized capital gains are distributed at least annually.
ADMINISTRATOR/DISTRIBUTOR . . . Sunstone Financial Group, Inc. (the "Administrator" or the "Distributor," as the context
indicates).
</TABLE>
4
<PAGE> 59
FIRST OMAHA FUNDS - PROSPECTUS
THE COMPANY
The Company and the Funds were organized to acquire the assets and continue the
business of four 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.
5
<PAGE> 60
[FIRST OMAHA FAMILY OF FUNDS LOGO]
FEE TABLE
<TABLE>
<CAPTION>
FIRST OMAHA FIRST
FIRST SHORT/ OMAHA FIRST OMAHA
OMAHA INTERMEDIATE FIXED U.S. GOV'T
EQUITY FIXED INCOME INCOME OBLIGATIONS
FUND FUND FUND FUND
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) -- -- -- --
Maximum Sales Load Imposed on
Reinvested Dividends
(as a percentage of offering price) -- -- -- --
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, as applicable) -- -- -- --
Redemption Fees (as a percentage of amount
redeemed, if applicable) -- -- -- --
Exchange Fee -- -- -- --
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(1) .75% .45% .55% .25%
12b-1 Fees(2) -- -- -- --
Other Expenses After Voluntary Fee
Reduction, including administration fees,
administrative servicing fees and other
expenses(1,3) .21 .42 .27 .27
Total Fund Operating Expenses After
Voluntary Fee Reduction .96% .87% .82% .52%
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 61
FIRST OMAHA FUNDS - PROSPECTUS
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------
<S> <C> <C> <C> <C>
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:
Equity Fund $10 $31 $54 $119
Short/Intermediate Fund $ 9 $28 $49 $108
Fixed Income Fund $ 8 $26 $46 $102
Money Market Fund $ 5 $17 $29 $66
</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. Such 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.
- - ---------------
(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 until March 31,
1996. 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
Equity Fund are estimated to be .75%, .29% and 1.04%, respectively. For the
Short/Intermediate Fund they are estimated to be .50%, 50% and 1.00%,
respectively. For the Fixed Income Fund they are estimated to be .60%,.35%
and .95%, respectively. For the Money Market Fund they are estimated to be
.25%, .32% and .57%, respectively. (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-1 Plan with respect to the
Funds in effect and no fees under the Rule 12b-1 Plan are being paid by the
Funds.
(3) "Other Expenses" include administration fees and estimates of legal,
accounting and other miscellaneous expenses to be incurred during the current
fiscal year. As of the date of this Prospectus, no administrative servicing
fees were being paid by the Funds.
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[FIRST OMAHA FAMILY OF FUNDS LOGO]
FINANCIAL HIGHLIGHTS
APRIL 10, 1995(1) TO JULY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST OMAHA FIRST
FIRST SHORT/ OMAHA FIRST OMAHA
OMAHA INTERMEDIATE FIXED U.S. GOV'T
EQUITY FIXED INCOME INCOME OBLIGATIONS
FUND FUND FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.39 $9.66 $9.63 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.09 0.17 0.20 0.02
Net realized and unrealized gains
on investments 0.94 0.18 0.32 --
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.03 0.35 0.52 0.02
LESS DISTRIBUTIONS:
Dividends from net investment income 0.09 0.16 0.19 0.02
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.33 $9.85 $9.96 $1.00
====== ====== ====== ======
TOTAL RETURN(2) 9.02% 3.59% 5.36% 1.69%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $187,429 $22,281 $72,295 $83,575
Ratio of net expenses to average
net assets(3)(4) 0.96% 0.87% 0.82% 0.52%
Ratio of net investment income to
average net assets(3)(4) 2.36% 5.29% 6.29% 5.31%
Portfolio turnover rate(2) 12.11% 2.36% 3.77% --
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) Without fees waived, the ratio of net expenses to average net assets
would have been 1.04% for the Equity Fund, 1.00% for the
Short-Intermediate Fixed Income Fund, 0.95% for the Fixed Income Fund,
and 0.57% for the U.S. Government Obligations Fund. The ratio of net
investment income to average net assets would have been 2.28% for the
Equity Fund, 5.16% for the Short/Intermediate Fixed Income Fund, 6.16%
for the Fixed Income Fund, and 5.26% for the U.S. Government
Obligations Fund.
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FIRST OMAHA FUNDS - PROSPECTUS
PERFORMANCE INFORMATION
From time to time, performance information for the Equity, 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 July 31, 1995, the yield of the Money Market Fund
was 5.24% and its effective yield was 5.37%.
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 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.
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[FIRST OMAHA FAMILY OF FUNDS LOGO]
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 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 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.
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FIRST OMAHA FUNDS - PROSPECTUS
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.
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-
11
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[FIRST OMAHA FAMILY OF FUNDS LOGO]
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
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 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 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. Govermnent,
such as the Government
12
<PAGE> 67
FIRST OMAHA FUNDS - PROSPECTUS
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 imstrumentality. 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.
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 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").
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[FIRST OF OMAHA FAMILY OF FUNDS LOGO]
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 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
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FIRST OMAHA FUNDS - PROSPECTUS
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
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.
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[FIRST OMAHA FAMILY OF FUNDS LOGO]
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.
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.
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,
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FIRST OMAHA FUNDS - PROSPECTUS
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, a Fund may incur currency conversion costs and may be affected
favorably or unfavorbly 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-
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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 Fund,
Short/Intermediate Fund and the Fixed Income Fund 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 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.
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FIRST OMAHA FUNDS - PROSPECTUS
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. 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.
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FIRST OMAHA
FAMILY OF FUNDS
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
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
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FIRST OMAHA FUNDS - PROSPECTUS
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 SHARE
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 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
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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.
Each Fund reserves the right to reject any order for the purchase of its Shares
in whole or in part. 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. Reports
of purchases and redemptions of Shares 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
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FIRST OMAHA FUNDS - PROSPECTUS
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.
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
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[FIRST OMAHA FAMILY OF FUNDS LOGO]
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 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
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FIRST OMAHA FUNDS - PROSPECTUS
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 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.
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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 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.
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FIRST OMAHA FUNDS - PROSPECTUS
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.
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
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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 $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 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, 1994,
the Adviser's Trust Division had approximately $5.2 billion of assets under
administration, including approximately $1.9 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 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%) (which is
higher than the fee charged by most mutual funds), 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. 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.
28
<PAGE> 83
FIRST OMAHA FUNDS - PROSPECTUS
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-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 twenty-five one-hundredths of one
percent (.25%) of the average daily net assets of that Fund. Such amount 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-1 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 per-
29
<PAGE> 84
[FIRST OMAHA FAMILY OF FUNDS LOGO]
cent (.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
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
30
<PAGE> 85
FIRST OMAHA FUNDS - PROSPECTUS
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 consists of four Funds,
each having its own series of Shares. Each Share represents an equal
proportionate interest in a 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).
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
multi-
31
<PAGE> 86
[FIRST OMAHA FAMILY OF FUNDS LOGO]
plied 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.
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.
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, will serve as the Funds' Transfer Agent pursuant
to a Transfer Agency Agreement with the Company dated as of December 20, 1994.
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.
32
<PAGE> 87
FIRST OMAHA FUNDS - PROSPECTUS
DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105, will serve
as sub-transfer agent for the Funds pursuant to a Sub-Transfer Agency
Agreement dated as of December 20, 1994 with First National Bank of Omaha. DST
Systems, Inc. will perform the principal services as Transfer Agent for the
Funds under such Agreement and will receive 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 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.
33
<PAGE> 88
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
1900 FirsTier Bank Bldg.
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
<PAGE> 89
First Omaha Small Cap Value Fund
An Investment Portfolio of
FIRST OMAHA FUNDS, INC.
Statement of Additional Information
March 29, 1996
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus of First Omaha
Small Cap Value Fund (the "Small Cap Value Fund") dated as of the
date hereof. The Small Cap Value Fund is a separate investment
portfolio 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.
B-1
<PAGE> 90
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . B-3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . B-3
Additional Information on Portfolio Instruments . . . B-3
Investment Restrictions . . . . . . . . . . . . . . . B-8
Portfolio Turnover . . . . . . . . . . . . . . . . . B-10
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . B-10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . B-11
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . B-12
Directors and Officers . . . . . . . . . . . . . . . B-12
Investment Adviser . . . . . . . . . . . . . . . . . B-14
Portfolio Transactions . . . . . . . . . . . . . . . B-15
Glass-Steagall Act . . . . . . . . . . . . . . . . . B-16
Administrator/Fund Accountant . . . . . . . . . . . B-17
Expenses . . . . . . . . . . . . . . . . . . . . . . B-18
Distributor . . . . . . . . . . . . . . . . . . . . B-19
Administrative Services Plan . . . . . . . . . . . . B-20
Custodian . . . . . . . . . . . . . . . . . . . . . B-21
Transfer Agency Services . . . . . . . . . . . . . . B-22
Auditors . . . . . . . . . . . . . . . . . . . . . . B-22
Legal Counsel . . . . . . . . . . . . . . . . . . . B-22
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . B-22
Organization and Capital Structure . . . . . . . . . B-22
Shareholder Meetings . . . . . . . . . . . . . . . . B-23
Ownership of Shares . . . . . . . . . . . . . . . . B-23
Vote of a Majority of the Outstanding Shares . . . . B-24
Additional Tax Information . . . . . . . . . . . . . B-24
Yield of the Small Cap Value Fund . . . . . . . . . B-25
Calculation of Total Return . . . . . . . . . . . . B-25
Distribution Rates . . . . . . . . . . . . . . . . . B-25
Performance Comparisons . . . . . . . . . . . . . . B-25
Miscellaneous . . . . . . . . . . . . . . . . . . . B-26
APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
B-2
<PAGE> 91
STATEMENT OF ADDITIONAL INFORMATION
THE COMPANY
First Omaha Funds, Inc. (the "Company") is an open-end
management investment company which currently offers five
diversified investment portfolios: First Omaha Small Cap Value
Fund (the "Small Cap Value Fund" or the "Fund"), First Omaha U.S.
Government Obligations Fund (the "Money Market Fund"), First
Omaha Equity Fund (the "Equity Fund"), First Omaha
Short/Intermediate Fixed Income Fund (the "Short/Intermediate
Fund"), and First Omaha Fixed Income Fund (the "Fixed Income
Fund").
Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the
Prospectus of the Fund. Capitalized terms not defined herein are
defined in the Prospectus. No investment in Shares of the Fund
should be made without first reading the Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objective
and policies of the Fund as set forth in the Prospectus for the
Fund.
Bank Obligations. The Small Cap Value 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 Fund 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) the principal
amount of the instrument is insured in full by the Federal
Deposit Insurance Corporation.
B-3
<PAGE> 92
The Small Cap Value 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 Small Cap Value 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 Small
Cap Value 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 Small Cap Value 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 the Fund and the
issuer, they are not normally traded. Although there is no
secondary market in the notes, the 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. The Fund will not 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 Fund to investment risks
that differ in some 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 Small Cap Value Fund will acquire
such securities only when the Adviser believes the risks
associated with such investments are minimal.
B-4
<PAGE> 93
U.S. Government Obligations. The Fund 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.
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 Fund, the 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 the 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, the 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 the Fund's commitment. It may be expected that
the 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
the Fund will set aside cash or liquid portfolio securities to
satisfy its purchase commitments in the manner described above,
the 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 the 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 the Fund incurring a loss or
missing the opportunity to obtain a price considered to be
advantageous. The Fund 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.
Medium-Grade Debt Securities. As stated in the Prospectus,
the Small Cap Value Fund may 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.
B-5
<PAGE> 94
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.
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 Small Cap Value 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
Small Cap Value 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 the Fund 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. The Small Cap
Value Fund may invest in securities issued by other investment
companies, including in Shares of the Money Market Fund. The
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 the Fund. Except
as described in the Prospectus with respect to an investment in
the Money Market Fund, as a shareholder of another investment
company, the 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 the Fund bears directly in connection with
its own operations. Investment companies in which the 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 the shares and other types of commissions or
charges. Such charges will be payable by the Fund and,
therefore, will be borne directly by shareholders.
Repurchase Agreements. Securities held by the Fund may be
subject to repurchase agreements. Under the terms of a
repurchase agreement, the 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
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<PAGE> 95
equal the price paid by the 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 the 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, the 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 the Fund were delayed
pending court action. Additionally, there is no controlling
legal precedent confirming that the 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 the 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 the 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 the Fund under the 1940 Act.
Reverse Repurchase Agreements. As discussed in the
Prospectus, the Fund may borrow funds for temporary purposes by
entering into reverse repurchase agreements in accordance with
the Fund's investment restrictions. Pursuant to such agreements,
the 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. The Fund intends to enter into reverse repurchase
agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time
the 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 the 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 the Fund may decline below the price at
which the Fund is obligated to repurchase the securities.
Reverse repurchase agreements may be considered to be borrowings
by the Fund under the 1940 Act.
Illiquid Securities. The 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
B-7
<PAGE> 96
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, the
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, the 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, the 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 marketable,
the 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
The Fund's investment objective is a fundamental policy and
may not be changed without a vote of the holders of a majority of
the Fund's outstanding Shares. In addition, the following
investment restrictions may be changed only by a vote of the
majority of the outstanding Shares of the Fund (as defined under
"ADDITIONAL INFORMATION - Vote of a Majority of the Outstanding
Shares").
The Small Cap Value Fund may not:
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-8
<PAGE> 97
3. Underwrite the securities issued by other persons,
except to the extent that the 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
Fund; 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 the Fund. The Small Cap Value Fund may not:
1. Purchase participations or direct interests in oil, gas
or other mineral exploration or development programs (although
investments by the Fund 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) the Fund may invest in
other investment companies if, at the time of purchase (i) the
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 Fund, does not
exceed 5% of the total assets of the 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
Fund, does not exceed 10% of the total assets of the Fund; and
3. Purchase or retain the securities of an issuer if, to
the knowledge of the 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 the Fund's investment in illiquid
securities to exceed the Fund's limit on its investments in such
securities, the 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, the Fund
would not be required to liquidate any portfolio securities where
the Fund would suffer a loss on the sale of such securities.
The Company, on behalf of the Small Cap Value Fund, has
represented to the Ohio Division of Securities that the Fund 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
B-9
<PAGE> 98
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 the Fund for so long as the
Shares of the Fund are registered for sale in the State of Ohio.
In addition, the Company, on behalf of the Small Cap Value
Fund has represented to the Texas State Securities Board that the
Fund 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 its 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 the Fund for
so long as the Shares of the Fund are registered for sale in the
State of Texas.
Portfolio Turnover
The portfolio turnover rate for the Fund is calculated by
dividing the lesser of the 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.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of the
Fund is determined and the Shares of the 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 the Fund are tendered for redemption and no order to
purchase any Shares is received) during which there is sufficient
trading in portfolio instruments that the 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.
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.
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<PAGE> 99
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund 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 Fund 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 the 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.
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<PAGE> 100
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 Director Trust Officer, First
3623 South 107th Avenue National Bank of Omaha
Omaha, NE 68124 (1987-1994); presently
retired
Randy M. Pavlick Secretary Vice President - Director
207 East Buffalo Street of Legal and Compliance
Suite 400 Services, Sunstone
Milwaukee, WI 53202 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 Group,
Milwaukee, WI 53202 Inc. (1993-present);
previously Audit Manager,
Sta-Rite Industries, Inc.
Joseph Caggiano Director Vice Chairman (1967-1993),
302 South 36th Street Chief Financial Officer
Omaha, NE 68131 (1967-1991) and Vice-
Chairman Emeritus
(1993-present) of Bozell
Jacobs
M. T. Crummer Director Chief Investment Officer,
5115 Lafayette Avenue Mutual of Omaha Companies
Omaha, NE 68132 (1982-1987); presently
retired
Harry A. Koch, Jr.* Director President and Treasurer,
P.O. Box 6215 The Harry A. Koch Co.,
Omaha, NE 68106 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> 101
The following table sets forth certain information concerning
compensation to be paid by the Company to its Directors and
officers.
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued Estimate
Compensation as Part of Annual Total
Name and to be Paid Company Retirement Compensation
Position by Company* Expenses Benefits From Company
-------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
David P. Greer $4,000 -0- -0- $4,000
President and
Director
Randy M. -0- -0- -0- -0-
Pavlick
Secretary
Richard P. -0- -0- -0- -0-
Snyder
Vice President
and
Treasurer
Joseph $4,000 -0- -0- $4,000
Caggiano
Director
M. T. Crummer $4,000 -0- -0- $4,000
Director
Harry A. Koch, $4,000 -0- -0- $4,000
Jr.
Director
Robert A. Reed $4,000 -0- -0- $4,000
Director
</TABLE>
* Estimated amounts to be paid during the Company's first fiscal year.
As of the date of this Statement of Additional Information,
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.
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<PAGE> 102
Investment Adviser
Investment advisory services are provided to the of the Fund
by First National Bank of Omaha, Omaha, Nebraska, the Adviser,
pursuant to the Investment Advisory Agreement dated as of
December 20, 1994 and amended as of December 5, 1995 (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 Fund. For the services provided and
expenses assumed pursuant to the Investment Advisory Agreement,
the Small Cap Value Fund pays the Adviser a fee equal to the
lesser of (a) a fee computed daily and paid monthly, at an
annual rate of eighty-five one-hundredths of one percent (.85%)
of the average daily net assets of the 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 the Fund, which reduction would increase the net
income of the Fund available for distribution as dividends.
Unless sooner terminated, the Investment Advisory Agreement
will continue in effect until June 30, 1996, and from year to
year thereafter, if, as to the 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 the 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 Investment Advisory Agreement is terminable as to
the Fund at any time on 60 days written notice without penalty by
the Directors, by vote of a majority of the outstanding Shares of
the 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 the 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 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 Fund's custodian as more
fully discussed under "Custodian" below.
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<PAGE> 103
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 the Fund's
investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be
eligible to execute the Fund's portfolio transactions. Purchases
from underwriters of portfolio securities 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 Fund. 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 Fund. Such information may be
useful to the Adviser in serving the 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 the Fund. The Adviser may
authorize the 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.
Except as otherwise disclosed to the Shareholders of the
Fund and as permitted by applicable laws, rules and regulations,
the Company will not, on behalf of the Fund, 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 the 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
B-15
<PAGE> 104
as the Company. When a purchase or sale of the same security is
made at substantially the same time on behalf of the 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 the Fund or the
size of the position obtained by the Fund. To the extent
permitted by law, the Adviser may aggregate the securities to be
sold or purchased for the 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
investment companies, a national bank performing investment
advisory services for an investment company would not violate the
Glass-Steagall Act.
B-16
<PAGE> 105
The Adviser believes that it possesses the legal authority
to perform the services for the Fund 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 the Fund, 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 the Fund pursuant to the
Administration and Fund Accounting Agreement dated April 10, 1995
and amended December 5, 1995 (the "Administration Agreement").
The Administrator assists in supervising all operations of the
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 Fund
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
Fund's custodian or transfer agent; prepare compliance filings
relating to the registration of the securities of the Fund
pursuant to state securities laws with the advice of Fund's
counsel; perform securities valuations; determine the income and
expense accruals of the Fund; calculate 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
Fund (on
B-17
<PAGE> 106
Form N-1A or any replacement therefor) and any amendments thereto, and
proxy materials; prepare and monitor the Fund's expense accruals and cause all
appropriate expenses to be paid from Fund assets on proper authorization from
the Fund; 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 the 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 the Fund's administrative
operations.
The Administrator receives a fee from the 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 the Fund's average daily net assets,
subject to a minimum of $50,000, 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
the Fund in order to increase the net income of one or more of the Fund
available for distribution as dividends.
Unless sooner terminated as provided therein, the Administration Agreement
will continue in effect until April 10, 1999. 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 the Fund 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.
Expenses
If total expenses borne by the Fund in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, the
Adviser will reimburse the 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 Fund limits the 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
the Fund's average net assets, 2% of the next $70 million of the Fund's
average net assets, and 1-1/2% of the 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
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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 the Fund in the
distribution of its Shares pursuant to a Distribution Agreement dated April
10, 1995 and amended December 5, 1995 (the "Distribution Agreement") . Unless
otherwise terminated, the Distribution Agreement remains in effect from year
to year for successive annual periods ending on April 10 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 the 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 the Fund to make payments in an amount not in excess, on
an annual basis, of 0.25% of the average daily net assets of the Fund. As
required by Rule 12b-1, the Plan was approved by the sole shareholder of
the Fund and by the Board of Directors, including a majority of the
Directors who are not interested persons of the Fund 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 the Fund by
vote of a majority of the Independent Directors, or by vote of majority of
the outstanding Shares of the Fund. Any change in the Plan that would
materially increase the distribution cost to the Fund requires Shareholder
approval. The 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
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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 the Fund and its Shareholders.
The Board of Directors of the Company believes that the Plan is in
the best interests of the Fund since it encourages Fund growth. As the 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 Fund, 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 the 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 the Fund. Payments to such service organizations
are made pursuant to Servicing Agreements between the Company and the Service
Organization. The Services Plan authorizes the 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 the 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
the 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 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 Fund 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 the Fund on behalf of
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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 the 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 the 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 the 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 the 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 Fund, also serves as custodian (the "Custodian") to the Fund
pursuant to the Custodian Agreement dated December 20, 1994 and amended as of
December 5, 1995 (the "Custodian Agreement"). The Custodian's
responsibilities include safeguarding and controlling the Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest on the Fund's investments. In consideration of such services, the
Fund pays the Custodian a fee, computed daily and paid monthly, at the
annual rate of .03% of the Fund's average daily net assets.
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 the 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
the 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 opinion of the staff of the Commission, since the custodian is
serving as both the investment adviser and custodian of the Fund, the Fund and
the Custodian are subject to the requirements of Rule 17f-2 under the 1940
Act, and therefore the Fund and the Custodian will comply with the
requirements of such rule.
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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. 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
KPMG Peat Marwick LLP, Two Central Park Plaza, Suite 1501, Omaha, Nebraska
68102 serve as independent public accountants to the Fund.
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.
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
million of these Shares have been authorized by the Board of Directors to be
issued in series designated for the existing five 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
cwithout 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
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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 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 Statement of Additional Information, Miriam M.
Allison, President of the Administrator, owned 100% of the outstanding shares
of the Small Cap Value Fund. It is contemplated that the public offering will
reduce Ms. Allison's holdings to less than 5% of the total Shares outstanding.
Thereafter, 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 the Fund and therefore will be presumed
to control the Fund within the meaning of the 1940 Act.
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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 the 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 the Fund present at a meeting
at which the holders of more than 50% of the votes attributable to Shareholders
of record of the Fund are represented in person or by proxy, or (b) the holders
of more than 50% of the outstanding Shares of the Fund.
Additional Tax Information
Although the 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, the Fund may be
subject to the tax laws of such states or localities. In addition, if for any
taxable year the 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 the Fund by foreign countries with respect
to its income from foreign securities. Since less than 50% in value of the
Fund's total assets at the end of its fiscal year are expected to be invested
in stocks or securities of foreign corporations, the Fund will not be entitled
under the Code to pass through to its Shareholders their pro rata share of the
foreign taxes paid by the Fund. These taxes will be taken as a deduction by
the Fund.
The 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 the Fund. No attempt has been made to present a detailed explanation of the
federal income tax treatment of the Fund or its Shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of the 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.
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Yield of the Small Cap Value Fund
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yield of the Small Cap Value 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 the Fund will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio and operating
expenses of the Company allocated to the Fund. These factors and possible
differences in the methods used in calculating yield, should be considered when
comparing the 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 the Fund's shares and to the relative risks associated
with the investment objective and policies of the Fund.
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 the Fund over the period covered, which assumes any
dividends or capital gains distributions are reinvested in the 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 the 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 the Fund over the
relevant period and is similarly to average annual total return except that the
result is not annualized.
Distribution Rates
The Small Cap Value Fund may from time to time advertise current
distribution rates which are calculated in accordance with the method discussed
in the Funds' Prospectus.
Performance Comparisons
Investors may judge the performance of the Fund by comparing them to the
performance of other mutual funds with comparable investment objectives and
policies
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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 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 the Fund 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, the Fund 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. The 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 the Fund.
Current yields or total return will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, the 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 the Fund's quality, composition and maturity, as
well as expenses allocated to the Fund. Fees imposed upon Customer accounts by
the Adviser or its affiliated or correspondent banks for cash management
services will reduce the Fund's effective yield and total return to Customers.
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.
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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 having
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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.
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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.
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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,
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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.
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"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.
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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.
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First Omaha U.S. Government Obligations Fund
First Omaha Equity 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
September 18, 1995
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 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 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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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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-23
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 Equity Fund, the Short/Intermediate Fund
and the Fixed Income Fund . . . . . . . . . . . . . . . . B-30
Calculation of Total Return . . . . . . . . . . . . . . . . . B-31
Distribution Rates . . . . . . . . . . . . . . . . . . . . . . B-32
Performance Comparisons . . . . . . . . . . . . . . . . . . . B-32
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . B-33
Financial Statements . . . . . . . . . . . . . . . . . . . . . B-33
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
FINANCIAL STATEMENTS
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STATEMENT OF ADDITIONAL INFORMATION
THE COMPANY
First Omaha Funds, Inc. (the "Company") is an open-end management
investment company which currently offers four diversified investment
portfolios: First Omaha U.S. Government Obligations Fund (the "Money Market
Fund"), First Omaha Equity Fund (the "Equity 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 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 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) the
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principal amount of the instrument is insured in full by the Federal Deposit
Insurance Corporation.
The Equity 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 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
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 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 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,
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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 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.
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Mortgage-Related Securities. 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 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.
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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 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 time
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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 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. Neither Fund 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 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.
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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 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 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
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 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
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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 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. Neither Fund 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.
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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
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<PAGE> 133
illiquid assets, including restricted securities which are not readily
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 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;
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<PAGE> 134
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 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 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
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<PAGE> 135
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 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 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
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
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 redemptions of Shares.
Portfolio turnover will not be a limiting factor in making investment
decisions.
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<PAGE> 136
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.
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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.
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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 Director Trust Officer, First National Bank of Omaha
3623 South 107th Avenue (1987-1994); presently retired
Omaha, NE 68124
Randy M. Pavlick Secretary Vice President - Director of Legal and
207 East Buffalo Street Compliance Services, Sunstone Financial Group,
Suite 400 Inc. (1993-present); previously in private law
Milwaukee, WI 53202 practice with Foley & Lardner
Richard P. Snyder Vice President and Client Services and Accounting Manager, Sunstone
207 East Buffalo Street Treasurer Financial Group, Inc. (1993-present); previously
Suite 400 Audit Manager, Sta-Rite Industries, Inc.
Milwaukee, WI 53202 (1990-1993)
Joseph Caggiano Director Vice Chairman (1967-1993), Chief Financial
302 South 36th Street Officer (1967-1991) and Vice-Chairman Emeritus
Omaha, NE 68131 (1993-present) of Bozell Jacobs
M. T. Crummer Director Chief Investment Officer, Mutual of Omaha
5115 Lafayette Avenue Companies (1982-1987); presently retired
Omaha, NE 68132
Harry A. Koch, Jr.* Director President and Treasurer, The Harry A. Koch Co.,
P.O. Box 6215 insurance agents and brokers (1958-present)
Omaha, NE 68106
Robert A. Reed Director President and Chief Executive Officer,
2600 Dodge Street Physicians Mutual Insurance Company and
Omaha, NE 68131 Physicians Life Insurance Company (1974-present)
</TABLE>
- - ---------------
* Denotes "interested directors" as defined in the 1940 Act.
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The following table sets forth certain information concerning
compensation to be paid by the Company to its Directors and officers.
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued Estimated
Compensation as Part of Annual Total
Name and to be Paid Company Retirement Compensation
Position by Company* Expenses 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>
* Estimated amounts to be paid during the Company's first fiscal year.
As of the date of this Statement of Additional Information, 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.
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<PAGE> 140
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 (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 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%), 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.
Unless sooner terminated, the Investment Advisory Agreement 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 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 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.
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<PAGE> 141
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
portfolio securities with respect to the Money Market 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 portfolio securities 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.
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
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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 investment companies, a
national bank performing investment advisory services for an investment company
would not violate the Glass-Steagall Act.
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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 (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 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
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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 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.
Expenses
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%
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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 (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 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
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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 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.
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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 (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.
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.
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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. 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 February 10, 1995,
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.
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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. Four Hundred
fifty million of these Shares have been authorized by the Board of Directors to
be issued in series designated for the existing four 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
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a matter unless it is clear that the interests of each Fund in the matter are
identical, or that 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 Prospectus, no person was known to own of record
5% or more of the outstanding shares of any 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 Shareholders their pro rata share of the
foreign taxes paid by the Fund. These taxes will be taken as a deduction by
such Fund.
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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 July 31, 1995, the yield and effective
yield, respectively, of the Money Market Fund were 5.24% and 5.37%. For the
30-day period ended July 31, 1995, the yield for such Fund was 5.30%. In the
absence of fee waivers, the yields for the period ended July 31, 1995 would
have been 5.19%, 5.33% and 5.26%, 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.
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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 Equity Fund, the Short/Intermediate Fund and the Fixed Income Fund
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yield of each of the Equity Fund, 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 Equity Fund, 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 July 31, 1995, the yields for the Equity
Fund, the Short/Intermediate Fund and the Fixed Income Fund were 2.37%, 5.33%
and 5.78%, respectively. In the absence of fee waivers, the yields for the
Equity Fund, the Short/Intermediate Fund and the Fixed Income Fund would have
been 2.30%, 5.21% and 5.65%, 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-31
<PAGE> 153
For the one-year periods ended July 31, 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 4.94% and 2.84%; 23.85% and 7.81%; 7.57% and 0.69%; and 9.98% and
(1.23%), respectively.
Distribution Rates
The Equity 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-32
<PAGE> 154
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:
1. Independent Auditors Report
2. Statement of Assets and Liability as of February 10, 1995
3. Notes to Financial Statements
The following unaudited financial statements are attached hereto:
1. Statements of Assets and Liabilities as of July 31, 1995
2. Statements of Operations for the period ended July 31, 1995
3. Statements of Changes in Net Assets for the period ended
July 31, 1995
4. Financial Highlights
5. Schedules of Investments as of July 31, 1995
6. Notes to the Financial Statements
B-33
<PAGE> 155
[KPMG LOGO]
FIRST OMAHA FUNDS, INC.
Financial Statement
February 10, 1995
(With Independent Auditors' Report Thereon)
<PAGE> 156
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of First Omaha Funds, Inc.:
We have audited the accompanying statement of assets and liability of First
Omaha Funds, Inc. (comprised of the First Omaha Equity Fund, the First Omaha
Short/Intermediate Fixed Income Fund, the First Omaha Fixed Income Fund and the
First Omaha U.S. Government Obligations Fund) as of February 10, 1995. This
statement of assets and liability is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this statement of
assets and liability 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 opinion.
In our opinion, the statement of assets and liability referred to above
presents fairly, in all material respects, the financial position of First
Omaha Funds, Inc. as of February 10, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
February 10, 1995
Omaha, Nebraska
[LOGO]
<PAGE> 157
FIRST OMAHA FUNDS, INC.
Statement of Assets and Liability
February 10, 1995
<TABLE>
<CAPTION>
Short/ U.S.
Intermediate Fixed Government
Equity Fixed Income Income Obligations
Fund Fund Fund Fund
------- ------------- ------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 80,000 1,000 1,000 18,000
Unamortized organization costs 22,650 22,650 22,650 22,650
Prepaid initial registration expense 3,235 2,250 2,250 3,345
--------- ------- ------- -------
Total assets 105,885 25,900 25,900 43,995
Liability -
Payable to Administrator 25,885 24,900 24,900 25,995
--------- ------- ------- -------
Net assets $ 80,000 1,000 1,000 18,000
========= ======= ======= =======
Represented by:
Capital stock, $ 0.00001 par value;
1,000,000,000 shares authorized
for all funds; 8,000, 100, 100 and
18,000 shares outstanding,
respectively (note 8) $ -- -- -- --
Paid-in capital 80,000 1,000 1,000 18,000
--------- ------- ------- -------
$ 80,000 1,000 1,000 18,000
========= ======= ======= =======
Offering price, redemption price and
net asset value per share (based
on shares of capital stock issued
and outstanding for each Fund) $ 10.00 10.00 10.00 1.00
========= ======= ======= =======
</TABLE>
See accompanying notes to financial statement.
<PAGE> 158
FIRST OMAHA FUNDS, INC.
Notes to Financial Statement
February 10, 1995
(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, 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 February
10, 1995, the only series presently authorized are the Equity Fund,
Short/Intermediate Fixed Income Fund, the Fixed Income Fund and the U.S.
Government Obligations Fund. The Company has had no operations other
than the sale of the shares to capitalize the Funds which were sold to
Miriam M. Allison on February 10, 1995 for cash in the amount of
$100,000.
(2) Significant Accounting Policies
(a) 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.
(b) 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 to the respective
portfolios, equally by classes of shares or by specific
identification, as applicable. If any of the original shares of a
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 being
redeemed by the total number of original shares outstanding at
the time of redemption.
(3) Investment Adviser
The Funds have an agreement with First National Bank of Omaha (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: 0.75 percent of the Equity Fund, 0.45 percent for the
Short/Intermediate Fixed Income Fund, 0.55 percent for the Fixed Income
Fund and 0.25 percent for the U.S. Government Obligations Fund.
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 percent of each Fund's average daily
net assets.
(Continued)
<PAGE> 159
2
FIRST OMAHA FUNDS, INC.
Notes to Financial Statement
(4) Administrator and Distributor
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
percent of each Fund's average net assets subject to a minimum fee of
$300,000.
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 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, under which each Fund is
authorized to pay a periodic amount representing distribution expenses
calculated at an annual rate not to exceed 0.25 percent of the average
daily net assets of that Fund. Such amount 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 Sunstone Financial
Group, Inc. and the Participating Organization. Under the Plan, a
Participating Organization may include Sunstone Financial Group, Inc.,
its subsidiaries and its affiliates.
(6) 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 Sunstone Financial Group, Inc. (each a "Service
Organization"). Such Service Organizations agreed 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 percent 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.
(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 each fund.
(Continued)
<PAGE> 160
3
FIRST OMAHA FUNDS, INC.
Notes to Financial Statement
(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.
450,000,000 of these shares have been authorized by the Board of
Directors to be issued in total for the series designated 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.
The following summarizes the shares of each Fund at February 10, 1995:
<TABLE>
<CAPTION>
Authorized Outstanding
---------- -----------
<S> <C> <C>
Equity Fund 50,000,000 8,000
Short/Intermediate Fixed Income Fund 50,000,000 100
Fixed Income Fund 50,000,000 100
U.S. Government Obligations Fund 300,000,000 18,000
----------- ------
Total 450,000,000 26,200
=========== ======
</TABLE>
<PAGE> 161
First Omaha Funds, Inc.
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
U.S. Government Short/Intermediate Fixed Income Equity
Obligations Fund Fixed Income Fund Fund Fund
---------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at market value (cost $59,158,785,
$22,073,052, $71,480,832, and $162,627,744, respectively $59,158,785 $21,881,196 $71,190,354 $187,180,263
Repurchase agreements (cost $24,836,320, $0, $0, and
$0, respectively) 24,836,320 0 0 0
Interest and dividends receivable 4,021 369,891 1,089,740 256,819
Organizational expenses, net of accumulated amortization 32,620 32,620 32,620 32,620
Other assets 45,471 13,921 37,047 87,960
--------------- ------------------ ------------ -------------
Total Assets 84,077,217 22,297,628 72,349,761 187,557,662
--------------- ------------------ ------------ -------------
LIABILITIES:
Dividend payable 408,013 0 0 0
Accrued expenses 35,164 7,199 23,804 45,759
Accrued investment advisory fee 19,764 1,915 7,568 26,836
Deferred 24f-2 liability 26,243 7,631 22,927 55,630
Payable for Fund shares redeemed 0 50 0 0
--------------- ------------------ ------------ -------------
Total Liabilities 489,184 16,795 54,299 128,225
--------------- ------------------ ------------ -------------
NET ASSETS $83,588,033 $22,280,833 $72,295,462 $187,429,437
=============== ================== ============ ==============
NET ASSETS CONSIST OF:
Capital stock $836 $23 $73 $152
Paid-in-capital in excess of par 83,589,832 22,646,542 72,739,425 157,300,127
Undistributed net investment income 13,315 28,062 89,800 54,811
Undistributed net realized gain (loss) on investments (15,950) (201,940) (243,358) 5,521,828
Net unrealized appreciation (depreciation) on investmen 0 (191,854) (290,478) 24,552,519
=============== ================== ============ ==============
Net Assets $83,588,033 $22,280,833 $72,295,462 $187,429,437
=============== ================== ============ ==============
CAPITAL STOCK, $0.00001 PAR VALUE
Authorized 300,000,000 50,000,000 50,000,000 50,000,000
Issued and outstanding 83,590,875 2,262,236 7,259,150 15,194,989
NET ASSET VALUE, REDEMPTION PRICE,
AND OFFERING PRICE PER SHARE $1.00 $9.85 $9.96 $12.33
=============== ================== ============ ==============
</TABLE>
See notes to financial statements.
<PAGE> 162
First Omaha Funds, Inc.
STATEMENTS OF OPERATIONS
For the period from April 10, 1995(1) to July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
U.S. Government Short/Intermedite Fixed Income Equity
Obligations Fund Fixed Income Fund Fund Fund
---------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $1,565,874 $439,865 $1,578,032 $486,415
Dividends (net of withholding tax of $0,
$0, $0, and $17,556, respectively) 0 0 0 1,345,503
---------- -------- ---------- ----------
Total Investment Income 1,565,874 439,865 1,578,032 1,831,918
---------- -------- ---------- ----------
EXPENSES:
Investment advisory fees 65,539 34,890 130,116 403,448
Fund administration and accounting fees 52,431 13,956 43,372 107,586
Shareholder servicing fees 10,085 7,398 9,498 11,881
Federal and state registration fees 4,918 3,407 5,328 8,503
Pricing fees 74 1,000 1,533 400
Insurance 1,682 490 1,470 3,567
Reports to shareholders 3,795 1,645 3,520 6,335
Custody fees 7,865 2,088 6,487 16,094
Professional fees 2,229 3,479 3,750 7,649
Director's fees 1,334 614 1,399 3,031
Amortization of organization expenses 2,151 2,151 2,151 2,151
Other 82 79 1,567 86
---------- -------- ---------- ----------
Total expenses before waiver 152,185 71,197 210,191 570,731
Less: Waiver of expenses (12,158) (8,815) (27,391) (41,046)
---------- -------- ---------- ----------
Net Expenses 140,027 62,382 182,800 529,685
---------- -------- ---------- ----------
NET INVESTMENT INCOME 1,425,847 377,483 1,395,232 1,302,233
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments 0 (22,963) (55,455) 5,521,827
Change in unrealized appreciation on investments 0 424,747 2,206,394 8,296,599
---------- -------- ---------- ----------
Net Gain on Investments 0 401,784 2,150,939 13,818,426
---------- -------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,425,847 $779,267 $3,546,171 $15,120,659
========== ======== ========== ===========
</TABLE>
See notes to financial statements.
(1) Commencement of operations.
<PAGE> 163
First Omaha Funds, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
For the period from April 10, 1995(1) to July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
U.S. Government Short/Intermediate Fixed Income Equity
Obligations Fund Fixed Income Fund Fund Fund
---------------- ----------------- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $1,425,847 $377,483 $1,395,232 $1,302,233
Net realized gain (loss) on investments 0 (22,963) (55,455) 5,521,827
Change in unrealized appreciation on investments 0 424,747 2,206,394 8,296,599
----------- ----------- ----------- ------------
Net increase in net assets resulting from operations 1,425,847 779,267 3,546,171 15,120,659
----------- ----------- ----------- ------------
DIVIDENDS PAID FROM:
Net investment income (1,425,627) (354,887) (1,310,079) (1,254,684)
----------- ----------- ----------- ------------
CAPITAL SHARE TRANSACTIONS:
Shares sold 114,132,233 1,140,347 3,596,078 13,123,983
Shares issued upon conversion 76,105,101 22,130,115 66,487,878 161,325,956
Shares issued to holders in reinvestment of dividends 282,914 353,614 1,301,958 1,254,104
Shares redeemed (106,950,435) (1,768,623) (1,327,544) (2,220,581)
----------- ----------- ----------- ------------
Net increase 83,569,813 21,855,453 70,058,370 173,483,462
----------- ----------- ----------- ------------
TOTAL INCREASE IN NET ASSETS 83,570,033 22,279,833 72,294,462 187,349,437
NET ASSETS
Beginning of period 18,000 1,000 1,000 80,000
----------- ----------- ----------- ------------
End of period $83,588,033 $22,280,833 $72,295,462 $187,429,437
=========== =========== =========== ============
</TABLE>
See notes to financial statements.
(1) Commencement of operations.
<PAGE> 164
First Omaha Funds, Inc.
FINANCIAL HIGHLIGHTS
For the period from April 10, 1995(1) to July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
U.S. Government Short/Intermediate Fixed Income Equity
Obligations Fund Fixed Income Fund Fund Fund
---------------- ----------------- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $9.66 $9.63 $11.39
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.17 0.20 0.94
Net realized and unrealized gains
on investments -- 0.18 0.32 0.94
------- ------- ------- --------
Total from investment operations 0.02 0.35 0.52 1.03
LESS DISTRIBUTIONS:
Dividends from net investment income 0.02 0.16
Distributions from capital gains -- -- -- --
------- ------- ------- --------
Total distributions 0.02 0.16 0.19 0.09
------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD $1.00 $9.85 $9.96 $12.33
======= ======= ======= =========
TOTAL RETURN(2) 1.69% 3.59% 5.36% 9.02%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $83,575 $22,281 $72,295 $187,429
Ratio of net expenses to average net assets(3),(4) 0.52% 0.87% 0.82% 0.96%
Ratio of net investment income to average
net assets(3),(4) 5.31% 5.29% 6.29% 2.36%
Portfolio turnover rate(2) -- 2.36% 3.77% 12.11%
</TABLE>
See notes to financial statements.
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) Without fees waived, the ratio of net expenses to average net assets would
have been 1.04% for the Equity Fund, 1.00% for the Short/Intermediate Fixed
Income Fund, 0.95% for the Fixed Income Fund, and 0.57% for the U.S. Government
Obligations Fund. The ratio of net investment income to average net assets
would have been 2.28% for the Equity Fund, 5.16% for the Short/Intermediate
Fixed Income Fund, 6.16% for the Fixed Income Fund, and 5.26% for the U.S.
Government Obligations Fund.
<PAGE> 165
FIRST OMAHA U.S. GOVERNMENT OBLIGATIONS FUND
SCHEDULE OF INVESTMENTS
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- -----------
<S> <C> <C>
U.S. TREASURY BILLS 70.78%
$5,000,000 8/17/95 $4,987,519
10,000,000 8/31/95 9,950,543
5,000,000 9/28/95 4,956,825
5,000,000 10/19/95 4,938,023
5,000,000 10/26/95 4,935,384
5,000,000 11/9/95 4,921,686
10,000,000 11/16/95 9,831,827
5,000,000 12/28/95 4,890,322
10,000,000 1/18/96 9,746,656
------------
TOTAL U.S. TREASURY BILLS (COST $59,158,785) 59,158,785
------------
REPURCHASE AGREEMENTS 29.71%
10,836,320 G. X. Clarke & Co. Repurchase Agreement, 5.80%, dated 7/31/95,
repurchase price $10,838,066, maturing 8/1/95 (collateralized
by U. S. Treasury Notes, 5.875%, 3/31/99) 10,836,320
14,000,000 HSBC Securities, Inc. Repurchase Agreement, 5.85%, dated
7/31/95, repurchase price $14,002,275, maturing 8/1/95
(collateralized by U.S. Treasury Notes, 4.75%, 2/15/97) 14,000,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $24,836,320) 24,836,320
------------
TOTAL INVESTMENTS (COST $83,995,105) 100.49% 83,995,105
LIABILITIES LESS OTHER ASSETS -0.49% (407,072)
------------
NET ASSETS 100.00% $83,588,033
============
</TABLE>
<PAGE> 166
FIRST OMAHA SHORT/INTERMEDIATE FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ---------
<S> <C> <C>
CORPORATE BONDS 79.02%
BUSINESS EQUIPMENT 2.25%
$500,000 Xerox Credit Corp.,
6.25%, 1/15/96 $500,545
-----------
CHEMICALS 2.26%
500,000 Dow Capital BV,
8.25%, 2/15/96 504,375
-----------
CONSUMER GOODS & SERVICES 6.30%
775,000 General Electric Co.,
7.875%, 5/1/96 784,687
605,000 World Book Finance, Inc.,
8.125%, 9/1/96 619,072
-----------
1,403,759
-----------
FINANCIAL SERVICES 10.18%
750,000 General Electric Capital Corp.,
6.875%, 4/15/00 755,625
750,000 General Motors Acceptance Corp.,
7.50%, 10/15/95 752,640
750,000 John Deere Capital Corp.,
7.20%, 5/15/97 760,313
-----------
2,268,578
-----------
FOOD PRODUCTS 4.51%
1,000,000 Anheuser-Busch Cos., Inc.,
6.90%, 10/7/02 1,005,000
-----------
HEAVY MACHINERY 2.27%
500,000 Deere & Co.,
8.25%, 6/1/96 506,875
-----------
OIL & GAS EXPLORATION & PRODUCTION 3.53%
785,000 Shell Oil Co.,
7.00%, 9/15/95 785,981
-----------
PHARMACEUTICALS 9.16%
1,000,000 Eli Lilly & Co.,
8.125%, 12/1/01 1,076,250
1,000,000 Upjohn Corp.,
5.875%, 4/15/00 963,750
-----------
2,040,000
-----------
</TABLE>
<PAGE> 167
FIRST OMAHA SHORT/INTERMEDIATE FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ----------
<S> <C> <C>
UTILITIES - ELECTRIC SERVICES 16.47%
$1,000,000 Alabama Power Co.,
5.50%, 2/1/98 $983,750
1,000,000 Florida Power & Light Co.,
5.50%, 7/1/99 970,000
750,000 Gulf Power Co.,
5.875%, 8/1/97 744,375
1,000,000 Monongahela Power Co.,
5.625%, 4/1/00 971,250
-----------
3,669,375
-----------
UTILITIES - ELECTRIC & OTHER SERVICES COMBINED 9.93%
500,000 Central Illinois Light Co.,
5.125%, 2/1/96 498,750
750,000 Northern States Power Co.,
5.875%, 10/1/97 745,313
1,000,000 Wisconsin Electric Power Co.,
5.125%, 9/15/98 967,500
-----------
2,211,563
-----------
UTILITIES - NATURAL GAS 3.35%
750,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 745,312
-----------
UTILITIES - TELECOMMUNICATIONS 8.81%
1,000,000 Chesapeake & Potomac Telephone Co. of Maryland,
5.875%, 9/15/99 968,750
1,000,000 GTE California, Inc.,
6.25%, 1/15/98 995,000
-----------
1,963,750
-----------
TOTAL CORPORATE BONDS (COST $17,714,632) 17,605,113
-----------
U.S. TREASURY NOTES 4.39%
1,000,000 5.125%, 3/31/98 978,640
-----------
TOTAL U.S. TREASURY NOTES (COST $1,002,970) 978,640
-----------
U.S. TREASURY STRIPS 13.15%
1,037,000 5/15/97 935,032
1,085,000 2/15/99 876,854
1,520,000 8/15/00 1,119,069
-----------
TOTAL U.S. TREASURY STRIPS (COST $2,988,962) 2,930,955
-----------
</TABLE>
<PAGE> 168
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ------------
<S> <C> <C>
INVESTMENT COMPANIES 1.65%
366,488 Goldman U.S. Government Money Market Fund $366,488
-----------
TOTAL INVESTMENT COMPANIES (COST $366,488) 366,488
-----------
TOTAL INVESTMENTS (COST $22,073,052) 98.21% 21,881,196
OTHER ASSETS LESS LIABILITIES 1.79% 399,637
-----------
NET ASSETS 100.00% $22,280,833
===========
</TABLE>
<PAGE> 169
FIRST OMAHA FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- -------------
<S> <C> <C>
CORPORATE BONDS 63.66%
CONSUMER GOODS & SERVICES 3.22%
$2,500,000 General Electric Co.,
5.50%, 11/1/01 $2,331,250
------------
FOREST PRODUCTS 3.01%
2,300,000 Kimberly-Clark Corp.,
6.875%, 2/15/04 2,179,250
------------
GOVERNMENTS (FOREIGN) 2.73%
2,000,000 Ontario Hydro,
5.80%, 3/31/98 1,975,000
------------
INDUSTRIAL GOODS & SERVICES 9.52%
2,000,000 Air Products & Chemicals, Inc.,
6.25%, 6/15/03 1,927,500
1,500,000 Colgate-Palmolive Co.,
6.85%, 11/24/99 1,507,500
1,500,000 Dow Chemical Co.,
4.625%, 10/15/95 1,494,375
2,000,000 Monsanto Co.,
6.00%, 7/1/00 1,950,000
------------
6,879,375
------------
OIL & GAS EXPLORATION & PRODUCTION 4.21%
2,000,000 Amoco Canada Petroleum Co. Ltd.,
6.75%, 2/15/05 1,987,500
1,000,000 BP America,
8.875%, 12/1/97 1,052,500
------------
3,040,000
------------
PHARMACEUTICALS 2.70%
2,000,000 Eli Lilly & Co.,
6.25%, 3/15/03 1,952,500
------------
RAILROADS 0.72%
500,000 Southern Railway Co.,
7.75%, 8/1/99 523,125
------------
RETAIL STORES 6.62%
2,000,000 J.C. Penney Co., Inc.,
6.00%, 5/01/06 1,840,000
1,000,000 Wal-Mart Stores, Inc.,
8.625%, 4/1/01 1,088,750
2,000,000 Wal-Mart Stores, Inc.
5.875%, 10/15/05 1,857,500
------------
4,786,250
------------
</TABLE>
<PAGE> 170
FIRST OMAHA FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- ------------
<S> <C> <C>
UTILITIES - ELECTRIC SERVICES 4.12%
$1,000,000 Oklahoma Gas & Electric Co.,
8.375%, 1/1/04 $1,027,500
2,000,000 Union Electric Co.,
6.75%, 5/1/08 1,947,500
------------
2,975,000
------------
UTILITIES - ELECTRIC & OTHER SERVICES COMBINED 9.88%
2,000,000 Citizens Utilities Co.,
7.60%, 6/1/06 2,102,500
1,000,000 Consolidated Edison Co. of New York, Inc.,
5.00%, 1/1/96 995,000
1,500,000 Iowa Southern Utilities Co.,
7.375%, 2/1/03 1,528,125
1,000,000 Louisville Gas & Electric Co.,
7.50%, 7/1/02 1,021,250
1,500,000 Pacific Gas & Electric Co.,
6.625%, 6/1/00 1,496,250
------------
7,143,125
------------
UTILITIES - NATURAL GAS 6.99%
1,000,000 Consolidated Natural Gas Co.,
9.375%, 2/1/97 1,046,250
2,500,000 Indiana Gas Co.,
6.625%, 12/1/97 2,515,625
1,500,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 1,490,625
------------
5,052,500
------------
UTILITIES - TELECOMMUNICATIONS 9.94%
2,000,000 AT&T Corp.,
7.75%, 3/01/07 2,125,000
1,500,000 Chesapeake & Potomac Telephone Co. of Maryland,
5.25%, 5/01/05 1,318,125
1,500,000 Ohio Bell Telephone Co.,
6.75%, 7/01/08 1,445,625
1,000,000 Southern Bell Telephone & Telegraph Co.,
4.75%, 9/01/00 910,000
1,500,000 Southern Bell Telephone & Telegraph Co.,
6.00%, 10/1/04 1,383,750
------------
7,182,500
------------
TOTAL CORPORATE BONDS (COST $46,188,600) 46,019,875
------------
</TABLE>
<PAGE> 171
FIRST OMAHA FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
------------ -------------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES 4.32%
$2,000,000 Federal National Mortgage Association,
8.625%, 11/10/04 $2,116,780
1,000,000 Tennessee Valley Authority,
6.875%, 1/15/02 1,008,750
------------
TOTAL U.S. GOVERNMENT AGENCIES (COST $2,973,401) 3,125,530
------------
U.S. TREASURY NOTES 4.36%
1,000,000 7.25%, 11/15/96 1,018,000
1,000,000 8.125%, 2/15/98 1,049,310
1,000,000 8.875%, 2/15/99 1,086,760
------------
TOTAL U.S. TREASURY NOTES (COST $3,258,750) 3,154,070
------------
U.S. TREASURY STRIPS 18.60%
1,358,880 8/15/96 1,278,190
1,785,000 8/15/01 1,229,472
2,122,000 5/15/02 1,391,798
4,983,000 2/15/05 2,674,724
6,513,000 2/15/07 3,014,086
12,114,000 2/15/12 3,857,581
------------
TOTAL U.S. TREASURY STRIPS (COST $13,594,378) 13,445,851
------------
U.S. TREASURY BONDS 6.05%
1,000,000 8.375%, 8/15/00 1,001,120
1,000,000 7.875%, 11/15/07 1,076,840
1,000,000 8.75%, 11/15/08 1,133,410
1,000,000 9.125%, 5/15/09 1,164,830
------------
TOTAL U.S. TREASURY BONDS (COST $4,396,875) 4,376,200
------------
</TABLE>
<PAGE> 172
FIRST OMAHA FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ------------
<S> <C> <C>
INVESTMENT COMPANIES 1.48%
1,068,828 Goldman U.S. Government Money Market Fund $1,068,828
------------
TOTAL INVESTMENT COMPANIES (COST $1,068,828) 1,068,828
------------
TOTAL INVESTMENTS (COST $71,480,832) 98.47% 71,190,354
OTHER ASSETS LESS LIABILITIES 1.53% 1,105,108
------------
NET ASSETS 100.00% $72,295,462
============
</TABLE>
<PAGE> 173
FIRST OMAHA EQUITY FUND
SCHEDULE OF INVESTMENTS
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Number
of Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS 82.86%
AUTOMOTIVE PARTS 0.98%
79,400 CLARCOR, Inc. $1,836,125
----------
COMMUNICATIONS EQUIPMENT 1.89%
46,200 Motorola, Inc. 3,540,075
----------
COMPUTERS & PERIPHERALS 3.37%
58,100 International Business Machines Corp. 6,325,638
----------
COSMETICS 4.86%
32,700 International Flavors & Fragrances, Inc. 1,708,575
156,900 Tambrands, Inc. 7,393,912
----------
9,102,487
----------
ELECTRICAL EQUIPMENT 7.97%
51,500 Emerson Electric Co. 3,643,625
54,400 General Electric Co. 3,209,600
188,400 Honeywell, Inc. 8,077,650
----------
14,930,875
----------
ENVIRONMENTAL CONTROL 0.93%
147,400 Calgon Carbon Corp. 1,750,375
----------
FOOD PROCESSING & PACKAGING 2.72%
82,500 CPC International, Inc. 5,094,375
----------
FOREST PRODUCTS 2.07%
65,300 Consolidated Papers, Inc. 3,877,188
----------
HEAVY MACHINERY 3.67%
164,700 Ingersoll-Rand Co. 6,876,225
----------
INSURANCE 10.11%
210,000 American Financial Group, Inc. 5,460,000
129,100 American General Corp. 4,696,012
56,000 Marsh & McClennan Cos., Inc. 4,424,000
74,700 SAFECO Corp. 4,369,950
----------
18,949,962
----------
MEDICAL SUPPLIES 3.08%
98,000 Becton, Dickinson & Co. 5,769,750
----------
</TABLE>
<PAGE> 174
FIRST OMAHA FIXED EQUITY FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Number
of Shares Value
--------- ----------
<S> <C> <C>
OIL 7.60%
64,300 Exxon Corp. $4,661,750
73,500 Texaco, Inc. 4,887,750
166,800 Unocal Corp. 4,691,250
-----------
14,240,750
-----------
OILFIELD EQUIPMENT & SERVICES 2.33%
65,200 Schlumberger, Ltd. 4,368,400
-----------
PHARMACEUTICALS 3.90%
93,300 Eli Lilly & Co. 7,300,725
-----------
PHOTOGRAPHY 2.49%
81,100 Eastman Kodak Co. 4,673,388
-----------
PUBLISHING 3.35%
168,000 R.R. Donnelley & Sons Co. 6,279,000
-----------
RETAIL 3.90%
257,500 Rite Aid Corp. 7,306,562
-----------
SOAPS & CLEANING AGENTS 5.48%
90,200 Clorox Co. 5,919,375
62,200 Colgate-Palmolive, Inc. 4,354,000
-----------
10,273,375
-----------
TEXTILE MANUFACTURING 3.64%
350,300 Kellwood Co. 6,830,850
-----------
TOBACCO 2.85%
248,900 Universal Corp. 5,351,350
-----------
UTILITIES - ELECTRIC 4.51%
222,400 DPL, Inc. 4,948,400
103,300 Texas Utilities Co. 3,499,287
-----------
8,447,687
-----------
UTILITIES - TELECOMMUNICATIONS 1.16%
41,300 AT&T Corp. 2,178,575
-----------
TOTAL COMMON STOCKS (COST $130,751,830) 155,303,737
-----------
</TABLE>
<PAGE> 175
FIRST OMAHA EQUITY FUND
SCHEDULE OF INVESTMENTS
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
---------- -----------
<S> <C> <C>
U.S. TREASURY BILLS 12.86%
$3,000,000 8/3/95 $2,998,665
2,500,000 9/21/95 2,480,464
5,000,000 10/19/95 4,937,187
4,000,000 12/7/95 3,922,457
4,000,000 12/14/95 3,918,853
6,000,000 1/25/96 5,840,987
----------
TOTAL U.S. TREASURY BILLS (COST $24,098,001) 24,098,613
----------
<CAPTION>
Number
of Shares
---------
<S> <C> <C>
INVESTMENT COMPANIES 4.15%
7,777,913 Goldman U.S. Government Money Market Fund 7,777,913
------------
TOTAL INVESTMENT COMPANIES (COST $7,777,913) 7,777,913
------------
TOTAL INVESTMENTS (COST $162,627,744) 99.87% 187,180,263
OTHER ASSETS LESS LIABILITIES 0.13% 249,174
------------
NET ASSETS 100.00% $187,429,437
============
</TABLE>
<PAGE> 176
FIRST OMAHA FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1995
(Unaudited)
(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 July 31, 1995, the only series presently authorized
are the U.S. Government Obligations Fund, the Short/Intermediate Fixed
Income Fund, the Fixed Income Fund and the Equity Fund (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 100 103.520
NAV $10.00 $9.66
Fixed Income Fund
Shares Outstanding 100 103.842
NAV $10.00 $9.63
Equity Fund
Shares Outstanding 8,000 7,023.705
NAV $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>
Short/
U.S. Government 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 $76,107,938 $22,130,983 $66,382,458 $161,433,798
</TABLE>
1
<PAGE> 177
Each series of the Sessions Group's net assets at that date were combined
with those of each series of the Company. The aggregate net assets of
each series immediately before and after the acquisition was as follows:
<TABLE>
<CAPTION>
Before After
------ -----
<S> <C> <C>
The Sessions Group First Omaha U.S. Government Obligations Fund $76,107,938 --
First Omaha Funds, Inc. - First Omaha U.S. Government Obligations Fund 18,000 $76,125,938
The Sessions Group First Omaha Short/Intermediate Fixed Income Fund
First Omaha Funds, Inc. - First Omaha Short/Intermediate Fixed Income 22,130,983 --
Fund 1,000 22,131,983
The Sessions Group First Omaha Fixed Income Fund 66,382,458 --
First Omaha Funds, Inc. - First Omaha Fixed Income Fund 1,000 66,383,458
The Sessions Group First Omaha Equity Fund 161,433,798 --
First Omaha Funds, Inc. - First Omaha Equity Fund 80,000 161,513,798
</TABLE>
Each series of The Sessions Group's net assets included the following:
<TABLE>
<CAPTION>
Short/
U.S. Government Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---------------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Undistributed net
investment income $13,093 $5,467 $4,646 $7,260
Undistributed net realized
gain/(loss) (15,950) (178,976) (187,903) 1,009
Net unrealized
appreciation/(depreciation)
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' Adviser and determination of the appropriate price
whenever a furnished price is significantly different from the
previous day's furnished 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.
2
<PAGE> 178
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 thirteen months unless such investment is
subject to a demand feature, or ii) maintain a dollar-weighted average
portfolio maturity which exceeds 90 days.
(B) 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.
(C) DISTRIBUTIONS TO SHAREHOLDERS
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.
(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.
(E) 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 to the
respective portfolios, equally by classes of shares 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.
(F) REPURCHASE AGREEMENTS
The Funds may acquire repurchase agreements from financial
institutions such as banks and broker dealers which FNBO 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.
3
<PAGE> 179
(G) OTHER
Investment transactions are accounted for on the trade date plus one.
The Funds determine the gain or 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.
The accompanying unaudited interim financial statements include
all adjustments which, in the opinion of management, are necessary to
a fair presentation of the results for the period ended July 31,
1995. All such adjustments are, in the opinion of management, of a
normal recurring nature.
(3) INVESTMENT ADVISER
The Funds have an agreement with the First National Bank of Omaha (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 percent for the U.S. Government Obligations Fund, 0.50
percent for the Short/Intermediate Fixed Income Fund, 0.60 percent for the
Fixed Income Fund, and 0.75 percent for the Equity Fund. Advisory fees of
$3,489 and $10,843 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 percent of each Fund's average daily net assets.
Custody fees of $2,088, $6,487 and $16,094 were waived in the
Short/Intermediate Fixed Income Fund, the Fixed Income Fund and the Equity
Fund, respectively.
(4) ADMINISTRATOR AND DISTRIBUTOR
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 percent of each
Fund's average net assets, subject to a minimum fee of $300,000.
Administrative fees of $12,158, $3,238, $10,061 and $24,952 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
<PAGE> 180
5) DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Company has adopted a
Distribution and Service 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 percent of the average daily net assets of
that Fund. Such amount 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 these financial
statements, there are no 12b-1 Agreements with any Participating
Organizations.
(6) 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 percent 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.
(7) 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
July 31, 1995 were as follows:
<TABLE>
<CAPTION>
Short/
U.S. Government Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shares sold 114,132,232 115,886 368,908 1,092,693
Shares issued in
conversion 76,107,938 2,290,324 6,894,181 14,178,204
Shares issued to holders
in reinvestment of
dividends 283,140 35,881 130,072 104,758
Shares redeemed (106,950,435) (179,959) (134,115) (187,690)
----------- --------- --------- ----------
Net increase 83,572,875 2,262,132 7,259,046 15,187,965
=========== ========= ========= ==========
</TABLE>
5
<PAGE> 181
(8) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the period from April 10, 1995 to July 31,
1995 were as follows:
<TABLE>
<CAPTION>
Short/
U.S. Government Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Purchases
U.S. Government -- -- -- --
Other -- $ 994,770 $ 8,346,558 $17,924,198
Sales
U.S. Government -- -- -- --
Other -- 500,000 2,486,620 18,084,151
</TABLE>
At July 31, 1995, gross unrealized appreciation and depreciation of
investments were as follows:
<TABLE>
<CAPTION>
Short/
U.S. Government Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Appreciation -- $ 183,622 $ 895,554 $27,781,465
(Depreciation) -- (375,476) (1,186,032) (3,228,946)
----------- --------- --------- ----------
Net appreciation/
(depreciation) on
investments -- $(191,854) $(290,478) $24,552,519
=========== ========= ========= ==========
</TABLE>
6
<PAGE> 182
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-1+. 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-1+ 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-1+.
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-1+ 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 having
A-1
<PAGE> 183
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 Al 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-l." 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> 184
Corporate Debt Ratings. A S&P corporate debt rating is a current
assessment of the creditworthiness 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> 185
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> 186
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> 187
"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> 188
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> 189
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Not applicable.
(2) Included in Part B (incorporated by reference from
Post-Effective Amendment No. 1 filed September 18,
1995):
A. Accountants' Report dated February 10, 1995.
Statements of Assets and Liabilities as of
February 10, 1995.
Notes to Financial Statements dated
February 10, 1995.
B. Statements of Assets and Liabilities as of
July 31, 1995.
Statements of Operations for the period ended
July 31, 1995.
Statements of Changes in Net Assets for the
period ended July 31, 1995.
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).
5.2 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).
6.2 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).
8.2 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).
9.2 Amended Schedule A to the
Administration and Fund Accounting
Agreement by and between First Omaha
Funds, Inc. and Sunstone Financial
C-1
<PAGE> 190
<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).
9.4 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).
11. 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.
17. Financial Data Schedules.
18. None.
</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 December 31, 1995
-------------- -----------------------
<S> <C>
U.S. Government Obligations
Fund 162
Equity Fund 1,318
Short/Intermediate Fixed
Income Fund 415
Fixed Income Fund 500
</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> 191
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> 192
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 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> 193
<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> 194
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 Small Cap Value Fund which need not be certified,
within four to six months from the effective date of this Amendment.
C-6
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements for effectiveness of this amendment to its Registration Statement
under Rule 485(b) under the Securities Act of 1933 and 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 29th day of March, 1996. No other
material event requiring prospectus disclosure has occurred since the later of
the three dates specified in Rule 485(b)(2).
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 March 28, 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> 196
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).
5.2 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).
6.2 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).
8.2 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).
9.2 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).
9.4 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).
11. 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.
17. Financial Data Schedules.
18. None.
</TABLE>
<PAGE> 197
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> 198
<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
</TABLE>
FIRST OMAHA FUNDS, INC.
By: /s/ David P. Greer
----------------------
Name: David P. Greer
Title: President
FIRST NATIONAL BANK OF OMAHA
By: /s/ Marc M Diehl
----------------------
Name: Marc M Diehl
Title: Trust Division Head
- - -----------
* All fees are computed daily and paid monthly
-8-
<PAGE> 199
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
</TABLE>
Dated: April 10, 1995
Revised: December 5, 1995
FIRST OMAHA FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By:/s/ David P. Greer By: /s/ Miriam M. Allison
--------------------- ----------------------
David P. Greer Miriam M. Allison
President President
<PAGE> 200
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 (.o3%) 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
</TABLE>
FIRST OMAHA FUNDS, INC.
By /s/ David P. Greer
-------------------------------
David P. Greer, President
FIRST NATIONAL BANK OF OMAHA
By /s/ Marc M. Diehl
-------------------------------
Marc M. Diehl, Trust Division Head
- - --------------------------
*All fees, are computed daily and paid monthly.
-23-
<PAGE> 201
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
</TABLE>
Dated: April 10, 1995
Revised: December 5, 1995
FIRST OMAHA FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: /s/ David P. Greer By: /s/ Miriam M. Allison
------------------------------ --------------------------
David P. Greer Miriam M. Allison
President President
<PAGE> 202
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
Signed: /s/ Marc M. Diehl
--------------------------------
(Title)
Dated: December 5, 1995
---------------------------------
<PAGE> 1
EXHIBIT 11
[PEAT OMAHA, NEBRASKA MARWICK LLP LETTERHEAD]
233 South 13th Street, Suite 1600 Telephone 402 476 1216 Telefax 402 476 1944
Lincoln, NE 68508-2041
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
First Omaha Funds, Inc.:
We consent to the use of our report included herein and to the
reference to our firm under the Caption "Auditors" in this Form N-1(a)
Registration Statement Post-Effective Amendment No. 3 of First Omaha Funds,
Inc.
KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Omaha, Nebraska
March 6, 1996
<PAGE> 1
EXHIBIT 16
FIRST OMAHA FUNDS, INC.
COMPUTATION OF ONE YEAR HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURN
FORM N-1A PART C ITEM 16
<TABLE>
<CAPTION>
SMALL CAP VALUE FUND
Initial Shares Reinvested Dividend Record Reinvest
Investment NAV Outstanding Shares Amount Date Ex-Date Rate Price
---------- --- ----------- ---------- -------- ------ ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/95 1,000.00 10.00 100.000
12/31/96 1,057.00 10.07 104.965 4.965 50.00 12/30/96 12/31/96 0.50 10.07
</TABLE>
HYPOTHETICAL TOTAL RETURN CALCULATION
P(1+T)*n = ERV
1,000(1+T)*1 = 1,057.00
T = 5.70%
<PAGE> 2
FIRST OMAHA FUNDS, INC.
Computation of One Year Hypothetical Average Annual Total Return
Form N-1A Part C Item 16
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS FUND
Initial Shares Reinvested Dividend Record Reinvest
Investment NAV Outstanding Shares Amount Date Ex-Date Rate Price
---------- --- ----------- ---------- -------- ------ ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/95 1,000.00 10.00 100.000
12/31/96 1,057.00 10.07 104.965 4.965 50.00 12/30/96 12/31/96 0.50 10.07
</TABLE>
HYPOTHETICAL TOTAL RETURN CALCULATION
P(1+T)*n = ERV
1,000(1+T)*1 = 1,057.00
T = 5.70%
<TABLE>
<CAPTION>
SHORT/INTERMEDIATE FIXED INCOME FUND
Initial Shares Reinvested Dividend Record Reinvest
Investment NAV Outstanding Shares Amount Date Ex-Date Rate Price
---------- --- ----------- ---------- -------- ------ ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/95 1,000.00 10.00 100.000
12/31/96 1,052.00 10.07 104.469 4.469 45.00 12/30/96 12/31/96 0.45 10.07
</TABLE>
HYPOTHETICAL TOTAL RETURN CALCULATION
P(1+T)*n = ERV
1,000(1+T)*1 = 1,052.00
T = 5.20%
<TABLE>
<CAPTION>
FIXED INCOME FUND
Initial Shares Reinvested Dividend Record Reinvest
Investment NAV Outstanding Shares Amount Date Ex-Date Rate Price
---------- --- ----------- ---------- -------- ------ ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/95 1,000.00 10.00 100.000
12/31/96 1,047.00 10.07 103.972 3.972 40.00 12/30/96 12/31/96 0.40 10.07
</TABLE>
HYPOTHETICAL TOTAL RETURN CALCULATION
P(1+T)*n = ERV
1,000(1+T)*1 = 1,047.00
T = 4.70%
<TABLE>
<CAPTION>
EQUITY FUND
Initial Shares Reinvested Dividend Record Reinvest
Investment NAV Outstanding Shares Amount Date Ex-Date Rate Price
---------- --- ----------- ---------- -------- ------ ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/95 1,000.00 10.00 100.000
12/31/96 1,042.00 10.07 103.476 3.476 35.00 12/30/96 12/31/96 0.35 10.07
</TABLE>
HYPOTHETICAL TOTAL RETURN CALCULATION
P(1+T)*n = ERV
1,000(1+T)*1 = 1,042.00
T = 4.20%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932381
<NAME> FIRST OMAHA FUNDS INC
<SERIES>
<NUMBER> 1
<NAME> FIRST OMAHA US GOVERNMENT OBLIGATIONS FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> FEB-10-1995
<PERIOD-END> FEB-10-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 25,995
<OTHER-ITEMS-ASSETS> 18,000
<TOTAL-ASSETS> 43,995
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,995
<TOTAL-LIABILITIES> 25,995
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,000
<SHARES-COMMON-STOCK> 18,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 18,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 18,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932381
<NAME> FIRST OMAHA FUNDS INC
<SERIES>
<NUMBER> 2
<NAME> FIRST OMAHA SHORT/INTERMEDIATE FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> FEB-10-1995
<PERIOD-END> FEB-10-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 24,900
<OTHER-ITEMS-ASSETS> 1,000
<TOTAL-ASSETS> 25,900
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,900
<TOTAL-LIABILITIES> 24,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,000
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932381
<NAME> FIRST OMAHA FUNDS INC
<SERIES>
<NUMBER> 3
<NAME> FIRST OMAHA FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> FEB-10-1995
<PERIOD-END> FEB-10-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 24,900
<OTHER-ITEMS-ASSETS> 1,000
<TOTAL-ASSETS> 25,900
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,900
<TOTAL-LIABILITIES> 24,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,000
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000932381
<NAME> FIRST OMAHA FUNDS INC
<SERIES>
<NUMBER> 4
<NAME> FIRST OMAHA EQUITY FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> FEB-10-1995
<PERIOD-END> FEB-10-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 25,885
<OTHER-ITEMS-ASSETS> 80,000
<TOTAL-ASSETS> 105,885
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,885
<TOTAL-LIABILITIES> 25,885
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,000
<SHARES-COMMON-STOCK> 8,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 80,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 80,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 80,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<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> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-10-1995
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