FIRST OMAHA FUNDS
ANNUAL REPORT
May 29, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: First Omaha Funds, Inc. Annual Report
Filing Pursuant to Rule 30b2-1 and Section 24(b)
under the Investment Company Act of 1940
SEC File No. 811-8846, 33-85982
Dear Sir/Madam:
On behalf of First Omaha Funds, Inc. (the "Fund"), transmitted herewith
for filing pursuant to Rule 30b2-1 and Section 24(b) under the Investment
Company Act of 1940, as amended, is the Fund's Annual Report to the
Shareholders for the fiscal year ended March 31, 1996.
Questions regarding this filing should be directed to the undersigned.
Sincerely,
/s/ Richard P. Snyder
- ---------------------
Richard P. Snyder
Vice President and Treasurer
RPS/kg
Encl.
FIRST OMAHA
FAMILY OF FUNDS
ANNUAL REPORT
March 31, 1996
NOTICE TO INVESTORS
Shares of First Omaha Funds:
- - are not deposits or obligations of, or guaranteed or endorsed by,
First National Bank of Omaha, First National of Nebraska or any of
its affiliates;
- - are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other agency;
- - are subject to investment risks, including the possible loss
of principal amount invested; and
- - there can be no assurance that the U.S. Government Obligations
Fund will be able to maintain a stable net asset value of $1.00 per share.
First National Bank of Omaha serves as investment adviser, custodian
and transfer agent and receives fees for such services as disclosed in
the prospectus.
The First Omaha Funds are distributed by Sunstone Financial Group, Inc.
April 1996
DEAR SHAREHOLDER:
We are pleased to provide you with the First Omaha Family of Funds' Annual
Report for the period ended March 31, 1996. In it, you will be given helpful
information regarding your investment, its performance and its management.
Also, our portfolio managers have given their observations on the stock and
bond markets. Please read this Annual Report carefully and retain it with your
Prospectus.
Once again, thank you for your investment in the First Omaha Family of Funds.
THE STOCK MARKET OUTLOOK
The economic environment has proven to be a significant positive for
the stock market over the past year. Modest economic growth, low inflation,
and declining interest rates provided an exceptional backdrop for stock
performance. Corporate earnings growth, while decelerating throughout 1995,
was solid and added an extra kick to the positive conditions, increasing 19%
during 1995. As a result, January 1, 1995 to date has proven to be a
spectacular period for the stock market. The Standard & Poor's 500 ("S&P 500")
provided a total return of 37.6% in 1995 and 5.4% so far in 1996. The 1995
return was the highest calendar year return in 37 years. In addition, this
market advance has continued for over five years without a correction of 10%
or more.
FIRST OMAHA EQUITY FUND
The First Omaha Equity Fund underperformed the S&P 500 during this time period.
Our generally defensive posture, broad sector diversification and cash position
(18% of the portfolio at March 31, 1996) all weighed on the portfolio's
performance in this overextended market. However, while the market shifts
dramatically in response to news reports, we continue to follow a deliberate,
focused approach to investing. The basis of our philosophy is to buy stocks that
we believe are selling below their intrinsic value. Our time horizon on an
investment is three to five years, and our average holding period for a stock
is more than seven years. Our analysis is company-focused and we seek to
invest in companies that have above average and sustainable or sub-par but
improving return on equity, strong balance sheets, strong market positions
and effective managements that have a demonstrated ability to effectively
allocate cash flows to maximize shareholder value. We feel confident that
this philosophy will yield above market returns over the long term.
The million-dollar question going forward is whether the modest growth,
low inflation environment of 1995 will continue throughout 1996. The Labor
Department reported a revised increase in non-farm payrolls of 624,000 in
February - indicating unexpected strength in the economy. Clearly, some
interpreted this report alone as a sign that growth was accelerating,
and stronger than expected first quarter earnings may support this
conclusion. Higher than anticipated growth in the late stages of an
economic expansion is often accompanied by rising inflation rates.
Some analysts believe that an increase in inflation from its current
low level is a strong possibility. Food prices are expected to
advance due to low grain stocks, crude oil inventories are at the
lowest level in almost two decades, and the CRB commodity futures
index is at an eight-year high. Whether economic growth remains
strong or not, corporate earnings growth is unlikely to maintain
the heady levels of the past several years (+19% in 1993, +24% in
1994 and +19% in 1995). We have already noted a significant deceleration--
the average growth in the first three quarters of 1995 was 22%, while
fourth quarter growth slowed to 10%, and estimates for the first quarter
of 1996 suggest that earnings may be flat.
Whether or not we will suffer any serious deterioration in these
variables is unclear. What is clear is that the best news is behind us
and is, for the most part, already factored into current valuation levels.
A defensive posture seems appropriate given the risk/reward profile of most
stocks, and stock selection will be the key in the late stages of this
bull market.
THE PORTFOLIO
We added J.C. Penney to the portfolio during the past six months. J.C. Penney
is the fourth largest retailer in the U.S. with stores located in 50 states
and Puerto Rico. It operates 1,246 department stores, an extensive catalogue
business and 526 drug stores. Retail sales exceeded $20 billion in 1995.
Women's apparel represented approximately 42% of sales, men's apparel, 27%,
children's apparel, 13% and home furnishings, 18%. Over the past three years,
the retail industry has gone through a large scale rationalization due to a
combination of cyclical and secular issues. J.C. Penney, unlike many
underperforming retailers, has continued to have access to capital. As a
result, we believe J.C. Penney should, over the next retail cycle, be a
beneficiary of the downsizing that has occurred in the industry. J.C. Penney
is attractively valued at 1.8x book value, 10.4x 1996 estimated earnings per
share and yields 4.0%.
Since the September 1995 report, we also added substantially to existing
positions in Motorola and Sonoco Products. Motorola is a stock that we have
owned in the portfolio for several years. We had reduced our position in the
stock substantially in 1993 due to price. Cyclical softness in semiconductors
and several product transitions may result in a slowdown in earnings growth
temporarily. The result of this realization by the market created an excellent
buying opportunity - the stock dropped from above $80 to the $50s in late 1995.
While cyclical softness may be an issue during 1996, we believe that the
excellent secular trends in many of Motorola's businesses will provide good
long-term returns. We also added substantially to the position we began in
late 1995 in Sonoco Products. Sonoco is a leading producer of tubes, cores,
cones, uncoated cylinder paperboard, composite cans, plastic containers,
fiber drums, fiber partitions, wire and cable reels, and an extensive
variety of other packaging items. Its major markets are the paper, textile
and packaging industries. The company is strong financially and has earned
an above average return on equity over an economic cycle.
Two positions were eliminated from the portfolio during the past six-month
period--AT&T and Clorox. The fundamentals of both of these companies remain
strong; however, both were sold due to their prices reaching our target prices.
AT&T's stock price increased sharply in late 1995 in response to an
announcement by the company that it would break the company into three
smaller businesses - long distance service, telephone equipment and computer
equipment. The stock also benefited from the generally high interest in
communications stocks during the past few quarters. Clorox, likewise,
had a surge in stock price near the end of 1995 to a level we believed
to be above its fair value. The stock price responded to consistent
and strong earnings reports, as well as a preference in the market
for non-cyclical stocks in the last few months of 1995 as several
economic indicators pointed toward a weak economy. We also trimmed
two positions in the portfolio substantially during this period due
to price--Becton-Dickinson and Eli Lilly.
The portfolio was 82% invested in stocks on March 31, 1996, down slightly
from 84% on September 30, 1995. The portfolio holds 31 stock positions and
remains well-diversified across all major sectors of the economy.
Cash 18% Basic Industries 6%
Stocks 82% Utilities 6%
Financial 13%
Energy 13%
Consumer Cyclicals 14%
Consumer Staples 27%
Capital Goods/Technology 21%
Sector weightings represent the percentage of the Fund's equity investments in
certain general sectors. These sectors include more than one industry.
In the opinion of the Investment Adviser, the Fund is conservatively invested
in quality, large cap equities that we believe to be fundamentally stronger
than the market with lower weighted-average valuation measures. The charts
below present relevant fundamental and valuation measures.
PORTFOLIO FUNDAMENTAL PROFILE PORTFOLIO VALUATION PROFILE
----------------------------- ---------------------------
As of 3/31/96: Weighted As of 3/31/96: Weighted
Average S&P 400 Average S&P 400
------- ------- ------- -------
Payout Ratio* 49% 38% Price/Earnings* 15x 19x
Debt/Capital* 33% 40% Price/Book Value* 3.3x 3.9x
ROE 23% 22% Yield 2.8% 2.0%
*Based on 1996 estimates *Based on 1996 estimates
The five largest holdings in the portfolio include: Honeywell, Rite Aid,
Tambrands, Eli Lilly and J.C. Penney. The weighted average market
capitalization of the stocks in the portfolio was $16.8 billion and the
median market capitalization was $6.8 billion.
RETURN ON A $10,000 INVESTMENT *
12/13/92* 3/31/93 3/31/94 3/31/95 3/31/96
--------- ------- ------- ------- -------
First Omaha Equity Fund $10,000 $10,470 $10,805 $12,759 $15,586
S&P 500 Stock Index $10,000 $10,511 $10,665 $12,324 $16,281
* Inception Date
This chart assumes an initial investment of $10,000 made on 12/13/92.
Returns shown here and in the chart below include the reinvestment of all
dividends and other distributions. Performance figures reflect fee waivers
in effect, represent past performance and will fluctuate. In the absence
of fee waivers, total return would be reduced. Past performance is no
guarantee of future results. The investment return and principal value of
an investment in the First Omaha Equity Fund will fluctuate so that an
investor's shares in the Fund, when redeemed, may be worth more or less
than their original cost. This Fund is advised by First National Bank of
Omaha.
The S&P 500 Stock Index is an index of unmanaged groups of 500 selected
common stocks, most of which are listed on the New York Stock Exchange.
The index is heavily weighted toward stocks with large market capitalizations
and represents approximately two-thirds of the total market value of all
domestic common stocks.
Since
Six Months 12 Months Inception
Ended 3/31/96 Ended 3/31/96 (12/13/92)
------------- ------------- ---------
First Omaha Equity Fund 8.73% 22.16% 14.39%
S&P 500 Stock Index 11.71% 32.11% 15.91%
FIRST OMAHA FIXED INCOME FUND
The First Omaha Fixed Income Fund's total return for the six months and
12 months ended March 31, 1996 and since inception are shown below, along
with comparable information for the benchmark index:
Since
Six Months 12 Months Inception
Ended 3/31/96 Ended 3/31/96 (12/13/92)
------------- ------------- ---------
First Omaha Fixed
Income Fund 1.67% 10.54% 6.74%
Lehman Bros.
Gov't./Corp. Bond Index 2.21% 10.92% 7.28%
The First Omaha Fixed Income Fund underperformed the Lehman Brothers
Government/Corporate Bond Index for the year ended March 31, 1996. The
Fund's longer duration contributed to the underperformance. Interest
rates rose nearly one full percentage point during the first three months
of 1996. This dramatic rise was due to inflationary concerns caused by
strong employment statistics and increasing energy and agricultural prices.
RETURN ON A $10,000 INVESTMENT *
12/13/92* 3/31/93 3/31/94 3/31/95 3/31/96
--------- ------- ------- ------- -------
First Omaha Fixed
Income Fund $10,000 $10,547 $10,852 $11,221 $12,404
Lehman Bros.
Gov't./Corp. Bond Index $10,000 $10,576 $10,870 $11,368 $12,610
* Inception Date
This chart assumes an initial investment of $10,000 made on 12/13/92.
Returns shown here and in the chart above include the reinvestment of
all dividends and other distributions. Performance figures reflect fee
waivers in effect, represent past performance and will fluctuate. In the
absence of fee waivers, total return would be reduced. Past performance
is no guarantee of future results. The investment return and principal
value of an investment in the First Omaha Fixed Income Fund will
fluctuate so that an investor's shares in the Fund, when redeemed, may be
worth more or less than their original cost. This Fund is advised by First
National Bank of Omaha.
The Lehman Bros. Gov't./Corp. Bond Index includes all public obligations
of the U.S. Treasury, excluding flower bonds and foreign-targeted issues;
all publicly issued debt of U.S. government agencies and quasi-federal
corporations, and corporate debt guaranteed by the U.S. government; and
all publicly issued, fixed rate, nonconvertible, investment grade,
dollar-denominated, SEC-registered corporate debt (including debt issued
or guaranteed by foreign sovereign governments, municipalities, or govern
mental agencies, or international agencies).
As of March 31, 1996, the Fund was conservatively positioned with a diversified
portfolio of government and corporate securities, allocated at 30% and 70%,
respectively. Within the corporate portion of the portfolio, the majority
of the securities were high-grade industrial and utility bonds. Credit
quality remains a primary investment consideration as we try to achieve
better-than-benchmark returns while exposing invested capital to less
interest rate and credit risk. Consequently, the portfolio had an average
maturity of nine years and a weighted average credit rating of AA/Aa as of
March 31, 1996. It is expected that the Fund will continue to execute a
laddered maturity strategy, focusing on those sectors and maturities that
appear to offer the best value.
FIRST OMAHA SHORT/INTERMEDIATE FIXED INCOME FUND
The First Omaha Short/Intermediate Fixed Income Fund's total return for the six
months and 12 months ended March 31, 1996 and since inception are shown
below, along with comparable information for the benchmark index:
Since
Six Months 12 Months Inception
Ended 3/31/96 Ended 3/31/96 (12/13/92)
------------- ------------- ---------
First Omaha Short/
Intermediate Fixed
Income Fund 2.17% 7.78% 5.15%
Lehman Bros. Mutual
Fund Short (1-5) U.S.
Gov't. Index 2.80% 8.44% 5.72%
RETURN ON A $10,000 INVESTMENT *
12/13/92* 3/31/93 3/31/94 3/31/95 3/31/96
--------- ------- ------- ------- -------
First Omaha Short/
Intermediate Fixed
Income Fund $10,000 $10,340 $10,561 $10,951 $11,803
Lehman Bros. Mutual
Fund Short (1-5) U.S.
Gov't. Index $10,000 $10,377 $10,631 $11,080 $12,016
* Inception Date
This chart assumes an initial investment of $10,000 made on 12/13/92.
Returns shown here and in the chart above include the reinvestment of all
dividends and other distributions. Performance figures reflect fee waivers
in effect, represent past performance and will fluctuate. In the absence
of fee waivers, total return would be reduced. Past performance is no
guarantee of future results. The investment return and principal value of
an investment in the First Omaha Short/Inter mediate Fixed Income Fund will
fluctuate so that an investor's shares in the Fund, when redeemed, may be
worth more or less than their original cost. This Fund is advised by First
National Bank of Omaha.
The Lehman Bros. Mutual Fund Short (1-5) U.S. Government Index is an index
made up of the Treasury Bond Index (all public obligations of the U.S.
Treasury, excluding flower bonds and foreign-targeted issues) and the
Agency Bond Index (all publicly issued debt of U.S. government agencies
and quasi-federal corporations, and corporate debt guaranteed by the U.S.
government). It includes only those bonds with maturities of up to five
years.
The First Omaha Short/Intermediate Fixed Income Fund underperformed the
Lehman Brothers Mutual Fund Short (1-5) U.S. Government Index for the
year ended March 31, 1996. The Fund's longer duration contributed to the
underperformance. Interest rates rose nearly one full percentage point
during the first three months of 1996. This dramatic rise was due to
inflationary concerns caused by strong employment statistics and increasing
energy and agricultural prices.
As of March 31, 1996, the Fund was conservatively positioned with a diversified
portfolio of government and corporate securities, allocated at 25% and 75%,
respectively. Within the corporate portion of the portfolio, the majority
of the securities were high-grade industrial and utility bonds. Credit
quality remains a primary investment consideration as we try to achieve
better-than-benchmark returns while exposing invested capital to less
interest rate and credit risk. Consequently, the portfolio had an average
maturity of four years and a weighted average credit rating of AA/Aa as
of March 31, 1996. It is expected that the Fund will continue to execute
a laddered maturity strategy, focusing on those sectors and maturities
that appear to offer the best value.
INVESTMENT ADVISER AND CUSTODIAN
First National Bank of Omaha
Attention: Trust Division
One First National Center
Omaha, Nebraska 68102
ADMINISTRATOR AND DISTRIBUTOR
Sunstone Financial Group, Inc.
207 E. Buffalo St., Suite 400
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Cline, Williams, Wright, Johnson & Oldfather
13th & M Streets
Lincoln, Nebraska 68508
AUDITORS
KPMG Peat Marwick LLP
Two Central Park Plaza, Suite 1501
Omaha, Nebraska 68102
This report has been prepared for the general information of First Omaha
Funds shareholders. It is not authorized for distribution to prospective
investors unless accompanied or preceded by a current First Omaha Funds
prospectus, which contains more information about First Omaha Funds investment
policies, management fees and expenses. Investors are reminded to read
the prospectus carefully before investing or sending money.
FOR MORE INFORMATION
call 1-800-OMAHA-03
or write to:
First Omaha Funds
P.O. Box 419022
Kansas City, Missouri 64141-6022
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1996
<CAPTION>
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
ASSETS:
Investments, at market value
(cost $69,459,524, $21,764,795,
$75,280,955 and $189,234,895,
respectively) $69,459,524 $21,676,048 $75,234,390 $223,956,234
Repurchase agreements, at market value
(cost $18,582,550, $0, $0 and $0,
respectively) 18,582,550 -- -- --
Interest and dividends receivable 37,923 358,236 1,102,869 265,488
Organizational expenses, net of
accumulated amortization 27,977 27,977 27,977 27,977
Other assets 36,741 17,640 34,056 72,398
----------- ----------- ----------- -----------
Total Assets 88,144,715 22,079,901 76,399,292 224,322,097
----------- ----------- ----------- -----------
LIABILITIES:
Dividend payable 346,027 -- -- --
Accrued expenses and other liabilities 65,492 22,201 49,546 120,884
Accrued investment advisory fee 18,463 1,888 7,827 32,400
----------- ----------- ----------- -----------
Total Liabilities 429,982 24,089 57,373 153,284
----------- ----------- ----------- -----------
NET ASSETS $87,714,733 $22,055,812 $76,341,919 $224,168,813
=========== =========== =========== ===========
NET ASSETS CONSIST OF:
Capital stock 877 22 76 171
Paid-in-capital in excess of par 87,727,924 22,384,852 76,461,891 182,273,939
Undistributed net investment income 1,970 47,662 189,494 31,943
Undistributed net realized gain (loss)
on investments (16,038) (287,977) (262,977) 7,141,421
Net unrealized appreciation (depreciation)
on investments -- (88,747) (46,565) 34,721,339
----------- ----------- ----------- -----------
Net Assets $87,714,733 $22,055,812 $76,341,919 $224,168,813
=========== =========== =========== ===========
CAPITAL STOCK, $0.00001 par value
Authorized 300,000,000 50,000,000 50,000,000 50,000,000
Issued and outstanding 87,730,683 2,238,496 7,633,734 17,149,232
NET ASSET VALUE, REDEMPTION PRICE,
AND OFFERING PRICE PER SHARE
(NET ASSETS/SHARES OUTSTANDING) $1.00 $9.85 $10.00 $13.07
===== ===== ====== ======
See notes to financial statements.
</TABLE>
SCHEDULE OF PORTFOLIO INVESTMENTS
U.S. GOVERNMENT OBLIGATIONS FUND
March 31, 1996
Principal
Amount Value
------- -----
U.S. Treasury Bills 73.52%
$15,000,000 4/18/96 $ 14,963,314
5,000,000 4/25/96 4,982,303
10,000,000 5/2/96 9,957,120
5,000,000 5/16/96 4,970,128
10,000,000 5/30/96 9,916,177
10,000,000 6/20/96 9,885,670
5,000,000 8/8/96 4,914,899
5,000,000 8/29/96 4,900,003
-----------
Total U.S. Treasury Bills
(cost $64,489,614) 64,489,614
-----------
U.S. Treasury Note 5.66%
5,000,000 8.25%, 2/15/97 4,969,910
-----------
Total U.S. Treasury Notes
(cost $4,969,910) 4,969,910
Repurchase Agreements 21.19%
10,582,550 G.X. Clarke & Co.,
5.00%, dated 3/29/96,
repurchase price $10,586,959,
maturing 4/1/96
(collateralized by U.S.
Treasury Bills, 7/25/96) 10,582,550
8,000,000 HSBC Securities, Inc.,
5.25%, dated 3/29/96,
repurchase price $8,003,500,
maturing 4/1/96
(collateralized by U.S.
Treasury Notes, 6.875%,
3/31/97) 8,000,000
-----------
Total Repurchase Agreements
(cost $18,582,550) 18,582,550
-----------
Total Investments 100.37%
(cost $88,042,074) $88,042,074
Liabilities,
less Other Assets (0.37)% (327,341)
-----------
NET ASSETS 100.00% $87,714,733
===========
See notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS
SHORT/INTERMEDIATE FIXED INCOME FUND
March 31, 1996
Principal
Amount Value
------- -----
Corporate Bonds 73.82%
Consumer Goods & Services 2.77%
$ 605,000 World Book Finance, Inc.,
8.125%, 9/1/96 $ 611,431
-----------
Electrical Equipment 3.52%
775,000 General Electric Co.,
7.875%, 5/1/96 775,969
-----------
Financial Services 6.92%
750,000 General Electric Capital Corp.,
6.875%, 4/15/00 764,063
750,000 John Deere Capital Corp.,
7.20%, 5/15/97 762,667
-----------
1,526,730
-----------
Food Products 4.57%
1,000,000 Anheuser-Busch Cos., Inc.,
6.90%, 10/1/02 1,008,750
-----------
Pharmaceuticals 13.75%
1,000,000 Eli Lilly & Co.,
8.125%, 12/1/01 1,080,000
1,000,000 SmithKline Beecham Corp.,
6.625%, 10/1/05 973,750
1,000,000 Upjohn Co.,
5.875%, 4/15/00 978,750
-----------
3,032,500
-----------
Retail 4.49%
1,000,000 Wal-Mart Stores, Inc.,
6.50%, 6/1/03 990,000
-----------
Utilities - Electric Services 16.70%
1,000,000 Alabama Power Co.,
5.50%, 2/1/98 987,500
1,000,000 Florida Power & Light Co.,
5.50%, 7/1/99 977,500
750,000 Gulf Power Co.,
5.875%, 8/1/97 748,125
$1,000,000 Monongahela Power Co.,
5.625%, 4/1/00 971,250
-----------
3,684,375
-----------
Utilities - Electric & Other Services
Combined 8.71%
1,000,000 Northern States Power Co.,
5.75%, 10/1/03 945,000
1,000,000 Wisconsin Electric Power Co.,
5.125%, 9/15/98 975,000
-----------
1,920,000
-----------
Utilities - Natural Gas 3.38%
750,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 746,250
-----------
Utilities - Telecommunications 9.01%
1,000,000 Chesapeake & Potomac
Telephone Co. of Maryland,
5.875%, 9/15/99 987,500
1,000,000 GTE California, Inc.,
6.25%, 1/15/98 998,750
-----------
1,986,250
-----------
Total Corporate Bonds
(cost $16,302,214) 16,282,255
-----------
U.S. Treasury Bills 2.26%
500,000 4/18/96 498,836
-----------
Total U.S. Treasury Bills
(cost $498,836) 498,836
-----------
U.S. Treasury Notes 7.76%
1,000,000 5.875%, 2/15/04 969,600
750,000 5.125%, 3/31/98 740,842
-----------
Total U.S. Treasury Notes
(cost $1,718,636) 1,710,442
-----------
U.S. Treasury Strips 13.75%
1,085,000 2/15/99 918,366
1,520,000 8/15/00 1,173,774
1,345,000 2/15/02 939,724
-----------
Total U.S. Treasury Strips
(cost $3,092,458) 3,031,864
-----------
Number
of Shares
---------
Investment Companies 0.69%
152,651 Goldman Sachs ILA Treasury
Obligations Portfolio 152,651
-----------
Total Investment Companies
(cost $152,651) 152,651
-----------
Total Investments 98.28%
(cost $21,764,795) 21,676,048
Other Assets,
less Liabilities 1.72% 379,764
-----------
NET ASSETS 100.00% $22,055,812
===========
See notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS
FIXED INCOME FUND
March 31, 1996
Principal
Amount Value
------- -----
Corporate Bonds 66.26%
Communications Equipment 3.20%
$2,500,000 Motorola, Inc.,
6.50%, 3/1/08 $2,443,750
-----------
Electrical Equipment 3.10%
2,500,000 General Electric Co.,
5.50%, 11/1/01 2,368,750
-----------
Food Products 3.24%
2,500,000 Anheuser-Busch Cos., Inc.,
7.25%, 9/15/15 2,471,875
-----------
Forest Products 6.34%
2,500,000 Kimberly-Clark Corp.,
6.875%, 2/15/14 2,350,000
2,500,000 Weyerhaeuser Co.,
7.25%, 7/1/13 2,490,625
-----------
4,840,625
-----------
Governments - Foreign 2.61%
2,000,000 Ontario Hydro,
5.80%, 3/31/98 1,992,500
-----------
Industrial Goods & Services 5.12%
2,000,000 Air Products & Chemicals, Inc.,
6.25%, 6/15/03 1,935,000
2,000,000 Monsanto Co.,
6.00%, 7/1/00 1,970,000
-----------
3,905,000
-----------
Oil & Gas Exploration &
Production 3.99%
2,000,000 Amoco Canada Petroleum
Co. Ltd., 6.75%, 2/15/05 2,005,000
1,000,000 BP America, Inc.,
8.875%, 12/1/97 1,042,500
-----------
3,047,500
-----------
Pharmaceuticals 2.57%
2,000,000 Eli Lilly & Co.,
6.25%, 3/15/03 1,962,500
-----------
Railroads 0.69%
500,000 Southern Railway Co.,
7.75%, 8/1/99 524,375
-----------
Retail 5.50%
2,000,000 J.C. Penney Co., Inc.,
6.00%, 5/1/06 1,867,500
2,500,000 Wal-Mart Stores, Inc.,
5.875%, 10/15/05 2,334,375
-----------
4,201,875
-----------
Soaps & Cleaning Agents 1.99%
1,500,000 Colgate-Palmolive Co.,
6.85%, 11/24/99 1,520,625
-----------
Utilities - Electric Services 2.58%
2,000,000 Union Electric Co.,
6.75%, 5/1/08 1,972,500
-----------
Utilities - Electric & Other Services
Combined 6.80%
2,500,000 Citizens Utilities Co.,
7.60%, 6/1/06 2,643,750
1,500,000 Iowa Southern Utilities Co.,
7.375%, 2/1/03 1,524,375
1,000,000 Louisville Gas & Electric Co.,
7.50%, 7/1/02 1,018,750
-----------
5,186,875
-----------
Utilities - Natural Gas 9.73%
1,000,000 Consolidated Natural Gas Co.,
9.375%, 2/1/97 1,027,500
2,500,000 Indiana Gas Co.,
6.625%, 12/1/97 2,518,750
2,500,000 Laclede Gas Co.,
6.50%, 11/15/10 2,390,625
1,500,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 1,492,500
-----------
7,429,375
-----------
Utilities - Telecommunications 8.80%
2,000,000 AT&T Corp.,
7.75%, 3/1/07 2,140,000
2,500,000 Chesapeake & Potomac
Telephone Co. of Maryland,
5.25%, 5/1/05 2,262,500
1,000,000 Southern Bell Telephone &
Telegraph Co., 4.75%,
9/1/00 922,500
1,500,000 Southern Bell Telephone &
Telegraph Co., 6.00%,
10/1/04 1,395,000
-----------
6,720,000
-----------
Total Corporate Bonds
(cost $50,843,417) 50,588,125
-----------
U.S. Government Agencies 2.79%
2,000,000 Federal National Mortgage
Association, 8.625%,
11/10/04 2,129,240
-----------
Total U.S. Government Agencies
(cost $1,999,690) 2,129,240
-----------
U.S. Treasury Bills 1.96%
1,500,000 4/18/96 1,496,327
-----------
Total U.S. Treasury Bills
(cost $1,496,327) 1,496,327
-----------
U.S. Treasury Notes 2.77%
1,000,000 8.125%, 2/15/98 1,040,580
1,000,000 8.875%, 2/15/99 1,076,340
-----------
Total U.S. Treasury Notes
(cost $2,207,500) 2,116,920
-----------
U.S. Treasury Strips 16.83%
1,785,000 8/15/01 1,290,519
2,122,000 5/15/02 1,455,819
4,983,000 2/15/05 2,817,686
6,513,000 2/15/07 3,191,370
12,114,000 2/15/12 4,089,564
-----------
Total U.S. Treasury Strips
(cost $12,734,536) 12,844,958
-----------
U.S. Treasury Bonds 4.43%
1,000,000 7.875%, 11/15/07 1,082,350
1,000,000 8.75%, 11/15/08 1,134,740
1,000,000 9.125%, 5/15/09 1,162,870
-----------
Total U.S. Treasury Bonds
(cost $3,320,625) 3,379,960
-----------
Number
of Shares
- ---------
Investment Companies 3.51%
2,678,860 Goldman Sachs ILA Treasury
Obligations Portfolio 2,678,860
-----------
Total Investment Companies
(cost $2,678,860) 2,678,860
-----------
Total Investments 98.55%
(cost $75,280,955) 75,234,390
Other Assets,
less Liabilities 1.45% 1,107,529
-----------
NET ASSETS 100.00% $76,341,919
===========
See notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS
EQUITY FUND
March 31, 1996
Number
of Shares Value
- --------- -----
Common Stocks 81.67%
Communications Equipment 2.93%
124,100 Motorola, Inc. $ 6,577,300
-----------
Computers & Peripherals 2.39%
48,200 International Business
Machines Corp. 5,356,225
-----------
Cosmetics 4.32%
35,400 International Flavors &
Fragrances, Inc. 1,694,775
170,700 Tambrands, Inc. 7,980,225
-----------
9,675,000
-----------
Electrical Equipment 8.10%
55,600 Emerson Electric Co. 4,489,700
58,900 General Electric Co. 4,586,838
164,200 Honeywell, Inc. 9,072,050
-----------
18,148,588
-----------
Environmental Control 0.90%
165,600 Calgon Carbon Corp. 2,007,900
-----------
Food Processing & Packaging 2.81%
90,700 CPC International, Inc. 6,292,313
-----------
Heavy Machinery 3.28%
180,200 Ingersoll-Rand Co. 7,343,150
-----------
Insurance 10.23%
230,300 American Financial Group, Inc. 6,966,575
141,800 American General Corp. 4,892,100
60,900 Marsh & McLennan
Cos., Inc. 5,656,087
161,600 SAFECO Corp. 5,413,600
-----------
22,928,362
-----------
Medical Supplies 2.15%
59,000 Becton, Dickinson & Co. 4,830,625
-----------
Motor Vehicle Parts & Accessories 1.53%
158,200 CLARCOR, Inc. 3,440,850
-----------
Oil 8.34%
70,000 Exxon Corp. 5,713,750
80,100 Texaco, Inc. 6,888,600
182,600 Unocal Corp. 6,094,275
-----------
18,696,625
-----------
Oilfield Equipment & Services 2.53%
71,600 Schlumberger, Ltd. 5,665,350
-----------
Packaging & Containers 2.70%
222,400 Sonoco Products Co. 6,060,400
-----------
Pharmaceuticals 3.33%
115,000 Eli Lilly & Co. 7,475,000
-----------
Photography 2.77%
87,600 Eastman Kodak Co. 6,219,600
-----------
Publishing 2.84%
184,900 R.R. Donnelley & Sons Co. 6,379,050
-----------
Retail 7.23%
150,000 J.C. Penney Co., Inc. 7,462,500
283,000 Rite Aid Corp. 8,737,625
-----------
16,200,125
-----------
Soaps & Cleaning Agents 2.37%
68,100 Colgate-Palmolive Co. 5,303,287
-----------
Textile Manufacturing 2.57%
371,300 Kellwood Co. 5,755,150
-----------
Tobacco 3.04%
270,900 Universal Corp. 6,806,363
-----------
Utilities - Electric Services 5.31%
244,200 DPL, Inc. 5,830,275
147,000 Texas Utilities Co. 6,082,125
-----------
11,912,400
-----------
Total Common Stocks
(cost $148,319,724) 183,073,663
-----------
U.S. Treasury Bills 14.90%
5,000,000 6/6/96 4,951,795
5,000,000 7/5/96 4,931,807
6,000,000 7/25/96 5,900,683
5,000,000 8/1/96 4,912,326
5,000,000 8/15/96 4,902,507
8,000,000 9/19/96 7,805,120
-----------
Total U.S. Treasury Bills
(cost $33,436,838) 33,404,238
-----------
Number
of Shares
---------
Investment Companies 3.34%
7,478,333 Goldman Sachs ILA Treasury
Obligations Portfolio 7,478,333
-----------
Total Investment Companies
(cost $7,478,333) 7,478,333
-----------
Total Investments 99.91%
(cost $189,234,895) 223,956,234
Other Assets,
less Liabilities 0.09% 212,579
-----------
NET ASSETS 100.00% $224,168,813
============
See notes to financial statements.
<TABLE>
STATEMENTS OF OPERATIONS
For the period from April 10, 1995 <F1> to March 31, 1996
<CAPTION>
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $4,910,772 $1,356,961 $4,900,818 $ 1,759,320
Dividends (net of withholding tax of
$0, $0, $0 and $17,556, respectively) -- -- -- 4,584,921
----------- ----------- ----------- -----------
4,910,772 1,356,961 4,900,818 6,344,241
----------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees 216,379 108,692 432,881 1,433,904
Fund administration and accounting fees 173,103 43,477 144,294 382,375
Shareholder servicing fees 35,174 27,326 31,953 49,446
Custody fees 25,965 6,522 21,644 57,355
Federal and state registration fees 21,699 6,810 12,193 30,608
Professional fees 9,334 10,674 13,352 29,221
Reports to shareholders 7,160 3,737 9,784 26,546
Amortization of organization expenses 6,794 6,794 6,794 6,794
Directors' fees 4,957 1,664 5,289 13,521
Insurance 4,742 1,373 4,139 10,110
Pricing fees 247 2,963 5,068 1,773
Other expenses 3,555 1,535 5,391 5,665
----------- ----------- ----------- -----------
Total expenses before waiver 509,109 221,567 692,782 2,047,318
Less: Waiver of expenses (38,677) (27,105) (89,957) (142,786)
----------- ----------- ----------- -----------
Net Expenses 470,432 194,462 602,825 1,904,532
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 4,440,340 1,162,499 4,297,993 4,439,709
=========== =========== =========== ===========
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments -- (109,194) (75,074) 14,388,259
Change in unrealized appreciation
(depreciation) on investments -- 527,854 2,450,307 18,465,419
----------- ----------- ----------- -----------
Net Gain on Investments -- 418,660 2,375,233 32,853,678
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $4,440,340 $1,581,159 $6,673,226 $37,293,387
=========== =========== =========== ===========
<F1>Commencement of operations
See notes to financial statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the period from April 10, 1995 <F2> to March 31, 1996
<CAPTION>
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 4,440,340 $ 1,162,499 $ 4,297,993 $ 4,439,709
Net realized gain (loss) on investments -- (109,194) (75,074) 14,388,259
Change in unrealized appreciation
(depreciation) on investments -- 527,854 2,450,307 18,465,419
------------- ----------- ----------- -----------
Net increase in net assets
resulting from operations 4,440,340 1,581,159 6,673,226 37,293,387
------------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (4,440,340) (1,116,807) (4,110,469) (4,409,736)
Net capital gains -- -- -- (7,246,838)
------------- ----------- ----------- -----------
Total Distributions (4,440,340) (1,116,807) (4,110,469) (11,656,574)
------------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 388,060,722 5,409,677 15,431,739 48,686,735
Net assets resulting from conversion 76,094,844 22,125,516 66,377,812 161,426,537
Proceeds from reinvestment
of dividends 1,141,735 1,111,654 4,090,974 11,645,208
Redemption of shares (377,600,568) (7,056,387) (12,122,363) (23,306,480)
------------- ----------- ----------- -----------
Net increase from share transactions 87,696,733 21,590,460 73,778,162 198,452,000
------------- ----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS 87,696,733 22,054,812 76,340,919 224,088,813
NET ASSETS:
Beginning of period 18,000 1,000 1,000 80,000
------------- ----------- ----------- -----------
End of period $ 87,714,733 $22,055,812 $76,341,919 $224,168,813
============= =========== =========== ===========
Undistributed net investment
income, end of period $ 1,970 $ 23,078 $ 84,938 $ 31,943
============= =========== =========== ===========
<F2>Commencement of operations
See notes to financial statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS <F3>
<CAPTION>
U.S. Government Obligations Fund
---------------------------------
April 10, 1995<F4> July 1, 1994 Year Ended Year Ended Dec. 4, 1991
to to June 30, June 30, to
March 31, 1996 April 9, 1995 1994 1993 June 30, 1992
-------------- -------------- ----- ----- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income From Investment Operations:
Net investment income 0.05 0.04 0.03 0.03 0.02
Net realized and unrealized gains
on investments -- -- -- -- --
----- ----- ----- ----- -----
Total from investment operations 0.05 0.04 0.03 0.03 0.02
----- ----- ----- ----- -----
Less Distributions to Shareholders:
Dividends from net investment income 0.05 0.04 0.03 0.03 0.02
Distributions from capital gains -- -- -- -- --
----- ----- ----- ----- -----
Total distributions 0.05 0.04 0.03 0.03 0.02
----- ----- ----- ----- -----
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return<F5> 5.14% 3.51% 2.74% 2.72% 2.15%
Supplemental Data and Ratios:
Net assets, end of period (000s) $87,715 $76,105 $89,195 $91,785 $81,152
Ratio of net expenses to average
net assets<F6> 0.54% 0.63% 0.60% 0.61% 0.46%
Ratio of net investment income to
average net assets<F6> 5.12% 4.46% 2.68% 2.67% 3.65%
Ratio of net expenses to average
net assets<F6><F7> 0.59% 1.23% 1.13% 0.96% 0.98%
Ratio of net investment income to
average net assets<F6><F7> 5.07% 3.86% 2.15% 2.32% 3.13%
Portfolio turnover rate<F5> -- -- -- -- --
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (CONT'D) <F3>
<CAPTION>
Short/Intermediate Fixed Income Fund
-------------------------------------
April 10, 1995<F4> July 1, 1994 Year Ended Dec. 13, 1992
to to June 30, to
March 31, 1996 April 9, 1995 1994 June 30, 1993
-------------- ------------- ----- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.66 $9.62 $10.18 $10.00
Income From Investment Operations:
Net investment income 0.52 0.42 0.55 0.33
Net realized and unrealized gains
on investments 0.17 0.05 (0.56) 0.16
----- ----- ----- -----
Total from investment operations 0.69 0.47 (0.01) 0.49
----- ----- ----- -----
Less Distributions to Shareholders:
Dividends from net investment income 0.50 0.43 0.55 0.31
Distributions from capital gains -- -- -- --
----- ----- ----- -----
Total distributions 0.50 0.43 0.55 0.31
----- ----- ----- -----
Net Asset Value, End of Period $9.85 $9.66 $9.62 $10.18
===== ===== ===== ======
Total return<F5> 7.24% 5.05% (0.22)% 5.00%
Supplemental Data and Ratios:
Net assets, end of period (000s) $22,056 $22,130 $21,938 $24,581
Ratio of net expenses to average net
assets<F6> 0.89% 0.88% 0.83% 0.79%
Ratio of net investment income to
average net assets<F6> 5.34% 5.63% 5.44% 5.91%
Ratio of net expenses to average net
assets<F6><F7> 1.02% 1.51% 1.38% 1.19%
Ratio of net investment income to
average net assets<F6><F7> 5.21% 5.00% 4.89% 5.51%
Portfolio turnover rate<F5> 41.45% 9.93% 20.52% 15.58%
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (CONT'D.)<F3>
<CAPTION>
Fixed Income Fund
-------------------
April 10, 1995<F4> July 1, 1994 Year Ended Dec. 13, 1992
to to June 30, to
March 31, 1996 April 9, 1995 1994 June 30, 1993
-------------- -------------- ----- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.63 $9.58 $10.49 $10.00
Income From Investment Operations:
Net investment income 0.59 0.51 0.67 0.39
Net realized and unrealized gains
on investments 0.35 0.07 (0.88) 0.47
----- ----- ----- -----
Total from investment operations 0.94 0.58 (0.21) 0.86
----- ----- ----- -----
Less Distributions to Shareholders:
Dividends from net investment income 0.57 0.53 0.67 0.37
Distributions from capital gains -- -- 0.03 --
----- ----- ----- -----
Total distributions 0.57 0.53 0.70 0.37
----- ----- ----- -----
Net Asset Value, End of Period $10.00 $9.63 $9.58 $10.49
===== ===== ===== =====
Total return<F5> 9.79% 6.35% (2.29)% 8.72%
Supplemental Data and Ratios:
Net assets, end of period (000s) $76,342 $66,488 $61,714 $59,178
Ratio of net expenses to average net
assets<F6> 0.83% 0.87% 0.86% 0.79%
Ratio of net investment income to
average net assets<F6> 5.94% 6.98% 6.52% 6.89%
Ratio of net expenses to average net
assets<F6><F7> 0.96% 1.51% 1.41% 1.19%
Ratio of net investment income to
average net assets<F6><F7> 5.81% 6.34% 5.97% 6.49%
Portfolio turnover rate<F5> 37.35% 7.04% 13.09% 2.62%
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (CONT'D.)<F3>
<CAPTION>
Equity Fund
-------------
April 10, 1995<F4> July 1, 1994 Year Ended Dec. 13, 1992
to to June 30, to
March 31, 1996 April 9, 1995 1994 June 30, 1993
-------------- -------------- ----- --------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.39 $10.48 $10.55 $10.00
Income From Investment Operations:
Net investment income 0.28 0.21 0.20 0.11
Net realized and unrealized gains
on investments 2.13 1.48 0.15 0.54
----- ----- ----- -----
Total from investment operations 2.41 1.69 0.35 0.65
Less Distributions to Shareholders:
Dividends from net investment income 0.28 0.22 0.20 0.10
Distributions from capital gains 0.45 0.56 0.22 --
----- ----- ----- -----
Total distributions 0.73 0.78 0.42 0.10
Net Asset Value, End of Period $13.07 $11.39 $10.48 $10.55
===== ===== ===== =====
Total return<F5> 21.52% 16.48% 3.34% 6.55%
Supplemental Data and Ratios:
Net assets, end of period (000s) $224,169 $161,323 $129,381 $111,059
Ratio of net expenses to average net
assets<F6> 0.99% 1.03% 1.04% 1.01%
Ratio of net investment income to
average net assets<F6> 2.32% 2.50% 1.93% 1.90%
Ratio of net expenses to average net
assets<F6><F7> 1.07% 1.62% 1.54% 1.32%
Ratio of net investment income to
average net assets<F6><F7> 2.24% 1.91% 1.43% 1.59%
Portfolio turnover rate<F5> 26.60% 14.36% 15.86% 4.94%
<FN>
<F3>Performance data for each Fund prior to April 10, 1995 relates to a corresponding predecessor First Omaha Fund, the
assets of which were acquired on that date.
<F4>Commencement of operations
<F5>Not annualized
<F6>Annualized
<F7>During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(1)ORGANIZATION
First Omaha Funds, Inc. (the "Company") was organized in October, 1994 as a
Nebraska corporation and is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company
issuing its shares in series, each series representing a distinct portfolio with
its own investment objectives and policies. At March 31, 1996, the only series
presently authorized are the U.S. Government Obligations Fund, the
Short/Intermediate Fixed Income Fund, the Fixed Income Fund, the Equity Fund
(the "Funds"), and the Small Cap Value Fund. These financial statements only
present the financial position of the Funds.
On April 9, 1995, each of the Short/Intermediate Fixed Income Fund, the Fixed
Income Fund and the Equity Fund completed an exchange of all their outstanding
shares as follows:
Pre-Exchange Post-Exchange
------------ -------------
Short/Intermediate Fixed Income Fund
Shares Outstanding 100 104
NAV per share $10.00 $9.66
Fixed Income Fund
Shares Outstanding 100 104
NAV per share $10.00 $9.63
Equity Fund
Shares Outstanding 8,000 7,024
NAV per share $10.00 $11.39
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:
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
Shares exchanged 76,107,938 2,290,324 6,894,181 14,178,204
Value of shares
exchanged $76,094,844 $22,125,516 $66,377,812 $161,426,537
Each series of The Sessions Group's net assets at that date was combined with
those of each series of the Company. The aggregate net assets of each series
immediately before and after the acquisition were as follows:
Before After
------ -----
The Sessions Group First Omaha U.S. Government
Obligations Fund $76,094,844 --
First Omaha Funds, Inc. - First Omaha U.S.
Government Obligations Fund 18,000 $76,112,844
The Sessions Group First Omaha
Short/Intermediate Fixed Income Fund 22,125,516 --
First Omaha Funds, Inc. - First Omaha
Short/Intermediate Fixed Income Fund 1,000 22,126,516
The Sessions Group First Omaha
Fixed Income Fund 66,377,812 --
First Omaha Funds, Inc. - First Omaha
Fixed Income Fund 1,000 66,378,812
The Sessions Group First Omaha Equity Fund 161,426,537 --
First Omaha Funds, Inc. - First Omaha Equity Fund 80,000 161,506,537
Each series of The Sessions Group's net assets included the following:
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
Undistributed net
realized (loss) $(15,950) $(178,976) $ (187,903) --
Net unrealized
appreciation
(depreciation)
on investments -- (616,601) (2,496,872) $16,255,920
(2)SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
(a) Investment Valuation
Securities traded over-the-counter or on a national securities exchange are
valued on the basis of market value in their principal and most representative
market. Securities where the principal and most representative market is a
national securities exchange are valued at the latest reported sale price on
such exchange. Exchange-traded securities for which there were no transactions
are valued at the latest reported bid price.
Securities traded on only over-the-counter markets are valued at the latest
bid price. Debt securities (other than short-term instruments) are valued at
prices furnished by a pricing service, subject to review by the Funds'
investment adviser, First National Bank of Omaha (the "Adviser"), and
determination of the appropriate price whenever a furnished price is
significantly different from the previous day's furnished price. Short-term
obligations (maturing within 60 days) are valued on an amortized cost basis.
Securities for which quotations are not readily available and other assets are
valued at fair value as determined in good faith by the Adviser under the
supervision of the Board of Directors.
Pursuant to Rule 2a-7 of the 1940 Act, investments of the U.S. Government
Obligations Fund are valued at either amortized cost, which approximates market
value, or at original cost, which combined with accrued interest, approximates
market value. Under the amortized cost valuation method, discount or premium is
amortized on a constant basis to the maturity of the security. In addition, the
Fund may not (i) purchase any instrument with a remaining maturity greater than
13 months unless such investment is subject to a demand feature, or (ii)
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
(b) Repurchase Agreements
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker/dealers which the Adviser deems creditworthy under
guidelines approved by the Board of Directors, subject to the seller's agreement
to repurchase such securities at a mutually agreed-upon date and price. The
repurchase price generally equals the price paid by each Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller, under a
repurchase agreement, is required to maintain the value of collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements are held by the
Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by the Funds under the 1940 Act.
(c) Organization Costs
Costs incurred by the Funds in connection with their organization,
registration and the initial public offering of shares have been deferred and
will be amortized on a straight-line basis over a period of five years from the
date upon which the Funds commence their investment activities. Organization
costs have been allocated equally among the respective Funds or by specific
identification, as applicable. If any of the original shares of a Fund are
redeemed by any holder thereof prior to the end of the amortization period, the
redemption proceeds will be reduced by the pro rata share of the unamortized
expenses as of the date of redemption. The pro rata share by which the proceeds
are reduced will be derived by dividing the number of original shares of the
Fund being redeemed by the total number of original shares outstanding at the
time of redemption.
(d) Expenses
The Funds are charged for those expenses that are directly attributable to
each portfolio, such as advisory and custodian fees. Expenses that are not
directly attributable to a portfolio are typically allocated among the
portfolios in proportion to their respective net assets.
(e) Distributions to Shareholders
The U.S. Government Obligations Fund declares dividends of net investment
income daily. The remaining Funds declare dividends monthly; all of the Funds
pay dividends of net investment income monthly. Distributions of net realized
capital gains, if any, will be declared at least annually. Distributions to
shareholders are recorded on the ex-dividend date.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for federal
income tax purposes due to differences in the recognition of income, expense or
gain items for financial statement and tax purposes. Where appropriate,
reclassifications between net asset accounts are made for such differences that
are permanent in nature. Accordingly, at March 31, 1996, reclassifications were
recorded to increase undistributed net investment income by $1,970 for each
Fund; increase (decrease) accumulated net realized loss on investments by $88
and $(193) for the U.S. Government Obligations and Short/Intermediate Fixed
Income Funds, respectively; and decrease paid-in-capital in excess of par by
$1,882, $2,163, $1,970 and $1,970 for the U.S. Government Obligations,
Short/Intermediate Fixed Income, Fixed Income and Equity Funds, respectively.
For the year ended March 31, 1996, 0%, 0%, 0% and 100% of dividends paid
from net investment income, excluding short-term capital gains, qualifies for
the dividends received deduction available to corporate shareholders of the U.S.
Government Obligations, Short/Intermediate Fixed Income, Fixed Income and Equity
Funds, respectively.
(f) Federal Income Taxes
Each Fund intends to comply with the requirements of the Internal Revenue
Code necessary to qualify as a regulated investment company and to make the
requisite distributions of the income to its shareholders which will be
sufficient to relieve it from all or substantially all federal income taxes.
As of March 31, 1996, each of the U.S. Government Obligations,
Short/Intermediate Fixed Income and Fixed Income Funds had a federal income tax
capital loss carryforward of $16,038, $287,977 and $262,977, respectively. The
entire federal income tax loss carryforward for the U.S. Government Obligations
Fund expires in 2003. The $287,977 federal income tax loss carryforward for the
Short/Intermediate Fixed Income Fund expires as follows: $31,092 in 2002,
$147,691 in 2003 and $109,194 in 2004. The $262,977 federal income tax loss
carryforward for the Fixed Income Fund expires as follows: $187,903 in 2003 and
$75,074 in 2004.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported changes in net assets during
the reporting period. Actual results could differ from those estimates.
(h) Other
Investment transactions are accounted for on the trade date plus one. The
Funds determine the gain or loss realized from investment transactions by
comparing the original cost of the security lot sold with the net sale proceeds.
Dividend income is recognized on the ex-dividend date and interest income is
recognized on an accrual basis.
(3) INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have an agreement with the Adviser to furnish investment advisory
services to the Funds. Under the terms of this agreement, the Funds will pay
the Adviser a monthly fee at the annual rate of the following percentages on
average daily net assets: 0.25% for the U.S. Government Obligations Fund, 0.50%
for the Short/Intermediate Fixed Income Fund, 0.60% for the Fixed Income Fund,
and 0.75% for the Equity Fund. Advisory fees of $10,869 and $36,073 were waived
in the Short/Intermediate Fixed Income Fund and the Fixed Income Fund,
respectively.
First National Bank of Omaha also serves as custodian for each of the Funds.
The custodian receives compensation from each of the Funds for such services in
an amount equal to a fee, computed daily and paid monthly at the annual rate of
0.03% of each Fund's average daily net assets. Custody fees of $6,522, $21,644
and $57,355 were waived in the Short/Intermediate Fixed Income Fund, the Fixed
Income Fund and the Equity Fund, respectively.
Sunstone Financial Group, Inc. (the "Administrator" or the "Distributor")
acts as Administrator and Distributor for each of the Funds. As compensation
for its administrative services and the assumption of certain administrative
expenses, the Administrator is entitled to a fee, computed daily and payable
monthly, at an annual rate of 0.20% of each Fund's average net assets, subject
to a minimum fee of $300,000 in the aggregate for all Funds. Administrative
fees of $38,677, $9,714, $32,240 and $85,431 were waived in the U.S. Government
Obligations Fund, the Short/Intermediate Fixed Income Fund, the Fixed Income
Fund and the Equity Fund, respectively.
The Administrator may periodically volunteer to reduce all or a portion of its
administrative fee with respect to one or more Funds. These waivers may be
terminated at any time at the Administrator's discretion. The Administrator may
not seek reimbursement of such voluntarily reduced fees at a later date. The
reduction of such fee will cause the yield of that Fund to be higher than it
would be in the absence of such reduction. The Distributor receives no
compensation from the Funds under its Distribution Agreement with the Company,
but may receive compensation under the Distribution and Service Plan.
(4) DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Company has adopted a
Distribution and Service Plan (the "Plan"), under which each Fund is
authorized to pay a periodic amount representing distribution expenses
calculated at an annual rate not to exceed 0.25% of the average daily net assets
of that Fund. Such amount may be used to pay banks, broker/dealers and other
institutions which may include the Adviser, its correspondent and affiliated
banks and the Administrator (each a "Participating Organization") for
distribution and/or shareholder service assistance pursuant to an agreement
between the Distributor and the Participating Organization. As of the date of
these financial statements, there are no 12b-1 Agreements with any Participating
Organizations.
(5) ADMINISTRATIVE SERVICES PLAN
The Company has adopted an Administrative Services Plan pursuant to which each
Fund is authorized to pay compensation to banks and other financial
institutions, which may include the Adviser, its correspondent and affiliated
banks and the Administrator (each a "Service Organization"). Such Service
Organizations agree to provide certain ministerial, record keeping and/or
administrative support services for their customers or account holders who are
the beneficial or record owner of shares of that Fund. In consideration for
such services, a Service Organization receives a fee from a Fund, computed daily
and paid monthly at an annual rate of up to 0.25% of the average daily net asset
value of shares of that Fund owned beneficially or of record by such Service
Organization's customers for whom the Service Organization provides such
services. Currently, the Board of Directors has not authorized payments under
the Administrative Services Plan.
(6) CAPITAL STOCK
The Funds are authorized to issue a total of 1,000,000,000 shares of common
stock in series with a par value of $0.00001 per share. The Board of Directors
is empowered to issue other series of the Company's shares without shareholder
approval.
Each share of stock will have a pro rata interest in the assets of the Fund to
which the stock of that series relates and will have no interest in the assets
of any other Fund.
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
Transactions in shares of the Funds for the period from April 10, 1995 to March
31, 1996 were as follows:
Shares sold 388,063,353 544,882 1,516,636 3,883,570
Shares issued in
conversion 76,107,938 2,290,324 6,894,181 14,178,204
Shares issued to
holders in
reinvestment
of dividends 1,141,960 112,230 403,885 919,982
Shares redeemed (377,600,568) (709,044) (1,181,072) (1,839,548)
------------ --------- ---------- ----------
Net increase 87,712,683 2,238,392 7,633,630 17,142,208
============ ========= ========== ==========
(7) INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the period from April 10, 1995 to March 31, 1996
were as follows:
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
Purchases
U.S. Government -- $4,856,628 $11,933,340 --
Other -- 3,941,500 20,392,969 $51,871,280
Sales
U.S. Government -- 4,142,326 16,259,362 --
Other -- 4,795,933 10,068,520 43,329,502
At March 31, 1996, gross unrealized appreciation and depreciation of investments
were as follows:
U.S. Government Short/Intermediate
Obligations Fixed Income Fixed Income Equity
Fund Fund Fund Fund
---- ---- ---- ----
Appreciation -- $ 184,929 $ 1,055,866 $38,198,786
(Depreciation) -- (273,676) (1,102,431) (3,477,447)
------- --------- ---------- ----------
Net appreciation
(depreciation)
on investments -- $(88,747) $ (46,565) $34,721,339
======= ========= ========== ===========
As of March 31, 1996, the cost of investments for federal income tax purposes is
substantially the same as for financial statement purposes.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors of
First Omaha Funds, Inc.
We have audited the accompanying statements of assets and liabilities of First
Omaha Funds, Inc., (comprised, respectively, of the U.S. Government Obligations
Fund, Short/Intermediate Fixed Income Fund, Fixed Income Fund and Equity Fund)
(collectively the Funds), including the schedules of portfolio investments, as
of March 31, 1996, and the related statements of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated herein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights 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 statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of March 31, 1996, by correspondence with the custodian. 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 financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of March 31, 1996, the results of their operations, changes in their
net assets and the financial highlights for each of the periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Omaha, Nebraska
April 12, 1996
