As filed with the Securities and Exchange Commission on July 6, 1998
Securities Act Registration No. 33-85982
Investment Company Act Registration No. 811-8846
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (x)
Post-Effective Amendment No. 9 (x)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (x)
Amendment No. 11 (x)
(Check appropriate box or boxes)
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 Copies of all communications to:
FIRST NATIONAL BANK OF OMAHA Donald F. Burt, Esq.
ONE FIRST NATIONAL CENTER Cline, Williams, Wright, Johnson &
OMAHA, NE 68102-1596 Oldfather
(Name and Address of Agent for Service) 1900 FirsTier Bank Building
Omaha, NE 68508
and
Randy M. Pavlick
Sunstone Financial Group, Inc.
207 E. Buffalo Street, Suite 400
Milwaukee, WI 53202
This Registration Statement relates to an indefinite number of shares of the
Registrant pursuant to Rule 24f-2 under the Securities Act of 1933. The
Registrant filed its notice pursuant to Rule 24f-2(a)(1) on or about June 16,
1998 for the fiscal year ended March 31, 1998.
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 on July 10, 1998
pursuant to paragraph (b) of Rule 485.
CROSS REFERENCE SHEET
First Omaha Funds, Inc.
PART A
Form N-12 Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover page Cover Page
2. Synopsis Prospectus Summary; Fee Table
3. Condensed Financial Information Financial Highlights
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
PART B
Location in Statement of Additional
Information
----------------------------------
10. Cover page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Company
13. Investment Objectives 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 Fixed
Income Fund and the Short/Intermediate
Fund; Calculation of Total Return;
Distribution Rates; Performance
Comparisons
23. Financial Statements Financial Statements
FIRST OMAHA FUNDS - Prospectus
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FIRST OMAHA FUNDS PROSPECTUS
JULY 10, 1998
First Omaha Funds, Inc.
One First National Center
Omaha, Nebraska 68102-1596
First National Bank of Omaha and
FNC Trust Group, n.a
Investment Advisers
First National Bank of Omaha
Custodian and
Transfer Agent
First Omaha Funds, Inc. (the "Company") is an open-end management investment
company. The Directors of the Company have divided the Company's common stock
("shares") into series, each of which relates to a mutual fund with its own
investment objectives and policies. First National Bank of Omaha, Omaha,
Nebraska ("First National"), and FNC Trust Group, n.a. ("FNC"), subsidiaries of
First National of Nebraska, Inc. ("FNN"), act as the investment advisers
(collectively "the Advisers") to the Funds. This Prospectus relates to the
following Funds, each of which is a no-load diversified investment Fund.
FIRST OMAHA SMALL CAP VALUE FUND (the "Small Cap Value Fund") seeks as its
investment objective long-term capital appreciation.
FIRST OMAHA GROWTH FUND (the "Growth Fund") seeks as its investment objective
long-term capital appreciation.
FIRST OMAHA EQUITY FUND (the "Equity Fund") seeks as its investment objective
long-term growth of capital.
FIRST OMAHA BALANCED FUND (the "Balanced Fund") seeks as its investment
objective capital appreciation and current income.
FIRST OMAHA FIXED INCOME FUND (the "Fixed Income Fund") seeks as its investment
objective to generate current income consistent with preservation of capital.
FIRST OMAHA SHORT/INTERMEDIATE FIXED INCOME FUND (the "Short/Intermediate Fund")
seeks as its investment objective to generate current income consistent with
preservation of capital.
FIRST OMAHA U.S. GOVERNMENT OBLIGATIONS FUND (the "Money Market Fund") seeks as
its investment objective to maximize current income to the extent consistent
with the preservation of capital and maintenance of liquidity. THE MONEY MARKET
FUND SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE
CAN BE NO ASSURANCE THE NET ASSET VALUE WILL NOT VARY. AN INVESTMENT IN THE
MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE FIRST NATIONAL BANK OF OMAHA, FNC TRUST GROUP, N.A., FIRST
NATIONAL COLORADO, INC., THEIR 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, dated the same date
as the Prospectus, as amended from time to time, 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 1-800-OMAHA-
03. The Statement of Additional Information 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.
Prospectus - FIRST OMAHA FUNDS
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TABLE OF CONTENTS
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Prospectus Summary 1
- ---------------------------------------------
Fee Table 3
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Financial Highlights 5
- ---------------------------------------------
Investment Objectives and Policies 11
- ---------------------------------------------
Investment Restrictions 20
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Valuation of Shares 21
- ---------------------------------------------
How to Purchase and Redeem Shares 22
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Dividends and Taxes 26
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Management of the Company 27
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General Information 30
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Performance Information 32
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Additional Performance Information 33
- ---------------------------------------------
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.
FIRST OMAHA FUNDS - Prospectus
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
TYPE OF COMPANY
Each Fund is a no-load, diversified series of an open-end, management investment
company.
INVESTMENT OBJECTIVE
For the Small Cap Value Fund, long-term capital appreciation.
For the Growth Fund, long-term capital appreciation.
For the Equity Fund, long-term growth of capital.
For the Balanced Fund, capital appreciation and current income.
For the Fixed Income Fund and the Short/ Intermediate 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 Small Cap Value Fund will invest at least
65% of its total assets in common stocks and securities convertible into common
stocks issued by companies having small market capitalizations, but may also
invest in other equity securities and in fixed income securities.
Under normal market conditions, the Growth Fund will invest primarily in common
stocks and securities convertible into common stocks issued by companies having
mid market capitalizations, but may also invest in other equity securities and
in fixed income securities.
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 up to 35% of its total assets in other equity securities and in
fixed income securities.
Under normal market conditions, the Balanced Fund will invest in common stock,
securities convertible into common stock, investment grade corporate debt
obligations, U.S. Treasury obligations or obligations issued by the U.S.
government, its agencies and instrumentalities and cash equivalents. The assets
of the Balanced Fund will be allocated among these classes of securities based
on First National's assessment of market conditions.
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 Short/ Intermediate Fund will invest at
least 65% of its total assets in investment grade fixed income securities and
will maintain a dollar-weighted average portfolio maturity of two to five years.
Under normal market conditions, the 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.
OFFERING PRICE
The public offering price of each Fund is equal to its net asset value per
Share.
Prospectus - FIRST OMAHA FUNDS
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SHARES OFFERED
Shares of common stock ("shares") of the Small Cap Value Fund, the Growth Fund,
the Equity Fund, the Balanced Fund, the Fixed IncomeFund, the Short/
Intermediate Fund and the Money Market Fund, are each a separate investment
portfolio of First Omaha Funds, Inc., a Nebraska corporation.
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.
DIVIDENDS
Dividends from net investment income are declared and paid monthly, except that
the Money Market Fund will declare income dividends daily. Net realized capital
gains are distributed at least annually.
INVESTMENT ADVISERS
First National Bank of Omaha serves as the investment adviser for all of the
Funds except the Growth Fund. FNC Trust Group, n.a. serves as the investment
adviser for the Growth Fund (collectively "the Advisers").
ADMINISTRATOR
Sunstone Financial Group, Inc. (the "Administrator").
DISTRIBUTOR
Sunstone Distribution Services, LLC (the "Distributor").
FIRST OMAHA FUNDS - Prospectus
- --------------------------------------------------------------------------------
FEE TABLE
<TABLE>
<CAPTION>
SMALL CAP FIXED SHORT/ MONEY
VALUE GROWTH EQUITY BALANCED INCOME INTERMEDIATE MARKET
FUND<F1><F2> FUND<F3> FUND<F4> FUND<F1><F2> FUND<F4> FUND<F4> FUND<F4>
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of offering price) 0% 0% 0% 0% 0% 0% 0%
- --------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on
Reinvested Dividends (as a percentage
of offering price) 0% 0% 0% 0% 0% 0% 0%
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Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) 0% 0% 0% 0% 0% 0% 0%
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Redemption Fees (as a percentage of
amount redeemed, if applicable) 0% 0% 0% 0% 0% 0% 0%
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Exchange Fee 0% 0% 0% 0% 0% 0% 0%
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .50% .50% .75% .55% .55% .45% .25%
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12b-1 Fees<F5> .01% .01% .01% .01% .01% .01% .01%
- --------------------------------------------------------------------------------------------------------------------------------
Other Expenses After Voluntary Fee
Reduction, including administration
fees, administrative servicing fees
and other expenses<F4> .66% .74% .28% .46% .34% .54% .33%
- --------------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses After
Voluntary Fee Reduction 1.17% 1.25% 1.04% 1.02% .90% 1.00% .59%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> The fees and expenses for the Small Cap Value and Balanced Funds reflect
decreases in the Management Fee waiver of .20% effective April 1, 1998 and
are based on assets as of the date of this Prospectus. Without voluntary
fee reductions, waivers and reimbursements, Management Fees, Other Expenses
and Total Fund Operating Expenses are estimated to be .85%, .76% and 1.62%
respectively, for the Small Cap Value Fund; and .75%, .57% and 1.33%
respectively, for the Balanced Fund.
<F2> Management Fees, Other Expenses and Total Fund Operating Expenses After
Voluntary Fee Reduction incurred for the fiscal year ended March 31, 1998
were .30%, .81% and 1.11% respectively, for the Small Cap Value Fund and
.35%, .53% and .88% respectively, for the Balanced Fund. Without voluntary
fee reductions, waivers and reimbursements, Management Fees, Other Expenses
and Total Fund Operating Expenses were .85%, 1.07% and 1.92% respectively,
for the Small Cap Value Fund and .75%, .58% and 1.43% respectively, for the
Balanced Fund.
<F3> The above information reflects estimates of the expenses for the Fund for
the fiscal year ended March 31, 1999 and reflects anticipated voluntary fee
reductions, waivers and reimbursements. Without voluntary fee reductions,
waivers and reimbursements, Management Fees, Other Expenses and Total Fund
Operating Expenses are estimated to be .75%, .88% and 1.64%. Fee
reductions, waivers and reimbursements, if any, may be eliminated at any
time. See "MANAGEMENT OF THE COMPANY."
<F4> The above information reflects the expenses for the Equity, Fixed Income,
Short/Intermediate and Money Market Funds incurred for the fiscal year
ended March 31, 1998, as restated to reflect voluntary fee reductions
(except for 12b-1 Fees, which have been estimated). Absent the voluntary
fee reductions, waivers and reimbursements, Management Fees, Other Expenses
and Total Fund Operating Expenses as a percentage of average net assets
were .75%, .39% and 1.15% respectively, for the Equity Fund; .60%, .45%
and 1.06% respectively, for the Fixed Income Fund; .50%, .65% and 1.16%
respectively, for the Short/Intermediate Fund; and .25%, .35% and .61%
respectively, for the Money Market Fund for the fiscal year ended March 31,
1998. See "MANAGEMENT OF THE COMPANY."
<F5> 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, it
is estimated that 12b-1 expenses will be .01% of average daily net assets
of each Fund.
<F6> "Other Expenses" include administration fees and legal, accounting and
other miscellaneous expenses to be incurred during the fiscal year.
Prospectus - FIRST OMAHA FUNDS
- --------------------------------------------------------------------------------
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return; and (2) redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
Small Cap Value Fund $12 $37 $64 $142
- ------------------------------------------------------------------------------
Growth Fund $13 $40 $69 $151
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Equity Fund $11 $33 $57 $127
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Balanced Fund $10 $32 $56 $125
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Fixed Income Fund $ 9 $29 $50 $111
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Short/Intermediate Fund $10 $32 $55 $122
- ------------------------------------------------------------------------------
Money Market Fund $ 6 $19 $33 $ 74
- ------------------------------------------------------------------------------
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. The above example is based on the expense
information included in the previous fee table. The table and example do not
reflect any fees or charges that may be imposed by the Advisers or any Banks or
their affiliates, or brokers, dealers and other intermediaries, on their
customers. See "HOW TO PURCHASE AND REDEEM SHARES _ Purchase of Shares." See
"MANAGEMENT OF THE COMPANY" and "GENERAL INFORMATION" for a more complete
discussion of the Shareholder Transaction Expenses and Annual Fund Operating
Expenses for each of the Funds.
FIRST OMAHA FUNDS c Prospectus
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights for periods ended on or prior to March 31,
1998 are audited and should be read in conjunction with the Funds' financial
statements, the related notes thereto and the independent auditors' report of
KPMG Peat Marwick LLP appearing in the Statement of Additional Information.
Further information about the Funds' performance is contained in the Company's
annual report to shareholders, which may be obtained without charge by calling
or writing the Company at the telephone number or address on the first page of
this Prospectus. No financial highlights have been prepared for the Growth Fund
because it commenced operations after the close of business on March 31, 1998.
SMALL CAP VALUE FUND
YEAR ENDED 6/10/96<F1>
3/31/98 TO 3/31/97
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.52 $10.00
- -----------------------------------------------------
Income from Investment Operations:
Net investment income 0.19 0.15
- -----------------------------------------------------
Net realized and unrealized gains on investments 2.88 0.58
- ----------------------------------------------------- -------- --------
Total from investment operations 3.07 0.73
- ----------------------------------------------------- -------- --------
Less Distributions to Shareholders:
Dividends from net investment income 0.19 0.15
- -----------------------------------------------------
Distributions from capital gains 0.46 0.06
- ----------------------------------------------------- -------- --------
Total distributions 0.65 0.21
- ----------------------------------------------------- -------- --------
Net Asset Value, End of Period $12.94 $10.52
- ----------------------------------------------------- ======== ========
Total Return<F2> 29.60% 7.30%
- -----------------------------------------------------
Supplemental Data and Ratios:
Net assets, end of period (000s) $17,019 $7,173
- -----------------------------------------------------
Ratio of net expenses to average
net assets<F3><F4> 1.11% 1.34%
- -----------------------------------------------------
Ratio of net investment income to
average net assets<F3><F4> 1.62% 2.15%
- -----------------------------------------------------
Ratio of net expenses to average
net assets<F3><F5> 1.92% 3.76%
- -----------------------------------------------------
Ratio of net investment income (loss)
to average net assets<F3><F5> 0.81% (0.27)%
- -----------------------------------------------------
Portfolio turnover rate<F2> 16.54% 7.45%
- -----------------------------------------------------
Average commission rate paid on
portfolio transactions $0.0600 $0.0662
- --------------------------------------------------------------------------------
<F1> Commencement of operations
<F2> Not annualized
<F3> Annualized
<F4> Net of waivers and reimbursements
<F5> Before waivers and reimbursements
Prospectus - FIRST OMAHA FUNDS
- --------------------------------------------------------------------------------
EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 4/10/95<F2> 7/1/94<F1> YEAR ENDED 12/13/92<F1>
3/31/98 3/31/97 TO 3/31/96 TO 4/9/95 6/30/94<F1> TO 6/30/93
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.74 $13.07 $11.39 $10.48 $10.55 $10.00
- -----------------------------------------------------
Income from Investment Operations:
Net investment income 0.29 0.30 0.28 0.21 0.20 0.11
- -----------------------------------------------------
Net realized and unrealized gains
on investments 3.50 1.63 2.13 1.48 0.15 0.54
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total from investment operations 3.79 1.93 2.41 1.69 0.35 0.65
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Less Distributions to Shareholders:
Dividends from net investment income 0.29 0.30 0.28 0.22 0.20 0.10
- -----------------------------------------------------
Distributions from capital gains 1.05 0.96 0.45 0.56 0.22 _
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total distributions 1.34 1.26 0.73 0.78 0.42 0.10
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $16.19 $13.74 $13.07 $11.39 $10.48 $10.55
- ----------------------------------------------------- ======== ======== ======== ======== ======== ========
Total Return<F3> 28.89% 14.99% 21.52% 16.48% 3.34% 6.55%
- -----------------------------------------------------
Supplemental Data and Ratios:
Net assets, end of period (000s) $312,073 $259,200 $224,169 $161,323 $129,381 $111,059
- -----------------------------------------------------
Ratio of net expenses to average net assets<F4><F5> 1.03% 1.04% 0.99% 1.03% 1.04% 1.01%
- -----------------------------------------------------
Ratio of net investment income to average
net assets<F4><F5> 1.89% 2.17% 2.32% 2.50% 1.93% 1.90%
- -----------------------------------------------------
Ratio of net expenses to average net assets<F4><F5> 1.14% 1.10% 1.07% 1.62% 1.54% 1.32%
- -----------------------------------------------------
Ratio of net investment income to average
net assets<F4><F5> 1.78% 2.11% 2.24% 1.91% 1.43% 1.59%
- -----------------------------------------------------
Portfolio turnover rate<F3> 15.87% 25.66% 26.60% 14.36% 15.86% 4.94%
- -----------------------------------------------------
Average commission rate paid on portfolio
transactions<F7> $0.0603 $0.0677 N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> Performance data for the Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> Net of waivers and reimbursements
<F5> Before waivers and reimbursements
<F7> Required by regulations first effective for the fiscal year ended
March 31, 1997
FIRST OMAHA FUNDS - Prospectus
- --------------------------------------------------------------------------------
BALANCED FUND
YEAR ENDED 8/6/96<F1>
MARCH 31, 1998 TO 3/31/97
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.41 $10.00
- -----------------------------------------------------
Income from Investment Operations:
Net investment income 0.38 0.21
- -----------------------------------------------------
Net realized and unrealized gains on investments 1.90 0.40
- ----------------------------------------------------- -------- --------
Total from investment operations 2.28 0.61
- ----------------------------------------------------- -------- --------
Less Distributions to Shareholders:
Dividends from net investment income 0.38 0.20
- -----------------------------------------------------
Distributions from capital gains 0.07 _
- ----------------------------------------------------- -------- --------
Total distributions 0.45 0.20
- ----------------------------------------------------- -------- --------
Net Asset Value, End of Period $12.24 $10.41
- ----------------------------------------------------- ======== ========
Total Return<F2> 22.34% 6.14%
- -----------------------------------------------------
Supplemental Data and Ratios:
Net assets, end of period (000s) $25,692 $10,895
- -----------------------------------------------------
Ratio of net expenses to average net assets<F3><F4> 0.88% 1.16%
- -----------------------------------------------------
Ratio of net investment income to average
net assets<F3><F4> 3.37% 3.25%
- -----------------------------------------------------
Ratio of net expenses to average net assets<F3><F5> 1.43% 3.04%
- -----------------------------------------------------
Ratio of net investment income to average
net assets<F3><F5> 2.82% 1.37%
- -----------------------------------------------------
Portfolio turnover rate<F2> 10.46% 5.92%
- -----------------------------------------------------
Average commission rate paid on portfolio
transactions $0.0601 $0.0686
- --------------------------------------------------------------------------------
<F1> Commencement of operations
<F2> Not annualized
<F3> Annualized
<F4> Net of waivers and reimbursements
<F5> Before waivers and reimbursements
Prospectus - FIRST OMAHA FUNDS
- --------------------------------------------------------------------------------
FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 4/10/95<F2> 7/1/94<F1> YEAR ENDED 12/13/92<F1>
3/31/98 3/31/97 TO 3/31/96 TO 4/9/95 6/30/94<F1> TO 6/30/93
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.84 $10.00 $ 9.63 $9.58 $10.49 $10.00
- -----------------------------------------------------
Income from Investment Operations:
Net investment income 0.59 0.45 0.59 0.51 0.67 0.39
- -----------------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.61 (0.15) 0.35 0.07 (0.88) 0.47
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total from investment operations 1.20 0.30 0.94 0.58 (0.21) 0.86
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Less Distributions to Shareholders:
Dividends from net investment income 0.59 0.46 0.57 0.53 0.67 0.37
- -----------------------------------------------------
Distributions from capital gains _ _ _ _ 0.03 _
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total distributions 0.59 0.46 0.57 0.53 0.70 0.37
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.45 $ 9.84 $10.00 $9.63 $ 9.58 $10.49
- ----------------------------------------------------- ======== ======== ======== ======== ======== ========
Total Return<F3> 12.50% 3.06% 9.79% 6.35% (2.29)% 8.72%
- -----------------------------------------------------
Supplemental Data and Ratios:
Net assets, end of period (000s) $77,671 $75,524 $76,342 $66,488 $61,714 $59,178
- -----------------------------------------------------
Ratio of net expenses to average net assets<F4><F5> 0.89% 0.89% 0.83% 0.87% 0.86% 0.79%
- -----------------------------------------------------
Ratio of net investment income
to average net assets<F4><F5> 5.74% 4.48% 5.94% 6.98% 6.52% 6.89%
- -----------------------------------------------------
Ratio of net expenses
to average net assets<F4><F6> 1.05% 1.00% 0.96% 1.51% 1.41% 1.19%
- -----------------------------------------------------
Ratio of net investment income
to average net assets<F4><F6> 5.58% 4.37% 5.81% 6.34% 5.97% 6.49%
- -----------------------------------------------------
Portfolio turnover rate<F3> 19.03% 12.66% 37.35% 7.04% 13.09% 2.62%
- -----------------------------------------------------
Average commission rate paid on
portfolio transactions<F7> _ _ N/A N/A N/A N/A
- -----------------------------------------------------
</TABLE>
<F1> Performance data for the Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> Net of waivers and reimbursements
<F6> Before waivers and reimbursements
<F7> Required by regulations first effective for the fiscal year ended
March 31, 1997
FIRST OMAHA FUNDS - Prospectus
- --------------------------------------------------------------------------------
SHORT/INTERMEDIATE FIXED INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 4/10/95<F2> 7/1/94<F1> YEAR ENDED 12/13/92<F1>
3/31/98 3/31/97 TO 3/31/96 TO 4/9/95 6/30/94<F1> TO 6/30/93
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.73 $9.85 $9.66 $9.62 $10.18 $10.00
- -----------------------------------------------------
Income from Investment Operations:
Net investment income 0.56 0.49 0.52 0.42 0.55 0.33
- -----------------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.24 (0.10) 0.17 0.05 (0.56) 0.16
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total from investment operations 0.80 0.39 0.69 0.47 (0.01) 0.49
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Less Distributions to Shareholders:
Dividends from net investment income 0.56 0.51 0.50 0.43 0.55 0.31
- -----------------------------------------------------
Distributions from capital gains _ _ _ _ _ _
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total distributions 0.56 0.51 0.50 0.43 0.55 0.31
- ----------------------------------------------------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $9.97 $9.73 $9.85 $9.66 $ 9.62 $10.18
- ----------------------------------------------------- ======== ======== ======== ======== ======== ========
Total Return<F3> 8.37% 4.00% 7.24% 5.05% (0.22)% 5.00%
- -----------------------------------------------------
Supplemental Data and Ratios:
Net assets, end of period (000s) $19,509 $21,042 $22,056 $22,130 $21,938 $24,581
- -----------------------------------------------------
Ratio of net expenses to average net assets<F4><F5> 0.99% 0.97% 0.89% 0.88% 0.83% 0.79%
- -----------------------------------------------------
Ratio of net investment income
to average net assets<F4><F5> 5.54% 5.01% 5.34% 5.63% 5.44% 5.91%
- -----------------------------------------------------
Ratio of net expenses
to average net assets<F4><F6> 1.15% 1.08% 1.02% 1.51% 1.38% 1.19%
- -----------------------------------------------------
Ratio of net investment income
to average net assets<F4><F6> 5.38% 4.90% 5.21% 5.00% 4.89% 5.51%
- -----------------------------------------------------
Portfolio turnover rate<F3> 26.58% 4.73% 41.45% 9.93% 20.52% 15.58%
- -----------------------------------------------------
Average commission rate paid on
portfolio transactions<F7> _ _ N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> Performance data for the Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> Net of waivers and reimbursements
<F6> Before waivers and reimbursements
<F7> Required by regulations first effective for the fiscal year ended
March 31, 1997
Prospectus - FIRST OMAHA FUNDS
- --------------------------------------------------------------------------------
MONEY MARKET FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 4/10/95<F2> 7/1/94<F1> YEAR ENDED YEAR ENDED 12/4/91<F1>
3/31/98 3/31/97 TO 3/31/96 TO 4/9/95 6/30/94<F1> 6/30/93<F1> TO 6/30/92
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------
Income from Investment Operations:
Net investment income 0.05 0.05 0.05 0.04 0.03 0.03 0.02
- ------------------------------------------
Net realized and unrealized
gains on investments _ _ _ _ _ _ _
- -------------------------------------------------- -------- -------- -------- -------- -------- --------
Total from investment operations 0.05 0.05 0.05 0.04 0.03 0.03 0.02
- -------------------------------------------------- -------- -------- -------- -------- -------- --------
Less Distributions to Shareholders:
Dividends from net
investment income 0.05 0.05 0.05 0.04 0.03 0.03 0.02
- ------------------------------------------
Distributions from capital gains _ _ _ _ _ _ _
- -------------------------------------------------- -------- -------- -------- -------- -------- --------
Total distributions 0.05 0.05 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 $1.00 $1.00
- ------------------------------------------======== ======== ======== ======== ======== ======== ========
Total Return<F3> 4.95% 4.76% 5.14% 3.51% 2.74% 2.72% 2.15%
- ------------------------------------------
Supplemental Data and Ratios:
Net assets, end of period (000s) $100,497 $125,413 $87,715 $76,105 $89,195 $91,785 $81,152
- ------------------------------------------
Ratio of net expenses to
average net assets<F4><F5> 0.55% 0.58% 0.54% 0.63% 0.60% 0.61% 0.46%
- ------------------------------------------
Ratio of net investment income
to average net assets<F4><F5> 4.83% 4.66% 5.12% 4.46% 2.68% 2.67% 3.65%
- ------------------------------------------
Ratio of net expenses to
average net assets<F4><F6> 0.58% 0.59% 0.59% 1.23% 1.13% 0.96% 0.98%
- ------------------------------------------
Ratio of net investment
income to average net assets<F4><F6> 4.80% 4.65% 5.07% 3.86% 2.15% 2.32% 3.13%
- ------------------------------------------
Portfolio turnover rate<F3> _ _ _ _ _ _ _
- ------------------------------------------
Average commission rate
paid on portfolio transactions<F7> _ _ N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> Performance data for the Fund prior to April 10, 1995 relates to a
corresponding predecessor First Omaha Fund, the assets of which were
acquired on that date.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> Net of waivers and reimbursements
<F6> Before waivers and reimbursements
<F7> Required by regulations first effective for the fiscal year ended
March 31, 1997
FIRST OMAHA FUNDS - Prospectus
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of the Small Cap Value Fund is capital appreciation.
The investment objective of the Growth Fund is long-term capital appreciation.
The investment objective of the Equity Fund is long-term growth of capital. The
investment objective of the Balanced Fund is capital appreciation and current
income. The investment objective of each of the Fixed Income Fund and the
Short/Intermediate 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.
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. First National expects that most of
such companies will have market capitalization in the $200 million _ $1 billion
range. Although current dividend or interest income will not be a factor in the
selection of investments, First National intends to seek companies whose record
of earnings and/or dividend growth may be indications of capital appreciation
potential. First National will generally seek to invest in companies whose stock
is trading at prices below book value or First National'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 First National, the Fund may hold up to 100% of its total
assets in high- quality short-term obligations including domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements secured
by bank instruments. However, to the extent that the Fund is so invested in debt
obligations, the Fund may not achieve its investment objective.
Subject to the foregoing limitations, the Fund will invest only in corporate
debt securities (including convertible securities) which are rated at the time
of purchase within the four highest rating groups assigned by one or more
nationally recognized statistical rating organizations ("NRSROs"), e.g., Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"),
or, if unrated, which First National deems to present attractive opportunities
and are of comparable quality to the rated securities. 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 group assigned by Moody's and S&P, see "OTHER INVEST MENT POLICIES AND
RISKS _ Securities Ratings" 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.
Under normal market conditions, the Fund will invest primarily in common stocks,
some of which will be traded in the over-the-counter market. In contrast to the
securities exchanges, the over-the- counter market is not a centralized facility
which limits trading activity to securities of companies which initially satisfy
certain defined standards. Any security can be traded in the over-the-counter
market as long as an individual or firm is willing to make a market in the
security. Because there are no minimum requirements for a company's assets or
earnings or the number of its stockholders in order for its stock to be traded
over-the-counter, there is great diversity in the size and profitability of
companies whose stocks trade in this market, ranging from relatively small
little-known companies to well-established corporations.
Generally, the volume of trading in an unlisted common stock is less than the
volume of trading in a listed common stock. This means that the degree of market
liquidity of some stocks in which the Fund invests may be relatively limited.
When the Fund disposes of such a stock it may have to offer the shares at a
discount from recent prices or sell the shares in small lots over an extended
period of time.
Some securities issued by companies with a small capitalization present greater
risks and may be subject to large, abrupt or erratic fluctuations in price due,
in part, to such factors as the issuer's dependence upon key personnel, the lack
of internal resources, the inability to obtain funds from external sources, and
dependence on a new product or service for which there is no firmly established
market. Fluctuations in the price of some of the stocks owned by the Fund,
therefore, could cause the net asset value of the Fund to vary significantly.
THE GROWTH FUND
The Fund seeks to achieve its investment objective by investing in companies
that FNC, the Fund's investment adviser, believes to have the potential for
earnings growth more rapid than their peer group. In selecting investments for
the Fund, FNC will emphasize (under normal market conditions more than 50% of
the Fund's total assets) the securities of companies that, at the time of
purchase, have market capitalizations between $500 million and $10 billion.
These companies are considered to be mid-capitalization companies by FNC. The
balance of the Fund's assets may be invested in securities of companies that, at
the time of purchase, have market capitalizations in excess of $10 billion.
The characteristics considered by FNC in selecting securities for the Fund
include: market share gains, product innovation, low-cost production or a
history of greater than average earnings and dividend growth.
FNC intends to invest primarily in common stocks and securities convertible into
common stocks under normal market conditions. However, at FNC's discretion, the
Fund may also invest in fixed income securities for capital appreciation,
pending investment or to meet anticipated redemption requests. Under normal
conditions, the Fund may invest up to 35% of the value of its total assets in
preferred stocks, bonds, notes and warrants when FNC believes they present
capital appreciation potential, and short-term obligations for purposes of
portfolio liquidity to meet anticipated redemption requirements, pending
investment and to pay expenses. Short-term obligations (securities with
maturities of 12 months or less at the time of purchase) consist of domestic and
foreign commercial paper (including variable amount master demand notes),
bankers' acceptances, domestic bank certificates of deposit, securities of
investment companies holding themselves out as "money market" funds, repurchase
agreements, and obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. However, during temporary defensive periods as
determined by FNC, the Fund may hold up to 100% of its total assets in high-
quality short-term obligations. To the extent that the Fund is so invested in
debt obligations, the Fund may not achieve its investment objective. While the
Fund retains the authority to take a temporary defensive position, the Fund may
remain substantially fully invested when FNC deems it appropriate. As such,
investors should not consider the Fund to present by itself a complete or
balanced investment program.
Subject to the foregoing limitations, the Growth Fund will invest only in debt
securities (including convertible securities) which are rated at the time of
purchase within the four highest rating groups assigned by one or more NRSROs,
e.g., Moody's and S&P, or, if unrated, which FNC deems to be 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 group assigned by Moody's and
S&P, see "OTHER INVESTMENT POLICIES AND RISKS - Securities Ratings" 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 medium-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.
Under normal market conditions, the Fund will invest primarily in common stocks,
some of which will be traded in the over-the-counter market. In contrast to the
securities exchanges, the over-the-counter market is not a centralized facility
which limits trading activity to securities of companies which initially satisfy
certain defined standards. Any security can be traded in the over-the-counter
market as long as an individual or firm is willing to make a market in the
security. Because there are no minimum requirements for a company's assets or
earnings or the number of its stockholders in order for its stock to be traded
over-the-counter, there is great diversity in the size and profitability of
companies whose stocks trade in this market, ranging from relatively small
little-known companies to well-established corporations.
Generally, the volume of trading in an unlisted common stock is less than the
volume of trading in a listed common stock. This means that the degree of
market liquidity of some stocks in which the Fund invests may be relatively
limited. When the Fund disposes of such a stock it may have to offer the shares
at a discount from recent prices or sell the shares in small lots over an
extended period of time.
Some securities issued by companies with relatively smaller market
capitalizations in general present greater risks than securities issued by
companies with larger market capitalizations 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. Therefore, the net asset value
of the Fund could be influenced by such price fluctuations in the securities of
small-capitalization companies held by the Fund.
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 First National 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-fourth 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 First National, 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 NRSROs, e.g., Moody's and S&P or, if unrated, which First National deems to
present attractive opportunities and are of comparable quality to the rated
securities. 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 group assigned by Moody's and
S&P, see "OTHER INVEST MENT POLICIES AND RISKS _ Securities Ratings" 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 securities. Depending upon the performance of the
Equity Fund's investments, the net asset value per share of the Equity Fund may
fluctuate.
THE BALANCED FUND
Under normal market conditions, the Balanced Fund will invest in common stocks
and securities convertible into common stocks (i.e., convertible bonds,
convertible preferred stock, warrants, options and rights). In addition, the
Balanced Fund will invest in corporate debt securities (including convertible
securities) which are rated at the time of purchase within the four highest
rating groups assigned by one or more NRSROs, e.g., Moody's and S&P or, if
unrated, which First National deems to present attractive investment
opportunities and are of comparable quality to the rated securities. For a
description of the rating categories of Moody's and S&P, see the Appendix to the
Statement of Additional Information. For a discussion of the debt securities
rated within the fourth highest rating group assigned by Moody's and S&P, see
"OTHER INVESTMENT POLICIES AND RISKS _ Securities Ratings" herein. In addition,
the Balanced Fund may invest in U.S. Treasury obligations and other obligations
issued or guaranteed by the U.S. government, its agencies and instrumentalities.
The Balanced Fund may also invest in mortgage-related and asset-backed
securities, state, municipal or industrial revenue bonds, and other fixed income
securities which are permissible investments for the Fixed Income Fund. See "THE
FIXED INCOME FUND AND THE SHORT/INTERMEDIATE FUND" below for additional
information about the fixed income securities in which the Balanced Fund may
invest.
The Balanced Fund will use a disciplined approach of allocating assets among the
three major asset groups: common stocks, debt securities and cash equivalents.
The allocations among these asset classifications will vary depending upon First
National's assessment of market conditions. Under normal market conditions, the
Balanced Fund is expected to be allocated approximately 65% in stocks and
securities convertible into common stocks and 35% in debt securities.
However, depending upon market conditions, the Balanced Fund may also be
allocated to cash equivalents. The range of allocation to stocks and securities
convertible into common stock is expected to be between 35% and 65%. The
Balanced Fund expects to invest a minimum of 25% of its total assets in
investment grade fixed income securities.
THE FIXED INCOME FUND AND
THE SHORT/INTERMEDIATE FIXED INCOME FUND
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.
Under normal market conditions, the Short/Inter-mediate Fund will invest at
least 65% of the value of its total assets in investment grade fixed income
securities consisting of bonds, debentures, notes, mortgage-related securities,
state, municipal or industrial revenue bonds, U.S. Treasury obligations,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, and fixed income securities convertible into, or exchangeable
for, common stocks. However, up to 35% of the value of its total assets may be
invested in preferred stocks. In addition, a portion of the Short/Inter mediate
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/Inter mediate 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.
The Fixed Income Fund and the Short/Intermediate 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 Fixed Income Fund and the Short/Intermediate 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 First National 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 "OTHER INVESTMENT POLICIES AND RISKS _ Securities
Ratings" herein.
The Fixed Income Fund and the Short/Interme-diate 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 Fixed Income Fund and the Short/Inter mediate 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 Fixed Income Fund and the Short/Intermediate Fund may each invest in
obligations of the Export-Import Bank of the United States, in U.S. dollar-
denominated international bonds for which the primary trading market is in the
United States ("Yankee Bonds"), or for which the primary trading market is
abroad ("Eurodollar Bonds"), and in Canadian Bonds and bonds issued by
institutions organized for a specific purpose, such as the World Bank and the
European Economic Community, by two or more sovereign governments
("Supranational Agency Bonds").
Such Funds may invest in mortgage-related securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities or by nongovernmental
entities which are rated, at the time of purchase, within the four highest bond
rating categories assigned by one or more appropriate NRSROs, or, if unrated,
which First National 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
Fixed Income Fund and the Short/Intermediate 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 Fixed
Income Fund and the Short/Intermediate Fund if: (1) the issuer has obtained an
exemptive order from the Commission regarding purchases by investment companies
of equity interests of other investment companies, or (2) such purchase is
within the limitations imposed by Section 12 of the Investment Company Act of
1940, as amended (the "1940 Act").
The Fixed Income Fund and the Short/Intermediate 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 "OTHER INVESTMENT POLICIES AND RISKS _ Securities Ratings" 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 Fixed Income Fund's and the Short/Intermediate 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 Fixed Income Fund and the Short/Intermediate Fund, and a decline in
interest rates will generally increase the value of those investments. Depending
upon the prevailing market conditions, First National 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, First National 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 First National determine
present minimal credit risks and which at the time of acquisition are rated by
one or more appropriate NRSROs in one of the two highest rating categories for
short-term debt obligations or, if not rated, are determined to be of comparable
quality to those instruments so rated. The Fund will not invest more than 5% of
its assets in securities rated in the second highest category. All securities or
instruments in which the Money Market Fund invests have remaining maturities of
397 calendar days or less. The dollar-weighted average maturity of the
securities in the Money Market Fund will not exceed 90 days.
The Money Market Fund may invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, and other
obligations which are issued or guaranteed by the U.S. government or its
agencies or instrumentalities and which are backed by the full faith and credit
of the U.S. government.
Obligations of the U.S. Treasury include "stripped" U.S. Treasury obligations
such as Treasury receipts, representing either future interest or principal
payments. Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors.
Obligations of the agencies and instrumentalities of the U.S. government which
are backed by the full faith and credit of the U.S. government include those of
the Government National Mortgage Association and of the Export-Import Bank of
the United States. See the discussion of U.S. government securities above under
"INVESTMENT OBJECTIVES AND POLICIES _ The Fixed Income Fund and the
Short/Intermediate Fund."
OTHER INVESTMENT POLICIES AND RISKS
The Funds may also invest in securities described in the following paragraphs to
the extent indicated.
U.S. GOVERNMENT SECURITIES - The Funds may each invest in a variety of U.S.
Treasury obligations, differing in their interest rates, maturities, and times
of issuance, and other obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities. Obligations of the U.S. Treasury include
"stripped" U.S. Treasury obligations such as Treasury receipts, representing
either future interest or principal payments. Stripped securities are issued at
a discount to their "face value" and may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. Stripped 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 1940 Act.
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association and the Federal Home Loan Banks, are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. government would provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Fixed Income Fund, Short/Inter mediate Fund and
Balanced Fund will invest in the obligations of such agencies or
instrumentalities only when First National believes that the credit risk with
respect thereto is minimal.
REPURCHASE AGREEMENTS - Securities held by each of the Funds may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities in exchange for cash from member banks of the Federal Deposit
Insurance Corporation and/or from registered broker-dealers which the Advisers
deem 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 Advisers. 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, it
will place in a segregated custodial account assets such as U.S. government
securities or other liquid 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 Advisers, the Administrator, or their affiliates, and will
not give preference to the Advisers' 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 Depositary 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 unfavorably by
changes in the value of foreign currencies against the U.S. dollar.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS - Each Fund may purchase
securities on a when-issued or delayed-delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. A Fund will engage in when-issued and delayed-
delivery transactions only for the purpose of acquiring portfolio securities
consistent with and in furtherance of its investment objective and policies, not
for investment leverage, although such transactions represent a form of
leveraging. When-issued securities are securities purchased for delivery beyond
the normal settlement date at a stated price and yield and thereby involve a
risk that the yield obtained in the transaction will be less than that available
in the market when delivery takes place. A Fund will generally not pay for such
securities or start earning interest on them until they are received on the
settlement date. When a Fund agrees to purchase such securities, however, the
Custodian will set aside cash or liquid securities 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.
SECURITIES RATINGS - 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 Advisers will consider such an event in determining whether that Fund should
continue to hold that security. The Advisers expect that they 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.
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 Advisers. 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
Advisers have determined are creditworthy under guidelines established by the
Company's Board of Directors.
Consistent with each Fund's investment objective and policies, the Small Cap
Value, Growth, Equity, Balanced, Fixed Income and the Short/Intermediate Funds
each may also invest up to 10% of the value of its total assets in the
securities of other investment companies, so long as the aggregate value of the
shares acquired from any one such investment company will not exceed 5% of the
total assets of such Fund. A Fund will incur additional expenses due to the
duplication of expenses as a result of investing in mutual funds. In order to
avoid the imposition of additional fees as a result of investing in shares of
the Money Market Fund, the Advisers, 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.
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.
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. Eastern Time (except the Money Market Fund, which is priced at 2:00
p.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, Martin Luther
King, Jr. 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 Small Cap Value Fund, the Growth
Fund, the Equity Fund, the Balanced Fund, the Fixed Income Fund and the
Short/Inter-mediate Fund will fluctuate as the value of the investment portfolio
of a Fund changes.
The assets in the Money Market Fund are valued based upon the amortized cost
method which the Directors of the Company believe fairly reflects the market-
based net asset value per Share. Pursuant to the rules and regulations of the
Commission regarding the use of the amortized cost method, the Money Market Fund
will maintain a dollar- weighted average portfolio maturity of 90 days or less.
Although the Company seeks to maintain the Money Market Fund's net asset value
per Share at $1.00, there can be no assurance that net asset value will not
vary.
The securities of each other Fund will be valued at market value. If market
quotations are not available, securities will be valued by a method which the
Board of Directors believes accurately reflects a fair value. For further
information about valuation of investments, see "NET ASSET VALUE" in the
Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR - Sunstone Distribution Services, LLC serves as the distributor of
the shares of each Fund. The principal office of the Distributor is 207 East
Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202-5712. If you wish to
purchase shares, telephone the Company at 1-800-OMAHA-03.
PURCHASE OF SHARES - For the convenience of investors, there are a number of
ways to purchase shares of the Funds. Shares may be purchased directly by
investors. Investors may purchase shares of the Funds directly from 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: First Omaha Funds,
Inc., P.O. Box 419022, Kansas City, Missouri 64141-6022. Subsequent purchases of
shares of that Fund may be made at any time by mailing a check (or other
negotiable bank draft or money order) payable to the appropriate Fund, to the
above address.
If a Purchase Application has been previously received by the Company, investors
may also purchase shares by wiring funds to the Funds' Custodian. Prior to
wiring any such funds and in order to ensure that wire orders are invested
promptly, investors must call the Company at 1-800-OMAHA-03 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Customers of First National and FNC or their correspondent or affiliated banks
(collectively, the "Banks") may purchase shares in connection with the
requirements of their qualified accounts maintained at 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 in shares of the Money Market Fund.
Shares of the Funds purchased through 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.
Shares of the Funds may also be purchased through certain accounts maintained at
certain other institutions (such as a broker, dealer or other institution) in
accordance with the procedures of the institution. To determine whether you may
purchase shares through your institution, contact your institution directly or
call the Funds at 1-800-OMAHA-03.
The Banks and other institutions may impose particular customer account
requirements in connection with investments in the Funds, such as minimum
account size or minimum account thresholds above which excess cash balances may
be invested in Fund shares. In addition, depending on the terms of the
particular account used to purchase shares of the Funds, the Banks or other
institutions may impose charges against the account. These charges could include
asset allocation fees, account maintenance fees, sweep fees, compensatory
balance requirements, transaction charges or other charges based upon account
transactions, assets or income. The charges will reduce the net return on an
investment in a Fund. Investors should contact their institutions with respect
to these fees and the particular institution's procedures for purchasing or
redeeming shares. This Prospectus should be read in conjunction with any such
information received from the Banks or the institutions.
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. Purchase 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 of 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.
MISCELLANEOUS - The Funds reserve the right to reject any order for the purchase
of their shares in whole or in part. Transactions as a result of the automatic
reinvestment of dividends and capital gains distributions, as well as the Funds'
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 the
calendar quarter may do so by calling the Funds 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 or
other institutions on behalf of their customers will be sent by the Banks or
other institutions to their customers. Shareholders may rely on these statements
in lieu of certificates. Certificates representing shares will not be issued.
AUTO INVEST PLAN - The Company's Auto Invest Plan enables Shareholders to make
regular monthly or quarterly purchases of shares of a Fund through automatic
deduction from their bank accounts, provided that the Shareholder's bank is a
member of the Federal Reserve and the Automated Clearing House (ACH) system.
With Shareholder authorization the Transfer Agent will deduct the amount
specified (subject to the applicable minimums) from the Shareholder's bank
account which proceeds will automatically be invested in shares of the
designated Fund at the public offering price on the date of such deduction. The
required minimum initial investment when opening an account using the Auto
Invest Plan is $100; the minimum amount for subsequent investments is $50. To
participate in the Auto Invest Plan, Shareholders should complete the
appropriate section of the Purchase Application which can be acquired by calling
the Company at 1-800-OMAHA-03. For a Shareholder to change his or her Auto
Invest Plan instructions, the request must be made in writing to the Company at:
P.O. Box 419022, Kansas City, Missouri 64141-6022.
EXCHANGE PRIVILEGE c 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 1-800-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. If shares are purchased through a
Bank or other institution, the shares may be exchanged only in accordance with
the instructions and procedures pertaining to that account.
REDEMPTION OF SHARES - The procedures for redeeming shares differ depending on
whether the shares were purchased directly from the Funds or through Banks or
other institutions. When shares are purchased directly from the Funds, the
shares may be redeemed by any of the methods described below. If shares were
purchased through an account at a Bank or other institution, the shares must be
redeemed in accordance with the instructions and procedures pertaining to that
account. 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 or other institution 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 Omaha Funds, Inc., 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 Share-holder(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 therefore 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 c 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 a Shareholder has 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 1-800-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
Taxpayer 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 c 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 Share holder. The required minimum withdrawal is
$100. To participate in the Auto Withdrawal Plan, Shareholders should call 1-
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 his or her Auto Withdrawal Plan
instructions, the request must be made in writing to the Company.
PAYMENT 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 Transfer Agent 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 Transfer Agent before 4:00 p.m.
(2:00 p.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. (2:00 p.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.
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.
DIVIDENDS AND TAXES
DIVIDENDS - The net investment income of each Fund (except the Money Market
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. The Money Market Fund declares income dividends daily. Shares of the
Money Market Fund purchased prior to 2:00 p.m. Eastern Time will accrue interest
on the date of purchase. Such dividends are 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: 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.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to Share holders as long-term capital gain in
the year in which it is received, regardless of how long the Shareholder has
held their shares. Such distributions are not eligible for the dividends-
received deduction.
If the net asset value of a Share is reduced below the Share holder'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 Board of Directors they attend. The officers of the
Company receive no compensation directly from the Company for performing the
duties of their offices.
INVESTMENT ADVISERS - First National Bank of Omaha (First National), One First
National Center, Omaha, Nebraska 68102-1596, is the investment adviser of each
of the Funds except the First Omaha Growth Fund. First National is a subsidiary
of First National of Nebraska, Inc., a Nebraska corporation, with total assets
of approximately $7.3 billion as of December 31, 1997. First National 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 65 years. First National serves Nebraska, as well as
other areas of the Midwest. In addition, as of December 31, 1997, First
National's Trust Division had approximately $8.0 billion of assets under
administration, including approximately $3.3 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, First
National manages the investments of its Funds, makes decisions with respect to
and places orders for, all purchases and sales for its Fund's portfolio
securities, and maintains its 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.
FNC Trust Group, n.a. (FNC), serves as investment adviser of the First Omaha
Growth Fund. FNC was established in May 1997 as a wholly-owned subsidiary of
First National Colorado, Inc. First National Colorado, Inc. is a wholly-owned
subsidiary of First National of Nebraska, Inc.
FNC was created to provide trust and asset management services both directly and
as an agent for banks with trust powers. Currently, FNC provides trust
administrative and asset management services as an agent for clients of Union
Colony Bank, Greeley, Colorado and has offices in Boulder and Loveland,
Colorado, directly servicing those communities. The predecessor to FNC was the
Trust Division of Union Colony Bank, whose staff moved to FNC upon the
investment adviser's formation. FNC has no previous experience in managing a
registered investment company. David Jordan, the Portfolio Manager of the
Growth Fund, has been the Senior Investment Officer of First National Bank of
Fort Collins since 1996. As portfolio manager, Mr. Jordon is responsible for the
management of the Growth Fund. From 1992 to 1996 he served as Portfolio Manager
of First Interstate Bank at Denver.
FNC provides a full range of trust and asset management services to clients. As
of December 31, 1997, FNC had $225 million in assets under administration either
directly or as agent, including over $170 million for which the investment
adviser had investment responsibility.
Subject to the general supervision of the Company's Board of Directors and in
accordance with the Growth Fund's investment objective and restrictions, FNC
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.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Company, First National receives a fee from the
Small Cap Value Fund, the Equity Fund, the Balanced Fund, the Fixed Income Fund,
the Short/Intermediate Fund and the Money Market 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%), seventy-five one-hundredths of one percent
(.75%), seventy-five one-hundredths of one percent (.75%), sixty one-hundredths
of one percent (.60%), fifty one-hundredths of one percent (.50%), 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 First National.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Company, FNC receives a fee from the Growth 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%) of the 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 FNC.
Investment advisory fees of seventy-five one-hundredths of one percent (.75%)
and higher are higher than similar fees paid by most other mutual funds. The
Advisers may periodically voluntarily waive all or a portion of their advisory
fees with respect to a Fund. These waivers may be terminated at any time at the
Advisers' discretion. The Advisers 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., 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202-5712, acts as administrator for
each of the Funds. Richard Snyder and Randy Pavlick are officers of the Company
and officers and/or employees of the Administrator. 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 twenty one-hundredths of one percent (.20%) of each Fund's
average net assets subject to a minimum fee of $300,000 for the Equity, Fixed
Income, Short/ Intermediate and Money Market Funds in the aggregate and to a
minimum fee of $50,000 for each of the Small Cap Value, Growth and Balanced
Funds. The Administrator may periodically voluntarily waive 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.
Sunstone Distribution Services, LLC, an affiliate of the Administrator, acts as
Distributor for each of the Funds. 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 Advisers and the Administrator each bear all expenses in
connection with the performance of their services as investment advisers and
administrator, respectively, other than the cost of securities (including
brokerage commissions, and issue and transfer taxes, if any) purchased for a
Fund. Each Fund will bear the following expenses relating to its operations:
organizational expenses; taxes; interest; any brokerage fees and commissions;
fees and expenses of the Directors of the Company; Commission fees; state
securities qualification fees; costs of preparing and printing Prospectuses for
regulatory purposes and for distribution to its current Shareholders; outside
auditing and legal expenses; advisory and administration fees; fees and out-of-
pocket expenses of the Administrator, Custodian and Transfer Agent; costs for
independent pricing service; certain insurance premiums; costs of maintenance of
the Company's existence; costs of Shareholders' and Directors' reports and
meetings; distribution expenses incurred pursuant to the Distribution and
Service Plan described below; and any extraordinary expenses incurred in a
Fund's operation.
DISTRIBUTION PLAN - Pursuant to Rule 12b-l under the 1940 Act, the Company has
adopted a Distribution and Service Plan (the "Plan"), under which each Fund is
authorized to pay a periodic amount representing distribution expenses
calculated at an annual rate not to exceed twenty-five one-hundredths of one
percent (.25%) of the average daily net assets of that Fund. Such amount may be
used to pay banks (including the Advisers), broker-dealers and other
institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between the Distributor
or the Funds and the Participating Organization. Under the Plan, a Participating
Organization may include the Distributor, its subsidiaries and its affiliates.
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 Advisers, their correspondent and affiliated banks, and the Administrator
and its affiliates (each a "Service Organization"), which agree to provide
certain ministerial, recordkeeping and/or administrative support services for
their customers or account holders (collectively, "customers") who are the
beneficial or record owner of shares of that Fund. In consideration for such
services, a Service Organization receives a fee from a Fund, computed daily and
paid monthly at an annual rate of up to twenty-five one-hundredths of one
percent (.25%) of the average daily net asset value of shares of that Fund owned
beneficially or of record by such Service Organization's customers for whom the
Service Organization provides such services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, recordkeeping 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 Funds on behalf
of customers, providing periodic statements to customers showing their positions
in the shares of the Funds, 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 Funds pursuant to specific
or pre-authorized instructions.
As authorized by the Services Plan, the Company has entered into a Servicing
Agreement with First National pursuant to which First National 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 Funds; (3)
arranging for bank wires; (4) responding to routine customer inquiries relating
to services performed by the Advisers; (5) providing sub-accounting with respect
to the shares beneficially owned by First Nationals' 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, except the Growth and the Money Market Funds, may
pay First National a monthly fee, computed at the annual rate of ten one-
hundredths of one percent (.10%) of the average aggregate net asset value of
shares of that Fund held during the period by customers for whom First National
has provided services under the Servicing Agreement. First National may
periodically voluntarily reduce all or a portion of their administrative
services fee with respect to a Fund. 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 Advisers believe that they possess the legal authority to
perform the services for each Fund contemplated by the Plan adopted by the
Company, their Investment Advisory Agreements and their Custodian Agreements
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 have so represented in
their Investment Advisory Agreements, their Servicing Agreements and their
Custodian Agreements 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 Advisers 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 Share holder. See
"MANAGEMENT OF THE COMPANY _ Glass-Steagall Act" in the Statement of Additional
Information for further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY AND ITS SHARES - The Company was organized as a
Nebraska corporation on October 12, 1994. The Company and its Equity Fund, Fixed
Income Fund, Short/Intermediate Fund and Money Market Fund were organized to
acquire the assets and continue the business of the corresponding substantially
identical investment portfolios of The Sessions Group, an Ohio business trust.
References herein to the "immediate predecessor" of a Fund refer to the
investment portfolio of The Sessions Group which corresponds to such Fund. On
April 10, 1995 the Company acquired approximately $326 million of assets from
The Sessions Group in return for an equivalent dollar amount of shares of the
Company. The Small Cap Value Fund was added and became effective on March 29,
1996. The Balanced Fund became effective on July 29, 1996. The GrowthFund became
effective on April 1, 1998. Each Share of a Fund represents an equal
proportionate interest in that Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Directors
(see "Miscellaneous" below).
The Articles of Incorporation of the Company permit the Company, by resolution
of its Board of Directors, to create new series of common shares relating to new
investment portfolios or to subdivide existing series of shares into subseries
or classes. Classes could be utilized to create differing expense and fee
structures for investors in the same Fund. Differences could exist, for example,
in the sales load, Rule 12b-1 fees or service plan fees applicable to different
classes of shares offered by a particular Fund. Such an arrangement could enable
the Company to tailor its marketing efforts to a broader segment of the
investing public with a goal of attracting additional investments in the Funds.
While the Board of Directors of the Company has not created any such subseries
or classes, it could do so in the future without Shareholder approval. However,
any such creation of classes would require compliance with regulations the
Commission has adopted under the 1940 Act.
Shareholders are entitled to one vote for each Share owned and a proportionate
fractional vote for any fraction of a Share owned, and will vote in the
aggregate and not by series or Fund except as otherwise expressly required by
law. For example, Shareholders of each of the Funds will vote in the aggregate
with other Shareholders of the Company with respect to the election of Directors
and ratification of the selection of independent accountants. However,
Shareholders of each of the Funds will vote as a series, and not in the
aggregate with other Shareholders of the Company, for purposes of approval of
such Fund's Investment Advisory Agreement and the Plan. In connection with any
election of Directors, Shareholders are entitled to cumulate their votes by
casting the number of votes equal to the number of directorships being filled
multiplied by the number of shares held, and to cast all of such votes for one
candidate or to distribute them among several candidates as the Shareholder sees
fit.
First National 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 except the Growth Fund
and therefore, will be presumed to control each of such Funds within the meaning
of the 1940 Act.
FNC 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 Growth Fund and therefore, will be presumed to control
the Growth Fund 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. The Custodian may periodically waive all or a portion of its custody
fees with respect to a Fund. These waivers may be terminated at any time at the
Custodian's discretion.
TRANSFER AGENCY SERVICES - First National Bank of Omaha (the "Transfer Agent")
serves as the Funds' transfer agent pursuant to a Transfer Agency Agreement with
the Company. Pursuant to such Agreement, the Transfer Agent, among other things,
provides, or agrees to cause others to provide, the following services in
connection with each Fund's Shareholders of record: maintenance of shareholder
records for each of the Fund's Shareholders of record; processing shareholder
purchase and redemption orders; processing transfers and exchanges of shares of
each 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 the Transfer Agent receives a fee from
the Funds based on the number of Shareholders of record, subject to certain
minimum amounts from each Fund.
DST Systems, Inc., 210 W. 10th Street, Kansas City, Missouri 64105-1614, serves
as sub-transfer agent for the Funds pursuant to a Sub-Transfer Agency Agreement
with First National Bank of Omaha. DST Systems, Inc. performs the principal
services as transfer agent for the Funds under such Agreement and receives a fee
from First National Bank of Omaha for such services.
MISCELLANEOUS c 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 Share holders 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.
YEAR 2000 - The Fund and its service providers depend on the reasonably
consistent operations of their computer software systems. Many computer software
systems in use today cannot properly recognize and process date-sensitive
information relating to the year 2000 and beyond. This design flaw, if not
properly identified and corrected, could have a negative impact on the handling
of securities trades, pricing and account services. The Fund and its service
providers are aware of this problem and have been actively working on necessary
changes to their computer systems to deal with the year 2000 and reasonably
believe that their systems will be year-2000 compliant before that date.
Nevertheless, the inability of the Fund and its service providers to
successfully address the year 2000 issue could result in interruptions in the
Fund's business and have a material adverse effect on the Fund's operations.
PERFORMANCE INFORMATION
From time to time, performance information for the Small Cap Value, Growth Fund,
Equity, Balanced, Fixed Income and Short/Intermediate 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 HISTORICAL 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.The Funds may, when citing performance in
marketing and sales literature, include the performance of investment vehicles
which were predecessors to the Funds. 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
March 31, 1998, the yield of the Money Market Fund was 4.91% and its effective
yield was 5.03%.
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.
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 S&P 600 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 (1-5) 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. Consequent-ly, current
yields and total return will fluctuate and are not necessarily representative of
future results. Any fees charged by the Advisers or any of their 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 Advisers and/or the
Administrator 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. For
additional information about the performance of the Funds and their
predecessors, see "ADDITIONAL PERFORMANCE INFORMATION."
ADDITIONAL PERFORMANCE INFORMATION
The following is performance information for each of the Funds. Each of the
Equity, Fixed Income, Short/Intermediate and Money Market Funds acquired all of
the net assets of a predecessor mutual fund on April 9, 1995. Each respective
predecessor mutual fund commenced operations on December 13, 1992, except that
the Money Market Fund's predecessor commenced operations on December 4, 1991.
Prospectus - FIRST OMAHA FUNDS
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS OF THE FUNDS
FOR THE PERIODS ENDED MARCH 31, 1998
ONE THREE FIVE SINCE
YEAR YEARS YEARS COMMENCEMENT
- -------------------------------------------------------------------------------
Small Cap Value Fund 29.60% N/A N/A 20.00%<F1>
- -------------------------------------------------------------------------------
Growth Fund N/A N/A N/A N/A
- -------------------------------------------------------------------------------
Equity Fund 28.89% 21.88% 17.14% 17.11%<F2>
- -------------------------------------------------------------------------------
Balanced Fund 22.34% N/A N/A 17.13%<F3>
- -------------------------------------------------------------------------------
Fixed Income Fund 12.50% 8.62% 6.40% 7.09%<F2>
- -------------------------------------------------------------------------------
Short/Intermediate Fund 8.37% 6.70% 5.17% 5.53%<F2>
- -------------------------------------------------------------------------------
Money Market Fund 4.95% 4.99% 4.35% 4.11%<F4>
- -------------------------------------------------------------------------------
<F1> The Fund commenced operations on June 10, 1996.
<F2> The predecessor mutual fund commenced operations on December 13, 1992.
<F3> The Fund commenced operations on August 6, 1996.
<F4> The predecessor mutual fund commenced operations on December 4, 1991.
The predecessors to the Equity, Growth, Fixed Income and Short/Intermediate
Funds were successors to common trust funds. The following table describes the
performance of these Funds and includes the performance of the respective
predecessor and common trust funds. The predecessors to the Equity, Fixed Income
and Short/ Intermediate Funds were managed by First National who manages the
respective Funds. The predecessor to the Growth Fund was managed by FNC. Both
First National and FNC have represented that the Funds are managed in a manner
that is in all material respects equivalent to the management of the common
trust funds. However, the following information should not be viewed as an
indication of the future performance of the Funds. The tables below include
information regarding the common trust funds' operations for periods before the
Funds' registration statement became effective, as adjusted to reflect the
higher expenses borne by the Funds. The common trust funds were not registered
under the 1940 Act and therefore were not subject to certain investment
restrictions that are imposed by that Act. If the common trust funds had been
registered, their performance might have been adversely affected.
AVERAGE ANNUAL TOTAL RETURNS OF THE FUNDS AND RESPECTIVE COMMON TRUST FUNDS
FOR THE PERIODS ENDED MARCH 31, 1998
ONE THREE FIVE TEN SINCE
YEAR YEARS YEARS YEARS COMMENCEMENT
- --------------------------------------------------------------------------------
Equity Fund 28.89% 21.88% 17.14% 15.23%<F1> 15.98%<F1>
- --------------------------------------------------------------------------------
Growth Fund 35.54%<F2> 24.81%<F2> 16.30%<F2> N/A 15.16%<F2>
- --------------------------------------------------------------------------------
Fixed Income
Fund 12.50% 8.62% 6.40% 8.22%<F1> 8.85%<F1>
- --------------------------------------------------------------------------------
Short/Intermediate
Fund 8.37% 6.70% 5.17% N/A 7.12%<F3>
- --------------------------------------------------------------------------------
<F1> The predecessor common trust fund commenced operations on January 31, 1975.
<F2> The predecessor common trust fund commenced operations on
November 30, 1992.
<F3> The predecessor common trust fund commenced operations on January 1, 1991.
FIRST OMAHA FUNDS - Prospectus
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS FOR THE YEARS ENDED MARCH 31,
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Fund<F1> 28.89% 14.99% 22.16% 18.07% 3.20% 12.76% 14.47% 10.06% 16.69% 12.86%
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Fund<F1><F2> 35.54% 11.32% 28.85% 15.81% (5.50)%(0.20)%<F3> _ _ _ _
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund<F1> 12.50% 3.06% 10.54% 3.40% 2.89% 13.74% 10.10% 11.69% 11.23% 3.84%
- ---------------------------------------------------------------------------------------------------------------------------------
Short/Intermediate
Fund<F1><F4> 8.37%<F4> 4.00% 7.78% 3.69% 2.14% 8.75% 8.57% 8.38%<F5> _ _
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> Results include performance of common trust fund which has been adjusted to
reflect the Fund's operating expenses.
<F2> The common trust fund commenced operations on November 30, 1992.
<F3> Total return from November 30, 1992 through March 31, 1993 (not
annualized).
<F4> The common trust fund commenced operations on January 1, 1991.
<F5> Total return from January 1, 1991 through March 31, 1991 (not annualized).
Performance quotations of a Fund represent its past performance and should not
be considered as representative of future results. The investment return and
principal value of an investment in a Fund will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
INVESTMENT ADVISERS
First National Bank of Omaha
Attention: Trust Division
One First National Center
Omaha, Nebraska 68102-1596
FNC Trust Group, n.a.
1701 23rd Avenue
Greeley, Colorado 80632
CUSTODIAN
First National Bank of Omaha
One First National Center
Omaha, Nebraska 68102-1596
ADMINISTRATOR
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202-5712
DISTRIBUTOR
Sunstone Distribution Services, LLC
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202-5712
LEGAL COUNSEL
Cline, Williams, Wright, Johnson & Oldfather
One Pacific Place
1125 South 103rd Street, Suite 720
Omaha, Nebraska 68124-1071
AUDITORS
KPMG Peat Marwick LLP
Two Central Park Plaza, Suite 1501
Omaha, Nebraska 68102-1636
For more INFORMATION
call 1-800-OMAHA-03
or write to:
First Omaha Funds
P.O. Box 419022
Kansas City, Missouri 64141-6022
First Omaha Small Cap Value Fund
First Omaha Growth Fund
First Omaha Equity Fund
First Omaha Balanced Fund
First Omaha Fixed Income Fund
First Omaha Short/Intermediate Fixed Income Fund
First Omaha U.S. Government Obligations Fund
Each an Investment Portfolio of
FIRST OMAHA FUNDS, INC.
Statement of Additional Information
July 10, 1998
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus (the "Prospectus") of First Omaha Small Cap
Value Fund (the "Small Cap Value Fund"), First Omaha Growth Fund (the "Growth
Fund"), First Omaha Equity Fund (the "Equity Fund"), First Omaha Balanced Fund
(the "Balanced Fund"), First Omaha Fixed Income Fund (the "Fixed Income Fund"),
First Omaha Short/Intermediate Fixed Income Fund (the "Short/Intermediate
Fund"), and First Omaha U.S. Government Obligations Fund (the "Money Market
Fund"), (the Small Cap Value Fund, the Growth Fund, the Equity Fund, the
Balanced Fund, the Fixed Income Fund, the Short/Intermediate Fund and the Money
Market 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.
TABLE OF CONTENTS
Page
THE COMPANY B-3
INVESTMENT OBJECTIVES AND POLICIES B-3
Additional Information on Portfolio Instruments B-3
Investment Restrictions B-12
Portfolio Turnover B-15
NET ASSET VALUE B-15
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION B-16
MANAGEMENT OF THE COMPANY B-17
Directors and Officers B-17
Investment Advisers B-19
Portfolio Transactions B-21
Glass-Steagall Act B-23
Administrator/Fund Accountant B-24
Expenses B-25
Distributor B-26
Administrative Services Plan B-27
Custodian B-28
Transfer Agency Services B-29
Auditors B-30
Legal Counsel B-30
ADDITIONAL INFORMATION B-30
Organization and Capital Structure B-30
Shareholder Meetings B-30
Ownership of Shares B-31
Vote of a Majority of the Outstanding Shares B-31
Additional Tax Information B-31
Yield of the Money Market Fund B-32
Yield of the Fixed Income Fund
and the Short/Intermediate Fund B-33
Calculation of Total Return B-33
Distribution Rates B-34
Performance Comparisons B-34
Miscellaneous B-35
Financial Statements B-35
FINANCIAL STATEMENTS
APPENDIX A-1
STATEMENT OF ADDITIONAL INFORMATION
THE COMPANY
First Omaha Funds, Inc. (the "Company") is an open-end management
investment company which currently offers seven diversified investment
portfolios: First Omaha Small Cap Value Fund (the "Small Cap Value Fund"),
First Omaha Growth Fund (the "Growth Fund"), First Omaha Equity Fund (the
"Equity Fund"), First Omaha Balanced Fund (the "Balanced Fund"), First Omaha
Fixed Income Fund (the "Fixed Income Fund"), First Omaha Short/Intermediate
Fixed Income Fund (the "Short/Intermediate Fund"), and First Omaha U.S.
Government Obligations Fund (the "Money Market Fund"), (the Small Cap Value
Fund, the Growth Fund, the Equity Fund, the Balanced Fund, the Fixed Income
Fund, the Short/Intermediate Fund and the Money Market Fund, hereinafter
collectively referred to as the "Funds" and singly, a "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 the Small Cap Value Fund, the Growth Fund,
the Equity Fund, the Balanced Fund, the Fixed Income Fund and the
Short/Intermediate 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 principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
The Small Cap Value Fund, the Growth Fund, the Equity Fund, the Balanced
Fund, the Fixed Income Fund and the Short/Intermediate 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, the Growth Fund, the Equity Fund, the Balanced
Fund, the Fixed Income Fund and the Short/Intermediate Fund may invest in
commercial paper which must be rated by an NRSRO in one of the top three
categories. In general, investment in lower-rated instruments is more risky
than investment in instruments in higher-rated categories. The Small Cap Value
Fund, the Growth Fund, the Equity Fund, the Balanced Fund, the Fixed Income Fund
and the Short/Intermediate 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, the Growth Fund, the Equity Fund, the
Balanced Fund, the Fixed Income Fund and the Short/Intermediate 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 Advisers 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. No 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,
investment companies that invest in foreign securities 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, 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 Growth Fund, the
Equity Fund, the Short/Intermediate Fund and the Fixed Income Fund will acquire
such securities only when the Advisers believe 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.
Mortgage-Related Securities. The Balanced Fund, the Short/Intermediate
Fund and the Fixed Income Fund may, consistent with their respective investment
objective and policies, invest in mortgage-related securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities.
Mortgage-related securities, for purposes of such Funds' Prospectus and
this Statement of Additional Information, represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association and government-related organizations
such as the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation, as well as by non-governmental issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the average life of
the security and lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-related security's
average maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
security's return to the Balanced Fund, the Fixed Income Fund and the
Short/Intermediate Fund. In addition, regular payments received in respect of
mortgage-related securities include both interest and principal. No assurance
can be given as to the return the Funds will receive when these amounts are
reinvested.
The Balanced Fund, the Fixed Income Fund and the Short/Intermediate 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 Advisers deems to present attractive
opportunities and are of comparable quality.
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the U.S. government. GNMA is a
wholly-owned U.S. government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of
GNMA to borrow funds from the U.S. Treasury to make payments under its
guarantee. Mortgage-related securities issued by the Federal National Mortgage
Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates
(also known as "Fannie Maes") which are solely the obligations of the FNMA and
are not backed by or entitled to the full faith and credit of the U.S.
government. The FNMA is a government-sponsored organization owned entirely by
private stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCS"). The FHLMC is
a corporate instrumentality of the U.S. government, created pursuant to an Act
of Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs
are not guaranteed by the U.S. government or by any Federal Home Loan Banks and
do not constitute a debt or obligation of the U.S. government or of any Federal
Home Loan Bank. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by the FHLMC. The FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.
Other Asset-Backed Securities. The Balanced Fund, the Fixed Income Fund
and the Short/Intermediate Fund may also invest in interests in pools of
receivables, such as motor vehicle installment purchase obligations (known as
Certificates of Automobile Receivables or CARs) and credit card receivables
(known as Certificates of Amortizing Revolving Debts or CARDs). Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities may also be debt instruments which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities are not issued or guaranteed by the U.S. government or its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. Non-
mortgage-backed securities will be purchased by the Balanced Fund, the Fixed
Income Fund or the Short/Intermediate Fund only when rated in one of the four
highest rating categories for such securities by one or more appropriate NRSROs
at the time of purchase. In addition, such securities generally will have
remaining estimated lives at the time of purchase of seven years or less.
The development of these asset-backed securities is at an early state
compared to mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities is not as well developed. The Advisers will limit purchases of
asset-backed securities to securities that are deemed to be readily marketable
by the Advisers at the time of purchase.
Asset-backed securities held by the Balanced Fund, Fixed Income Fund or the
Short/Intermediate Fund arise through the grouping by governmental,
government-related and private organizations of loans, receivables and other
assets originated by various lenders. Interests in pools of these assets differ
from other forms of debt securities, which normally provide for periodic payment
of interest in fixed amounts with principal paid at maturity or specified call
dates. Instead, asset-backed securities provide periodic payments which
generally consist of both interest and principal payments.
The estimated life of an asset-backed security may vary with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an asset-backed security, will be a function
of current market interest rates and other economic and demographic factors.
Since prepayment experience can vary, asset-backed securities may be a less
effective vehicle for locking in high long-term yields. None of these Funds
will invest more than 5% of its assets in such other asset-backed securities.
Medium-Grade Debt Securities. As stated in the Prospectus, the Small Cap
Value Fund, the Growth Fund, the Equity Fund, the Balanced Fund, the Fixed
Income Fund and the Short/Intermediate 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 Advisers 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.
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, the Growth Fund, the Equity Fund, the Balanced
Fund, the Fixed Income Fund and the Short/Intermediate 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, the Growth Fund,
the Equity Fund, the Balanced Fund, the Fixed Income Fund and the
Short/Intermediate 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 Advisers conduct their own independent credit
analysis of Medium-Grade Securities.
Securities of Other Investment Companies. Each of the Small Cap Value
Fund, the Growth Fund, the Equity Fund, the Balanced Fund, the Fixed Income Fund
and the Short/Intermediate Fund may invest in securities issued by other
investment companies, including in Shares of the Money Market Fund. Each of the
Small Cap Value Fund, the Growth Fund, the Equity Fund, the Balanced Fund, the
Fixed Income Fund and the Short/Intermediate 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 such Fund bears directly in connection with its
own operations. Investment companies in which a Fund may invest, other than the
Money Market Fund, may also impose a sales or distribution charge in connection
with the purchase or redemption of their shares and other types of commissions
or charges. Such charges will be payable by that Fund and, therefore, will be
borne directly by shareholders.
Income Participation Loans. The Balanced Fund, the Fixed Income Fund and
the Short/Intermediate 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.
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
Balanced Fund, the Fixed Income Fund and the Short/Intermediate Fund may have a
demand provision permitting such Fund to require repayment within seven days.
Participation in such loans, however, may not have such a demand provision and
may not be otherwise marketable. To the extent these securities are not readily
marketable, they will be subject to the Fund's 5% limitation on investments in
illiquid securities. Recovery of an investment in any such loan that is
illiquid and payable on demand will depend on the ability of the borrower to
meet an obligation for full repayment of principal and payment of accrued
interest within the demand period, normally seven days or less (unless such Fund
determines that a particular loan issue, unlike most such loans, has a readily
available market). As it deems appropriate, the Company's Board of Directors
will establish procedures to monitor the credit standing of each such borrower,
including its ability to honor contractual payment obligations.
The Balanced Fund, the Fixed Income Fund and the Short/Intermediate Fund
will purchase income participation loans only if such instruments are, in the
opinion of the Advisers, of comparable quality to securities rated within the
four highest rating groups assigned by one or more appropriate NRSROs. None of
these Funds will invest more than 5% of its assets in such securities.
Repurchase Agreements. Securities held by each of the Funds may be subject
to repurchase agreements. Under the terms of a repurchase agreement, a Fund
would acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers which the Advisers deem 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 are
considered to be loans by a Fund under the 1940 Act.
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 are 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 Advisers 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 Advisers to
look to such factors as (a) the nature of the market for a security (including
the institutional private or international resale market), (b) the terms of
these securities or other instruments allowing for the disposition to a third
party or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), (c) the availability of market quotations (e.g., for securities
quoted in PORTAL system), and (d) other permissible relevant factors. Certain
securities, such as repurchase obligations maturing in more than seven days, are
currently considered illiquid.
Restricted securities may be sold only in privately negotiated or other
exempt transactions, qualified non-U.S. transactions, such as under Regulation
S, or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933. Where registration is required, a Fund
may be obligated to pay all or part of the registration expenses and a
considerable time may elapse between the decision to sell and the sale date.
If, during such period, adverse market conditions were to develop, that Fund
might obtain a less favorable price than prevailed when it decided to sell.
Restricted securities will be priced at fair value as determined in good faith
by the Board of Directors. If through the appreciation of illiquid securities
or the depreciation of liquid securities, a Fund should be in a position where
more than 5% of the value of its net assets is invested in illiquid assets,
including restricted securities which are not readily 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 Small Cap Value Fund, the Equity Fund, the
Balanced Fund, the Fixed Income Fund and the Short/Intermediate 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;
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, unless and
until disclosed in the current Prospectus 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).
In addition to the investment restrictions set forth in the Prospectus, the
Growth Fund may not:
1. Act as an underwriter or distributor of securities other than shares
of the Fund except to the extent that the Fund's participation as part of a
group in bidding or by bidding alone, for the purchase of permissible
investments directly from an issuer or selling shareholders for the Fund's own
portfolio may be deemed an underwriting, and except to the extent that the Fund
may be deemed an underwriter under the Securities Act, by virtue of disposing of
portfolio securities;
2. Purchase or sell commodities or commodities contracts unless acquired
as a result of ownership of securities or other instruments (but this shall not
prevent the Fund from engaging in transactions involving foreign currencies,
futures contracts, options on futures contracts or options, or from investing in
securities or other instruments backed by physical commodities); and
3. 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 to the fundamental restrictions listed above, the Small Cap
Value Fund, the Equity Fund, the Balanced Fund, the Fixed Income Fund and the
Short/Intermediate Fund have adopted the following restrictions that may be
changed by the Board of Directors without Shareholder approval:
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 First National, who each owns beneficially more than
.5% of the outstanding securities of such issuer, together own beneficially more
than 5% of such securities.
The following additional investment restrictions are not fundamental and
may be changed without the vote of a majority of the outstanding Shares of the
Growth Fund. The Growth Fund may not:
1. 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 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;
2. Purchase securities on margin (except to obtain such short-term
credits as are necessary for the clearance of purchases and sales of securities)
or participate in a joint trading account; provided, however, the Fund may (i)
purchase or sell futures contracts, (ii) make initial and variation margin
payments in connection with purchases or sales of futures contracts or options
on futures contracts, (iii) write or invest in put or call options on securities
and indexes, and (iv) engage in foreign currency transactions. (The "bunching"
of orders for the sale or purchase of marketable portfolio securities with other
accounts under the management of FNC to save brokerage costs on average prices
among them is not deemed to result in a securities trading account.);
3. Acquire illiquid securities if, as a result of such investments, more
than five percent (5%) of the Fund's net assets (taken at market value at the
time of each investment) would be invested in illiquid securities. "Illiquid
securities" means 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; and
4. Engage in any short sales.
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 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.
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.
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, Martin Luther King, Jr. 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.
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. Debt securities
(other than short-term instruments are valued at prices furnished by a pricing
service. 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 Shares may be purchased either directly from the Funds or through Banks or
certain other institutions. Investors purchasing Shares of the Funds may
include officers, directors, or employees of the Advisers or their 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.
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:
Position(s) Held Principal Occupation(s)
Name and Address with the Company During Past 5 Years
- ----------------- ----------------- -----------------------
David P. Greer<F1> President and Trust Officer, First National
3623 South 107th Avenue Director Bank of Omaha (1987-1994);
Omaha, NE 68124 presently retired
Randy M. Pavlick Secretary Vice President - Legal
207 East Buffalo Street and Compliance Services,
Suite 400 Sunstone Financial Group, Inc.
Milwaukee, WI 53202 (1993-present); previously in
private law practice with Foley
& Lardner, a law firm
Richard P. Snyder Vice President Administration Services Group
207 East Buffalo Street and Treasurer Manager, Sunstone Financial
Suite 400 Group, Inc. (1993-present);
Milwaukee, WI 53202 previously Audit Manager,
Sta-Rite Industries, Inc.
(1990-1993)
Position(s) Held Principal Occupation(s)
Name and Address with the Company During Past 5 Years
- ----------------- ----------------- -----------------------
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
Harry A. Koch, Jr.<F1> 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 Executive
2600 Dodge Street Officer, Physicians Mutual
Omaha, NE 68131 Insurance Company and Physicians
Life Insurance Company
(1974-present)
Gary Witt Director President and Shareholder,
11837 Miracle Hills Drive Lutz & Company, P.C.,
Suite 100 Certified Public Accountants
Omaha, NE 68154 (1987-present)
- ------------------
<F1> Denotes "interested directors" as defined in the 1940 Act.
Mr. Witt joined the Board in March 1997, filling the vacancy created by the
death of M.T. Crummer.
The following table sets forth certain information concerning compensation
paid by the Company to its Directors and officers in the fiscal year ending
March 31, 1998.
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
- -------- ----------- ---------------- --------- --------------
David P. Greer $4,000 -0- -0- $4,000
President and
Director
Randy M. Pavlick -0- -0- -0- -0-
Secretary
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
- -------- ----------- ---------------- --------- --------------
Richard P. Snyder -0- -0- -0- -0-
Vice President
and Treasurer
Joseph Caggiano $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
Gary Witt $4,000 -0- -0- $4,000
Director
As of May 31, 1998, the Company's officers and Directors, as a group, owned
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. The officers of the Company
may, from time to time, serve as officers of other investment companies.
Sunstone Financial Group, Inc. receives fees from each of the Funds for acting
as administrator and the Administrator or its affiliates 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.
Investment Advisers
- -------------------
Investment advisory services are provided to the Small Cap Value Fund, the
Equity Fund, the Balanced Fund, the Fixed Income Fund, the Short/Intermediate
Fund, and the Money Market Fund by First National Bank of Omaha, Omaha, Nebraska
("First National"), pursuant to the Investment Advisory Agreement dated as of
December 20, 1994 as amended as of December 5, 1995 and June 4, 1996 (the
"Investment Advisory Agreement"). First National is a wholly owned subsidiary
of First National of Nebraska, Inc., a Nebraska corporation.
Investment advisory services are provided to the Growth Fund by FNC Trust
Group, n.a. ("FNC") pursuant to the Investment Advisory Agreement dated as of
February 3, 1998 (the "Growth Fund Advisory Agreement"). FNC is a wholly owned
subsidiary of First National Colorado, Inc. which is a wholly owned subsidiary
of First National of Nebraska, Inc., a Nebraska corporation.
Under the Advisory Agreements, the Advisers have agreed to provide
investment advisory services as described in the Prospectus of the Funds. For
the services provided and expenses assumed pursuant to the Advisory Agreements,
the Small Cap Value Fund, the Growth Fund, the Equity Fund, the Balanced Fund,
the Fixed Income Fund, the Short/Intermediate Fund and the Money Market Fund,
pay the Advisers 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%),
seventy-five one-hundredths of one percent (.75%), seventy-five one-hundredths
of one percent (.75%), seventy-five one-hundredths of one percent (.75%), sixty
one-hundredths of one percent (.60%), fifty one-hundredths of one percent (.50%)
twenty-five one-hundredths of one percent (.25%), 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 Advisers. The Advisers may
periodically voluntarily reduce all or a portion of their advisory fees with
respect to any Fund, which reduction would increase the net income of that Fund
available for distribution as dividends.
For the fiscal period ended March 31, 1996, First National earned advisory
fees of $1,433,904 for the Equity Fund, $396,808 (net of $36,073 of fee waivers)
for the Fixed Income Fund $97,823 (net of $10,869 of fee waivers) for the
Short/Intermediate Fund and $216,379 for the Money Market Fund.
For the fiscal period ended March 31, 1997, First National earned advisory
fees of $407 (net of $25,647 of fee waivers) for the Small Cap Value Fund,
$1,838,101 for the Equity Fund, $0 (net of $25,234 of fee waivers) for the
Balanced Fund, $429,257 (net of $39,046 of fee waivers) for the Fixed Income
Fund, $96,855 (net of $10,762 of fee waivers) for the Short/Intermediate Fund
and $264,627 for the Money Market Fund.
For the fiscal period ended March 31, 1998, First National earned advisory
fees of $33,894 (net of $62,141 of fee waivers) for the Small Cap Value Fund,
$2,151,925 for the Equity Fund, $68,635 (net of $78,438 of fee waivers) for the
Balanced Fund, $422,736 (net of $38,430 of fee waivers) for the Fixed Income
Fund, $89,772 (net of $9,975 of fee waivers) for the Short/Intermediate Fund and
$275,046 for the Money Market Fund.
Unless sooner terminated, the Investment Advisory Agreement for all Funds
except the Growth Fund will continue in effect until June 30, 1998, and the
Growth Fund Advisory Agreement will continue in effect until February 3, 1999,
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 Advisory Agreements or interested persons (as defined
in the 1940 Act) of any party to the Advisory Agreements by votes cast in person
at a meeting called for such purpose. The Advisory Agreements are 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 Advisers. The Advisory Agreements also terminate automatically in the event
of any assignment, as defined in the 1940 Act.
The Advisory Agreements provide that the Advisers 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 Advisory Agreements, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of compen-
sation for services or a loss resulting from willful misfeasance, bad faith, or
gross negligence on the part of the Advisers in the performance of their duties,
or from reckless disregard by the Advisers of their duties and obligations
thereunder.
First National also serves as the Funds' custodian as more fully discussed
under "Custodian" below.
Portfolio Transactions
- ----------------------
Pursuant to the Advisory Agreements, the Advisers determine, subject to the
general supervision of the Board of Directors of the Company and in accordance
with each Fund's investment objective and restrictions, which securities are to
be purchased and sold by a Fund, and which brokers are to be eligible to execute
such Fund's portfolio transactions. Purchases and sales of fixed income debt
securities acquired for the Balanced Fund, the Fixed Income Fund, the
Short/Intermediate Fund and the Money Market Fund usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of other portfolio securities for the Funds generally include
a commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers may include the spread between the bid and
asked price. Transactions on stock exchanges involve the payment of negotiated
brokerage commissions. Transactions in the over-the-counter market are
generally principal transactions with dealers. With respect to the
over-the-counter market, the Company, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various brokers
and dealers is determined by the Advisers in their 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 Advisers 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 Advisers and does not reduce the advisory fees
payable to the Advisers by the Funds. Such information may be useful to the
Advisers 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 Advisers in carrying out their obligations to each of the Funds. The
Advisers may authorize a Fund to pay a commission in excess of the commission
another broker-dealer would have charged if the Advisers determine 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 Advisers' overall responsibilities to the accounts
they manage.
While the Advisers generally seek competitive commissions, the Company may
not necessarily pay the lowest commission available on each brokerage
transaction, for reasons discussed above. For the fiscal period ended March 31,
1996, the Equity Fund paid $132,860 of brokerage commissions on total
transactions of $89,946,945. For the fiscal period ended March 31, 1997, the
Small Cap Value Fund paid $17,770 of brokerage commissions on total transactions
of $6,402,342, the Equity Fund paid $140,910 of brokerage commissions on total
transactions of $101,527,949 and the Balanced Fund paid $8,952 of brokerage
commissions on total transactions of $5,575,479. For the fiscal period ended
March 31, 1998, the Small Cap Value Fund paid $18,033 of brokerage commissions
on total transactions of $13,224,031, the Equity Fund paid $90,644 of brokerage
commissions on total transactions of $168,119,274, and the Balanced Fund paid
$11,362 of brokerage commissions on total transactions of $15,999,858.
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 Advisers, the Distributor,
or their affiliates, and will not give preference to the Advisers'
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those for
the other Funds of the Company, any other investment company or account managed
by the Advisers. 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 Advisers believe 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 Advisers 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 Advisory Agreements, in making investment
recommendations for each of the Funds, the Advisers 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 Advisers, their parent or subsidiaries or
affiliates and, in dealing with its customers, the Advisers, their 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.
The Advisers believe that they possess the legal authority to perform the
services for each of the Funds contemplated by the Prospectus, this Statement of
Additional Information, the Advisory Agreements, the Custodian Agreement and the
Servicing Agreement without violation of applicable statutes and regulations.
The Advisers have been advised by their counsel that counsel believes that such
laws should not prevent the Advisers from providing the services required of
them under the Advisory Agreements, the Custodian Agreement, 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 Advisers 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 Advisers, the Board of Directors of the
Company would review the Company's relationship with the Advisers and consider
taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of the Advisers and their 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 Amended and Restated
Administration and Fund Accounting Agreement dated November 4, 1997 and amended
February 3, 1998 (the "Administration Agreement"). The Administrator and its
affiliates provide 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 required pursuant to Section 30(d) under the
Act; review the Registration Statement for the Funds (on Form N-1A or any
replacement therefor) and any amendments thereto, and proxy materials; prepare
and monitor each Fund's expense accruals and cause all appropriate expenses to
be paid from Fund assets on proper authorization from the Funds; assist in the
acquisition of First Omaha Funds' fidelity bond required by the Act, monitor the
amount of the bond and make the necessary Commission filings related thereto;
check each Fund's compliance with the policies and limitations relating to
portfolio investments as set forth in the Prospectus, Statement of Additional
Information and Articles of Incorporation and monitor each Fund's status as a
regulated investment company under Subchapter M of the Internal Revenue Code, as
amended; maintain, and/or coordinate with the other service providers the
maintenance of, the accounts, books and other documents required pursuant to
Rule 31a-1(a) and (b) under the Act; and generally assist in each Fund's
administrative operations.
The Administrator receives a fee from each Fund for its services as
administrator and fund accountant and expenses assumed pursuant to the
Administration Agreement, equal to the lesser of a fee calculated daily and paid
periodically, at the annual rate of twenty one-hundredths of one percent (.20%)
of that Fund's average daily net assets subject to a minimum fee of $300,000 for
the Equity Fund, the Fixed Income Fund, the Short/Intermediate Fund and the
Money Market Funds in the aggregate and to a minimum fee of $50,000 for each of
the Small Cap Value Fund, the Growth Fund and the Balanced Fund 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 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 Administra-
tion Agreement and, after the initial term, on not less than 90 days' notice by
the Company's Board of Directors or by the Administrator.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or any loss suffered by any
of the Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder. For
the fiscal period ended March 31, 1996, the Administrator earned $296,944,
$112,054, $33,763, and $134,426, net of fee waivers of $85,431, $32,240, $9,714,
and $38,677 for the Equity, Fixed Income, Short/Intermediate and Money Market
Funds, respectively. For the fiscal period ended March 31, 1997, the
Administrator earned $4,513, $453,766, $3,873, $144,475, $39,821 and $196,204,
net of fee waivers of $35,762, $36,394, $28,731, $11,626, $3,226 and $15,497 for
the Small Cap Value, Equity, Balanced, Fixed Income, Short/Intermediate and
Money Market Funds, respectively. For the fiscal period ended March 31, 1998,
the Administrator earned $30,000, $477,003, $35,000, $127,827, $33,264 and
$183,788, net of fee waivers of $20,000, $96,844, $15,000, $25,895, $6,635 and
$36,249 for the Small Cap Value, Equity, Balanced, Fixed Income,
Short/Intermediate and Money Market Funds, respectively.
Expenses
- --------
The Advisory Agreements provide that if total expenses borne by any of the
Funds in any fiscal year exceed expense limitations imposed by applicable state
securities regulations, the Advisers 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 Funds are not aware of any state
imposed expense limitation applicable to the Funds. Fees imposed upon customer
accounts by the Advisers or their affiliated or correspondent banks for cash
management services are not included within Fund expenses for purposes of any
such expense limitation.
Distributor
- -----------
Sunstone Distribution Services, LLC serves as agent for each of the Funds
in the distribution of its Shares pursuant to a Distribution Agreement dated
January 1, 1997 and amended February 3, 1998 (the "Distribution Agreement").
Prior to that date, Sunstone Financial Group, Inc., an affiliate of Sunstone
Distribution Services, served as agent for each of the Funds in the distribution
of its Shares. 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 Advisers, 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
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.
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 First National, 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.
As authorized by the Services Plan, the Company has entered into a
Servicing Agreement with the First National pursuant to which First National 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 First National; (e)
providing sub-accounting with respect to the Shares beneficially owned by First
National'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, except the Growth Fund
and the Money Market Fund, may pay First National a monthly fee, computed at the
annual rate of .10% of the average aggregate net asset value of Shares of that
Fund held during the period by customers for whom First National has provided
services under the Servicing Agreement. For the fiscal period ended March 31,
1997, First National earned fees of $0, $49,214, $0, $15,740 and $4,045, net of
fee waivers of $1,863, $39,615, $2,354, $12,513 and $3,231 for the Small Cap
Value, Equity, Balanced, Fixed Income and Short/Intermediate Funds,
respectively. For the fiscal period ended March 31, 1998, First National earned
fees of $5,302, $130,664, $8,360, $36,899, and $9,126, net of fee waivers of
$5,302, $130,685, $8,361, $36,900, and $9,125 for the Small Cap Value, Equity,
Balanced, Fixed Income, and Short/Intermediate Funds, respectively.
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 (the "Custodian"), One First National Center,
Omaha, Nebraska 68102, in addition to serving as an investment adviser and
transfer agent to the Funds, also serves as custodian to each of the Funds
pursuant to the Custodian Agreement dated December 20, 1994 and amended as of
December 5, 1995, June 4, 1996 and February 3, 1998 (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.
In the fiscal period ended March 31, 1996, the Custodian earned custody
fees of $25,965 for the Money Market Fund and earned and waived $49,446, $21,644
and $6,522 for the Equity, Fixed Income and Short/Intermediate Funds,
respectively. In the fiscal period ended March 31, 1997, the Custodian earned
custody fees of $31,694 for the Money Market Fund and earned and waived $915,
$73,360, $998, $23,428 and $6,457 for the Small Cap Value, Equity, Balanced,
Fixed Income and Short/Intermediate Funds, respectively. In the fiscal period
ended March 31, 1998, the Custodian earned custody fees of $33,005 for the Money
Market Fund and earned and waived $3,383, $86,097, $5,874, $23,063, and $5,986
for the Small Cap Value, Equity, Balanced, Fixed Income and Short/Intermediate
Funds, respectively.
In the opinion of the staff of the Commission, since the custodian is
serving as both an investment adviser and custodian of the Funds, 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 (the "Transfer Agent") serves as transfer
agent and dividend disbursing agent for the Company pursuant to the Transfer
Agency Agreement dated December 20, 1994 and amended as of December 5, 1995,
June 4, 1996 and February 3, 1998. 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.
In the fiscal period ended March 31, 1996, transfer agent fees of $22,000,
$ 21,239, $23,125 and $22,462 were incurred by the Equity, Fixed Income,
Short/Intermediate and Money Market Funds, respectively. In the fiscal period
ended March 31, 1997, transfer agent fees of $5,400 (net of $10,125 of fee
waivers), $29,235, $4,800 (net of $6,000 of fee waivers), $24,000, $24,000 and
$24,000 were incurred by the Small Cap Value, Equity, Balanced, Fixed Income,
Short/Intermediate and Money Market Funds, respectively. In the fiscal period
ended March 31, 1998, transfer agent fees of $24,354, $32,300, $24,341, $24,970,
$24,957 and $24,948 were incurred by the Small Cap Value, Equity, Balanced,
Fixed Income, Short/Intermediate and Money Market Funds, respectively.
Auditors
- --------
The financial statements of each Fund as of March 31, 1998 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.
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. Six Hundred
million of these Shares have been authorized by the Board of Directors to be
issued in series designated for the existing seven 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 Company 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 June 30, 1998, the Advisers and their affiliates held of record
substantially all of the outstanding Shares of the Funds as agent, custodian,
trustee or investment adviser on behalf of their customers. At such date, First
National Bank of Omaha, One First National Center, Omaha, Nebraska 68102-1596,
and its affiliates held as beneficial owner five percent or more of the
outstanding Shares of the Funds because they possessed sole or shared voting or
investment power with respect to such Shares.
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.
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 March 31, 1998, the yield and effective
yield, respectively, of the Money Market Fund were 4.91% and 5.03%. For the
30-day period ended March 31, 1998, the yield for such Fund was 4.86%. In the
absence of fee waivers, the yields for the period ended March 31, 1998 would
have been 4.87%, 4.99% and 4.82%, 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.
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 Fixed Income Fund and the Short/Intermediate Fund
- --------------------------------------------------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yield of each of the Fixed Income Fund and the Short/Intermediate
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 Fixed Income
Fund and the Short/Intermediate 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 March 31, 1998, the yields for the Fixed Income
Fund and the Short/Intermediate Fund were 5.48% and 4.90%, respectively. In the
absence of fee waivers, the yields for the Fixed Income Fund and the
Short/Intermediate Fund would have been 5.31% and 4.74%, respectively.
Calculation of Total Return
- ---------------------------
As summarized in the Prospectus under the headings "PERFORMANCE
INFORMATION" and "ADDITIONAL 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 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 similar to average annual total return
except that the result is not annualized.
Distribution Rates
- ------------------
The Small Cap Value Fund, the Growth Fund, the Equity Fund, the Balanced
Fund, the Fixed Income Fund and the Short/Intermediate 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 Advisers or their affiliated or correspondent banks for cash management
services will reduce a 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.
Financial Statements
- --------------------
The following audited financial statements are attached hereto:
Small Cap Value, Equity, Balanced, Fixed Income, Short/Intermediate and
Money Market Funds
1. Schedules of Portfolio Investments as of March 31, 1998
2. Statements of Assets and Liabilities as of March 31, 1998
Statements of Operations for the period ended March 31, 1998
Statements of Changes in Net Assets for the periods ended March
31, 1998 and 1997
5. Financial Highlights
6. Notes to Financial Statements
7. Independent Auditors' Report
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 1998
SMALL CAP VALUE FUND
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 89.64%
AIRLINES 2.96%
10,300 Midwest Express Holdings, Inc.<F1> $ 504,700
----------
BUSINESS SERVICES 2.64%
18,500 Franklin Covey Co. <F1>449,781
----------
CHEMICALS 8.29%
9,400 Dexter Corp. 388,925
35,700 Oil-Dri Corp. of America 571,200
14,800 WD-40 Co. 450,475
----------
1,410,600
----------
CONSUMER PRODUCTS 3.52%
24,000 First Brands Corp. 598,500
----------
ELECTRONICS 2.34%
9,500 Teleflex, Inc. 399,000
----------
ENVIRONMENTAL CONTROL 4.63%
48,000 Calgon Carbon Corp. 561,000
25,900 Isco, Inc. 226,625
----------
787,625
----------
FOOD 7.12%
25,200 Nash-Finch Co. 500,850
14,500 Universal Foods Corp. 710,500
----------
1,211,350
----------
HOME FURNISHINGS 3.04%
12,000 National Presto Industries, Inc. 516,750
----------
INSURANCE 7.43%
12,300 American Financial Group, Inc. 533,513
24,600 The Guarantee Life Companies, Inc. 731,850
----------
1,265,363
----------
MACHINERY & EQUIPMENT 8.70%
18,500 Lawson Products, Inc. 494,875
13,500 Modine Manufacturing Co. 469,125
9,600 Tecumseh Products Co., Class A 516,000
----------
1,480,000
----------
MANUFACTURING 3.43%
14,200 Tennant Co. 583,975
----------
METAL PRODUCTS 2.82%
22,200 Amcast Industrial Corp. $ 480,075
----------
MINING 4.26%
13,500 Cleveland-Cliffs, Inc. 725,625
----------
MOTOR VEHICLE PARTS & ACCESSORIES 5.18%
26,500 CLARCOR Inc. 881,125
----------
PACKAGING & CONTAINERS 2.18%
12,300 The West Co., Inc. 370,538
----------
PAPER PRODUCTS 3.40%
32,000 P.H. Glatfelter Co. 578,000
----------
TEXTILE MANUFACTURING 3.46%
19,100 Kellwood Co. 589,712
----------
TIRE & RUBBER 2.70%
7,800 Bandag, Inc. 459,712
----------
TOBACCO 3.18%
12,300 Universal Corp. 541,969
----------
TRUCKING LEASING 3.33%
22,200 Werner Enterprises, Inc. 566,100
----------
UTILITIES -
ELECTRIC SERVICES 2.33%
20,300 DPL Inc. 395,850
----------
UTILITIES -
TELECOMMUNICATIONS 2.70%
13,500 Aliant Communications, Inc. 459,000
----------
Total Common Stocks (cost $13,198,425) 15,255,350
----------
Principal
Amount
- ---------
U.S. Treasury Bills 5.86%
$1,000,000 4/16/98 997,740
----------
Total U.S. Treasury Bills
(cost $997,898) 997,740
----------
NUMBER
OF SHARES VALUE
- --------- -----
INVESTMENT COMPANIES 4.40%
350,000 Federated Treasury Obligations $ 350,000
398,810 Goldman Sachs ILA Treasury
Obligations Portfolio 398,810
----------
Total Investment Companies
(cost $748,810) 748,810
----------
Total Investments
(cost $14,945,133) 99.90% 17,001,900
Other Assets, less Liabilities 0.10% 17,502
----------
Net Assets 100.00% $17,019,402
===========
<F1> Non-income producing security
See notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 1998
EQUITY FUND
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 88.20%
BUILDING PRODUCTS 2.49%
202,800 Lafarge Corp. $ 7,782,450
------------
COMMUNICATIONS EQUIPMENT 3.18%
163,600 Motorola, Inc. 9,918,250
------------
COMPUTERS & PERIPHERALS 1.81%
54,200 International Business
Machines Corp. 5,630,025
------------
COSMETICS 1.52%
100,500 International Flavors
& Fragrances, Inc. 4,736,063
------------
ELECTRICAL EQUIPMENT 1.24%
59,400 Emerson Electric Co. 3,872,138
------------
ENVIRONMENTAL CONTROL 0.63%
169,200 Calgon Carbon Corp. 1,977,525
------------
FOOD MISCELLANEOUS 1.45%
35,100 BestFoods 4,102,313
11,775 Corn Products
International, Inc.<F1> 422,428
------------
4,524,741
------------
GROCERY STORES 2.30%
341,590 Food Lion, Inc., Class A 3,650,743
322,540 Food Lion, Inc., Class B 3,537,861
------------
7,188,604
------------
HEAVY MACHINERY 4.33%
282,000 Ingersoll-Rand Co. 13,518,375
------------
INSTRUMENTS AND CONTROLS 2.45%
149,250 Parker-Hannifin Corp. 7,649,063
------------
INSURANCE 12.88%
289,900 American Financial Group, Inc. 12,574,413
170,800 American General Corp. 11,048,625
67,800 Marsh & McLennan Cos., Inc. 5,919,788
195,100 SAFECO Corp. 10,663,434
------------
40,206,260
------------
MANUFACTURING 3.38%
229,500 Harsco Corp. 10,542,656
------------
NUMBER
OF SHARES VALUE
- --------- -----
MEDICAL SUPPLIES 1.28%
58,900 Becton, Dickinson & Co. $ 4,008,881
------------
MINING 3.86%
724,800 Cyprus Amax Minerals Co. 12,049,800
------------
MOTOR VEHICLE PARTS &
ACCESSORIES 1.81%
169,200 CLARCOR Inc. 5,625,900
------------
OIL 7.77%
186,400 Exxon Corp. 12,605,300
86,800 Texaco Inc. 5,229,700
165,500 Unocal Corp. 6,402,781
------------
24,237,781
------------
PACKAGING & CONTAINERS 3.01%
234,800 Sonoco Products Co. 9,406,675
------------
PHARMACEUTICALS 1.39%
41,600 Bristol-Myers Squibb Co. 4,339,400
------------
PHOTOGRAPHY 3.74%
179,900 Eastman Kodak Co. 11,671,012
------------
PUBLISHING 4.04%
307,100 R.R. Donnelley & Sons Co. 12,610,294
------------
RETAIL 8.57%
193,800 J.C. Penney Co., Inc. 14,668,237
352,400 Rite Aid Corp. 12,069,700
------------
26,737,937
------------
SOAPS & CLEANING AGENTS 1.49%
53,600 Colgate-Palmolive Co. 4,643,100
------------
TELEPHONE 2.91%
151,600 GTE Corp. 9,077,050
------------
TEXTILE MANUFACTURING 3.79%
383,300 Kellwood Co. 11,834,387
------------
TOBACCO 3.46%
245,400 Universal Corp. 10,812,937
------------
NUMBER
OF SHARES VALUE
- --------- -----
UTILITIES -
ELECTRIC SERVICES 3.42%
387,450 DPL Inc. $ 7,555,275
79,400 Texas Utilities Co. 3,121,412
------------
10,676,687
------------
Total Common Stocks
(cost $180,978,936) 275,277,991
------------
PRINCIPAL
AMOUNT
- ---------
U.S. TREASURY BILLS 8.48%
$ 6,000,000 8/6/98 5,893,080
9,000,000 8/20/98 8,820,180
12,000,000 9/3/98 11,739,600
------------
Total U.S. Treasury Bills
(cost $26,454,312) 26,452,860
------------
NUMBER
OF SHARES
- ---------
INVESTMENT COMPANIES 3.22%
10,038,654 Goldman Sachs ILA
Treasury
Obligations
Portfolio 10,038,654
------------
Total Investment Companies
(cost $10,038,654) 10,038,654
------------
Total Investments
(cost $217,471,902) 99.90% 311,769,505
Other Assets, less Liabilities 0.10% 303,784
------------
NET ASSETS 100.00% $312,073,289
============
See notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 1998
BALANCED FUND
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 55.19%
BUILDING PRODUCTS 1.57%
10,500 Lafarge Corp. $ 402,938
------------
COMMUNICATIONS EQUIPMENT 2.08%
8,800 Motorola, Inc. 533,500
------------
COMPUTERS & PERIPHERALS 1.09%
2,700 International Business
Machines Corp. 280,463
------------
COSMETICS 0.92%
5,000 International Flavors &
Fragrances, Inc. 235,625
------------
ELECTRICAL EQUIPMENT 0.96%
3,800 Emerson Electric Co. 247,713
------------
ENVIRONMENTAL CONTROL 0.41%
9,000 Calgon Carbon Corp. 105,188
------------
FOOD MISCELLANEOUS 1.00%
2,000 BestFoods 233,750
625 Corn Products
International, Inc.<F1> 22,422
------------
256,172
------------
GROCERY STORES 1.61%
22,100 Food Lion, Inc., Class A 236,194
16,270 Food Lion, Inc., Class B 178,462
------------
414,656
------------
HEAVY MACHINERY 2.72%
14,600 Ingersoll-Rand Co. 699,888
------------
INSTRUMENTS AND CONTROLS 1.52%
7,600 Parker-Hannifin Corp. 389,500
------------
INSURANCE 8.05%
15,200 American Financial Group, Inc. 659,300
8,900 American General Corp. 575,719
3,400 Marsh & McLennan Cos., Inc. 296,863
9,800 SAFECO Corp. 535,631
------------
2,067,513
------------
MANUFACTURING 2.16%
12,100 Harsco Corp. 555,844
------------
MEDICAL SUPPLIES 0.79%
3,000 Becton, Dickinson & Co. 204,187
------------
NUMBER
OF SHARES VALUE
- --------- -----
MINING 2.47%
38,100 Cyprus Amax Minerals Co. $ 633,412
------------
MOTOR VEHICLE
PARTS & ACCESSORIES 1.07%
8,300 CLARCOR Inc. 275,975
------------
OIL 5.11%
10,100 Exxon Corp. 683,012
4,800 Texaco Inc. 289,200
8,800 Unocal Corp. 340,450
------------
1,312,662
------------
PACKAGING & CONTAINERS 1.84%
11,800 Sonoco Products Co. 472,737
------------
PHARMACEUTICALS 0.73%
1,800 Bristol-Myers Squibb Co. 187,762
------------
PHOTOGRAPHY 2.37%
9,400 Eastman Kodak Co. 609,825
------------
PUBLISHING 2.46%
15,400 R.R. Donnelley & Sons Co. 632,362
------------
RETAIL 5.28%
9,600 J.C. Penney Co., Inc. 726,600
18,400 Rite Aid Corp. 630,200
------------
1,356,800
------------
SOAPS & CLEANING AGENTS 0.91%
2,700 Colgate-Palmolive Co. 233,887
------------
TELEPHONE 1.58%
6,800 GTE Corp. 407,150
------------
TEXTILE MANUFACTURING 2.36%
19,600 Kellwood Co. 605,150
------------
TOBACCO 2.09%
12,200 Universal Corp. 537,562
------------
UTILITIES -
ELECTRIC SERVICES 2.04%
19,700 DPL Inc. 384,150
3,500 Texas Utilities Co. 137,594
------------
521,744
------------
Total Common Stocks
(cost $11,566,259) 14,180,215
------------
PRINCIPAL
AMOUNT VALUE
- --------- -----
CORPORATE BONDS 21.88%
FINANCIAL SERVICES 5.00%
$500,000 General Electric Capital Corp.,
6.90%, 9/15/15 $ 530,210
750,000 Norwest Financial, Inc.,
6.375%, 12/1/07 753,682
------------
1,283,892
------------
FOOD PRODUCTS 2.01%
500,000 Anheuser-Busch Cos., Inc.,
6.75%, 8/1/03 516,270
------------
INDUSTRIAL 1.92%
500,000 Rockwell International Corp.,
6.15%, 1/15/08 492,915
------------
PHARMACEUTICALS 1.96%
500,000 Eli Lilly & Co.,
6.57%, 1/1/16 502,335
------------
RAIL CAR LEASING 2.11%
500,000 Union Tank Car Co.,
7.45%, 6/1/09 540,940
------------
RETAIL 1.59%
400,000 Wal-Mart Stores, Inc.,
6.75%, 5/15/02 409,176
------------
UTILITIES - ELECTRIC SERVICES 2.36%
100,000 Indianapolis Power & Light Co.,
7.375%, 8/1/07 107,966
500,000 Tampa Electric Co.,
5.75%, 5/1/00 498,235
------------
606,201
------------
UTILITIES - NATURAL GAS 4.55%
400,000 Consolidated Natural Gas Co.,
6.625%, 12/1/08 409,876
750,000 Laclede Gas Co.
6.50%, 10/15/12 758,670
------------
1,168,546
------------
PRINCIPAL
AMOUNT VALUE
- --------- -----
UTILITIES -
TELECOMMUNICATIONS 0.38%
$100,000 Illinois Bell Telephone Co.,
5.80%, 2/1/04 $ 98,527
------------
Total Corporate Bonds
(cost $5,456,411) 5,618,802
------------
U.S. GOVERNMENT AGENCIES 3.97%
500,000 Federal Home Loan Mortgage Corp.,
7.065%, 7/18/12 506,950
500,000 Federal National
Mortgage Association,
7.27%, 8/24/05 513,265
------------
Total U.S. Government Agencies
(cost $1,010,884) 1,020,215
------------
U.S. TREASURY NOTES 13.97%
500,000 5.125%, 4/30/98 499,910
500,000 5.875%, 8/15/98 500,735
500,000 6.75%, 5/31/99 506,465
500,000 6.625%, 6/30/01 513,625
500,000 5.875%, 2/15/04 504,950
500,000 6.50%, 8/15/05 522,220
500,000 7.00%, 7/15/06 540,035
------------
Total U.S. Treasury Notes
(cost $3,501,568) 3,587,940
------------
U.S. TREASURY STRIPS 1.45%
850,000 2/15/12 373,447
------------
Total U.S. Treasury Strips
(cost $333,119) 373,447
------------
Number
of Shares
- ---------
INVESTMENT COMPANIES 2.88%
741,110 Goldman Sachs ILA Treasury
Obligations Portfolio 741,110
------------
Total Investment Companies
(cost $741,110) 741,110
------------
Total Investments
(cost $22,609,351) 99.34% 25,521,729
Other Assets, less Liabilities 0.66% 169,841
------------
NET ASSETS 100.00% $25,691,570
============
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 1998
FIXED INCOME FUND
Principal
Amount Value
- --------- -----
CORPORATE BONDS 69.62%
COMMUNICATIONS EQUIPMENT 3.28%
$2,500,000 Motorola, Inc.,
6.50%, 3/1/08 $ 2,550,325
------------
FINANCIAL SERVICES 6.58%
2,500,000 General Electric Capital Corp.,
5.50%, 11/1/01 2,457,775
2,500,000 General Electric Capital Corp.,
6.90%, 9/15/15 2,651,050
------------
5,108,825
------------
FOOD PRODUCTS 3.34%
2,500,000 Anheuser-Busch Cos., Inc.,
7.25%, 9/15/15 2,591,925
------------
FOREST PRODUCTS 3.34%
2,500,000 Kimberly-Clark Corp.,
6.875%, 2/15/14 2,598,025
------------
INDUSTRIAL GOODS & SERVICES 15.04%
2,000,000 Air Products & Chemicals, Inc.,
6.25%, 6/15/03 2,001,780
2,000,000 Albertson's, Inc.,
6.34%, 2/25/13 1,977,740
2,500,000 First Data Corp.,
6.375%, 12/15/07 2,494,325
2,500,000 Monsanto Co.,
6.00%, 7/1/00 2,501,325
2,500,000 PPG Industries, Inc.,
7.375%, 6/1/16 2,705,050
------------
11,680,220
------------
OIL & GAS EXPLORATION &
PRODUCTION 3.34%
2,500,000 Amoco Canada Petroleum Co. Ltd.,
6.75%, 2/15/05 2,592,075
------------
PHARMACEUTICALS 2.59%
2,000,000 Eli Lilly & Co.,
6.25%, 3/15/03 2,014,340
------------
RAILROADS 0.66%
500,000 Southern Railway Co.,
7.75%, 8/1/99 510,950
------------
Principal
Amount Value
- --------- -----
RETAIL 3.16%
$2,500,000 Wal-Mart Stores, Inc.,
5.875%, 10/15/05 $ 2,457,150
------------
SOAPS & CLEANING AGENTS 1.96%
1,500,000 Colgate-Palmolive Co.,
6.85%, 11/24/99 1,519,755
------------
UTILITIES -
ELECTRIC SERVICES 6.61%
2,500,000 National Rural Utilities
Cooperative Finance Corp.,
6.50%, 9/15/02 2,534,025
2,500,000 Union Electric Co.,
6.75%, 5/1/08 2,597,375
------------
5,131,400
------------
UTILITIES - ELECTRIC &
OTHER SERVICES COMBINED 4.79%
2,500,000 Citizens Utilities Co.,
7.60%, 6/1/06 2,706,625
1,000,000 Louisville Gas & Electric Co.,
7.50%, 7/1/02 1,013,190
------------
3,719,815
------------
UTILITIES - NATURAL GAS 5.19%
2,500,000 Laclede Gas Co.,
6.50%, 11/15/10 2,532,250
1,500,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 1,500,540
------------
4,032,790
------------
UTILITIES -
TELECOMMUNICATIONS 9.74%
2,500,000 AT&T Corp.,
7.75%, 3/1/07 2,750,400
2,500,000 Chesapeake & Potomac Telephone
Co. of Maryland,
5.25%, 5/1/05 2,370,175
1,000,000 Southern Bell Telephone &
Telegraph Co.,4.75%, 9/1/00 971,180
1,500,000 Southern Bell Telephone &
Telegraph Co.,6.00%, 10/1/04 1,473,330
------------
7,565,085
------------
Total Corporate Bonds
(cost $52,225,179) 54,072,680
------------
Principal
Amount Value
- --------- -----
U.S. GOVERNMENT AGENCIES 9.87%
$2,500,000 Federal National
Mortgage Association,
6.85%, 9/12/05 $2,535,125
2,500,000 Federal National
Mortgage Association,
7.15%, 10/11/06 2,575,750
2,500,000 Federal National
Mortgage Association,
6.88%, 11/20/06 2,552,700
------------
Total U.S. Government Agencies
(cost $7,605,278) 7,663,575
------------
U.S. GOVERNMENT AGENCY STRIPS 2.81%
5,300,000 Federal Home Loan Bank,
7/2/12 1,746,880
1,320,000 Federal Home Loan Bank,
7/2/12 435,072
------------
Total U.S. Government Agency Strips
(cost $2,163,306) 2,181,952
------------
U.S. TREASURY BONDS 2.97%
1,000,000 8.75%, 11/15/08 1,138,040
1,000,000 9.125%, 5/15/09 1,167,440
------------
Total U.S. Treasury Bonds
(cost $2,268,750) 2,305,480
------------
U.S. TREASURY STRIPS 11.36%
510,000 8/15/01 422,632
2,122,000 5/15/02 1,686,374
6,513,000 2/15/07 3,906,107
6,400,000 2/15/12 2,811,840
------------
Total U.S. Treasury Strips
(cost $7,503,028) 8,826,953
------------
Number
of Shares
- ---------
INVESTMENT COMPANIES 2.04%
1,585,740 Goldman Sachs ILA Treasury
Obligations Portfolio 1,585,740
------------
Total Investment Companies
(cost $1,585,740) 1,585,740
------------
Total Investments
(cost $73,351,281) 98.67% 76,636,380
Other Assets, less
Liabilities 1.33% 1,034,982
------------
NET ASSETS 100.00% $77,671,362
===========
See notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 1998
SHORT/INTERMEDIATE FIXED INCOME FUND
PRINCIPAL
AMOUNT VALUE
- --------- ------
CORPORATE BONDS 63.33%
FINANCIAL SERVICES 11.51%
$ 750,000 Ford Motor Credit Co.,
6.125%, 1/9/06 $ 736,013
750,000 General Electric Capital Corp.,
6.875%, 4/15/00 763,650
750,000 LG&E Capital Corp.,
6.46%, 1/15/08 745,342
------------
2,245,005
------------
FOOD PRODUCTS 3.90%
750,000 Anheuser-Busch Cos., Inc.,
6.90%, 10/1/02 761,108
------------
Pharmaceuticals 11.87%
750,000 Eli Lilly & Co.,
8.125%, 12/1/01 801,337
750,000 SmithKline Beecham PLC,
6.625%, 10/1/05 763,845
750,000 Upjohn Co., 5.875%, 4/15/00 749,918
------------
2,315,100
------------
RETAIL 7.87%
750,000 Sears Roebuck Acceptance Notes,
6.90%, 8/1/03 769,838
750,000 Wal-Mart Stores, Inc.
6.50%, 6/1/03 765,480
------------
1,535,318
------------
UTILITIES -
ELECTRIC SERVICES 11.62%
750,000 Florida Power & Light Co.,
5.50%, 7/1/99 745,665
750,000 Monongahela Power Co.,
5.625%, 4/1/00 746,025
750,000 Union Electric Co.,
6.875%, 8/1/04 775,785
------------
2,267,475
------------
UTILITIES -
ELECTRIC & OTHER SERVICES
COMBINED 8.87%
750,000 Northern States Power Co.,
5.75%, 10/1/03 734,647
1,000,000Wisconsin Electric Power Co.,
5.125%, 9/15/98 996,440
------------
1,731,087
------------
PRINCIPAL
AMOUNT VALUE
- --------- ------
UTILITIES - NATURAL GAS 3.85%
$ 750,000 Northern Illinois Gas Co.,
6.25%, 2/1/99 $ 750,270
------------
UTILITIES -
TELECOMMUNICATIONS 3.84%
750,000 Chesapeake & Potomac Telephone
Co. of Maryland,
5.875%, 9/15/99 748,372
------------
Total Corporate Bonds
(cost $12,195,822) 12,353,735
------------
U.S. GOVERNMENT AGENCIES 9.12%
1,000,000 Federal Home Loan Bank,
6.50%, 11/29/05 1,031,470
750,000 Federal Home Loan
Mortgage Corp.,5.95%, 1/19/06 747,593
------------
Total U.S. Government Agencies
(cost $1,764,782) 1,779,063
------------
U.S. TREASURY NOTES 10.37%
1,000,000 6.125%, 12/31/01 1,014,060
1,000,000 5.875%, 2/15/04 1,009,900
------------
Total U.S. Treasury Notes
(cost $1,977,113) 2,023,960
------------
U.S. TREASURY STRIPS 13.02%
702,000 2/15/99 669,245
896,000 8/15/00 786,025
1,345,000 2/15/02 1,083,908
------------
Total U.S. Treasury Strips
(cost $2,534,623) 2,539,178
------------
Number
of Shares
- ---------
INVESTMENT COMPANIES 2.61%
450,000 Federated Trust for U.S. Treasury
Obligations 450,000
60,115 Goldman Sachs ILA Treasury
Obligations Portfolio 60,115
------------
Total Investment Companies
(cost $510,115) 510,115
------------
Total Investments
(cost $18,982,455) 98.45% 19,206,051
Other Assets, less Liabilities 1.55% 302,996
------------
NET ASSETS 100.00% $19,509,047
============
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 1998
U.S. GOVERNMENT OBLIGATIONS FUND
PRINCIPAL
AMOUNT VALUE
- --------- -----
U.S. TREASURY BILLS 34.60%
$5,000,000 4/9/98 $ 4,994,222
5,000,000 4/16/98 4,989,500
10,000,000 4/23/98 9,967,963
5,000,000 5/28/98 4,960,417
5,000,000 6/25/98 4,941,090
5,000,000 7/23/98 4,921,685
------------
Total U.S. Treasury Bills
(cost $34,774,877) 34,774,877
------------
U.S. TREASURY NOTES 29.83%
5,000,000 5.125%, 4/30/98 4,998,462
10,000,000 5.375%, 5/31/98 9,997,299
10,000,000 5.25%, 7/31/98 9,990,197
5,000,000 4.75%, 8/31/98 4,987,680
------------
Total U.S. Treasury Notes
(cost $29,973,638) 29,973,638
------------
REPURCHASE AGREEMENTS 35.58%
19,754,680 G. X. Clarke & Co.,
5.75%, dated 3/31/98,
repurchase price
$19,757,835, maturing
4/1/98 (collateralized
by U.S. Treasury Notes,
5.875%, 1/31/99 and
5.75%, 6/25/98) 19,754,680
16,000,000 HSBC Securities,
Inc., 5.65%, dated
3/31/98, repurchase price
$16,002,511, maturing
4/1/98 (collateralized
by U.S. Treasury
Notes, 6.00%, 8/15/99) 16,000,000
------------
Total Repurchase Agreements
(cost $35,754,680) 35,754,680
------------
Total Investments
(cost $100,503,195) 100.01% 100,503,195
Liabilities, less Other Assets (0.01)% (6,476)
------------
NET ASSETS 100.00% $100,496,719
============
See notes to financial statements.
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 1998
Short/ U.S.
Small Cap Fixed Intermediate Government
Value Equity Balanced Income Fixed Income Obligations
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
ASSETS:
- ---------------------------------------------------
Investments, at value (cost $14,945,133,
$217,471,902, $22,609,351, $73,351,281,
$18,982,455 and $64,748,515, respectively) $17,001,900 $311,769,505 $25,521,729 $76,636,380 $19,206,051 $64,748,515
- ---------------------------------------------------
Repurchase agreements, at value (cost
$0, $0, $0, $0, $0 and $35,754,680, respectively) _ _ _ _ _ 35,754,680
- ---------------------------------------------------
Receivable for securities sold _ _ _ _ 3,577 _
- ---------------------------------------------------
Interest and dividends receivable 17,834 322,039 177,951 1,028,314 288,403 400,349
- ---------------------------------------------------
Organizational expenses, net of
accumulated amortization 6,133 14,085 3,128 14,085 14,085 14,085
- ---------------------------------------------------
Other assets 5,757 57,211 5,889 23,016 11,467 36,556
- --------------------------------------------------- ---------- ----------- ---------- ---------- ---------- -----------
Total Assets 17,031,624 312,162,840 25,708,697 77,701,795 19,523,583 100,954,185
- ------------------------------------------------------------- ----------- ---------- ---------- ---------- -----------
LIABILITIES:
- ---------------------------------------------------
Dividend payable _ _ _ _ _ 404,759
- ---------------------------------------------------
Accrued expenses and other liabilities 11,216 45,378 15,354 22,359 12,835 31,930
- ---------------------------------------------------
Accrued investment advisory fee 1,006 44,173 1,773 8,074 1,701 20,777
- ------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total Liabilities 12,222 89,551 17,127 30,433 14,536 457,466
- ------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
NET ASSETS $17,019,402 $312,073,289 $25,691,570 $77,671,362 $19,509,047 $100,496,719
- ---------------------------------------------------=========== =========== =========== =========== =========== ============
NET ASSETS CONSIST OF:
Capital stock 13 193 21 74 20 1,005
- ---------------------------------------------------
Paid-in capital in excess of par 14,795,865 211,235,489 22,611,225 74,359,276 19,608,071 100,508,996
- ---------------------------------------------------
Undistributed net investment income 5,296 3,256 11,439 83,872 20,277 5,998
- ---------------------------------------------------
Undistributed net realized gain (loss)
on investments 161,461 6,536,748 156,507 (56,959) (342,917) (19,280)
- ---------------------------------------------------
Net unrealized appreciation
on investments 2,056,767 94,297,603 2,912,378 3,285,099 223,596 _
- ------------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net Assets $17,019,402 $312,073,289 $25,691,570 $77,671,362 $19,509,047 $100,496,719
- ---------------------------------------------------=========== ============ =========== =========== =========== ============
CAPITAL STOCK, $0.00001 par value
Authorized 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 300,000,000
- ---------------------------------------------------
Issued and outstanding 1,315,076 19,273,261 2,099,271 7,430,912 1,957,569 100,515,911
- ---------------------------------------------------
NET ASSET VALUE, REDEMPTION PRICE,
AND OFFERING PRICE PER SHARE
(NET ASSETS/SHARES OUTSTANDING) $12.94 $16.19 $12.24 $10.45 $9.97 $1.00
=========== =========== =========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1998
Short/ U.S.
Small Cap Fixed Intermediate Government
Value Equity Balanced Income Fixed Income Obligations
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 231,420 $ 5,763,019 $ 234,028 _ _ _
Interest 77,004 2,622,646 601,268 $5,105,941 $1,306,579 $5,930,064
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
308,424 8,385,665 835,296 5,105,941 1,306,579 5,930,064
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees 96,035 2,151,925 147,073 461,166 99,747 275,046
- ----------------------------------------------
Fund administration and accounting fees 50,000 573,847 50,000 153,722 39,899 220,037
- ----------------------------------------------
Shareholder servicing fees 25,668 67,902 26,690 34,416 27,413 39,321
- ----------------------------------------------
Federal and state registration fees 14,015 30,837 14,308 15,475 11,351 26,105
- ----------------------------------------------
Professional fees 11,142 30,962 11,158 15,475 11,218 11,945
- ----------------------------------------------
Administrative services plan fees 10,604 261,349 16,721 73,799 18,251 _
- ----------------------------------------------
Custody fees 3,383 86,097 5,874 23,063 5,986 33,005
- ----------------------------------------------
Amortization of organization expenses 1,923 6,946 934 6,946 6,946 6,946
- ----------------------------------------------
Reports to shareholders 1,505 30,651 2,698 10,480 2,912 15,994
- ----------------------------------------------
Pricing fees 1,237 1,978 3,869 4,676 2,684 311
- ----------------------------------------------
Directors' fees 429 11,160 759 2,996 785 4,357
- ----------------------------------------------
Insurance 151 10,739 207 3,406 947 4,595
- ----------------------------------------------
Other expenses 452 3,851 572 1,685 1,382 1,057
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses before waiver 216,544 3,268,244 280,863 807,305 229,521 638,719
- ----------------------------------------------
Waiver of expenses (90,826) (313,626) (107,673) (124,288) (31,721) (36,249)
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Expenses 125,718 2,954,618 173,190 683,017 197,800 602,470
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME 182,706 5,431,047 662,106 4,422,924 1,108,779 5,327,594
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments 576,625 15,146,102 247,580 (25,309) 10,043 _
- ----------------------------------------------
Change in unrealized appreciation
on investments 1,932,576 51,301,415 2,925,211 4,616,812 476,475 _
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Gain on Investments 2,509,201 66,447,517 3,172,791 4,591,503 486,518 _
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,691,907 $71,878,564 $3,834,897 $9,014,427 $1,595,297 $5,327,594
========== ========== ========== ========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SMALL CAP VALUE FUND EQUITY FUND BALANCED FUND
-------------------------- ------------------------ ------------------------
JUNE 10, AUG. 6,
YEAR ENDED 1996<F1> YEAR ENDED YEAR ENDED YEAR ENDED 1996<F1>
MAR. 31, TO MAR. 31, MAR. 31, MAR. 31, TO
1998 MAR. 31, 1997 1998 1997 1998 MAR. 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 182,706 $ 65,818 $5,431,047 $5,308,437 $ 662,106 $ 109,468
- -------------------------------------------------
Net realized gain (loss) on investments 576,625 59,722 15,146,102 20,637,056 247,580 43,091
- -------------------------------------------------
Change in unrealized appreciation (depreciation)
on investments 1,932,576 124,191 51,301,415 8,274,849 2,925,211 (12,833)
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations 2,691,907 249,731 71,878,564 34,220,342 3,834,897 139,726
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (181,609) (65,097) (5,458,420) (5,313,779) (657,708) (103,973)
- -------------------------------------------------
Net capital gains (454,364) (20,522) (19,230,779) (17,157,052) (134,164) _
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions (635,973) (85,619) (24,689,199) (22,470,831) (791,872) (103,973)
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 9,529,746 7,322,097 36,250,380 39,307,623 14,375,680 11,063,418
- -------------------------------------------------
Proceeds from reinvestment of dividends 634,827 85,592 24,523,415 22,427,121 789,660 103,947
- -------------------------------------------------
Redemption of shares (2,373,895) (399,511) (55,089,677) (38,453,262) (3,411,519) (308,394)
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) from share transactions 7,790,678 7,008,178 5,684,118 23,281,482 11,753,821 10,858,971
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,846,612 7,172,290 52,873,483 35,030,993 14,796,846 10,894,724
- -------------------------------------------------
NET ASSETS:
Beginning of period 7,172,790 500 259,199,806 224,168,813 10,894,724 _
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
End of period $17,019,402 $7,172,790 $312,073,289 $259,199,806 $25,691,570 $10,894,724
- ------------------------------------------------- ========== ========== ========== ========== ========== ==========
Undistributed net investment income,
end of period $3,373 $2,276 $ 1,242 $ 28,615 $10,505 $6,107
========== ========== ========== ========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
<F1> Commencement of operations
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SHORT/INTERMEDIATE U.S. GOVERNMENT
FIXED INCOME FUND FIXED INCOME FUND OBLIGATIONS FUND
-------------------------- ------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAR. 31, MAR. 31, MAR. 31, MAR. 31, MAR. 31, MAR. 31,
1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 4,422,924 $ 3,493,559 $ 1,108,779 $1,077,899 $ 5,327,594 $ 4,940,378
- -------------------------------------------------
Net realized gain (loss) on investments (25,309) 231,327 10,043 (64,983) _ (3,242)
- -------------------------------------------------
Change in unrealized appreciation (depreciation)
on investments 4,616,812 (1,285,148) 476,475 (164,132) _ _
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets resulting
from operations 9,014,427 2,439,738 1,595,297 848,784 5,327,594 4,937,136
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (4,427,433) (3,598,700) (1,112,789) (1,105,302) (5,327,594) (4,940,378)
- -------------------------------------------------
Net capital gains _ _ _ _ _ _
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions (4,427,433) (3,598,700) (1,112,789) (1,105,302) (5,327,594) (4,940,378)
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 11,070,510 12,299,589 3,159,589 4,544,931 378,648,091 392,817,505
- -------------------------------------------------
Proceeds from reinvestment of dividends 4,382,227 3,579,341 1,063,195 1,088,509 158,162 443,533
- -------------------------------------------------
Redemption of shares (17,892,679) (15,537,577) (6,238,476) (6,390,503) (403,722,643)(355,559,420)
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) from share transactions (2,439,942) 341,353 (2,015,692) (757,063) (24,916,390) 37,701,618
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,147,052 (817,609) (1,533,184) (1,013,581) (24,916,390) 37,698,376
- -------------------------------------------------
NET ASSETS:
Beginning of period 75,524,310 76,341,919 21,042,231 22,055,812 125,413,109 87,714,733
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
End of period $77,671,362 $75,524,310 $19,509,047 $21,042,231 $100,496,719 $125,413,109
- ------------------------------------------------- ========== ========== ========== ========== ========== ==========
Undistributed net investment income,
end of period $81,858 $86,367 $18,263 $22,273 $3,984 $3,984
========== ========== ========== ========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS<F1>
SMALL CAP VALUE FUND EQUITY FUND
-------------------------- ---------------------------------------------------
JUNE 10, APRIL 10, JULY 1, 1994
YEAR ENDED 1996<F2> YEAR ENDED YEAR ENDED 1995<F2> TO
MAR. 31, TO MAR. 31, MAR. 31, TO APRIL 9,
1998 MAR. 31, 1997 1998 1997 MAR. 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.52 $10.00 $13.74 $13.07 $11.39 $10.48
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.19 0.15 0.29 0.30 0.28 0.21
- -------------------------------------------------
Net realized and unrealized gains on investments 2.88 0.58 3.50 1.63 2.13 1.48
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 3.07 0.73 3.79 1.93 2.41 1.69
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income 0.19 0.15 0.29 0.30 0.28 0.22
- -------------------------------------------------
Distributions from capital gains 0.46 0.06 1.05 0.96 0.45 0.56
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions 0.65 0.21 1.34 1.26 0.73 0.78
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $12.94 $10.52 $16.19 $13.74 $13.07 $11.39
- ------------------------------------------------- =========== =========== =========== =========== =========== ===========
TOTAL RETURN<F3> 29.60% 7.30% 28.89% 14.99% 21.52% 16.48%
- -------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $17,019 $7,173 $312,073 $259,200 $224,169 $161,323
- -------------------------------------------------
Ratio of net expenses to average net assets<F4> 1.11% 1.34% 1.03% 1.04% 0.99% 1.03%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4> 1.62% 2.15% 1.89% 2.17% 2.32% 2.50%
- -------------------------------------------------
Ratio of net expenses to average
net assets<F4><F5> 1.92% 3.76% 1.14% 1.10% 1.07% 1.62%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4><F5> 0.81% (0.27)% 1.78% 2.11% 2.24% 1.91%
- -------------------------------------------------
Portfolio turnover rate<F3> 16.54% 7.45% 15.87% 25.66% 26.60% 14.36%
- -------------------------------------------------
Average commission rate paid on
portfolio investment transactions<F6> $0.0600 $0.0662 $0.0603 $0.0677 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
<F1> 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.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
<F6> Required by regulations first effective for the fiscal year ended March 31, 1997
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS<F1>
EQUITY FUND (CON'T.) BALANCED FUND FIXED INCOME FUND
-------------------------- ------------------------ -------------------------
DEC. 13, 1992 AUG. 6, JULY 1, 1994
YEAR ENDED TO YEAR ENDED 1996<F2> YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, MAR. 31, TO MAR. 31, MAR. 31, MAR. 31,
1994 1993 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.55 $10.00 $10.41 $10.00 $ 9.84 $10.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.20 0.11 0.38 0.21 0.59 0.45
- -------------------------------------------------
Net realized and unrealized gains on investments 0.15 0.54 1.90 0.40 0.61 (0.15)
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 0.35 0.65 2.28 0.61 1.20 0.30
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income 0.20 0.10 0.38 0.20 0.59 0.46
- -------------------------------------------------
Distributions from capital gains 0.22 _ 0.07 _ _ _
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions 0.42 0.10 0.45 0.20 0.59 0.46
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $10.48 $10.55 $12.24 $10.41 $10.45 $ 9.84
- ------------------------------------------------- =========== =========== =========== =========== =========== ===========
TOTAL RETURN<F3> 3.34% 6.55% 22.34% 6.14% 12.50% 3.06%
- -------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $129,381 $111,059 $25,692 $10,895 $77,671 $75,524
- -------------------------------------------------
Ratio of net expenses to average net assets<F4> 1.04% 1.01% 0.88% 1.16% 0.89% 0.89%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4> 1.93% 1.90% 3.37% 3.25% 5.74% 4.48%
- -------------------------------------------------
Ratio of net expenses to average
net assets<F4><F5> 1.54% 1.32% 1.43% 3.04% 1.05% 1.00%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4><F5> 1.43% 1.59% 2.82% 1.37% 5.58% 4.37%
- -------------------------------------------------
Portfolio turnover rate<F3> 15.86% 4.94% 10.46% 5.92% 19.03% 12.66%
- -------------------------------------------------
Average commission rate paid on
portfolio investment transactions<F6> N/A N/A $0.0601 $0.0686 _ _
- -----------------------------------------------------------------------------------------------------------------------------------
<F1> 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.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
<F6> Required by regulations first effective for the fiscal year ended March 31, 1997
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS<F1>
FIXED INCOME FUND (CONT'D.)
-------------------------------------------------------------------
APRIL 10, JULY 1, 1994
1995<F2> TO YEAR ENDED DEC. 13, 1992
TO MAR. 31 APRIL 9, JUNE 30, TO JUNE 30,
1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<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<F3> 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<F4> 0.83% 0.87% 0.86% 0.79%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4> 5.94% 6.98% 6.52% 6.89%
- -------------------------------------------------
Ratio of net expenses to average
net assets<F4><F5> 0.96% 1.51% 1.41% 1.19%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4><F5> 5.81% 6.34% 5.97% 6.49%
- -------------------------------------------------
Portfolio turnover rate<F3> 37.35% 7.04% 13.09% 2.62%
- -------------------------------------------------
Average commission rate paid on
portfolio investment transactions<F6> N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
<F1> 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.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
<F6> Required by regulations first effective for the fiscal year ended March 31, 1997
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS<F1> (CONTINUED)
SHORT/INTERMEDIATE FIXED INCOME FUND
-----------------------------------------------------------------------------
APRIL 10, JULY 1, DEC. 13,
YEAR ENDED YEAR ENDED 1995<F2> 1994 YEAR ENDED 1992
MAR. 31, MAR. 31, TO TO JUNE 30, TO
1998 1997 MAR. 31, 1996 APRIL 9, 1995 1994 JUNE 30, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.73 $9.85 $9.66 $9.62 $10.18 $10.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.56 0.49 0.52 0.42 0.55 0.33
- -------------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.24 (0.10) 0.17 0.05 (0.56) 0.16
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 0.80 0.39 0.69 0.47 (0.01) 0.49
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income 0.56 0.51 0.50 0.43 0.55 0.31
- -------------------------------------------------
Distributions from capital gains _ _ _ _ _ _
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions 0.56 0.51 0.50 0.43 0.55 0.31
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $9.97 $9.73 $9.85 $9.66 $ 9.62 $10.18
- ------------------------------------------------- =========== =========== =========== =========== =========== ===========
TOTAL RETURN<F3> 8.37% 4.00% 7.24% 5.05% (0.22)% 5.00%
- -------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $19,509 $21,042 $22,056 $22,130 $21,938 $24,581
- -------------------------------------------------
Ratio of net expenses to average net assets<F4> 0.99% 0.97% 0.89% 0.88% 0.83% 0.79%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4> 5.54% 5.01% 5.34% 5.63% 5.44% 5.91%
- -------------------------------------------------
Ratio of net expenses to average
net assets<F4><F5> 1.15% 1.08% 1.02% 1.51% 1.38% 1.19%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4><F5> 5.38% 4.90% 5.21% 5.00% 4.89% 5.51%
- -------------------------------------------------
Portfolio turnover rate<F3> 26.58% 4.73% 41.45% 9.93% 20.52% 15.58%
- -------------------------------------------------
Average commission rate paid on
portfolio investment transactions<F6> _ _ N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
<F1> 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.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would
have been as indicated.
<F6> Required by regulations first effective for the fiscal year ended March 31, 1997
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS<F1> (CONTINUED)
U.S. GOVERNMENT OBLIGATIONS FUND
-----------------------------------------------------------------------------
APRIL 10, JULY 1,
YEAR ENDED YEAR ENDED 1995<F2> 1994 YEAR ENDED YEAR ENDED
MAR. 31, MAR. 31, TO TO JUNE 30, JUNE 30,
1998 1997 MAR. 31, 1996 APRIL 9, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05 0.04 0.03 0.03
- -------------------------------------------------
Net realized and unrealized gains (losses)
on investments - - - - - -
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 0.05 0.05 0.05 0.04 0.03 0.03
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income 0.05 0.05 0.05 0.04 0.03 0.03
- -------------------------------------------------
Distributions from capital gains - - - - - -
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions 0.05 0.05 0.05 0.04 0.03 0.03
- ------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------- =========== =========== =========== =========== =========== ===========
TOTAL RETURN<F3> 4.95% 4.76% 5.14% 3.51% 2.74% 2.72%
- -------------------------------------------------
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $100,497 $125,413 $87,715 $76,105 $89,195 $91,785
- -------------------------------------------------
Ratio of net expenses to average net assets<F4> 0.55% 0.58% 0.54% 0.63% 0.60% 0.61%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4> 4.83% 4.66% 5.12% 4.46% 2.68% 2.67%
- -------------------------------------------------
Ratio of net expenses to average
net assets<F4><F5> 0.58% 0.59% 0.59% 1.23% 1.13% 0.96%
- -------------------------------------------------
Ratio of net investment income to average
net assets<F4><F5> 4.80% 4.65% 5.07% 3.86% 2.15% 2.32%
- -------------------------------------------------
Portfolio turnover rate<F3> - - - - - -
- -------------------------------------------------
Average commission rate paid on
portfolio investment transactions<F6> - - N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
<F1> 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.
<F2> Commencement of operations
<F3> Not annualized
<F4> Annualized
<F5> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would
have been as indicated.
<F6> Required by regulations first effective for the fiscal year ended March 31, 1997
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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, 1998, the only
series presently authorized are the Small Cap Value Fund, the Equity Fund,
the Balanced Fund, the Fixed Income Fund, the Short/Intermediate Fixed Income
Fund, the U.S. Government Obligations Fund (individually referred to as a
"Fund" and collectively as the "Funds") and the Growth Fund. These financial
statements only present the financial position of the Funds.
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 commenced 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, 1998, reclassifications were
recorded to increase undistributed net investment income and decrease paid-in
capital in excess of par by $1,923, $2,014, $934, $2,014, $2,014 and $2,014 in
the Small Cap Value Fund, the Equity Fund, the Balanced Fund, the Fixed Income
Fund, the Short/Intermediate Fixed Income Fund and the U.S. Government
Obligations Fund, 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, 1998, each of the Fixed Income Fund, Short/Intermediate Fixed
Income Fund and U.S. Government Obligations Fund had federal income tax capital
loss carryforwards of $39,879, $342,917 and $19,280, respectively. The $39,879
federal income tax loss carryforward for the Fixed Income Fund expires as
follows: $31,650 in 2004 and $8,229 in 2006. The $342,917 federal income tax
loss carryforward for the Short/Intermediate Fixed Income Fund expires as
follows: $30,031 in 2002, $147,691 in 2003, $109,194 in 2004 and $56,001 in
2005. The $19,280 federal income tax loss carryforward for the U.S. Government
Obligations Fund expires as follows: $16,038 in 2003 and $3,242 in 2006. It is
management's intention to make no distribution of any future realized capital
gains until the federal income tax loss carryforwards are exhausted.
(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. Original issue discount is amortized over the expected life
of each applicable security.
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: 0.85% for the Small Cap Value Fund, 0.75% for the Equity Fund,
0.75% for the Balanced Fund, 0.60% for the Fixed Income Fund, 0.50% for the
Short/-Intermediate Fixed Income Fund and 0.25% for the U.S. Government
Obligations Fund. For the year ended March 31, 1998, advisory fees of
$62,141, $78,438, $38,430 and $9,975 were waived in the Small Cap Value Fund,
the Balanced Fund, the Fixed Income Fund and the Short/Intermediate Fixed
Income Fund, respectively.
First National Bank of Omaha also serves as custodian and transfer agent 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 payable
monthly, at an annual rate of 0.03% of each Fund's average daily net assets.
For the year ended March 31, 1998, custody fees of $3,383, $86,097, $5,874,
$23,063 and $5,986 were waived in the Small Cap Value Fund, the Equity Fund, the
Balanced Fund, the Fixed Income Fund and the Short/Intermediate Fixed Income
Fund, respectively. The transfer agent also receives compensation from each of
the Funds for such services.
Sunstone Financial Group, Inc. (the "Administrator") acts as Administrator for
each of the Funds. As compensation for its administrative and fund accounting
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 daily net assets. The Small Cap
Value Fund and the Balanced Fund are each subject to a $50,000 minimum annual
fee. For the year ended March 31, 1998, administrative fees of $20,000, $96,844,
$15,000, $25,895, $6,635 and $36,249 were waived in the Small Cap Value Fund,
the Equity Fund, the Balanced Fund, the Fixed Income Fund, the
Short/Intermediate Fixed Income Fund and the U.S. Government Obligations Fund,
respectively.
The Adviser and the Administrator may periodically volunteer to reduce all or a
portion of their fees with respect to one or more Funds. These waivers may be
terminated at any time. The Adviser and the Administrator may not seek
reimbursement of such voluntarily reduced fees at a later date. The reduction of
such fees will cause the yield of that Fund to be higher than it would be in the
absence of such reduction.
Sunstone Distribution Services, LLC (the "Distributor") acts as Distributor for
each of the Funds. 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
Distributor (each a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between the Distributor
and the Participating Organization. As of March 31, 1998, 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. Effective November 1, 1996, the Company entered into an agreement
under the Plan with the Adviser at an annual rate of 0.10% of the average daily
net assets serviced for each of the Small Cap Value Fund, the Equity Fund, the
Balanced Fund, the Fixed Income Fund and the Short/Intermediate Fixed Income
Fund. For the period ended March 31, 1998, fees of $10,604, $261,349, $16,721,
$73,799 and $18,251 were accrued under this agreement, respectively, and fees of
$5,302, $130,685, $8,361, $36,900 and $9,125 were waived by the Adviser,
respectively.
6.CAPITAL STOCK
The Company is 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 share-
holder 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 year ended March 31, 1998 were as
follows:
<TABLE>
<CAPTION>
SHORT/ U.S.
SMALL CAP FIXED INTERMEDIATE GOVERNMENT
VALUE EQUITY BALANCED INCOME FIXED INCOME OBLIGATIONS
FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Shares sold 781,847 2,375,188 1,284,222 1,077,720 317,106 378,648,091
- ----------------------------------------
Shares issued to holders in
reinvestment of dividends 51,971 1,679,612 68,840 427,624 107,312 158,162
- ----------------------------------------
Shares redeemed (200,574) (3,648,325) (300,447) (1,747,925) (628,537) (403,722,643)
- ---------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) 633,244 406,475 1,052,615 (242,581) (204,119) (24,916,390)
============= ============= ============= ============= ============= =============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Transactions in shares of the Funds for the period ended March 31, 1997 were as
follows:
<TABLE>
<CAPTION>
SHORT/ U.S.
SMALL CAP FIXED INTERMEDIATE GOVERNMENT
VALUE EQUITY BALANCED INCOME FIXED INCOME OBLIGATIONS
FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Shares sold 711,381 2,887,017 1,065,983 1,233,635 462,034 392,817,505
- ----------------------------------------
Shares issued to holders in
reinvestment of dividends 8,181 1,648,351 9,941 360,215 111,068 443,533
- ----------------------------------------
Shares redeemed (37,780) (2,817,814) (29,268) (1,554,091) (649,910) (355,559,420)
- ---------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) 681,782 1,717,554 1,046,656 39,759 (76,808) 37,701,618
============= ============= ============= ============= ============= =============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1998
7.INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the year
ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
SHORT/ U.S.
SMALL CAP FIXED INTERMEDIATE GOVERNMENT
VALUE EQUITY BALANCED INCOME FIXED INCOME OBLIGATIONS
FUND FUND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Purchases
U.S. Government - - $ 1,589,712 $7,153,453 $2,775,485 -
Other $7,938,948 $37,670,672 12,154,575 7,090,920 2,255,715 -
- ----------------------------------------------------------------------------------------------------------------
Sales
U.S. Government - - 500,000 8,180,953 1,001,143 -
Other 1,647,741 41,587,575 1,413,579 8,964,040 6,011,998 -
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1998, gross unrealized appreciation and depreciation of
investments were as follows:
<TABLE>
<CAPTION>
SHORT/ U.S.
SMALL CAP FIXED INTERMEDIATE GOVERNMENT
VALUE EQUITY BALANCED INCOME FIXED INCOME OBLIGATIONS
FUND FUND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Appreciation $2,270,948 $97,508,063 $3,190,639 $3,420,697 $278,883 -
- ------------------
(Depreciation) (214,181) (3,210,460) (278,261) (135,598) (55,287) -
- ------------------ ----------- ----------- ----------- ----------- ----------- -----------
NET APPRECIATION
ON INVESTMENTS $2,056,767 $94,297,603 $2,912,378 $3,285,099 $223,596 -
========== ========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------
As of March 31, 1998, the cost of investments for federal income tax purposes is
substantially the same as for financial statement purposes.
For the period ended March 31, 1998, 100%, 100% and 35% of dividends paid from
net investment income, excluding short-term capital gains, qualifies for the
dividends received deduction available to corporate shareholders of the Small Cap
Value Fund, the Equity Fund and the Balanced Fund, respectively.
</TABLE>
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 Small Cap Value Fund, the
Equity Fund, the Balanced Fund, the Fixed Income Fund, the Short/Intermediate
Fixed Income Fund and the U.S. Government Obligations Fund; collectively, the
"Funds"), including the schedules of portfolio investments as of March 31, 1998,
and the related statements of operations and 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, 1998, 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, 1998, and 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 9, 1998
This page intentionally left blank.
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 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.
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.
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, 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.
"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.
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.
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.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
(1) Included in Part A:
A. Audited Financial Highlights with respect to the Small Cap
Value Fund, Equity Fund, Balanced Fund, Fixed Income Fund,
Short/Intermediate Fixed Income Fund and U.S. Government
Obligations Fund for the fiscal year ended March 31, 1998.
(2) Included in Part B:
A. First Omaha Funds, Inc.'s Schedules of Portfolio Investments
as of March 31, 1998. Statements of Assets and Liabilities
as of March 31, 1998. Statements of Operations for the
period ended March 31, 1998. Statements of Changes in Net
Assets for the periods ended March 31, 1997 and 1998.
Financial Highlights. Notes to Financial Statements.
(b) Exhibits
EXHIBIT
NO. DESCRIPTION
- ------- -----------
1.1 Articles of Incorporation (incorporated by reference to exhibit 1.1 to
PEA No. 5 on Form N-1A Registration Statement filed July 23, 1996)
1.2 Amendment to Articles of Incorporation, dated December 19, 1994
(incorporated by reference to exhibit 1.2 to PEA No. 5 on Form N-1A
Registration Statement filed July 23, 1996)
1.3 Amendment to Articles of Incorporation, dated January 31, 1996
(incorporated by reference to exhibit 1.3 to PEA No. 5 on Form N-1A
Registration Statement filed July 23, 1996)
1.4 Amendment to Articles of Incorporation, dated July 29, 1996
(incorporated by reference to exhibit 1.4 to PEA No. 6 on Form N-1A
Registration Statement filed December 10, 1996)
2. Bylaws (incorporated by reference to exhibit 2 to PEA No. 5 on Form N-
1A Registration Statement filed July 23, 1996)
3. None.
4. None.
5.1 Investment Advisory Agreement, as amended (incorporated by reference
to exhibit 5.1 to PEA No. 5 on Form N-1A Registration Statement filed
July 23, 1996)
5.2 Investment Advisory Agreement relating to the First Omaha Growth Fund
(incorporated by reference to exhibit 5.2 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
6.1 Distribution Agreement (incorporated by reference to exhibit 6 to
original Form N-1A Registration Statement filed November 1, 1994)
(superceded)
6.2 Amended Schedule A to the Distribution Agreement by and between First
Omaha Funds, Inc. and Sunstone Financial Group, Inc. (incorporated by
reference to exhibit 6.2 to PEA No. 5 on Form N-1A Registration
Statement filed July 23, 1996) (superceded)
6.3 Distribution Agreement by and between First Omaha Funds, Inc. and
Sunstone Distribution Services, LLC (incorporated by reference to
exhibit 6.3 to PEA No. 7 on Form N-1A Registration Statement filed
July 22, 1997)
6.4 Amended and Restated Schedule A to the Distribution Agreement by and
between the Registrant and Sunstone Distribution Services, LLC
(incorporated by reference to exhibit 6.4 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
7. None.
8.1 Custodian Agreement, as amended (incorporated by reference to exhibit
8.1 to PEA No. 5 on Form N-1A Registration Statement filed July 23,
1996)
8.2 Amended Schedule A to the Custodian Agreement (incorporated by
reference to exhibit 8.2 to PEA No. 8 on Form N-1A Registration
Statement filed January 9, 1998)
9.1 Administration and Fund Accounting Agreement (incorporated by
reference to exhibit 9.1 to PEA No. 7 on Form N-1A Registration
Statement filed July 22, 1997)
9.2 Form of Amended and Restated Schedule A to the Administration and Fund
Accounting Agreement by and between First Omaha Funds, Inc. and
Sunstone Financial Group, Inc. (incorporated by reference to exhibit
9.2 to PEA No. 5 on Form N-1A Registration Statement filed July 23,
1996)
9.3 Administrative Services Plan and Servicing Agreement (incorporated by
reference to exhibit 9.3 to PEA No. 5 on Form N-1A Registration
Statement filed July 23, 1996)
9.4 Transfer Agency Agreement, as amended (incorporated by reference to
exhibit 9.4 to PEA No. 5 on Form N-1A Registration Statement filed
July 23, 1996)
9.5 Form of Amended and Restated Schedule A to the Transfer Agency
Agreement By and Between First Omaha Funds, Inc. and First National
Bank of Omaha (incorporated by reference to exhibit 9.5 to PEA No. 5
on Form N-1A Registration Statement filed July 23, 1996)
9.6 Form of Amended and Restated Servicing Agreement to Administrative
Services Plan (incorporated by reference to exhibit 9.6 to PEA No. 6
on Form N-1A Registration Statement filed December 10, 1996)
9.7 Amended and Restated Administration and Fund Accounting Agreement by
and between the Registrant and Sunstone Financial Group, Inc. (incor-
porated by reference to exhibit 9.7 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
9.8 Amended and Restated Schedule A to the Transfer Agency Agreement by
and between the Registrant and First National Bank of Omaha (incor-
porated by reference to exhibit 9.8 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
9.9 Amended Appendix A to the Servicing Agreement to Administrative
Services Plan (incorporated by reference to exhibit 9.9 to PEA
No. 8 on Form N-1A Registration Statement filed January 9, 1998)
10. Opinion and Consent of Messrs. Cline, Williams, Wright, Johnson &
Oldfather (incorporated by reference to exhibit 10. to PEA No. 5 on
Form N-1A Registration Statement filed July 23, 1996)
11. Consent of Independent Certified Public Accountants
12. None.
13. Subscription Agreement of Miriam M. Allison (incorporated by reference
to exhibit 13. to PEA No. 5 on Form N-1A Registration Statement filed
July 23, 1996)
14.1 Regular Individual Retirement Account Disclosure Statement and
Custodial Account Agreement
14.2 SIMPLE Individual Retirement Account Disclosure Statement and
Custodial Account Agreement (incorporated by reference to exhibit
14.2 to PEA No. 7 on Form N-1A Registration Statement filed July 22,
1997)
14.3 Roth Individual Retirement Account Disclosure Statement and Custodial
Account Agreement
14.4 Education Individual Retirement Custodial Account Disclosure Statement
15. Distribution and Service Plan (incorporated by reference to exhibit
15. to PEA No. 5 on Form N-1A Registration Statement filed July 23,
1996)
16. Computation of Average Annual Total Return (incorporated by reference
to exhibit 16 to PEA No. 8 on Form N-1A Registration Statement filed
January 9, 1998)
17. Financial Data Schedules (6)
18. None.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 30, 1998
- -------------- --------------------
U.S. Government Obligations Fund 127
Equity Fund 1,544
Short/Intermediate Fixed Income Fund 175
Fixed Income Fund 271
Small Cap Value Fund 215
Balanced Fund 109
Growth Fund 11
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) 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 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 ("First National") is the investment adviser
for First Omaha Small Cap Value Fund, First Omaha Equity Fund, First Omaha
Balanced Fund, First Omaha Fixed Income Fund, First Omaha Short/Intermediate
Fixed Income Fund and First Omaha U.S. Government Obligations Fund. FNC Trust
Group, n.a. ("FNC"), a subsidiary of First National Colorado, Inc. is the
investment adviser for the First Omaha Growth Fund. Both First National and
First National Colorado, Inc. are subsidiaries of First National of Nebraska,
Inc., a Nebraska corporation with total assets of approximately $6.9 billion
as of December 31, 1996. The Advisers provide a full range of financial and
trust services to businesses, individuals, and government entities. The
Advisers serve Nebraska, as well as other areas of the Midwest. As of December
31, 1997, First National's Trust Division had approximately $8.0 billion of
assets under administration, including approximately $3.3 billion under
management. As of December 31, 1997, FNC had $225 million of assets under
administration, including approximately $170 million 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 Distribution Services, LLC currently serves as
distributor of the shares of Haven Capital Management Trust, Green
Century Funds, The JohnsonFamily Funds, the Marsico Investment Fund
and Northern Funds Trust.
(b) To the best of Registrant's knowledge, the directors and executive
officers of Sunstone Distribution Services, LLC, distributor for
Registrant, are as follows:
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
- ------------------ ------------- ----------
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
Mary M. Tenwinkel Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Records relating to Sunstone Financial Group, Inc.'s functions as
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 First National, One First National Center,
Omaha, Nebraska 68102, FNC, 1701 23rd Avenue, Greeley, Colorado 80632, 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.
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).
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 24th day of June, 1998. No other material event
requiring prospectus disclosure has occurred since the later of the three dates
specified by Rule 485(b).
FIRST OMAHA FUNDS, INC.
By: /s/David P. Greer*
-------------------------
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 June 24, 1998.
Signature Title
--------- -----
/s/ David P. Greer*
- ----------------------- President, Principal
David P. Greer Executive, Financial
& Accounting Officer
& Director
/s/ Joseph Caggiano*
- ----------------------- Director
Joseph Caggiano
*/s/Marc M Diehl
/s/ Robert A. Reed* ----------------------------------
- ----------------------- Director by Marc M Diehl, attorney-in-fact
Robert A. Reed
/s/ Harry A. Koch, Jr.*
- ---------------------- Director
Harry A. Koch, Jr.
/s/ Gary Witt *
- ---------------------- Director
Gary Witt
As adopted by the Board of Directors of First Omaha Funds, Inc. on August 26,
1997.
* * *
Power of Attorney
RESOLVED, that the Directors and officers of First Omaha Funds, Inc. who
may be required to execute any amendment to the Registration Statement of
First Omaha Funds, Inc. be, and each of them hereby is, authorized to execute
a Power of Attorney appointing David P. Greer, Richard P. Snyder, Marc M
Diehl and each of them, their true and lawful attorney or attorneys, to
execute in their name, place and stead, in their capacity as Director or
officer, or both, of the First Omaha Funds, Inc. any and all amendments to
said Registration Statement, and all instruments necessary or incidental in
connection therewith, and to file the same with the Securities and Exchange
Commission.
* * *
FIRST OMAHA FUNDS, INC.
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, David Greer, hereby
constitutes and appoints, Richard Snyder and Marc Diehl and each of them, his
true and lawful attorney, to execute in his name, place and stead, in his
capacity as Director and Officer of First Omaha Funds, Inc., the Registration
Statement and any amendments thereto and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities
and Exchange Commission and with the states; and said attorney shall have full
power of substitution and resubstitution.
DATED: August 26, 1997
/s/ David Greer
- ---------------
David Greer
FIRST OMAHA FUNDS, INC.
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Joseph Caggiano,
hereby constitutes and appoints, David Greer, Richard Snyder and Marc Diehl and
each of them, his true and lawful attorney, to execute in his name, place and
stead, in his capacity as Director of First Omaha Funds, Inc., the Registration
Statement and any amendments thereto and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities
and Exchange Commission and with the states; and said attorney shall have full
power of substitution and resubstitution.
DATED: August 26, 1997
/s/ Joseph Caggiano
- ---------------
Joseph Caggiano
FIRST OMAHA FUNDS, INC.
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Robert Reed,
hereby constitutes and appoints, David Greer, Richard Snyder and Marc Diehl and
each of them, his true and lawful attorney, to execute in his name, place and
stead, in his capacity as Director of First Omaha Funds, Inc., the Registration
Statement and any amendments thereto and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities
and Exchange Commission and with the states; and said attorney shall have full
power of substitution and resubstitution.
DATED: August 26, 1997
/s/ Robert Reed
- ---------------
Robert Reed
FIRST OMAHA FUNDS, INC.
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Harry Koch,
hereby constitutes and appoints, David Greer, Richard Snyder and Marc Diehl and
each of them, his true and lawful attorney, to execute in his name, place and
stead, in his capacity as Director of First Omaha Funds, Inc., the Registration
Statement and any amendments thereto and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities
and Exchange Commission and with the states; and said attorney shall have full
power of substitution and resubstitution.
DATED: August 26, 1997
/s/ Harry Koch
- ---------------
Harry Koch
FIRST OMAHA FUNDS, INC.
POWER OF ATTORNEY
Know All Men by These Presents, that the undersigned, Gary Witt,
hereby constitutes and appoints, David Greer, Richard Snyder and Marc Diehl and
each of them, his true and lawful attorney, to execute in his name, place and
stead, in his capacity as Director of First Omaha Funds, Inc., the Registration
Statement and any amendments thereto and all instruments necessary or
incidental in connection therewith, and to file the same with the Securities
and Exchange Commission and with the states; and said attorney shall have full
power of substitution and resubstitution.
DATED: August 26, 1997
/s/ Gary Witt
- ---------------
Gary Witt
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
1.1 Articles of Incorporation (incorporated by reference to exhibit 1.1 to
PEA No. 5 on Form N-1A Registration Statement filed July 23, 1996)
1.2 Amendment to Articles of Incorporation, dated December 19, 1994
(incorporated by reference to exhibit 1.2 to PEA No. 5 on Form N-1A
Registration Statement filed July 23, 1996)
1.3 Amendment to Articles of Incorporation, dated January 31, 1996
(incorporated by reference to exhibit 1.3 to PEA No. 5 on Form N-1A
Registration Statement filed July 23, 1996)
1.4 Amendment to Articles of Incorporation, dated July 29, 1996
(incorporated by reference to exhibit 1.4 to PEA No. 6 on Form N-1A
Registration Statement filed December 10, 1996)
2. Bylaws (incorporated by reference to exhibit 2 to PEA No. 5 on Form N-
1A Registration Statement filed July 23, 1996)
3. None.
4. None.
5.1 Investment Advisory Agreement, as amended (incorporated by reference
to exhibit 5.1 to PEA No. 5 on Form N-1A Registration Statement filed
July 23, 1996)
5.2 Investment Advisory Agreement relating to the First Omaha Growth Fund
(incorporated by reference to exhibit 5.2 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
EXHIBIT
NO. DESCRIPTION
- ------- -----------
6.1 Distribution Agreement (incorporated by reference to exhibit 6 to
original Form N-1A Registration Statement filed November 1, 1994)
(superceded)
6.2 Amended Schedule A to the Distribution Agreement by and between First
Omaha Funds, Inc. and Sunstone Financial Group, Inc. (incorporated by
reference to exhibit 6.2 to PEA No. 5 on Form N-1A Registration
Statement filed July 23, 1996) (superceded)
6.3 Distribution Agreement by and between First Omaha Funds, Inc. and
Sunstone Distribution Services, LLC (incorporated by reference to
exhibit 6.3 to PEA No. 7 on Form N-1A Registration Statement filed
July 22, 1997)
6.4 Amended and Restated Schedule A to the Distribution Agreement by and
between the Registrant and Sunstone Distribution Services, LLC
(incorporated by reference to exhibit 6.4 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
7. None.
8.1 Custodian Agreement, as amended (incorporated by reference to exhibit
8.1 to PEA No. 5 on Form N-1A Registration Statement filed July 23,
1996)
8.2 Amended Schedule A to the Custodian Agreement (incorporated by
reference to exhibit 8.2 to PEA No. 8 on Form N-1A Registration
Statement filed January 9, 1998)
9.1 Administration and Fund Accounting Agreement (incorporated by
reference to exhibit 9.1 to PEA No. 7 on Form N-1A Registration
Statement filed July 22, 1997)
9.2 Form of Amended and Restated Schedule A to the Administration and Fund
Accounting Agreement by and between First Omaha Funds, Inc. and
Sunstone Financial Group, Inc. (incorporated by reference to exhibit
9.2 to PEA No. 5 on Form N-1A Registration Statement filed July 23,
1996)
9.3 Administrative Services Plan and Servicing Agreement (incorporated by
reference to exhibit 9.3 to PEA No. 5 on Form N-1A Registration
Statement filed July 23, 1996)
9.4 Transfer Agency Agreement, as amended (incorporated by reference to
exhibit 9.4 to PEA No. 5 on Form N-1A Registration Statement filed
July 23, 1996)
9.5 Form of Amended and Restated Schedule A to the Transfer Agency
Agreement By and Between First Omaha Funds, Inc. and First National
Bank of Omaha (incorporated by reference to exhibit 9.5 to PEA No. 5
on Form N-1A Registration Statement filed July 23, 1996)
9.6 Form Of Amended and Restated Servicing Agreement to Administrative
Services Plan (incorporated by reference to exhibit 9.6 to PEA No. 6
on Form N-1A Registration Statement filed December 10, 1996)
9.7 Amended and Restated Administration and Fund Accounting Agreement by
and between the Registrant and Sunstone Financial Group, Inc. (incor-
porated by reference to exhibit 9.7 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
9.8 Amended and Restated Schedule A to the Transfer Agency Agreement by
and between the Registrant and First National Bank of Omaha (incor-
porated by reference to exhibit 9.8 to PEA No. 8 on Form N-1A
Registration Statement filed January 9, 1998)
9.9 Amended Appendix A to the Servicing Agreement to Administrative
Services Plan (incorporated by reference to exhibit 9.9 to PEA
No. 8 on Form N-1A Registration Statement filed January 9, 1998)
10. Opinion and Consent of Messrs. Cline, Williams, Wright, Johnson &
Oldfather (incorporated by reference to exhibit 10. to PEA No. 5 on
Form N-1A Registration Statement filed July 23, 1996)
11. Consent of Independent Certified Public Accountants
12. None.
13. Subscription Agreement of Miriam M. Allison (incorporated by reference
to exhibit 13. to PEA No. 5 on Form N-1A Registration Statement filed
July 23, 1996)
14.1 Regular Individual Retirement Account Disclosure Statement and
Custodial Account Agreement
14.2 SIMPLE Individual Retirement Account Disclosure Statement and
Custodial Account Agreement (incorporated by reference to exhibit
14.2 to PEA No. 7 on Form N-1A Registration Statement filed July 22,
1997)
14.3 Roth Individual Retirement Account Disclosure Statement and Custodial
Account Agreement
14.4 Education Individual Retirement Custodial Account Disclosure Statement
15. Distribution and Service Plan (incorporated by reference to exhibit
15. to PEA No. 5 on Form N-1A Registration Statement filed July 23,
1996)
16. Computation of Average Annual Total Return (incorporated by reference
to exhibit 16 to PEA No. 8 on Form N-1A Registration Statement filed
January 9, 1998)
17. Financial Data Schedules (6)
18. None.
CONSENT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
First Omaha Funds, Inc.
We consent to the use of our reports incorporated herein and to the reference
to our Firm under the headings "General Information" in the Prospectus and
"Independent Auditors" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
July 2, 1998
REGULAR INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT AND
CUSTODIAL ACCOUNT AGREEMENT
FIRST OMAHA FAMILY OF FUNDS
(LOGO)
REGULAR INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
GENERAL
Your Regular Individual Retirement Account ("IRA") is a custodial account for
the benefit of you or your beneficiaries. The Custodian of the IRA is named on
the IRA Application.
The following information is being provided to you in accordance with the
requirements of the Internal Revenue Code. Please read it, together with the
Individual Retirement Custodial Account Agreement and the prospectus or other
offering documents for the investments which you have chosen for investment of
your IRA contributions. Because the rules with respect to IRAs are very complex,
and because misunderstanding or disregarding the rules may have serious tax
implications, you should consult your own tax adviser if you have questions
about the information contained in this Disclosure Statement. Further
information can also be obtained from any district office of the Internal
Revenue Service. This Account Agreement and Disclosure Statement will be amended
from time to time for changes in applicable law.
WHAT IS AN IRA?
An IRA is a trust or custodial account created or organized in the United States
for the exclusive benefit of an individual and his or her beneficiaries. Under
an IRA, you defer federal income taxes on the earnings on the amount you invest,
and in the case of deductible contributions to an IRA, on the amount you invest
(up to certain limits). State income tax treatment of IRAs varies.
WHAT TYPES OF IRAS ARE AVAILABLE THROUGH
FIRST OMAHA FUNDS?
A Regular IRA Account may be established for investment of tax-deductible or
non-deductible contributions made by an employed or self-employed individual.
You may also transfer funds to a Regular IRA Account from an existing IRA with
another custodian or roll over distributions from an employee-sponsored
qualified plan.
A Spousal IRA Account is used for investment of tax-deductible or non-deductible
contributions made by a Regular IRA shareholder on behalf of a spouse whose
taxable compensation is less than the other spouse's.
A Rollover IRA Account is used for deferring tax on an eligible rollover
distribution from another individual retirement account, individual retirement
annuity, or an employer-sponsored qualified retirement plan.
A SEP-IRA is a simplified employee pension by which an employer makes
contributions to a SEP-IRA on behalf of an employee.
If these payments are structured correctly, the payments are excluded from the
employee's gross income.
A SIMPLE IRA is an IRA created pursuant to a Savings Incentive Match Plan for
Employees of Small Employers, also called a SIMPLE Plan. Your employer must
establish the SIMPLE Plan and your SIMPLE IRA may only receive contributions
made by your employer on your behalf under the terms of the employer's SIMPLE
Plan and transfers or rollovers from other SIMPLE IRAs. No other contributions
can be accepted.
A Roth IRA is an IRA to which, beginning in 1998, non-deductible contributions
are made. If distributions from the Roth IRA are "qualified distributions," the
distributions, even of earnings in the account which have never been taxed, are
not includible in the recipient's income. This Disclosure Statement and Account
Agreement are applicable to a Regular IRA. If you desire to establish a SIMPLE
IRA or a Roth IRA, please contact the First Omaha Family of Funds, P.O. Box
419022, Kansas City, MO 64141-6022 or call 1-800-OMAHA-03 for the appropriate
forms.
An Education IRA is an IRA established, beginning in 1998, for a child and to
which non-deductible contributions of up to $500 annually may be contributed
until the child reaches age 18. Earnings in the Education IRA accumulate free of
tax. Distribu tions from the Education IRA during the year are tax-free unless
they exceed the child's qualified higher education expenses during the year.
WHO IS ELIGIBLE TO SET UP A REGULAR
INDIVIDUAL RETIREMENT ACCOUNT?
All employed people under age 70 1/2 may contribute to a Regular IRA. If you
have retired from a job but have earned income, you may contribute to a Regular
IRA. You cannot make deductible contributions in the calendar year in which you
reach 70 1/2 or in subsequent years, but you may make rollovers into a Regular
IRA.
Additionally, your spouse may establish a separate IRA. You can contribute to a
spousal Regular IRA for your spouse if all of the following conditions are met:
A. You must be married at the end of the tax year.
B. Your spouse must be under age 70 1/2 at the end of the tax year.
C. You must file a joint return for the tax year.
D. You must have taxable compensation for the year, and
E. Your spouse's taxable compensation for the year is less
than yours.
AM I ELIGIBLE TO MAKE TAX-DEDUCTIBLE
CONTRIBUTIONS TO A REGULAR OR SPOUSAL IRA?
For 1997, the amount of the deduction you may take for contributions to a
Regular IRA depends upon whether you or your spouse is an active participant in
an employer retirement plan.
If you are single, you may fully deduct your contributions to a Regular IRA if
you are not covered by an employer retirement plan. An employer retirement plan
includes a qualified pension, profit-sharing, 401(k), stock bonus or qualified
annuity plan, a plan established for its employees by the federal, state or
local government, other than an eligible deferred compensation plan (Section 457
plan), a simplified employee pension plan (a "SEP"), a 403(b) arrangement
maintained by a tax-exempt organization or public schools, or a SIMPLE Plan. The
Form W-2 you receive from your employer at the end of the year should have a
checkmark in the "Pension Plan" box if you are covered by a retirement plan.
For 1997, if you or your spouse are an active participant in such
an employer retirement plan, your deductible amount is determined as follows:
A. If your adjusted gross income (AGI) is $25,000 or less ($40,000 for a
married couple filing a joint return and $0 for a married person filing
separately), any contribution up to the maximum amount is deductible.
B. If your AGI is $35,000 or more ($50,000 for a married couple filing a joint
return and $10,000 for a married person filing
separately), no IRA contribution is deductible.
C. If your AGIis between $25,000 and $35,000 ($40,000 and $50,000 for a
married couple filing a joint return and $0 to $10,000 for a married person
filing separately), the deductible amount is reduced. The reduction is
$0.20 for each dollar of AGI over $25,000 ($40,000 for a married couple
filing a joint return and $0 for a married person filing separately). The
deduction will not be reduced below $200 unless it is eliminated entirely.
The active participant status of one spouse may affect the IRA deduction limit
for contributions attributable to the other spouse, unless the married couple
lives apart. Married individuals who live apart for an entire year are treated
as single taxpayers for the purpose of determining the deductibility of IRA
contributions if: (1) separate returns are filed for such year, and (2) they do
not live together at any time during such taxable year.
For 1998 and subsequent years, your deduction limit depends upon whether you are
an active participant in an employer's plan. Generally speaking, if you are not
an active participant but your spouse is, your deduction will not be limited due
to the spouse's active participation. However, if your joint income exceeds
$150,000 but is less than $160,000 and your spouse is an active participant,
your deduction will be limited, and the deduction is not allowed if your joint
income exceeds $160,000. For 1998 and subsequent years, if you are an active
participant in an employer's retirement plan, and if your adjusted gross income
(AGI) is less than a lower limit specified in the table below, you will still
have a full deduction of your IRA contribution. If your AGI is between the lower
limit and the upper limit specified below, you may have a partial deduction, and
if your AGI exceeds the upper limit, you will have no deduction. For 1998, the
lower and upper limits are as follows, depending upon your filing status:
FILING STATUS: LOWER LIMIT UPPER LIMIT
- --------------------------------------------------------------
Married Filing Jointly $50,000 $60,000
- --------------------------------------------------------------
All Other Taxpayers Except $30,000 $40,000
Married Filing Separately
- --------------------------------------------------------------
Married Filing Separately $0 $10,000
- --------------------------------------------------------------
For subsequent years, the lower and upper limits are adjusted as follows:
MARRIED FILING JOINTLY
YEAR LOWER LIMIT UPPER LIMIT
- -----------------------------------------
1999 $51,000 $61,000
- -----------------------------------------
2000 $52,000 $62,000
- -----------------------------------------
2001 $53,000 $63,000
- -----------------------------------------
2002 $54,000 $64,000
- -----------------------------------------
2003 $60,000 $70,000
- -----------------------------------------
2004 $65,000 $75,000
- -----------------------------------------
2005 $70,000 $80,000
- -----------------------------------------
2006 $75,000 $85,000
- -----------------------------------------
2007 and later $80,000 $100,000
- -----------------------------------------
OTHER TAXPAYERS EXCEPT MARRIED FILING SEPARATELY
YEAR LOWER LIMIT UPPER LIMIT
- -----------------------------------------
1999 $31,000 $41,000
- -----------------------------------------
2000 $32,000 $42,000
- -----------------------------------------
2001 $33,000 $43,000
- -----------------------------------------
2002 $34,000 $44,000
- -----------------------------------------
2003 $40,000 $50,000
- -----------------------------------------
2004 $45,000 $55,000
- -----------------------------------------
2005 and later $50,000 $60,000
- -----------------------------------------
For married individuals filing a separate return, the lower limit remains zero
and the upper limit remains $10,000 for all years.
IRS Publication 590, "Individual Retirement Arrangements," is available from
your local Internal Revenue Service office and provides worksheets and detailed
examples for calculating the amount of your deductible and non-deductible
contributions. The amount of the partial deduction will never be less than $200.
WHAT IS THE MAXIMUM DEDUCTIBLE CONTRIBUTION
I CAN MAKE TO A REGULAR OR SPOUSAL IRA?
The discussion above explains whether you are eligible to make tax-deductible
contributions to a Regular or Spousal IRA. If you are eligible to make only
partially deductible contributions, the discussion explains how you calculate
the amount of your deduction. Contributions to a Roth IRA, other than rollover
or conversion contributions, reduce the maximum contribution you can make to
your Regular IRA.
If you are eligible to make fully deductible contributions, up to $2,000 or 100%
of your compensation, whichever is less, can be contributed as a deductible
contribution to a Regular IRA. Annual compensation must be either wages, salary,
or self-employed income received during the year. Income from investment
sources, such as interest, dividends, or rent, generally does not qualify.
An eligible individual may also contribute and deduct up to a combined maximum
of $4,000 to that individual's Regular IRA and to the Spousal IRA created on
behalf of that individual's spouse. You must file a joint return for that year
and create a Spousal IRA to qualify for the larger deduction. Under IRS rules,
the investment can be split up in any way as long as not more than $2,000 is
contributed to either account.
You need not itemize other deductions in order to deduct IRA contributions. All
regular contributions must be in cash. You may not make regular contributions of
property such as stock or real estate.
If you have more than one IRA, the maximum deductible limits apply to the total
contributions to all of your IRAs and to the deductible voluntary contributions.
MAY I MAKE NON-DEDUCTIBLE CONTRIBUTIONS TO AN IRA?
If you aren't eligible to make deductible contributions to a Regular or Spousal
IRA because of the rules previously described (you or, in 1997, your spouse is a
participant in an employer retirement plan and your income exceeds a specified
amount) you may still make non-deductible contributions to your Regular or
Spousal IRA. Also, you may elect to treat an otherwise deductible IRA
contribution as non-deductible.
If you choose to make non-deductible IRA contributions, the maximum amount that
may be contributed is the same as is permitted as a deductible contribution by
an individual who is not an active participant in an employer-sponsored plan.
Thus, the maximum contribution is $2,000, or a combined $4,000 for an
individual's and Spousal IRAs. The maximum limits for non-deductible
contributions are reduced by the amount of any tax-deductible contributions you
are entitled to make. Contributions to a Roth IRA, other than rollover or
conversion contributions also reduce the maximum contribution you can make to
your Regular IRA. None of the earnings on your contributions, even your non-
deductible contributions, will be taxed until they are distributed.
If you make non-deductible contributions, you must report them on Form 8606 when
you file your tax return. You must file a Form 8606 to designate non-deductible
contributions, even if you do not have to file a tax return for the year. You
are subject to a penalty of $50 for each failure to file Form 8606 unless you
show that failure to file was due to reasonable cause. If you overstate the
amount of non-deductible contributions for a year, you are subject to a penalty
of $100 for each overstatement unless you show reasonable cause for the
overstatement. If you are married and your spouse also chooses to make a non-
deductible IRA contribution, your spouse must report the amount on a separate
Form 8606.
DO MARRIED COUPLES WITH TWO INCOMES
CONTRIBUTE TO ONE OR TWO REGULAR IRAS?
Each individual must establish a separate Regular IRA account. Contributions are
based on the compensation of each person, and each contribution is eligible for
a separate tax deduction. The application must be completed and signed by each
individual.
HOW ARE CONTRIBUTIONS MADE TO A REGULAR IRA BY A SPOUSE?
A separate Regular IRA account must be established in the name of the spouse in
order to take advantage of the additional deductible contribution, and each
account will have its own number. The spouse must be under age 701/2 and his or
her compensation must have been less than yours.
WHEN ARE CONTRIBUTIONS DUE?
To qualify as a deductible contribution, your contribution to a Regular or
Spousal Regular IRA for any year must be made no later than the date required
for filing your federal income tax return for that year, without regard to any
extensions. This date is generally April 15.
CAN I MOVE MONEY FROM AN EXISTING REGULAR IRA
INTO MY FIRST OMAHA FUNDS IRA?
Yes. If you have made contributions to another Regular IRA you may invest all or
part of the assets of that account in your First Omaha Funds Regular IRA, except
that special rollover and transfer rules apply to SIMPLE IRAs. Your investment
may be made in one of the following ways:
A. ROLLOVER. You may roll over a distribution which you have received from a
Regular IRA invested with one custodian or trustee for investment in
another Regular IRA. The amount may be all or part of your current Regular
IRA. You must complete the transaction within 60 days after receiving the
distribution to avoid both income and penalty taxes. You may "roll over"
the assets of an IRA only once each year.
B. TRANSFER. You may authorize one Regular IRA custodian or trustee to
transfer money directly to another so that you do not receive the
distribution. Complete the Transfer form and the Application and contact
your existing custodian or trustee for any special requirements. Upon
receipt of your Application and Transfer form, we will send the required
authorization to your custodian on your behalf. The custodian or trustee
will then transfer the assets directly to your First Omaha Funds Regular
IRA. Unlike the "rollover" method, you can "transfer" assets as often as
you would like. There is no additional tax deduction for a rollover or
transfer; you simply preserve the tax deferral on the amount being
transferred.
You may only roll over or transfer amounts from a SIMPLE IRA to this Regular IRA
after the expiration of a 2-year period beginning on the date you first
participated in your employer's SIMPLE Plan. If you attempt to roll over amounts
held in a SIMPLE IRA to an IRA that is not a SIMPLE IRA before that time
expires, you will not receive the favorable tax treatment accorded rollovers.
CAN I MOVE MONEY BETWEEN A ROTH IRA AND
A REGULAR IRA OR BETWEEN A REGULAR IRA AND
A ROTH IRA?
You may not roll any money from a Roth IRA into a Regular IRA. Beginning in
1998, if your adjusted gross income for 1998 does not exceed $100,000, and if
you are not a married individual filing a separate return, you may convert your
existing First Omaha Funds Regular IRA into a First Omaha Funds Roth IRA. You
may also roll over funds from another existing IRA into a First Omaha Funds Roth
IRA. If you convert your existing IRA to a Roth IRA, the amount that would have
been includible in your income if you had received a distribution of your
Regular IRA balance had it not been converted will be included in your gross
income in the year in which the conversion occurs. However, you will not be
subject to the 10% additional tax on early distributions. Moreover, if you
convert your existing IRA into a Roth IRA before January 1, 1999, the amount
that would be required to be included in your gross income will be included in
your income ratably over the taxable four-year period beginning in 1998. If you
desire to convert your existing First Omaha Funds Regular IRA to a Roth IRA,
contact First Omaha Family of Funds, P.O. Box 419022, Kansas City, MO 64141-
6022 or by calling 1-800-OMAHA-03. The Roth IRA forms will be provided to you.
CAN I MOVE MONEY FROM ANOTHER
RETIREMENT PLAN INTO A REGULAR IRA?
Yes. A qualified plan must provide participants and beneficiaries with the
option of receiving an eligible rollover distribution by way of a direct
transfer of such amounts to a Regular IRA. An eligible rollover distribution is
essentially all or any portion of any otherwise taxable distribution from a
qualified plan which is not part of a series of substantially equal periodic
payments over a specified period of ten years or more, the life expectancy of a
participant, or the joint life expectancy of a participant and the participant's
designated beneficiary and which is not a minimum required distribution which
must be made under the rules of the Internal Revenue Code. Accordingly, if you
are about to receive an eligible rollover distribution from a qualified plan,
you may direct the plan administrator to transfer the eligible rollover
distribution directly to a Rollover IRA. The maximum amount that may be
transferred to your Rollover IRA in a direct, tax-free transfer is that amount
which would have been included in your income if you received the distribution
and did not make the direct transfer. For example, any after-tax contributions
you may have made to a qualified plan may not be transferred. A direct transfer
of an eligible rollover distribution to your Rollover IRA will avoid the 20%
mandatory withholding requirement which would apply if you physically received
the distribution and subsequently deposited the amount in your Rollover IRA.
You may still roll over an eligible rollover distribution from a qualified plan
even if you did not direct the plan administrator to make a direct transfer of
the distribution to a Rollover IRA so long as the rollover is made within 60
days of the receipt of the distribution. The law, however, encourages direct
transfers by requiring the plan administrator to withhold for income tax
purposes 20% of any distribution which is not directly transferred. In other
words, a participant planning to roll over a distribution will only receive 80%
of the distribution and 20% is withheld for taxes if the distribution is not
directly transferred. If an individual wants to roll over the entire
distribution, he or she must provide the additional cash to deposit into the
Rollover IRA and request a tax refund. Because both direct transfers and
rollovers defer income taxes, it is generally better to take advantage of the
direct transfer option, avoiding the 20% income withholding.
The spouse of a deceased employee can roll over the taxable portion of a
distribution from a plan in which the deceased employee participated, and is
subject to the same rules that apply if the distribution were made to the
employee.
Finally, you may withdraw all or a part of the funds in your Regular IRA and
roll the amount withdrawn into another Regular IRA without adverse tax
consequences, provided you have not taken another distribution from that Regular
IRA within the immediately preceding 12-month period and rolled it over. This
limitation does not apply to rollovers between a qualified plan and an IRA, or
to direct transfers between IRA trustees or custodians.
There are no rollover or transfer fees charged for your First Omaha Funds
Regular IRA. You may transfer money as often as you wish. You may make a
rollover once every 12 months. The rules concerning tax-free rollovers are
complicated, and you should consult a tax adviser to make sure your rollover is
accomplished properly.
WHERE ARE THE CONTRIBUTIONS INVESTED?
Contributions to an IRA must be placed in a special custodial or trust account
and held by a bank trustee or custodian (or other person who has been approved
by the Secretary of the Treasury). The purpose of this rule is to segregate
these savings from other assets and to use them for retirement purposes only.
Under the First Omaha Funds Regular IRA, your contributions and the earnings on
your IRA account will be invested in shares of a self-designated First Omaha
Funds Regular IRA-authorized investment fund. The prospectus or other offering
documents explain the investment objectives of each such fund. Since the
performance of each such fund or partnership is subject to market changes,
growth in value of your account cannot be projected or guaranteed.
WHAT ARE THE FEES FOR A FIRST OMAHA FUNDS
REGULAR IRA?
Currently no separate custodial fees are charged to you or your account. The
Custodian reserves the right to charge an annual maintenance fee and other fees
and expenses for IRA accounts, and if it imposes these charges in the future it
will notify you. If you close your First Omaha Funds Regular IRA account during
the year, any such fees will be deducted from the proceeds before redemption or
transfer. The Custodian reserves the right to amend its custodial and other fees
from time to time and the fees will be determined in accordance with the
published fee schedule of the Custodian as then in effect.
The fees may be deducted on your federal tax return if you itemize your
deductions and pay the fees directly during the same calendar year for which you
are claiming the deduction. If you desire to deduct the fees on your return, you
should pay the fee with a separate check to the Custodian.
Of course, shares of the fund in which your account is invested will be affected
by management fees and other expenses of the fund or partnership. These matters
are discussed in the prospectus or other offering documents which you received
prior to, or with, this packet.
WHEN CAN I TAKE MONEY OUT OF MY REGULAR IRA?
Generally, distributions can be made after age 59 1/2, or upon death or
disability, without penalty and in whatever amounts and on whatever schedule you
wish. Before that time, you can take money out of your Regular IRA, but it may
be subject to an IRS premature distribution tax of 10% of the amount distributed
in addition to the ordinary income tax due.
Beginning in 1997 there are two more situations in which you can withdraw assets
from your IRA before you reach age 59 1/2 without having to pay the 10%
additional tax. You will not have to pay 10% tax on amounts you withdraw after
1996 that are more than:
A. The amount you paid for unreimbursed medical expenses during the year of
withdrawal, minus
B. 7.5% of your adjusted gross income for the year of the withdrawal.
You can only take into account unreimbursed medical expenses that you would be
able to include in figuring a deduction for medical expenses in Schedule A, Form
1040. You do not have to itemize your deductions to take advantage of this
exception to the 10% additional tax.
Also beginning in 1997 you may not have to pay the 10% tax on amounts you
withdraw during the year that are not more than the amount you paid during the
year for medical insurance for yourself, your spouse and your dependents. You
will not have to pay the tax on these amounts if all four of the following
conditions apply:
A. You lost your job.
B. You received unemployment compensation paid under any federal and state law
for 12 consecutive weeks.
C. You make the withdrawals during either the year you receive the
unemployment compensation or the following year.
D. You make the withdrawals no later than 60 days after you have been
reemployed.
Beginning in 1998, you can take a "qualified first-time home buyer distribution"
without having to pay the additional 10% tax on early withdrawals. A "qualified
first-time home buyer distribution" is a distribution meeting the requirements
of Section 72(t)(8) of the Internal Revenue Code, and is generally a
distribution to the account owner to the extent that the distribution is used
within 120 days of receipt of the distribution to pay "qualified acquisition
costs" with respect to the principal residence of a first-time home buyer who is
either the account owner, his or her spouse, or his or her child, grandchild or
ancestor of the account owner or the account owner's spouse. There is a maximum
lifetime dollar limitation on qualified first-time home buyer distributions of
$10,000. Qualified acquisition costs include the costs of acquiring,
constructing or reconstructing the principal residence, and any usual or
reasonable settlement, financing, or other closing costs. With limited
exceptions, an individual is a "first-time home buyer" if the individual (and if
married, the individual's spouse) had no present ownership interest in a
principal residence during the two-year period which ends on the acquisition of
the principal residence. A principal residence is generally a residence which
has been occupied by the taxpayer as a principal residence for at least two out
of the previous five years.
Finally, beginning in 1998, you can take distributions from your IRA to pay
"qualified higher education expenses" without having to pay the 10% additional
tax on early withdrawals. To qualify for this higher education expenses
exception, a distribution must be used to pay qualified higher education
expenses for you, your spouse, your or your spouse's children, or your or your
spouse's grandchildren. Qualified higher education expenses mean tuition, fees,
books, supplies and equipment required for the enrollment or attendance of any
of the individuals listed earlier at an eligible education institution. In
addition, if the individual is at least a half-time student, room and board are
qualified higher education expenses.
WHEN MUST I BEGIN TO TAKE MONEY OUT OF MY
REGULAR IRA?
You must begin to receive distributions from a Regular IRA by April 1 of the
year following the one in which you reach age 70 1/2. You do not have to take
the distribution in one lump sum, but you must withdraw a minimum amount each
year. The distributions must be designed to distribute the full amount in the
account over a period which is not greater than your life expectancy or the
combined life expectancy of you and your beneficiary. If the distributions
paid each year are smaller than required by the IRS, there will be an excise
tax penalty equal to 50% of the difference between the amount that you should
have taken and the amount you actually took; the Internal Revenue Service can
waive the excise tax if the shortfall resulted from a reasonable error and
steps are taken to correct it.
WHAT ABOUT DISTRIBUTIONS AFTER MY DEATH?
If you are living on your required beginning date and begin to receive
distributions under the foregoing rules, but die with funds still remaining in
your Regular IRA, your beneficiary must take distributions of the remaining
funds at least as rapidly as under the distribution method in use on the date of
your death.
If you die before required distributions to you begin under the required minimum
distribution rules, distributions of your Regular IRA funds must be completed
within five years after the end of the year in which your death occurs. However,
if certain conditions are met, a longer payout schedule may be followed, and, if
you have designated a beneficiary and distributions begin within one year after
the end of the year in which your death occurs, distributions may be made over a
period not exceeding the beneficiary's life or life expectancy. If you have
designated your spouse as your beneficiary, the date on which distribution to
your spouse must begin may be as late as December 31 of the year in which you
would have reached age 70 1/2. If your spouse dies before distributions are
required to begin to the spouse, then similar conditions to those described
above apply to a beneficiary designated by your surviving spouse to take the
spouse's interest in your Regular IRA upon the spouse's death.
The distributions described above are required by the Internal Revenue Code. If
the distributions actually made during the year are smaller than those that are
required, an excise tax penalty will be assessed equal to 50% of the difference
between the amount that should have been distributed and the amount that was
actually distributed. This penalty can be waived by the Internal Revenue Service
if the shortfall resulted from a reasonable error and steps are taken to correct
it.
WHAT IS THE MINIMUM AMOUNT WHICH MUST BE
DISTRIBUTED TO ME?
Article IV of the Regular Individual Retirement Account Custodial Account
Agreement, the form you used to establish your First Omaha Funds Regular IRA,
describes the manner in which the amount of minimum payments which must be made
are calculated. Section 2 of Article IV explains that for purposes of
calculating minimum annual payments, your life expectancy (and the life
expectancy of your spouse, if applicable) will be recalculated annually unless
you or your spouse elect not to have life expectancies recalculated. If you
elect not to have life expectancies recalculated, when computing the minimum
payment your life expectancy is determined by using your age in the year in
which you attain age 70 1/2 minus one for each year that has elapsed since the
70 1/2 year.
You should consult with your tax adviser to determine whether to elect not to
have your life expectancy recalculated. The rules for recalculating life
expectancy are complicated, and if either you or your spouse dies and you are
using the recalculated life expectancy method, there is a potential for a
dramatic reduction in the life expectancy payment period and a corresponding
increase in the required minimum distribution.
HOW DO I BEGIN RECEIVING DISTRIBUTIONS?
Contact the First Omaha Family of Funds for a distribution request form and
information on withholding of taxes. The First Omaha Family of Funds may be
reached at P.O. Box 419022, Kansas City, MO 64141-6022 or by calling 1-800-
OMAHA-03. If you are not 59 1/2, you will have to state what you intend to do
with the distribution; e.g., roll it over to another IRA.
HOW IS THE DISTRIBUTION TAXED?
In general, all distributions from a Regular IRA are fully taxable as ordinary
income when received. Not includible are amounts properly rolled over, and any
contribution removed on a timely basis (except the allocable income that must
accompany such a distribution is subject to income taxation for the year during
which the contribution was made). Furthermore, if you have made non-deductible
contributions to your Regular IRA, you have a cost basis (or investment) in your
Regular IRA, and non-deductible contributions are not taxed when they are
returned to you. If you have made both deductible and non-deductible
contributions, part of the distribution to you is treated as a tax-free return
of the non-deductible contributions (a "return of basis"). You cannot designate
a particular distribution as being from your non-deductible contributions, and
each distribution is treated as a pro rata recovery of both non-deductible and
deductible contributions. This is true even if you keep non-deductible
contributions in a separate account. You are required to determine how much of a
distribution is taxable to you. First Omaha Funds does not make this
calculation, as only you know whether you have claimed a deduction for your
Regular IRA contributions. Unless you elect, in writing, not to have taxes
withheld, the IRS requires us to withhold tax on the taxable portion of Regular
IRA distributions. For non-periodic distributions, unless you elect otherwise,
we will withhold 10% of the non-periodic payment. For periodic payments, unless
you elect otherwise, we will withhold just as though the periodic payments were
wages. Distributions from a Regular IRA are not eligible for the special lump-
sum tax provisions (as in employer-sponsored retirement plans). A premature
distribution penalty tax may also apply.
WHAT ARE THE RESTRICTIONS ON MY REGULAR IRA?
In addition to various penalty taxes, your IRA account is subject to the
following restrictions:
A. No part of your IRA assets may be invested in life insurance contracts or
commingled with other property except in a common trust or investment fund.
B. Your interest in the account is nonforfeitable. It is also segregated from
other assets to ensure that it is used for retirement purposes only.
C. Transactions between yourself (or your beneficiary) and the assets held in
the account are not allowed. The specific prohibited transactions are
described in the Internal Revenue Code and include selling or exchanging
property with the account or borrowing from the account. Should a
transaction of this type occur, your entire account will lose its tax-
exempt status and be treated as having been distributed to you. The value
of your entire account will then be included in your income for that year
and, if you are not yet age 59 1/2, can be subject to the 10% penalty tax
on early distribution.
D. You may not pledge or use any portion of your IRA as security for a loan.
If you do, that portion will be treated as having been distributed to you
and will be included in your income for that year. You may also incur a 10%
penalty tax on premature distributions if you are under age 59 1/2.
E. No part of the IRA funds may be invested in collectibles, as defined in
Internal Revenue Code Section 408(m) (e.g., art works, rugs, antiques,
metals, gems, stamps, alcoholic beverages, certain other tangible personal
property and coins, other than coins issued under the laws of any state,
and certain gold and silver coins minted by the U.S. Treasury beginning
October 1, 1986 and, beginning in 1998, certain platinum coins and gold,
silver, platinum and palladium bullion meeting the requirements of Internal
Revenue Code Section 408(m).
WHAT PENALTY TAXES MAY APPLY TO MY REGULAR IRA?
You may incur penalty taxes in connection with your account under the following
circumstances:
A. Excess Contributions. If your Regular IRA contributions exceed the maximum
for the year, the excess will be subject to a 6% penalty tax unless the
excess (along with any earnings) is withdrawn from your account by the due
date (including extensions) for that year's federal income tax return. You
may not claim the withdrawn portion as a deduction for that year. If you
fail to withdraw the excess contribution by the due date of your return,
you will incur an additional 6% penalty tax for each year that it remains
an excess. To avoid this recurring penalty tax for later years, you must
either withdraw the excess from the account or absorb it by reducing your
future deductible contributions by an amount corresponding to the excess.
You may also have to file an amended tax return to correct the deduction or
reduce your Regular IRA deduction for that year. Withdrawal of the excess
after the due date of your return and before you reach age 59 1/2 will
result in a 10% penalty tax on a
premature withdrawal.
B. Overstating Nondeductible Contributions. If you overstate the amount of
non-deductible contributions for a year, you are subject to a penalty of
$100 for each overstatement unless you show reasonable cause.
C. Premature Distributions. If you receive distributions from your Regular IRA
before you reach age 59 1/2, and you are not disabled, you will be subject
to a 10% penalty tax in addition to the ordinary income taxes you must pay
on the distribution. The 10% penalty tax will also apply to any portion or
all of your account which is treated as having been distributed to you
because you engaged in a prohibited transaction or pledged your account as
security for a loan. Proper rollovers into another Regular IRA and proper
withdrawal of excess contributions are not considered premature
distributions. The penalty will also not apply if distribution begins
before age 591/2 and is made in a series of substantially equal payments
(not less frequently than annually) over your life expectancy or your and
your designated beneficiary's joint life expectancy, and you do not attempt
to alter the payment arrangement before the later of five years after
payments begin or when you reach age 59 1/2, unless you die or become
disabled before this time.
D. Excess Accumulations. After you reach age 70 1/2, a 50% penalty tax will be
imposed on any amount which is required to be distributed to you under the
minimum IRS distribution rules but which you fail to withdraw. If you have
more than one Regular IRA account, the withdrawal must be based upon the
aggregate balance.
E. Use of IRA to Secure a Loan. If you use all or any portion of your IRA as
security for a loan, the portion so used is treated as distributed to you
and must be included in taxable income in the year the IRA is so used.
WHAT FORMS DO I HAVE TO FILE WITH THE IRS FOR
MY REGULAR IRA?
Individuals are not required to file any annual reports, extra schedules or
special forms to deduct regular contributions. The contribution to a Regular IRA
is subtracted from gross income on Form 1040. You do not need to itemize any
other deductions in order to deduct contributions to an IRA. However, if you
make non-deductible contributions to a Regular or Spousal IRA, you must report
those contributions on Form 8606, even if you do not have to file a tax return
for that year.
Additionally, you must file Form 5329 as part of your federal income tax return
for any year in which you incur a penalty tax due to excess contributions,
premature distributions, or excess accumulations, and calculate the penalty tax
due. There are penalties for failing to file, or late filing of, the 5329 for
any year it is required. A rollover contribution must also be reported on Form
1040.
You should consult with your tax adviser for more detailed information
concerning reporting requirements as they apply to your IRA. You may also obtain
a copy of IRS Publication 590, "Individual Retirement Arrangements," and other
information about IRAs from your local district Internal Revenue Service office.
CAN I REVOKE MY ACCOUNT?
You will be permitted to revoke your Regular IRA within seven (7) days after the
date on which you are given this Regular IRA Disclosure Statement. If you have
not received this Disclosure Statement at least seven (7) calendar days before
your Regular IRA has been established, you have the right to revoke your Regular
IRA during the seven (7) calendar days after your IRA was established. To revoke
your IRA under this seven-day provision, you must request the revocation by
giving written notice to First Omaha Funds. If mailed, your revocation notice
will be deemed mailed on the date of the postmark (or, if sent by certified or
registered mail, the date of certification or registration) if it is deposited
in the mail in the United States in an envelope or other appropriate wrapper,
first-class postage prepaid, properly addressed. Upon such revocation, you will
be entitled to a return of the entire amount of the consideration paid to the
IRA, without adjustment for sales commissions, administrative expenses or
fluctuation in the market value of the IRA.
WHAT ARE GIFT TAX CONSEQUENCES OF
IRA CONTRIBUTIONS AND DISTRIBUTIONS?
For federal gift tax purposes, irrevocable beneficiary designations will not be
treated as gifts. Again, you should consult your tax adviser to determine the
tax consequences of an irrevocable beneficiary designation under the state gift
tax laws.
HAS THE INTERNAL REVENUE SERVICE APPROVED THE FORM OF THE FIRST OMAHA FUNDS
REGULAR IRA CUSTODIAL ACCOUNT AGREEMENT?
While many of the provisions of the First Omaha Funds Regular IRA Custodial
Account Agreement are taken verbatim from a form provided by the Internal
Revenue Service, the Internal Revenue Service has not approved the form of the
agreement.
REGULAR INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL ACCOUNT AGREEMENT
FORM 5305-A (REV. JANUARY 1998)
The individual whose name appears on the IRA Application to which this Agreement
applies (hereinafter called "Depositor") is establishing an Individual
Retirement Account (under Section 408(a) of the Internal Revenue Code) to
provide for his or her retirement and for the support of his or her
beneficiaries after death.
The financial institution named on the IRA Application (hereinafter called
"Custodian") has agreed to serve as Custodian of the Depositor's Individual
Retirement Account established hereunder.
The Depositor has deposited with the Custodian the amount indicated as the
initial contribution on the IRA Application. Such amount and any additions
thereto and earnings thereon held by the Custodian pursuant to this Agreement
may be hereafter referred to as the "custodial account," "account" or "custodial
funds."
The Depositor and the Custodian make the following agreement:
ARTICLE I
1.1 The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c), 403(a)(4), 403(b)(8), 408(d)(3),
or an employer contribution to a Simplified Employee Pension Plan as
described in Section 408(k).
ARTICLE II
2.1 The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
3.1 No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within
the meaning of Section 408(a)(5)).
3.2 No part of the custodial funds may be invested in collectibles (within the
meaning of Section 408(m)) except as otherwise permitted by Section
408(m)(3) which provides an exception for certain gold, silver and platinum
coins and coins issued under the laws of any state, and certain bullion.
ARTICLE IV
4.1 Notwithstanding any provision of this Agreement to the
contrary, the distribution of the Depositor's interest in the custodial
account shall be made in accordance with the following requirements and
shall otherwise comply with Section 408(a)(6) and Proposed Regulations
Section 1.408-8, including the incidental death benefit provisions of
Proposed Regulations Section 1.401(a)(9)-2, the provisions of which
are incorporated by reference.
4.2 Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 4.3, or to the surviving spouse under
paragraph 4.4, other than in the case of a life annuity, life expectancies
shall be recalculated annually. Such election shall be irrevocable as to
the Depositor and the surviving spouse and shall apply to all
subsequent years. The life expectancy of a nonspouse beneficiary may not be
recalculated.
4.3 The Depositor's entire interest in the custodial account must be, or begin
to be, distributed by the Depositor's required beginning date, (April 1
following the calendar year end in which the Depositor reaches age
70 1/2). By that date, the Depositor may elect, in a manner acceptable
to the Custodian, to have the balance in the custodial account
distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4.4 If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after the date distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 4.3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of
the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following
the year of the Depositor's death. If, however, the
beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70
1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse,
no additional cash contributions or rollover contributions may be
accepted in the account.
4.5 In the case of a distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint life
and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
paragraph 4.3, determine the initial life expectancy (or joint life and
last survivor expectancy) using the attained ages of the Depositor and
designated beneficiary as of their birthdays in the year the Depositor
reaches age 70 1/2. In the case of a distribution in accordance with
paragraph 4.4(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
4.6 The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy
the minimum distribution requirements described above. This method permits
an individual to satisfy these requirements by taking from one Individual
Retirement Account the amount required to satisfy the requirement for
another.
ARTICLE V
5.1 The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under Section 408(i) and
Regulations Sections
1.408-5 and 1.408-6.
5.2 The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
6.1 Notwithstanding any other articles which may be added or incorporated,
the provisions of Articles I through III and this sentence will be
controlling. Any additional articles that are not consistent with
Section 408(a) and the related regulations will be invalid.
ARTICLE VII
7.1 This Agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may
be made with the consent of the Depositor and Custodian.
ARTICLE VIII
The provisions of this Article shall apply to any and all Custodial Accounts
established pursuant to this Agreement.
8.1 Investment Power of Custodian
The Custodian shall invest and reinvest all contributions to the custodial
account, plus any earnings in any or all of the following:
(a) Investment shares of the Mutual Funds (regulated investment companies)
which the Custodian has designated as appropriate for investments in
the custodial account.
(b) All dividends and capital gain distributions received on the shares of
any Mutual Fund held in the Depositor's account shall be reinvested in
shares of the same Mutual Fund which paid the distribution, and
credited to the custodial account.
8.2 Fees, Expenses, Taxes and Penalties
(a) The Depositor agrees to pay to the Custodian fees for services
performed under this Agreement in an amount specified from time to
time by the Custodian. Such fees may include, but are not limited to,
a fee to establish the custodial account and the annual maintenance
fee. The Custodian shall have the right to change such fees at any
time without prior written notice to the Depositor. As soon as
practicable after any change in fees, the Custodian shall make
available to the Depositor a new fee schedule. All fees may be billed
to the Depositor or deducted from the custodial account, at the
discretion of the Custodian. The Custodian shall also be entitled to
reimbursement for all reasonable and necessary costs, expenses and
disbursement incurred by it in the performance of services. Such
reimbursement shall be made from the account if not paid directly by
the Depositor.
(b) The Depositor shall be responsible for the payment of any income,
transfer and other taxes of any kind that may be levied or assessed
upon the custodial account, and all other administrative expenses
reasonably incurred by the Custodian in the performance of its duties,
including any fees for legal services provided to the Custodian. To
the extent the Depositor fails to pay such taxes and expenses
directly, the Custodian may, in its discretion, deduct them from the
custodial account.
(c) The Custodian shall not be responsible for excise or penalty taxes or
interest imposed by the IRS by virtue of any premature distributions,
over-contributions or excess accumulations with respect to the
Depositor's account, or for the Depositor's failure to commence
distributions at age 70 1/2, nor shall the Custodian be responsible
for providing any tax or legal advice with respect to the account. The
Custodian shall have no obligations to return any amounts withheld for
federal income tax purposes from any distribution as to which the
Depositor (or beneficiary, as applicable) has failed to provide a
withholding election notice prior thereto.
(d) Sales charges, if any, attributable to the acquisition of shares of a
Mutual Fund as stated in its then current prospectus may be charged to
the Depositor's account.
8.3 Responsibilities of Custodian
(a) The Custodian shall maintain the custodial account, distinct from all
other custodial accounts, for the exclusive benefit of the Depositor
and the Depositor's beneficiaries and shall be responsible for
performing only such services as are described in this Agreement.
(b) All contributions by the Depositor to the custodial account shall be
invested according to Article 8.1 hereof at the sole direction of the
Depositor, and the Custodian shall not be responsible or liable for
any investment decisions or recommendations with respect to the
investment, reinvestment, or sale of assets in the custodial account.
With regard to the Mutual Funds listed on the Application and any
other Mutual Fund, the Depositor understands that the Custodian does
not endorse the Mutual Funds as suitable investments for the
Depositor. In addition, the Custodian will not provide investment
advice to the Depositor. The Depositor assumes all responsibility for
the choice of his or her investments in the custodial account. The
Custodian shall not be responsible for reviewing any assets held in
the custodial account and shall not be responsible for questioning any
investment decision of the Depositor. The Custodian shall not be
liable for any loss resulting from any action taken by the Custodian
at the direction of the Depositor or any loss resulting from any
failure to act because of the absence of directions from the
Depositor.
(c) The Custodian shall not be responsible for inquiring into the nature
or amount of any contribution made by the Depositor, nor into the
amount or timing of any distribution requested by the Depositor, or
whether such contributions or distributions comply with the Code. The
Depositor shall have full responsibility for any tax or investment
consequences of all contributions to and distributions from the
custodial account.
(d) If the Custodian receives any investment instructions from the
Depositor which, in the opinion of the Custodian, are not in good
order or are unclear, or if the Custodian receives monies from the
Depositor which would exceed the amount that the Depositor may
contribute to the custodial account, the Custodian may hold all
or a portion of the monies uninvested pending receipt of written (or
in any other manner permitted by the Custodian) instructions or
clarification. During any such delay the Custodian will not be liable
for any loss of income or appreciation, loss of interest, or for any
other loss. The Custodian may also return all or a portion of the
monies to the Depositor. Again, in such situations, the Custodian will
not be liable for any loss.
(e) The Custodian will designate contributions (other than rollover
contributions) as being made for any particular year as requested by
the Depositor. If the Depositor does not designate a year for any
contribution, the Custodian will designate the year the contribution
was actually received.
(f) The Custodian will accept transfers of a cash amount to the custodial
account from another custodian or trustee of an Individual Retirement
Account, Qualified Retire-ment Plan or Individual Retirement Annuity
upon the Depositor's written direction. The Custodian will also
transfer a cash amount in the custodial account upon the written
request of the Depositor to another custodian or trustee of an
Individual Retirement Account or Annuity. For such transfer, the
Custodian may require a written acceptance of the successor custodian.
The Depositor warrants that all transfers to and from the custodial
account will be made in accordance with the rules and regulations of
the Internal Revenue Service.
(g) The Custodian is authorized to hire an agent to perform certain of its
duties hereunder, which agent may be the transfer agent for the Mutual
Fund shares authorized to be held hereunder.
(h) The Depositor agrees to indemnify and hold harmless, and to defend the
Custodian against any and all claims arising from and liabilities
incurred by reason of any action taken by the Custodian in good faith
pursuant to this Agreement.
8.4 Judicial Settlement of Accounts
The Custodian may bring an action before a court of appropriate
jurisdiction at any time to resolve any dispute or ambiguity in its
accounts. If a dispute or ambiguity exists regarding who is entitled to
receive funds from the custodial accounts, the Custodian may withhold such
funds until the dispute or ambiguity is resolved through settlement by the
parties or determination by a court of appropriate jurisdiction. The
court's resolution shall be final and binding on all parties involved. All
expenses incurred by the Custodian, including, without limitation, all
legal and accounting fees, shall be paid for from the custodial account, if
not otherwise paid by the Depositor.
8.5 Notice
(a) All notices or requests to the Custodian to make distributions from
the custodial account must conform to the requirements of the Internal
Revenue Code, the redemption requirements of the applicable fund
prospectus and the requirements of the Custodian and its duly
appointed agent, if any. The Custodian will make distributions from
the custodial account only after receiving a written request from the
Depositor (or any other party entitled to receive the assets of the
custodial account) in the form required by the Custodian. The
Depositor (or any other party entitled to receive the assets of the
custodial account) must provide to the Custodian any applications,
certificates, tax waivers, signature guarantees and any other
documents (including proof of any legal representative's authority)
that the Custodian requires. The Custodian will not be liable for
complying with a distribution request that appears to be genuine, nor
will the Custodian be liable for refusing to comply with a
distribution request which the Custodian is not satisfied is genuine
or in proper form. This includes any losses which may occur while the
Custodian waits for the distribution request to be in the proper form.
The Depositor (or any other party entitled to receive the assets of
the custodial account) also agrees to fully indemnify the Custodian
for any losses which may result from the Custodian's failure to act
upon an improperly made distribution request.
(b) Except as otherwise permitted by the Custodian, all instructions to
the Custodian under this Agreement must be in writing. The Depositor
may authorize an agent to act on behalf of the Custodian, provided
that such appointment and authorization is provided in writing to the
Custodian in the form required by the Custodian. Any instructions by
an authorized agent of the Depositor will be binding upon the
Depositor. Any authorization given by the Depositor will remain in
effect until the Custodian receives written notice of the Depositor's
revocation of the authorization, or the death of the Depositor,
whichever occurs first.
(c) Any notice, report, payment, distribution or other material required
to be delivered by the Custodian under this Agreement, shall be deemed
delivered and effective three days after the date mailed by the
Custodian to the Depositor at the Depositor's last address of record
as provided by the Depositor to the Custodian, and the Custodian shall
not be obligated to ascertain the actual address or whereabouts of
the Depositor.
(d) Any notice or instructions required to be delivered by the Depositor
to the Custodian under this Agreement shall be deemed delivered when
actually received by the Custodian.
(e) Any notice required to be given to the Custodian under this Agreement
shall be given to the Mutual Fund Group, the name of which appears on
the front of the Agree ment, and any notice required or permitted to
be given to the Depositor under this Agreement shall be given to the
Depositor at the address filed with the Custodian from time to time.
Notices may be delivered in person or may be sent by United States
mail, first class with postage prepaid and properly addressed.
8.6 Reports, Records and Accounting
The Custodian shall maintain such records as may be reasonably necessary
for the proper administration of the account. The Custodian shall render a
report to each Depositor (or his or her beneficiaries), on the status of
his or her account or accounts at least annually. The report shall show
contributions (deposits) received, withdrawals made, dividend credits,
other credits and/or charges, and the balance at the end of the report
period. The report shall also furnish the Depositor such other information
as the Custodian may possess and as may be necessary for the Depositor to
comply with the reporting requirements of the Internal Revenue Code and any
applicable regulations. The Custodian shall have no duty to furnish
information about the account to any person except as expressly provided
herein or as required by law. Any accounting, when approved by the
Depositor, will be binding and conclusive as to the Depositor, and the
Custodian will thereby be released and discharged from any liability or
accountability to the Depositor with respect to matters set forth therein.
The Depositor or beneficiary shall advise the Custodian within 60 days
following receipt of the Custodian's report of any corrections to his or
her account. If the Depositor or beneficiary fails to advise the Custodian
of any corrections within the 60-day period, the Depositor or beneficiary
shall be deemed to have approved the Custodian's report. The Custodian
shall have the right to have its account settled by a court of competent
jurisdiction.
8.7 Records Retention
The Custodian shall retain its records relating to the account as long as
necessary for the proper administration thereof and at least for any period
required by the Employee Retirement Income Security Act of 1974 or other
applicable law.
8.8 Resignation or Removal of Custodian
(a) The Custodian may resign as the Custodian hereunder without the
consent of the Depositor, by providing notice of such resignation 30
days prior to the effective date of the resignation. In the event of
a resignation by the Custodian, the Depositor must appoint a
successor Custodian or Trustee. Upon receipt by the Custodian of a
written acceptance of such appointment by the successor Custodian or
Trustee, the Custodian shall transfer and pay over to such successor
the assets of the custodial account. If after 30 days from notice of
resignation, the Custodian has not received written acceptance of
such appointment by the successor Custodian or Trustee, the
Custodian shall pay or otherwise transfer to the Depositor the assets
remaining in thecustodial account. The Custodian is authorized,
however, to reserve such funds as it deems advisable for payment of
any liabilities constituting a charge against the assets of the
custodial account or against the Custodian, with any balance of such
reserve remaining after payment of all such items to be paid over to
the successor Custodian.
(b) Upon the appointment and qualification of a successor Custodian or
Trustee, the successor Custodian or Trustee shall assume all rights,
powers, and privileges, liabilities and duties of the Custodian. Upon
acceptance of appointment by the successor Custodian or Trustee, the
Custodian shall assign, transfer and deliver to the successor all
funds held in the custodial account. The Custodian is authorized,
however, to reserve such funds as it deems advisable for payment of
any liabilities constituting a charge against the assets of the
custodial account or against the Custodian, with any balance of such
reserve remaining after the payment of all such items to be paid over
to the successor Custodian or Trustee.
8.9 Designation of Beneficiary
(a) The Depositor has the right to designate a beneficiary(ies) of his or
her account in writing on a form provided by the Custodian or in a
format approved by the Custodian. The purpose of this designation is
to identify the recipient(s) of the custodial account upon the
Depositor's death.
(b) The Depositor has the right to change this designation of beneficiary
at any time by writing to the Custodian. A beneficiary designation
when received by the Custodian shall relate back and be effective as
of the date it was signed by the Depositor, but without prejudice to
or liability of the Custodian, Mutual Fund or its agents, for any
payout made prior to receipt by them. If the beneficiary does not
survive the Depositor or if the Custodian cannot locate the
beneficiary after reasonable search, any balance in the account will
be paid to the Depositor's estate.
8.10 Payment in the Event of Disability
A Depositor who becomes disabled as defined by IRC Section 72(m)(7) shall
be entitled to a distribution of his or her custodial account. The
Custodian may require what evidence it deems appropriate before
distributing on account of such disability. This determination by the
Custodian shall not constitute any warranty or assurance by the Custodian
that the distribution to the Depositor is free from the penalty
on premature distributions described in IRC Section 72(t).
8.11 Exclusive Benefit
The custodial account is established for the exclusive benefit of the
Depositor and his or her beneficiary(ies).
8.12 Amendment
(a) The Custodian is authorized from time to time to amend this Agreement,
in whole or in part. The Custodian shall furnish copies of any such
amendments to the Depositor within 30 days of the date the amendments
are effective. If this Custodial Account Agreement is being provided
to a Depositor with an existing Regular IRA custodial account with the
Custodian, the existing Regular IRA Custodial Account Agreement is
amended and restated by this Custodial Account Agreement.
(b) This Agreement may not be amended in any manner that will cause or
permit any part of the assets of the custodial account to be divested
from any person having any interest in the custodial account unless
such amendment is necessary to satisfy the conditions of any law,
governmental regulation or ruling or to meet the requirements of the
Internal Revenue Code or any amendment thereof, in which case the
Custodian is expressly authorized to make amendments that are
necessary for such purposes. Such amendments may be made retroactively
to the later of the effective date of this Agreement or the
effective date of any future legal requirements.
8.13 Continuance of the Custodial Relationship
The relationship created by this Agreement shall continue in effect until a
full distribution of the custodial account has been made and all accounts
of the Custodian have been settled.
8.14 Special Minimum Distribution Provisions
(a) In the event the Depositor fails to choose any methods of distribution
described in paragraph 4.3(a) through (e) by April 1 following the
calendar year in which he or she reaches age 70 1/2, the Custodian has
the right to assume that the Depositor is satisfying the minimum
distribution requirements through other IRA accounts and shall
continue to hold the assets of the account pending written directions
from the Depositor. Any and all tax consequences related to the
failure of the Depositor to timely elect a distribution option shall
be the sole responsibility of the Depositor.
(b) If any beneficiary fails to elect a distribution option on a timely
basis, distributions shall commence pursuant to paragraph 4.4(b)(ii).
(c) A surviving spouse beneficiary shall be permitted to make the election
specified under paragraph 4.4(b)(i) or (ii) no later than the earlier
of December 31 of the fifth year after the year of death or the year
in which the Depositor would have attained age 70 1/2.
(d) A nonspouse beneficiary shall be permitted to make the election
specified under paragraph 4.4(b)(i) or (ii) no later than December 31
of the year following the year of death.
(e) Notwithstanding any provision of this Agreement to the contrary, any
surviving spouse of a Depositor who is a beneficiary shall have the
right to treat the custodial account of the deceased spouse as his or
her own IRA and to withdraw all, or a portion, of the account to the
full extent of the beneficial interest of the surviving spouse in the
custodial account.
8.15 Simplified Employee Pension Plan
(a) The custodial account may accept contributions made through a
Simplified Employee Pension Plan ("SEP") under Section 408(k).
(b) The provisions of Section 408(k) and the surrounding regulations for
proper maintenance of a SEP are the responsibility of the Depositor's
employer. The Custodian shall have no liability with respect to the
operation of the SEP.
(c) The Custodian may require written documentation from the Depositor
that the SEP has been properly established before accepting a SEP
contribution to the custodial account.
8.16 Custodian's Limited Liability
The Custodian shall not be liable for any action taken or omitted at the
direction of the Depositor or beneficiary, or with his or her consent and
approval, or for any action taken or omitted in accordance with the terms
and conditions of this Agree ment, or applicable governmental regulations
or law, or for any other action taken or omitted by it in good faith for
any mistake in judgment, or for any loss suffered by the custodial account
except those which are a result of its own gross negligence or willful
misconduct.
8.17 General Provisions
(a) Anything contained in this Agreement to the contrary notwithstanding,
neither the Depositor nor any beneficiary of the Depositor shall be
entitled to use the custodial account or any portion thereof, as
security for a loan, nor shall the Custodian or any other person or
institution engage in any prohibited transaction, within the meaning
of Section 4975 of the Code, with respect to any custodial account.
(b) Except to the extent otherwise required by law or this Agreement, none
of the amounts held in a custodial account shall be subject to the
claims of any creditor of the Depositor, or any beneficiary of the
Depositor, nor shall the Depositor or any beneficiary have the right
to anticipate, sell or pledge, option, encumber or assign any of the
benefits, payments or proceeds to which he or she may be entitled
under this Agreement.
(c) If any question arises as to the meaning of any provision of this
Agreement, the Custodian shall be authorized to construe or interpret
any such provision, and the Custodian's construction and
interpretation shall be binding upon the Depositor and any beneficiary
of the Depositor.
(d) Throughout this Agreement, the singular form includes the plural where
applicable.
(e) Any provision of this Agreement which would disqualify the custodial
account as an Individual Retirement Account shall be disregarded to
the extent necessary to make the custodial account qualify as an
Individual Retirement Account under the Code.
(f) The headings and articles of this Agreement are for convenience of
reference only, and shall have no substantive effect on provisions of
this Agreement.
(g) This Agreement and the custodial account created hereby shall be
governed by the laws of the State in which the Custodian maintains its
principal place of business. All contributions to the custodial
account shall be deemed to take place in said State.
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(LOGO)
FIRST OMAHA
FAMILY OF FUNDSR
First National Bank of Omaha - Adviser
P.O. Box 419022
Kansas City, MO 64141-6022
1-800-662-4203
FBO712299
ROTH INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT AND
CUSTODIAL ACCOUNT AGREEMENT
(LOGO)
FIRST OMAHA
FAMILY OF FUNDSR
First National Bank of Omaha - Adviser
ROTH INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
GENERAL
Your Roth Individual Retirement Account ("Roth IRA") is a custodial account for
the benefit of you or your beneficiaries. The Custodian of the Roth IRA is named
on the Roth IRA Application.
The following information is being provided to you in accordance with the
requirements of the Internal Revenue Code. Please read it, together with the
Roth Individual Retirement Custodial Account Agreement and the prospectus or
other offering documents for the investments which you have chosen for
investment of your Roth IRA contributions. Because the rules with respect to
Roth IRAs are very complex, and because misunderstanding or disregarding the
rules may have serious tax implications, you should consult your own tax adviser
if you have questions about the information contained in this Disclosure
Statement. Further information can also be obtained from any district office of
the Internal Revenue Service.
WHAT IS AN IRA?
An IRA is a trust or custodial account created or organized in the United States
for the exclusive benefit of an individual and his or her beneficiaries. Under
an IRA, you defer federal income taxes on the earnings on the amount you invest
and in the case of deductible contributions to an IRA, on the amount you invest
(up to certain limits). State income tax treatment of IRAs varies.
WHAT TYPES OF IRAS ARE AVAILABLE THROUGH
FIRST OMAHA FUNDS?
A REGULAR IRA Account may be established for investment of tax-deductible or
non-deductible contributions made by an employed or self-employed individual.
You may also transfer funds to a Regular IRA Account from an existing IRA with
another custodian or roll over distributions from an employee-sponsored
qualified plan.
A SPOUSAL IRA Account is used for investment of tax-deductible or non-deductible
contributions made by a Regular IRA account holder on behalf of a spouse whose
taxable compensation is less than the other spouse's.
A ROLLOVER IRA Account is used for deferring tax on an eligible rollover
distribution from another individual retirement account, individual retirement
annuity, or an employer-sponsored qualified retirement plan.
A ROTH IRA is an IRA to which, beginning in 1998, non-deductible contributions
are made. If distributions from the Roth IRA are "qualified distributions," the
distributions, even of earnings in the account, which have never been taxed, are
not includible in the recipient's income.
A SEP-IRA is a simplified employee pension by which an employer makes
contributions to a SEP-IRA on behalf of an employee. If these payments are
structured correctly, the payments are excluded from the employee's gross
income.
A SIMPLE IRA is an IRA created pursuant to a Savings Incentive Match Plan for
Employees of Small Employers, also called a SIMPLE Plan. Your employer must
establish the SIMPLE Plan and your SIMPLE IRA may only receive contributions
made by your employer on your behalf under the terms of the employer's SIMPLE
Plan and transfers or rollovers from other SIMPLE IRAs. No other contributions
can be accepted.
An EDUCATION IRA is an IRA established, beginning in 1998, for a child and to
which non-deductible contributions of up to $500 annually may be contributed
until the child reaches age 18. Earnings in the Education IRA accumulate free of
tax. Distributions from the Education IRA during the year are tax-free unless
they exceed the child's qualified higher education expenses during the year.
WHO IS ELIGIBLE TO SET UP A ROTH
INDIVIDUAL RETIREMENT ACCOUNT?
All employed people may contribute to a Roth IRA, whereas people over age 701/2
may not contribute to a Regular IRA.
Additionally, your spouse may establish a separate Roth IRA even if he or she is
not employed. Your spouse can contribute to a spousal Roth IRA for tax years
beginning after 1997 if all of the
following conditions are met:
A. You must be married at the end of the tax year;
B. You must file a joint return for the tax year;
C. You must have taxable compensation for the year; and
D. Your spouse's taxable compensation for the year is less than yours.
AM I ELIGIBLE TO MAKE TAX-DEDUCTIBLE
CONTRIBUTIONS TO A ROTH IRA?
While you may be eligible to make tax-deductible contributions to a Regular IRA,
all contributions to a Roth IRA are not deductible.
WHAT IS THE MAXIMUM CONTRIBUTION
I CAN MAKE TO A ROTH IRA?
After 1997, you may make an annual non-deductible contribution to a Roth IRA in
an amount which is the excess of:
A. The lesser of $2,000, or 100% of your annual compensation, or
B. The total amount of contributions for the tax year to all other IRAs other
than Roth IRAs which you maintain.
This maximum amount is limited further if your adjusted gross income ("AGI")
exceeds the "applicable dollar amount." If you are subject to these additional
limits, the allowable contribution to your Roth IRA is calculated by reducing
the maximum contribution otherwise allowable by the same ratio as the amount of
the excess of your adjusted gross income for the tax year over the "applicable
dollar amount," bears to $15,000, or $10,000 if you file a joint return. The
"applicable dollar amount" is $150,000 for a taxpayer filing a joint return and
$95,000 for any other taxpayer other than a married taxpayer filing separately.
The applicable dollar amount for a taxpayer filing separately is zero. This
means that the contribution that you can make to a Roth IRA is phased out if
your AGI is between $95,000 and $110,000 or, if you file jointly, if your joint
AGI is between $150,000 and $160,000. Keep in mind that the total amount of
contributions to all of your IRAs for a tax year cannot exceed $2,000. An
individual who cannot or does not make deductible contributions to a Regular
IRA, or non-deductible contributions to a Roth IRA, can make non-deductible
contributions to a Regular IRA.
In applying the reductions to the permitted limit as a result of the AGI
limitations described above, no reduction in the maximum contribution below $200
is required until the permitted contribution is zero. Additionally, any
reduction in the maximum contribution which is not a multiple of $10 must be
rounded to the next lowest $10.
For example, assume that your AGI for the year is $157,555 and you are married,
filing jointly. You would calculate your Roth IRA contribution limit this way:
1. The amount by which your AGI exceeds the lower limit of the reduced
contribution deductible range:
($157,555 - $150,000) = $7,555
2. Divide this by $10,000: $7,555 = 0.7555
$10,000
3. Multiply this by $2,000
(or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Round this down to the nearest $10 = $1,510
5. Subtract this from your $2,000 limit:
($2,000 - $1,510) = $490
6. If the answer in Step 5 was less than $200, your contribution limit is the
greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any
contributions for the same year to a Regular IRA. If you fall in the reduced
contribution range, the reduction formula applies to the Roth IRA contribution
limit left after subtracting your contribution for the year to a Regular IRA.
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A. There are two additional rules
when calculating AGI for purposes of Roth IRA contribution limits. First, if you
are making a deductible contribution for the year to a Regular IRA, your AGI is
reduced by the amount of the deduction. Second, if you are converting a Regular
IRA to a Roth IRA in a year (see below), the amount includible in your income as
a result of the conversion is not considered AGI when computing your Roth IRA
contribution limit for the year. (Note: a bill pending in Congress might affect
the first rule _ consult your tax adviser or the IRS for the latest
developments.)
DO MARRIED COUPLES WITH TWO INCOMES
CONTRIBUTE TO ONE OR TWO ROTH IRAS?
Each individual must establish a separate Roth IRA account. The application must
be completed and signed by each individual.
HOW ARE CONTRIBUTIONS MADE TO A ROTH IRA
BY A SPOUSE?
A separate Roth IRA account must be established in the name of the spouse in
order to take advantage of the additional contribution, and each account will
have its own number.
WHEN ARE CONTRIBUTIONS DUE?
Your regular contribution to a Roth IRA for any year must be made no later than
the date required for filing your federal income tax return for that year,
without regard to any extensions. This date is generally April 15.
CAN I MOVE MONEY FROM AN EXISTING IRA
INTO MY FIRST OMAHA FUNDS ROTH IRA?
If you have made contributions to another IRA, you may be able to roll over all
or part of the assets of that account into your First Omaha Funds Roth IRA. You
cannot make such a rollover in any taxable year if your adjusted gross income,
or if filing jointly, the combined adjusted gross income of you and your spouse,
for the taxable year exceeds $100,000. Additionally, if during the taxable year
you are a married individual who is filing a separate return, you may not make a
rollover contribution to a Roth IRA.
If you are eligible to make a rollover contribution to your Roth IRA, you may do
so by contributing all or part of a distribution which you have received from
another IRA into your Roth IRA. You must complete the transaction within 60 days
after receiving the distribution to avoid penalty taxes. You may roll over the
assets of an IRA into your Roth IRA only once each year. A rollover contribution
which meets these requirements does not count against the limit on the annual
contribution to your Roth IRA. You may not make a rollover contribution to a
Roth IRA from a plan qualified under Section 401(a) or an annuity or custodial
account meeting the requirements of Section 403(b) of the Internal Revenue Code.
Only contributions from other IRAs may be rolled into a Roth IRA.
You may designate your Roth IRA as a "Roth Conversion IRA" on the Application
that you complete. A "Roth Conversion IRA" is a Roth IRA that accepts only "IRA
Conversion Contributions" made during your same tax year. "IRA Conversion
Contributions" are amounts rolled over, transferred or converted from any IRA
that is not a Roth IRA to a Roth IRA. To simplify the identification of funds
distributed from Roth IRAs, you are encouraged to maintain IRA Conversion
Contributions for each tax year in a separate Roth IRA.
Special rules apply to SIMPLE IRAs. You may only roll over or transfer amounts
from a SIMPLE IRA to your Roth IRA after the expiration of a two-year period
beginning on the date you first participated in your employer's SIMPLE plan. If
you attempt to roll over amounts held in a SIMPLE IRA to an IRA that is not a
SIMPLE IRA before that time expires, you will not receive the favorable tax
treatment accorded rollovers.
CAN I MOVE MONEY FROM ANOTHER
RETIREMENT PLAN INTO A ROTH IRA?
Only amounts held in a Regular IRA or another Roth IRA may be rolled into your
Roth IRA. Amounts which were previously distributed from another retirement plan
or Section 403(b) contract or custodial account and then were rolled into a
rollover IRA may be rolled into your Roth IRA.
IF I ROLL OVER A DISTRIBUTION FROM MY EXISTING IRA INTO MY FIRST OMAHA FUNDS
ROTH IRA, AM I TAXED ON THE DISTRIBUTION?
If you make a qualified rollover contribution of the distribution from your
existing IRA to your Roth IRA, the amount that would have been included in your
income as a result of the distribution from your existing IRA had it not been
rolled over will be included in your gross income in the year in which the
rollover occurs. However, you will not be subject to the 10% additional tax on
early distributions under Section 72(t). Additionally, if you roll over a
distribution from your existing IRA into a Roth IRA before January 1, 1999, the
amount that would be required to be included in your gross income will be
included ratably over the taxable four year period beginning with the taxable
year in which the payment or distribution is made. Keep in mind that you may
only make a rollover into a Roth IRA if your adjusted gross income, or the
adjusted gross income of you and your spouse if filing jointly, does not exceed
$100,000. Additionally, you may not make a rollover into a Roth IRA if you are a
married individual filing a separate return.
Example: You have an existing IRA, all attributable to deductible contributions,
with an existing account balance of $40,000. The adjusted gross income of you
and your spouse does not exceed $100,000 and you are not a married individual
filing a separate return. On September 1, 1998 you receive a distribution in
cash from your existing IRA and within 60 days thereafter contribute the $40,000
distribution to your new Roth IRA. You must include $10,000 in your taxable
income in each of the 1998, 1999, 2000 and 2001 taxable years.
Example: Assume the same facts as in the prior example, except that you received
your distribution in 1999 and make the contribution to your Roth IRA in 1999.
You must include the entire $40,000 distribution from your existing IRA in your
taxable income for 1999.
MAY I CONVERT MY EXISTING FIRST OMAHA FUNDS REGULAR IRA TO A ROTH IRA?
If you would be eligible to roll over a Regular IRA into a Roth IRA during a
taxable year, you may convert your existing Regular IRA into a Roth IRA in
accordance with procedures specified by the Internal Revenue Service. Thus, for
example, your adjusted gross income must be less than $100,000 in the taxable
year in order to be eligible to make the conversion. Your First Omaha Funds
Regular IRA can be converted to a Roth IRA by contacting the First Omaha Funds
at P.O. Box 419022, Kansas City, MO 64141-6022 or by calling 1-800-662-4203 for
the appropriate forms.
ARE THERE ANY FEES CHARGED AS A RESULT OF A ROLLOVER OR TRANSFER TO A FIRST
OMAHA FUNDS ROTH IRA?
There are no rollover or transfer fees charged for your First Omaha Funds Roth
IRA. You may transfer money as often as you wish. You may make a rollover once
every 12 months. The rules concerning rollovers and transfers are complicated
and you should consult a tax adviser to make sure your rollover is accomplished
properly.
WHERE ARE THE CONTRIBUTIONS INVESTED?
Contributions to a Roth IRA must be placed in a special custodial or trust
account and held by a bank trustee or custodian (or other person who has been
approved by the Secretary of the Treasury). The purpose of this rule is to
segregate these savings from other assets and to use them for retirement
purposes only.
Under the First Omaha Funds Roth IRA, your contributions and the earnings on
your Roth IRA account will be invested in shares of a self-designated First
Omaha Funds IRA-authorized investment fund. The prospectus or other offering
documents explain the investment objectives of each such fund. Since the
performance of each such fund or partnership is subject to market changes,
growth in value of your account cannot be projected or guaranteed.
WHAT ARE THE FEES FOR A FIRST OMAHA FUNDS
ROTH IRA?
Currently no separate custodial fees are charged to you or your account. The
Custodian reserves the right to charge an annual maintenance fee and other fees
and expenses for Roth IRA accounts, and if it imposes these charges in the
future it will notify you. If you close your First Omaha Funds Roth IRA account
during the year, any such fees will be deducted from the proceeds before
redemption or transfer. The Custodian reserves the right to amend its custodial
and other fees from time to time and the fees will be determined in accordance
with the published fee schedule of the Custodian as then in effect.
The fees may be deducted on your federal tax return if you itemize your
deductions and pay the fees directly during the same calendar year for which you
are claiming the deduction. If you desire to deduct the fees on your return, you
should pay the fee with a separate check to the Custodian.
Of course, shares of the fund in which your account is invested will be affected
by management fees and other expenses of the fund or partnership. These matters
are discussed in the prospectus or other offering documents which you received
prior to, or with, this packet.
WHEN CAN I TAKE MONEY OUT OF MY ROTH IRA?
The rules concerning distributions from a Roth IRA differ substantially from
those applicable to a Regular IRA. Whereas virtually all distributions, other
than qualified rollover distributions from a Regular IRA to another Regular IRA,
result in taxable income to the recipient of the distribution, if you receive a
"qualified distribution" from a Roth IRA, you will not be subject to tax on the
distribution. A qualified distribution is a distribution occurring on or after
the date you attain age 59-1/2, your death or your disability (within the
meaning of Section 72(m)(7) of the Internal Revenue Code), or a distribution
which is a "qualified first-time home buyer distribution."
Even a distribution which would otherwise be a qualified distribution will not
be a qualified distribution, and thus may be subject to tax, if the distribution
is made within the five-year period beginning with the year in which you or your
spouse made the contribution to your Roth IRA, or, if you made a rollover from a
Regular IRA to a Roth IRA, within the five-taxable-year period beginning with
the taxable year in which the rollover contribution was made. Any such
distribution will be taxable to the extent that earnings on the contributions
are withdrawn.
A "qualified first-time home buyer distribution" is a distribution meeting the
requirements of Section 72(t)(8) of the Internal Revenue Code, and is generally
a distribution to the account owner to the extent that the distribution is used
within 120 days of receipt of the distribution to pay "qualified acquisition
costs" with respect to the principal residence of a first-time home buyer who is
either the account owner, his or her spouse, or his or her child, grandchild or
ancestor of the account owner or the account owner's spouse. There is a maximum
lifetime dollar limitation on qualified first-time home buyer distributions of
$10,000. Qualified acquisition costs include the costs of acquiring,
constructing or reconstructing the principal residence, and any usual or
reasonable settlement, financing, or other closing costs. With limited
exceptions, an individual is a "first-time home buyer" if the individual (and if
married, the individual's spouse) had no present ownership interest in a
principal residence during the two-year period which ends on the acquisition of
the principal residence. A principal residence is generally a residence which
has been occupied by the taxpayer as a principal residence for at least two out
of the previous five years.
Finally, any distribution is not taxed to the extent that the distribution, plus
all previous distributions from the Roth IRA, do not exceed the total amount you
contributed to the Roth IRA. Note that, for purposes of determining what portion
of any distribution is includible in income, all of your Roth IRA accounts are
considered as one single account. Amounts withdrawn from any one Roth IRA
account are deemed to be withdrawn from contributions first. Since all your Roth
IRAs are considered to be one account for this purpose, withdrawals from Roth
IRA accounts are not considered to be from earnings or interest until an amount
equal to all contributions made to all of an individual's Roth IRA accounts is
withdrawn.
Note that the tax treatment of a distribution from a Roth IRA is different than
that applicable to a distribution of non-deductible contributions from a Regular
IRA, in that any such distribution from a Regular IRA is treated as a
distribution of a portion of the non-deductible contributions and a portion of
the earnings in the account. This results in tax on the earnings portion of the
distribution.
WHEN MUST I BEGIN TO TAKE MONEY OUT OF MY
ROTH IRA?
You are not required to receive a distribution from a Roth IRA during your
lifetime. This is very different from a Regular IRA, where you are required to
begin receiving distributions by April 1 following the year in which you reach
age 70-1/2.
WHAT ABOUT DISTRIBUTIONS AFTER MY DEATH?
Distributions of your Roth IRA funds must be completed within five years after
the end of the year in which your death occurs unless certain conditions are
met. If you have designated a beneficiary and distributions begin within one
year after the end of the year in which your death occurs, distributions may be
made over a period not exceeding the beneficiary's life or life expectancy. If
you have designated your spouse as your beneficiary, the date on which
distribution to your spouse must begin may be as late as December 31 of the year
in which you would have reached age 70-1/2. If your spouse dies before
distributions are required to begin to the spouse, then similar conditions to
those described above apply to a beneficiary designated by your surviving spouse
to take the spouse's interest in your Roth IRA upon the spouse's death.
The distributions described above are required by the Internal Revenue Code. If
the distributions actually made during the year are smaller than those that are
required, an excise tax penalty will be assessed equal to 50% of the difference
between the amount that should have been distributed and the amount that was
actually distributed. This penalty can be waived by the Internal Revenue Service
if the shortfall resulted from a reasonable error and steps are taken to correct
it.
HOW DO I BEGIN RECEIVING DISTRIBUTIONS?
Contact First Omaha Funds at P.O. Box 419022, Kansas City, MO 64141-6022 or by
calling 1-800-662-4203 for a distribution request form.
WHAT ARE THE RESTRICTIONS ON MY ROTH IRA?
In addition to various penalty taxes, your Roth IRA account is subject to the
following restrictions:
A. No part of your Roth IRA assets may be invested in life insurance contracts
or commingled with other property except in a common trust or investment
fund.
B. Your interest in the account is nonforfeitable. It is also segregated from
other assets to ensure that it is used for retirement purposes only.
C. Transactions between yourself (or your beneficiary) and the assets held in
the account are not allowed. The specific prohibited transactions are
described in the Internal Revenue Code and include selling or exchanging
property with the account or borrowing from the account. Should a
transaction of this type occur, your entire account will be treated as
having been distributed to you. If this occurs within the five-taxable-year
period beginning with the year in which a contribution or rollover is made,
all or a portion of the account earnings will then be included in your
income for that year and, if you are not yet age 59-1/2, can be subject to
the 10% penalty tax on early distribution.
D. You may not pledge or use any portion of your Roth IRA as security for a
loan. If you do, that portion will be treated as having been distributed to
you, and all or a portion of the account earnings may be included in your
income for that year. You may also incur a 10% penalty tax on premature
distributions if you are under age 59-1/2.
E. No part of the Roth IRA funds may be invested in collectibles, as defined in
Section 408(m) (e.g., art works, rugs, antiques, metals, gems, stamps,
alcoholic beverages, certain other tangible personal property and coins,
other than coins issued under the laws of any state which are acquired by
the Roth IRA after November 10, 1988, and certain gold and silver coins
minted by the U.S. Treasury beginning October 1, 1986 and certain types of
bullion after 1997).
WHAT PENALTY TAXES MAY APPLY TO MY ROTH IRA?
You may incur penalty taxes in connection with your account under the following
circumstances:
A. Excess Contributions. If your total IRA and Roth IRA contributions exceed
the maximum for the year, the excess will be subject to a 6% penalty tax
unless the excess (along with any earnings) is withdrawn from your account
by the due date (including extensions) for that year's federal income tax
return. You may not claim the withdrawn portion as a deduction for that
year. If you fail to withdraw the excess contribution by the due date of
your return, you will incur an additional 6% penalty tax for each year that
it remains an excess. To avoid this recurring penalty tax for later years,
you must either withdraw the excess from the account or absorb it by
reducing your future deductible contributions by an amount corresponding to
the excess. You may also have to file an amended tax return to correct the
deduction or reduce your IRA deduction for that year. Withdrawal of the
excess after the due date of your return and before you reach age 591/2 will
result in a 10% penalty tax on a
premature withdrawal.
B. Premature Distributions. If you receive distributions of amounts in excess
of your contributions from your Roth IRA before you reach age 59-1/2, and
you are not disabled, you will be subject to a 10% penalty tax in addition
to the ordinary income taxes you must pay on the distribution. The 10%
penalty tax may also apply to any portion or all of the earnings in your
account which is treated as having been distributed to you because you
engaged in a prohibited transaction or pledged your account as security for
a loan. Proper rollovers into another Roth IRA and proper withdrawal of
excess contributions are not considered premature distributions.
C. Excess Accumulations. After you die, a 50% penalty tax will be imposed on
any amount which is required to be distributed to your beneficiary under the
minimum IRS distribution rules but which your beneficiary fails to withdraw.
If you have more than one Roth IRA account, the withdrawal must be based
upon the aggregate balance.
WHAT FORMS DO I HAVE TO FILE
WITH THE IRS FOR MY ROTH IRA?
You should consult with your tax adviser for detailed information concerning
reporting requirements as they apply to your Roth IRA. You may also obtain a
copy of IRS Publication 590, "Individual Retirement Arrangements," and other
information about IRAs from your local district Internal Revenue Service office.
You must file Form 5329 as part of your federal income tax return for any year
in which you incur a penalty tax due to excess contributions, premature
distributions, or excess accumulations, and calculate the penalty tax due. There
are penalties for failing to file, or late filing of, Form 5329 for any year it
is required. A rollover contribution must also be reported on Form 1040.
CAN I REVOKE MY ACCOUNT?
You will be permitted to revoke your Roth IRA within seven (7) days after the
date on which you are given this Roth IRA Disclosure Statement. If you have not
received this Disclosure Statement at least seven (7) calendar days before your
Roth IRA has been established, you have the right to revoke your Roth IRA during
the seven (7) calendar days after your Roth IRA was established. To revoke your
Roth IRA under this seven-day provision, you must request the revocation by
giving written notice to First Omaha Funds. If mailed, your revocation notice
will be deemed mailed on the date of the postmark (or, if sent by certified or
registered mail, the date of certification or registration) if it is deposited
in the mail in the United States in an envelope or other appropriate wrapper,
first-class postage prepaid, properly addressed. Upon such revocation, you will
be entitled to a return of the entire amount of the consideration paid to the
Roth IRA, without adjustment for sales commissions, administrative expenses or
fluctuation in the market value of the Roth IRA.
WHAT ARE GIFT TAX CONSEQUENCES OF
ROTH IRA CONTRIBUTIONS AND DISTRIBUTIONS?
For federal gift tax purposes, irrevocable beneficiary designations will not be
treated as gifts. Again, you should consult your tax adviser to determine the
tax consequences of an irrevocable
beneficiary designation under the state gift tax laws.
HAS THE INTERNAL REVENUE SERVICE APPROVED THE FORM OF THE FIRST OMAHA FUNDS ROTH
IRA CUSTODIAL ACCOUNT AGREEMENT?
While many of the provisions of the First Omaha Funds Roth IRA Custodial Account
Agreement are taken verbatim from a form provided by the Internal Revenue
Service, the Internal Revenue Service has not approved the form of the
agreement.
ROTH INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL ACCOUNT AGREEMENT
FORM 5305-RA (REV. JANUARY 1998)
The individual whose name appears on the Roth IRA Application to which this
Agreement applies (hereinafter called "Depositor") is establishing a Roth
Individual Retirement Account ("Roth IRA") (under Section 408A of the Internal
Revenue Code) to provide for his or her retirement and for the support of his or
her beneficiaries after death.
The Custodian named on the Roth IRA Application (herein-after called
"Custodian") has agreed to serve as Custodian of the Depositor's Roth Individual
Retirement Account established hereunder.
The Depositor has deposited with the Custodian the amount indicated as the
initial contribution on the Roth IRA Application. Such amount and any additions
thereto and earnings thereon held by the Custodian pursuant to this Agreement
may be hereafter referred to as the "custodial account," "account" or "custodial
funds."
The Depositor and the Custodian make the following agreement:
ARTICLE I
1.1 If this Roth IRA is not designated as a Roth Conversion IRA, then, except
in the case of a rollover contribution described in Section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum
amount of $2,000 for any tax year of the Depositor.
1.2 If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year
will be accepted.
ARTICLE II
2.1 The $2,000 limit described in Article I is gradually reduced to $0
between certain levels of adjusted gross income(AGI). For a single
Depositor, the $2,000 annual contribution is phased out between AGI of
$95,000 and $110,000; for a married Depositor who files jointly, between
AGI of $150,000 and $160,000; and for a married Depositor who files
separately, between $0 and $10,000. In the case of a conversion, the
Custodian will not accept IRA Conversion Contributions in a tax year if
the Depositor's AGI for that tax year exceeds $100,000 or if the
Depositor is married and files a separate return. Adjusted gross income
is defined in Section 408A(c)(3) and does not include IRA Conversion
Contributions.
ARTICLE III
3.1 The Depositor's interest in the balance in the Custodial account is
nonforfeitable.
ARTICLE IV
4.1 No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with
other property except in a common trust fund or common investment fund
(within the meaning of Section 408(a)(5)).
4.2 No part of the custodial funds may be invested in collectibles (within
the meaning of Section 408(m)) except as otherwise permitted by Section
408(m)(3), which provides an exception for certain gold, silver and
platinum coins, coins issued under the laws of any state, and certain
bullion.
ARTICLE V
5.1 If the Depositor dies before his or her entire interest is distributed to
him or her and the Depositor's surviving spouse is not the sole
beneficiary, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of
the Depositor's death.
If distributions do not begin by the date described in (b),
distribution method (a) will apply.
5.2 In the case of distribution method 5.1(b) above, to determine the minimum
annual payment of each year, divide the Depositor's entire interest in
the custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the designated beneficiary using
the attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence and subtract
1 for each subsequent year.
5.3 If the Depositor's spouse is the sole beneficiary on the Depositor's date
of death, such spouse will then be treated
as the Depositor.
ARTICLE VI
6.1 The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under Sections 408(i)
and 408A(d)(3)(E), Regulations Sections 1.408-5 and 1.408-6, and under
guidance published by the Internal Revenue Service.
6.2 The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor prescribed by the Internal Revenue Service.
ARTICLE VII
7.1 Not withstanding any other articles which may be added or incorporated,
the provisions of Articles I through IV and this sentence will be
controlling. Any additional articles that are not consistent with Section
408A, the related regulations, and other published guidance will be
invalid.
ARTICLE VIII
8.1 This agreement will be amended from time to time to comply with the
provisions of the Code, related regulations, and other published
guidance. Other amendments may be made with the consent of the Depositor
and Custodian.
ARTICLE IX
THE PROVISIONS OF THIS ARTICLE SHALL APPLY TO ANY AND ALL
CUSTODIAL ACCOUNTS ESTABLISHED PURSUANT TO THIS AGREEMENT.
9.1 INVESTMENT POWER OF CUSTODIAN
The Custodian shall invest and reinvest all contributions to
the custodial account, plus any earnings in any or all of
the following.
(a) Investment shares of the Mutual Funds (regulated investment companies)
which the Custodian has designated as appropriate for investments in
the custodial account.
(b) All dividends and capital gain distributions received on the shares
of any Mutual Fund held in the Depositor's account shall be reinvested
in shares of the same Mutual Fund which paid the distribution, and
credited to the custodial account.
9.2 FEES, EXPENSES, TAXES AND PENALTIES
(a) The Depositor agrees to pay to the Custodian fees for services
performed under this agreement in an amount specified from time to
time by the Custodian, Such fees may include, but are not limited to a
fee to establish the custodial account and the annual maintenance fee.
The Custodian shall have the right to change any such fees at any time
without prior written notice to the Depositor. As soon as practicable
after any change in fees, the Custodian shall make available to the
Depositor a new fee schedule. All fees may be billed to the Depositor
or deducted from the custodial account, at the discretion of the
Custodian. The Custodian shall also be entitled to reimbursement for
all reasonable and necessary costs, expenses and disbursement incurred
by it in the performance of services. Such reimbursement shall be made
from the account if not paid directly by the Depositor.
(b) The Depositor shall be responsible for the payment of any income,
transfer and other taxes of any kind that may be levied or assessed
upon the custodial account, and all other administrative expenses
reasonably incurred by the Custodian in the performance of its duties,
including any fees for legal services provided to the Custodian. To
the extent the Depositor fails to pay such taxes and expenses
directly, the Custodian may, in its discretion, deduct them from the
custodial account.
(c) The Custodian shall not be responsible for excise or penalty taxes or
interest imposed by the IRS by virtue of any premature distributions,
over-contributions or excess accumulations with respect to the
Depositor's account, or for the failure to commence distributions, nor
shall the Custodian be responsible for providing any tax or legal
advice with respect to the account. The Custodian shall have no
obligations to return any amounts withheld for federal income tax
purposes from any distribution as to which the Depositor (or
beneficiary, as applicable) has failed to provide a withholding
election notice prior thereto.
(d) Sales charges, if any, attributable to the acquisition of shares of a
Mutual Fund as stated in its then current prospectus may be charged to
the Depositor's account.
9.3 RESPONSIBILITIES OF CUSTODIAN
(a) The Custodian shall maintain the custodial account, distinct from all
other custodial accounts, for the exclusive benefit of the Depositor
and the Depositor's beneficiaries and shall be responsible for
performing only such services as are described in this Agreement.
(b) All contributions by the Depositor to the custodial account shall be
invested according to Article 8.1 hereof at the sole direction of the
Depositor, and the Custodian shall not be responsible or liable for
any investment decisions or recommendations with respect to the
investment, reinvestment, or sale of assets in the custodial account.
With regard to the Mutual Funds listed on the Application and any
other Mutual Fund, the Depositor understands that the Custodian does
not endorse the Mutual Funds as suitable investments for the
Depositor. In addition, the Custodian will not provide investment
advice to the Depositor. The Depositor assumes all responsibility for
the choice of his or her investments in the custodial account. The
Custodian shall not be responsible for reviewing any assets held in
the custodial account and shall not be responsible for questioning any
investment decision of the Depositor. The Custodian shall not be
liable for any loss resulting from any action taken by the Custodian
at the direction of the Depositor or any loss resulting from any
failure to act because of the absence of directions from the
Depositor.
(c) The Custodian shall not be responsible for inquiring into the nature
or amount of any contribution made by the Depositor, nor into the
amount or timing of any distribution requested by the Depositor, or
whether such contributions or distributions comply with the Code. The
Depositor shall have full responsibility for any tax or investment
consequences of all contributions to and distributions from the
custodial account.
(d) If the Custodian receives any investment instructions from the
Depositor which, in the opinion of the Custodian, are not in good
order or are unclear, or if the Custodian receives monies from the
Depositor which would exceed the amount that the Depositor may
contribute to the custodial account, the Custodian may hold all or a
portion of the monies uninvested pending receipt of written (or in any
other manner permitted by the Custodian) instructions or
clarification. During any such delay the Custodian will not be liable
for any loss of income or appreciation, loss of interest, or for any
other loss. The Custodian may also return all or a portion of the
monies to the Depositor. Again, in such situations, the Custodian will
not be liable for any loss.
(e) The Custodian will designate contributions (other than rollover
contributions) as being made for any particular year as requested by
the Depositor. If the Depositor does not designate a year for any
contribution, the Custodian will designate the year the contribution
was actually received.
(f) The Custodian will accept transfers of a cash amount to the custodial
account from another custodian or trustee of an Individual Retirement
Account, Qualified Retirement Plan or Individual Retirement Annuity
upon the Depositor's written direction. The Custodian will also
transfer a cash amount in the custodial account upon the written
request of the Depositor to another custodian or trustee of an
Individual Retirement Account or Annuity. For such transfer, the
Custodian may require a written acceptance of the successor custodian.
The Depositor warrants that all transfers to and from the custodial
account will be made in accordance with the rules and regulations of
the Internal Revenue Service.
(g) The Custodian is authorized to hire an agent to perform certain of its
duties hereunder, which agent may be the transfer agent for the Mutual
Fund shares authorized to be held hereunder.
(h) The Depositor agrees to indemnify and hold harmless, and to defend the
Custodian against any and all claims arising from and liabilities
incurred by reason of any action taken by the Custodian in good faith
pursuant to this Agreement.
9.4 JUDICIAL SETTLEMENT OF ACCOUNTS
The Custodian may bring an action before a court of appropriate
jurisdiction at any time to resolve any dispute or ambiguity in its
accounts. If a dispute or ambiguity exists regarding who is entitled to
receive funds from the custodial accounts, the Custodian may withhold
such funds until the dispute or ambiguity is resolved through settlement
by the parties or determination by a court of appropriate jurisdiction.
The court's resolution shall be final and binding on all parties
involved. All expenses incurred by the Custodian, including, without
limitation, all legal and accounting fees, shall be paid for from the
custodial account, if not otherwise paid by the Depositor.
9.5 NOTICE
(a) All notices or requests to the Custodian to make distributions from
the custodial account must conform to the requirements of the Internal
Revenue Code, the redemption requirements of the applicable fund
prospectus and the requirements of the Custodian and its duly
appointed agent, if any. The Custodian will make distributions from
the custodial account only after receiving a written request from the
Depositor (or any other party entitled to receive the assets of the
custodial account) in the form required by the Custodian. The
Depositor (or any other party entitled to receive the assets of the
custodial account) must provide to the Custodian any applications,
certificates, tax waivers, signature guarantees and any other
documents (including proof of any legal representative's authority)
that the Custodian requires. The Custodian will not be liable for
complying with a distribution request that appears to be genuine, nor
will the Custodian be liable for refusing to comply with a
distribution request which the Custodian is not satisfied is genuine
or in proper form. This includes any losses which may occur while the
Custodian waits for the distribution request to be in the proper form.
The Depositor (or any other party entitled to receive the assets of
the custodial account) also agrees to fully indemnify the Custodian
for any losses which may result from the Custodian's failure to act
upon an improperly made distribution request.
(b) Except as otherwise permitted by the Custodian, all instructions to
the Custodian under this Agreement must be in writing. The Depositor
may authorize an agent to act on behalf of the Custodian, provided
that such appointment and authorization is provided in writing to the
Custodian in the form required by the Custodian. Any instructions by
an authorized agent of the Depositor will be binding upon the
Depositor. Any authorization given by the Depositor will remain in
effect until the Custodian receives written notice of the Depositor's
revocation of the authorization, or the death of the Depositor,
whichever occurs first.
(c) Any notice, report, payment, distribution or other material required
to be delivered by the Custodian under this Agreement, shall be deemed
delivered and effective three days after the date mailed by the
Custodian to the Depositor at the Depositor's last address of record
as provided by the Depositor to the Custodian, and the Custodian shall
not be obligated to ascertain the actual address or whereabouts of
the Depositor.
(d) Any notice or instructions required to be delivered by the Depositor
to the Custodian under this Agreement shall be deemed delivered when
actually received by
the Custodian.
(e) Any notice required to be given to the Custodian under this Agreement
shall be given to the Mutual Fund Group, the name of which appears on
the front of the Agree ment, and any notice required or permitted to
be given to the Depositor under this Agreement shall be given to the
Depositor at the address filed with the Custodian from time to time.
Notices may be delivered in person or may be sent by United States
mail, first class with postage prepaid and properly addressed.
9.6 REPORTS, RECORDS AND ACCOUNTING
The Custodian shall maintain such records as may be reasonably necessary
for the proper administration of the account. The Custodian shall render
a report to each Depositor (or his or her beneficiaries), on the status
of his or her account or accounts at least annually. The report shall
show contributions (deposits) received, withdrawals made, dividend
credits, other credits and/or charges, and the balance at the end of the
report period. The report shall also furnish the Depositor such other
information as the Custodian may possess and as may be necessary for the
Depositor to comply with the reporting requirements of the Internal
Revenue Code and any applicable regulations. The Custodian shall have no
duty to furnish information about the account to any person except as
expressly provided herein or as required by law. Any accounting, when
approved by the Depositor, will be binding and conclusive as to the
Depositor, and the Custodian will thereby be released and discharged from
any liability or accountability to the Depositor with respect to matters
set forth therein. The Depositor or beneficiary shall advise the
Custodian within 60 days following receipt of the Custodian's report of
any corrections to his or her account. If the Depositor or beneficiary
fails to advise the Custodian of any corrections within the 60-day
period, the Depositor or beneficiary shall be deemed to have approved the
Custodian's report. The Custodian shall have the right to have its
account settled by a court of competent jurisdiction.
9.7 RECORDS RETENTION
The Custodian shall retain its records relating to the account as long as
necessary for the proper administration thereof and at least for any
period required by the Employee Retirement Income Security Act of 1974 or
other applicable law.
9.8 RESIGNATION OR REMOVAL OF CUSTODIAN
(a) The Custodian may resign as the Custodian hereunder without the
consent of the Depositor, by providing notice of such resignation 30
days prior to the effective date of the resignation. In the event of a
resignation by the Custodian, the Depositor must appoint a successor
Custodian or Trustee. Upon receipt by the Custodian of a written
acceptance of such appointment by the successor Custodian or Trustee,
the Custodian shall transfer and pay over to such successor the assets
of the custodial account. If after 30 days from notice of resignation,
the Custodian has not received written acceptance of such appointment
by the successor Custodian or Trustee, the Custodian shall pay or
otherwise transfer to the Depositor the assets remaining in the
custodial account. The Custodian is authorized, however, to reserve
such funds as it deems advisable for payment of any liabilities
constituting a charge against the assets of the custodial account or
against the Custodian, with any balance of such reserve remaining
after payment of all such items to be paid over to the successor
Custodian.
(b) Upon the appointment and qualification of a successor Custodian or
Trustee, the successor Custodian or Trustee shall assume all rights,
powers, and privileges, liabilities and duties of the Custodian. Upon
acceptance of appointment by the successor Custodian or Trustee, the
Custodian shall assign, transfer and deliver to the successor all
funds held in the custodial account. The Custodian is authorized,
however, to reserve such funds as it deems advisable for payment of
any liabilities constituting a charge against the assets of the
custodial account or against the Custodian, with any balance of such
reserve remaining after the payment of all such items to be paid over
to the successor Custodian or Trustee.
9.9 DESIGNATION OF BENEFICIARY
(a) The Depositor has the right to designate a beneficiary(ies) of his or
her account in writing on a form provided by the Custodian or in a
format approved by the Custodian. The purpose of this designation is
to identify the recipient(s) of the custodial account upon the
Depositor's death.
(b) The Depositor has the right to change this designation of beneficiary
at any time by writing to the Custodian. A beneficiary designation
when received by the Custodian shall relate back and be effective as
of the date it was signed by the Depositor, but without prejudice to
or liability of the Custodian, Mutual Fund or its agents, for any
payout made prior to receipt by them. If the beneficiary does not
survive the Depositor or if the Custodian cannot locate the
beneficiary after reasonable search, any balance in the account will
be paid to the Depositor's estate.
9.10 PAYMENT IN THE EVENT OF DISABILITY
A Depositor who becomes disabled as defined by IRC Section 72(m)(7) shall
be entitled to a distribution of his or her custodial account. The
Custodian may require what evidence it deems appropriate before
distributing on account of such disability. This determination by the
Custodian shall not constitute any warranty or assurance by the Custodian
that the distribution to the Depositor is free from the penalty on
premature distributions described in IRC Section 72(t).
9.11 EXCLUSIVE BENEFIT
The custodial account is established for the exclusive benefit of the
Depositor and his or her beneficiary(ies).
9.12 AMENDMENT
(a) The Custodian is authorized from time to time to amend this Agreement,
in whole or in part. The Custodian shall furnish copies of any such
amendments to the Depositor within 30 days of the date the amendments
are effective.
(b) This Agreement may not be amended in any manner that will cause or
permit any part of the assets of the custodial account to be divested
from any person having any interest in the custodial account unless
such amendment is necessary to satisfy the conditions of any law,
governmental regulation or ruling or to meet the requirements of the
Internal Revenue Code or any amendment thereof, in which case the
Custodian is expressly authorized to make amendments that are
necessary for such purposes. Such amendments may be made retroactively
to the later of the effective date of this Agreement or the
effective date of any future legal requirements.
9.13 CONTINUANCE OF THE CUSTODIAL RELATIONSHIP
The relationship created by this Agreement shall continue in effect until
a full distribution of the custodial account has been made and all
accounts of the Custodian have been settled.
9.14 CUSTODIAN'S LIMITED LIABILITY
The Custodian shall not be liable for any action taken or omitted at the
direction of the Depositor or beneficiary, or with his or her consent and
approval, or for any action taken or omitted in accordance with the terms
and conditions of this Agreement, or applicable governmental regulations
or law, or for any other action taken or omitted by it in good faith for
any mistake in judgment, or for any loss suffered by the custodial
account except those which are a result of its own gross negligence or
willful misconduct.
9.15 GENERAL PROVISIONS
(a) A "Roth Conversion IRA" is a Roth IRA that accepts only "IRA
Conversion Contributions" made during your same tax year. "IRA
Conversion Contributions" are amounts rolled over, transferred or
converted from any IRA that is not a Roth IRA to a Roth IRA. To
simplify the identification of funds distributed from Roth IRAs, you
are encouraged to maintain IRA Conversion Contributions for each tax
year in a separate Roth IRA.
(b) Anything contained in this Agreement to the contrary not withstanding,
neither the Depositor nor any beneficiary of the Depositor shall be
entitled to use the custodial account or any portion thereof, as
security for a loan, nor shall the Custodian or any other person or
institution engage in any prohibited transaction, within the meaning
of Section 4975 of the Code, with respect to any custodial account.
(c) Except to the extent otherwise required by law or this Agreement, none
of the amounts held in a custodial account shall be subject to the
claims of any creditor of the Depositor, or any beneficiary of the
Depositor, nor shall the Depositor or any beneficiary have the right
to anticipate, sell or pledge, option, encumber or assign any of the
benefits, payments or proceeds to which he or she may be entitled
under this Agreement.
(d) If any question arises as to the meaning of any provision of this
Agreement, the Custodian shall be authorized to construe or interpret
any such provision, and the Custodian's construction and
interpretation shall be binding upon the Depositor and any beneficiary
of the Depositor.
(e) Throughout this Agreement, the singular form includes the plural where
applicable.
(f) Any provision of this Agreement which would disqualify the custodial
account as a Roth Individual Retirement Account shall be disregarded
to the extent necessary to make the custodial account qualify as an
Individual Retirement Account under the Code.
(g) The headings and articles of this Agreement are for convenience of
reference only, and shall have no substantive effect on provisions of
this Agreement.
(h) This Agreement and the custodial account created hereby shall be
governed by the laws of the State in which the Custodian maintains its
principal place of business. All contributions to the custodial
account shall be deemed to take place in said State.
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(LOGO)
FIRST OMAHA
FAMILY OF FUNDSR
First National Bank of Omaha - Adviser
P.O. Box 419022
Kansas City, MO 64141-6022
1-800-662-4203
RIRADSCA-198
EDUCATION INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
DISCLOSURE STATEMENT
GENERAL
Your Education Individual Retirement Account ("IRA") is a custodial account for
the benefit of the Designated Beneficiary that you specify in the Education IRA
Application. The Custodian of the IRA is named on the IRA Application.
The following information is being provided to you in accordance with the
requirements of the Internal Revenue Code. Please read it, together with the
Education Individual Retirement Custodial Account Agreement and the prospectus
or other offering documents for the investments which you have chosen for your
Education IRA contributions. Because the rules with respect to Education IRAs
are very complex, and because misunderstanding or disregarding the rules may
have serious tax implications, you should consult your own tax adviser if you
have questions about the information contained in this Disclosure Statement.
Further information can also be obtained from any district office of the
Internal Revenue Service. This Account Agreement and Disclosure Statement will
be amended from time to time for changes in applicable law.
To provide you with the required disclosure, First Omaha Funds has elected to
provide you a copy of Notice 97-60, 1997-46 I.R.B. 8 (November 17, 1997) as the
Disclosure Statement. The Notice follows in its entirety. Following the Notice
are some additional disclosures. While you should review the entire notice, the
discussion of the Education IRA is in Section 3, beginning on page 6.
INTERNAL REVENUE SERVICE NOTICE 97-60
PURPOSE
The questions and answers contained in this notice provide guidance on the
higher education tax incentives recently enacted by the Taxpayer Relief Act of
1997 (Pub. L. No. 105_34, 111 Stat. 788) (TRA '97). Specifically, TRA '97 added
Section 25A of the Internal Revenue Code providing the Hope Scholarship Credit
and Lifetime Learning Credit, Section 221 providing a deduction for student
loan interest, and Section 530 creating Education Individual Retirement
Accounts ("Education IRAs"). TRA '97 also amended Section 72(t) eliminating the
early withdrawal tax on certain IRA withdrawals, Section 27 providing an
exclusion from income for employer-provided educational assistance, and Section
529 setting the requirements for tax-exempt status for qualified state tuition
programs (QSTPs).
These provisions create several new tax benefits for families who are saving
for, or already paying, higher education costs or are repaying student loans.
In addition, TRA '97 extends the exclusion for employer-provided educational
assistance and makes the rules for qualified state tuition programs more
flexible. The following discussion reviews in greater detail the requirements
for each of these benefits. Whether a taxpayer may take advantage of these
benefits depends on the taxpayer's individual facts and circumstances.
DISCUSSION
SECTION 1. THE HOPE SCHOLARSHIP CREDIT
Beginning January 1, 1998, taxpayers may be eligible to claim
a nonrefundable Hope Scholarship Credit against their federal income taxes. The
Hope Scholarship Credit may be claimed for the qualified tuition and related
expenses of each student in the taxpayer's family (i.e., the taxpayer, the
taxpayer's spouse, or an eligible dependent) who is enrolled at least half-time
in one of the first two years of postsecondary education and who is enrolled in
a program leading to a degree, certificate, or other recognized educational
credential. The amount that may be claimed as a credit is generally equal to:
(1) 100 percent of the first $1,000 of the taxpayer's out-of-pocket expenses
for each student's qualified tuition and related expenses, plus (2) 50 percent
of the next $1,000 of the taxpayer's out-of-pocket expenses for each student's
qualified tuition and related expenses. Thus, the maximum credit a taxpayer may
claim for a taxable year is $1,500 multiplied by the number of students in the
family who meet the enrollment criteria described above.
The amount a taxpayer may claim as a Hope Scholarship Credit is gradually
reduced for taxpayers who have modified adjusted gross income between $40,000
($80,000 for married taxpayers filing jointly) and $50,000 ($100,000 for
married taxpayers filing jointly). Taxpayers with modified adjusted gross
income over $50,000 ($100,000 for married taxpayers filing jointly) may not
claim the Hope Scholarship Credit. Both the dollar limitation on the expenses
for which the credit may be claimed and the modified adjusted gross income
limitation will be indexed for inflation in 2002 and years thereafter.
The Hope Scholarship Credit may be claimed for payments of qualified tuition
and related expenses made on or after January 1, 1998, for academic periods
beginning on or after January 1, 1998. Therefore, the first time taxpayers will
be able to claim the credit is when they file their 1998 tax returns in 1999.
The Hope Scholarship Credit is not available for any amount paid in 1997.
Q1: WHO MAY CLAIM THE HOPE SCHOLARSHIP CREDIT?
A1: An individual paying qualified tuition and related expenses
at a postsecondary educational institution may claim the credit, provided the
student whose expenses are being paid and the institution meet certain
eligibility requirements.
Q2: MAY AN INDIVIDUAL CLAIM A HOPE SCHOLARSHIP CREDIT FOR PAYING QUALIFIED
TUITION AND RELATED EXPENSES FOR OTHER
FAMILY MEMBERS?
A2: Yes. An individual may claim the credit for his/her own qualified tuition
and related expenses and the qualified tuition and related expenses of his/her
spouse and other eligible dependents (including children) for whom the
dependency exemption is claimed. Generally, a parent may claim the dependency
exemption for his/her unmarried child if: (1) the parent supplies more than
half the child's support for the taxable year, and (2) the child is under age
19 or is a full-time student under age 24.
Q3: WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR THE STUDENT?
A3: A student is eligible for the Hope Scholarship Credit if: (1) for
at least one academic period (e.g., semester, trimester, quarter) beginning
during the calendar year, the student is enrolled at least half-time in a
program leading to a degree, certificate, or other recognized educational
credential and is enrolled in one of the first two years of postsecondary
education, and (2) the student is free of any conviction for a Federal or State
felony offense consisting of the possession or distribution of a controlled
substance. For purposes of the Hope Scholarship Credit, a student will be
considered to be enrolled at least half-time if the student is enrolled for at
least half the full-time academic workload for the course of study the student
is pursuing as determined under the standards of the institution where the
student is enrolled. The institution's standard for a full-time workload must
equal or exceed the standards established by the Department of Education under
the Higher Education Act and set forth in 34 C.F.R. Section 674.2(b).
Q4: WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR THE INSTITUTION?
A4: The college, university, vocational school, or other postsecondary
educational institution where the student is enrolled must be an institution
that is described in section 481 of the Higher Education Act of 1965 (20 U.S.C.
1088) and, therefore, eligible to participate in the student aid programs
administered by the Department of Education. This category includes virtually
all accredited public, nonprofit, and proprietary postsecondary institutions.
(The same eligibility requirements for institutions apply for the Lifetime
Learning Credit, described in the next section.)
Q5: THE HOPE SCHOLARSHIP CREDIT MAY BE CLAIMED ONLY FOR AMOUNTS SPENT ON
"QUALIFIED TUITION AND RELATED EXPENSES." WHICH EXPENSES ARE INCLUDED IN
QUALIFIED TUITION AND RELATED EXPENSES?
A5: The term "qualified tuition and related expenses" means the tuition and
fees an individual is required to pay in order to be enrolled at or attend an
eligible institution. Amounts paid for any course or other education involving
sports, games, or hobbies are not eligible for the credit, unless the course or
other education is part of the student's degree program. Charges and fees
associated with room, board, student activities, athletics, insurance, books,
equipment, transportation, and similar personal, living, or family expenses are
not qualified tuition or related expenses. (The same definition of "qualified
tuition and related expenses" applies for the Lifetime Learning Credit,
described in the next section.)
Q6: THE HOPE SCHOLARSHIP CREDIT IS AVAILABLE ONLY IF A TAXPAYER'S "MODIFIED
ADJUSTED GROSS INCOME" IS BELOW A SPECIFIED AMOUNT. HOW DOES A TAXPAYER KNOW
WHAT HIS/HER MODIFIED ADJUSTED GROSS INCOME IS?
A6: For most taxpayers, modified adjusted gross income is the same as adjusted
gross income. Taxpayers compute adjusted gross income as part of completing a
Federal income tax return. For those few taxpayers who earn income abroad or
receive income from certain American territories or possessions, modified
adjusted gross income will be greater than adjusted gross income. In those
cases, the individual's adjusted gross income will be increased by: (1) certain
amounts that the individual earns abroad, (2) amounts effectively connected
with the individual's conduct of a trade or business or derived from sources in
Guam, American Samoa, or the Northern Mariana Islands (if the individual is a
resident of the possession where the source of the income is located), and (3)
amounts derived from sources in Puerto Rico (if the individual is a Puerto
Rican resident). (The same rules apply for the Lifetime Learning Credit,
described in the next section.)
Q7: MAY A NONRESIDENT ALIEN CLAIM THE HOPE SCHOLARSHIP CREDIT?
A7: Generally no. There is an exception for certain nonresident aliens who are
married to U.S. citizens or resident aliens. Nonresident aliens should consult
a U.S. tax advisor to determine whether the exception applies to them. (The
same rules apply to the Lifetime Learning Credit, described in the next
section.)
Q8: ARE QUALIFIED TUITION AND RELATED EXPENSES FOR GRADUATE-LEVEL DEGREE WORK
ELIGIBLE FOR THE HOPE SCHOLARSHIP CREDIT?
A8: No. However, the Lifetime Learning Credit is available for these expenses.
(See Sec. 2, Q&A5.)
Q9: MAY AN INDIVIDUAL CLAIM A HOPE SCHOLARSHIP CREDIT FOR MORE THAN ONE FAMILY
MEMBER?
A9: Yes. Furthermore, the credit is calculated on a per student, rather than a
per family, basis. For example, if an individual whose modified adjusted gross
income is $35,000 pays over $2,000 in qualified tuition and related expenses
for himself and over $2,000 in qualified tuition and related expenses for his
dependent child, and both he and his dependent child meet the eligibility
requirements, the individual may claim a Hope Scholarship Credit of $3,000
(i.e., a credit of $1,500 for his expenses plus a credit of $1,500 for his
child's expenses).
Q10: MAY BOTH THE PARENT AND A DEPENDENT CHILD CLAIM THE HOPE SCHOLARSHIP CREDIT
FOR THE CHILD'S QUALIFIED TUITION AND RELATED EXPENSES IN THE SAME YEAR?
A10: No. Either the parent or the child, but not both, may claim the credit for
the child's expenses in a particular year. If an individual claims the child as
a dependent on his/her Federal income tax return for the year, only the
individual may claim the Hope Scholarship Credit for the child's qualified
tuition and related expenses. If no one claims the child as a dependent on a
Federal income tax return for the year, only the child may claim the Hope
Scholarship Credit for the child's expenses. (The same rules relating to
individuals and dependents apply for the Lifetime Learning Credit, described in
the next section.)
Q11: IF A MARRIED TAXPAYER FILES A SEPARATE RETURN, MAY THE TAXPAYER CLAIM A
HOPE SCHOLARSHIP CREDIT ON HIS/HER INCOME TAX RETURN?
A11: No. Married taxpayers may claim the credit only if the taxpayer and the
taxpayer's spouse file a joint return for the taxable year. (The same rules
apply for the Lifetime Learning Credit, described in the next section.)
Q12: HOW DOES A PARENT CLAIM A HOPE SCHOLARSHIP CREDIT FOR THE QUALIFIED
TUITION AND RELATED EXPENSES OF A DEPENDENT CHILD?
A12: The parent may claim the credit on his/her tax return even if the child
files his/her own tax return. When a child is claimed as a dependent on a
parent's return, any qualified tuition or related expenses paid by the child
during the year are treated as if the parent had paid them. Therefore, these
expenses are included in calculating the parent's Hope Scholarship Credit.
A child may not claim a Hope Scholarship Credit on his/her tax return for a
particular year if the child's parent claims the child as a dependent in that
same year. (The same rules apply for the Lifetime Learning Credit, described in
the next section.)
Q13: WHAT IS THE MAXIMUM HOPE SCHOLARSHIP CREDIT A TAXPAYER MAY CLAIM FOR AN
ELIGIBLE STUDENT?
A13: Until 2002 (when the dollar limitations are indexed for inflation), for
each student who meets the eligibility requirements, the credit amount is 100
percent of the first $1,000 of the taxpayer's out-of-pocket expenses for
qualified tuition and related expenses, plus 50 percent of the next $1,000 of
the taxpayer's out-of-pocket expenses for qualified tuition and related
expenses. Therefore, the maximum credit amount for the expenses of an eligible
student is $1,500. If the taxpayer is claiming a credit for more than one
person, the credit amount for each student in the taxpayer's family is added
together to determine the maximum total credit the taxpayer may claim.
Q14: THE AMOUNT A TAXPAYER MAY CLAIM AS A HOPE SCHOLARSHIP CREDIT IS GRADUALLY
REDUCED FOR TAXPAYERS WITH MODIFIED ADJUSTED GROSS INCOME BETWEEN $40,000 AND
$50,000 (BETWEEN $80,000 AND $100,000 FOR MARRIED TAXPAYERS FILING JOINTLY).
HOW DOES THIS REDUCTION WORK?
A14: The reduction works on a sliding scale that reflects where the taxpayer's
modified adjusted gross income is in the phase-out range. For example, until
2002 (when the dollar limitations on the credit and the income ranges are
indexed for inflation), if an eligible student (who is not anyone's dependent
for tax purposes) pays $2,000 or more in qualified tuition and related expenses
in a particular year, and the student's modified adjusted gross income for the
year is $45,000 (half way along the $10,000 phase-out range), the credit amount
for the student is limited to $750. By contrast, if the same student's modified
adjusted gross income was $35,000, the credit amount for the student would be
the maximum $1,500.
Q15: HOW DOES A TAXPAYER CLAIM THE HOPE SCHOLARSHIP CREDIT?
A15: The first year that the credit will be available is 1998. Thus, taxpayers
will not be able to claim the credit until they file their 1998 tax returns in
1999. Instructions accompanying the 1998 tax forms (for returns required to be
filed in 1999) will explain how to calculate the credit and how to claim it on
the tax return.
Q16: IS THERE A LIMIT TO THE NUMBER OF TIMES A TAXPAYER MAY CLAIM THE HOPE
SCHOLARSHIP CREDIT FOR EACH STUDENT?
A16: Yes. The credit may be claimed in no more than two years for each student.
Thus, for example, a couple with a child who starts as a freshman in the fall
of 1998, continues as a sophomore in 1999, and meets the eligibility
requirements may claim the credit for their child's expenses in 1998 and again
in 1999. After 1999, neither the parents, the student, nor anyone else may
claim any additional Hope Scholarship Credits for this student's qualified
tuition and related expenses. However, in 2000 and thereafter, the Lifetime
Learning Credit may be available for this child's expenses. Furthermore, if the
couple has another child who starts as a freshman in the fall of 1999, the
couple may claim the Hope Scholarship Credit for that child's expenses in 1999
and one additional year.
Q17: MAY AN INDIVIDUAL CLAIM BOTH THE HOPE SCHOLARSHIP CREDIT AND THE LIFETIME
LEARNING CREDIT FOR A STUDENT'S EXPENSES IN A SINGLE TAXABLE YEAR?
A17: No. For each year in which a student meets the eligibility requirements
for the Hope Scholarship Credit, the student's expenses may be used as the
basis for a Hope Scholarship Credit or a Lifetime Learning Credit, but not
both. If, for example, an eligible student pays more than $2,000 in qualified
tuition and related expenses during the calendar year, the student (or the
individual claiming the student as a dependent) may not claim the Hope
Scholarship Credit for the first $2,000 of expenses and the Lifetime Learning
Credit for the rest.
Q18: IF A COUPLE HAS TWO CHILDREN, ONE WHO IS A FRESHMAN AND ONE WHO IS A
JUNIOR, MAY THE COUPLE CLAIM A HOPE SCHOLARSHIP CREDIT FOR THE FRESHMAN'S
EXPENSES AND A LIFETIME LEARNING CREDIT FOR THE JUNIOR'S EXPENSES?
A18: Yes. Assuming the applicable eligibility requirements have been met for
each credit, a taxpayer may claim the Hope Scholarship Credit for one student's
expenses and the Lifetime Learning Credit for another student's expenses in the
same year.
Q19: MAY A PARENT OR STUDENT CLAIM A HOPE SCHOLARSHIP CREDIT FOR TUITION PAID
IN ADVANCE OF WHEN THE ACADEMIC PERIOD BEGINS?
A19: Generally, the credit is available only for payments of qualified tuition
and related expenses that cover an academic period beginning in the same
calendar year as the payment is made. (An academic period begins on the first
day of classes, and does not include periods of orientation, counseling, or
vacation.) An exception, however, allows a parent or student to claim a Hope
Scholarship Credit for payments of qualified tuition and related expenses made
during the calendar year to cover an academic period that begins in January,
February, or March of the following taxable year. Because the Hope Scholarship
Credit does not apply to expenses paid before January 1, 1998, this exception
does not apply to tuition paid in 1997 to cover academic periods beginning in
1998.
Q20: IF A STUDENT (WHO IS NOT CLAIMED AS A DEPENDENT ON ANYONE'S FEDERAL INCOME
TAX RETURN) PAYS QUALIFIED TUITION AND RELATED EXPENSES USING A COMBINATION OF
A PELL GRANT, A LOAN, A GIFT FROM A FAMILY MEMBER, AND SOME PERSONAL SAVINGS,
WHAT EXPENSES MAY BE TAKEN INTO ACCOUNT IN CALCULATING THE HOPE SCHOLARSHIP
CREDIT THE STUDENT MAY CLAIM?
A20: The student may take into account only "out-of-pocket" expenses in
calculating the credit. Qualified tuition and related expenses paid with the
student's earnings, a loan, a gift, an inheritance, or personal savings
(including savings from a qualified state tuition program) are taken into
account in calculating the credit amount. However, qualified tuition and
related expenses paid with a Pell Grant or other tax-free scholarship, a tax-
free distribution from an Education IRA, or tax-free employer-provided
educational assistance are not taken into account in calculating the credit
amount. (The same rules apply for the Lifetime Learning Credit, described in
the next section.)
Q21: MAY A STUDENT'S PARENTS CLAIM THE HOPE SCHOLARSHIP CREDIT FOR THE
STUDENT'S EXPENSES FOR A TAXABLE YEAR IN WHICH THE STUDENT TAKES MONEY OUT OF
AN EDUCATION IRA ON A TAX-FREE BASIS?
A21: No. If a student is receiving a tax-free distribution from an Education
IRA in a particular taxable year, none of that student's expenses may be
claimed as the basis for a Hope Scholarship Credit for that taxable year.
However, the student may waive the tax-free treatment of the Education IRA
distribution and elect to pay any tax that would otherwise be owed on the
Education IRA distributions received in any taxable year so that the student or
the student's parents may claim a Hope Scholarship Credit for expenses paid in
the same year the Education IRA distributions are received.
SECTION 2. LIFETIME LEARNING CREDIT
Beginning on July 1, 1998, taxpayers may be eligible to claim a nonrefundable
Lifetime Learning Credit against their federal income taxes. The Lifetime
Learning Credit may be claimed for the qualified tuition and related expenses
of the students in the taxpayer's family (i.e., the taxpayer, the taxpayer's
spouse, or an eligible dependent) who are enrolled in eligible educational
institutions. Through 2002, the amount that may be claimed as a credit is equal
to 20 percent of the taxpayer's first $5,000 of out-of-pocket qualified tuition
and related expenses for all the students in the family. After 2002, the credit
amount is equal to 20 percent of the taxpayer's first $10,000 of out-of-pocket
qualified tuition and related expenses. Thus, the maximum credit a taxpayer may
claim for a taxable year is $1,000 through 2002 and $2,000 thereafter. These
amounts are not indexed for inflation.
If the taxpayer is claiming a Hope Scholarship Credit for a particular student,
none of that student's expenses for that year may be applied toward the
Lifetime Learning Credit. The amount a taxpayer may claim as a Lifetime
Learning Credit is gradually reduced for taxpayers who have modified adjusted
gross income between $40,000 ($80,000 for married taxpayers filing jointly) and
$50,000 ($100,000 for married taxpayers filing jointly). Taxpayers with
modified adjusted gross income over $50,000 ($100,000 for married taxpayers
filing jointly) may not claim a Lifetime Learning Credit. The modified adjusted
gross income limitation will be indexed for inflation in 2002 and years
thereafter. The definition of modified adjusted gross income is the same as it
is for purposes of the Hope Scholarship Credit. (See Sec. 1, Q&A6.)
The Lifetime Learning Credit may be claimed for payments of qualified tuition
and related expenses made on or after July 1, 1998, for academic periods
beginning on or after July 1, 1998. Therefore, the first time taxpayers will be
able to claim the credit will be when they file their 1998 tax returns in 1999.
The Lifetime Learning Credit is not available for any amount paid in 1997.
Q1: WHO MAY CLAIM THE LIFETIME LEARNING CREDIT?
A1: An individual paying qualified tuition and related expenses at a
postsecondary educational institution may claim the credit, provided the
institution is an eligible educational institution. Unlike the Hope Scholarship
Credit, students are not required to be enrolled at least half-time in one of
the first two years of postsecondary education. Nonresident aliens generally
are not eligible to claim the Lifetime Learning Credit. (See Sec. 1, Q&A7.)
Q2: MAY AN INDIVIDUAL CLAIM A LIFETIME LEARNING CREDIT FOR PAYING QUALIFIED
TUITION AND RELATED EXPENSES FOR OTHER FAMILY MEMBERS?
A2: Yes. An individual may claim the credit for his/her own qualified tuition
and related expenses and the qualified tuition and related expenses of his/her
spouse and other eligible dependents (including children) for whom the
dependency exemption is allowed. Generally, a parent may claim the dependency
exemption for his/her unmarried child if: (1) the parent supplies more than
half the child's support for the taxable year, and (2) the child is under age
19 or is a full-time student under age 24.
Q3: WHAT ARE THE ELIGIBILITY REQUIREMENTS FOR THE INSTITUTION?
A3: They are the same requirements that apply for the Hope Scholarship Credit.
(See Sec. 1, Q&A4.)
Q4: IS THE LIFETIME LEARNING CREDIT AVAILABLE FOR A STUDENT
TAKING ONLY ONE COURSE?
A4: Yes. For example, a student who has just graduated from high school and is
taking a single course at a community college may claim the Lifetime Learning
Credit if the student comes within the income limits and is not claimed as a
dependent by someone else.
Q5: ARE QUALIFIED TUITION AND RELATED EXPENSES FOR GRADUATE-LEVEL EDUCATION
ELIGIBLE FOR THE LIFETIME LEARNING CREDIT?
A5: Yes.
Q6: MAY AN INDIVIDUAL CLAIM A LIFETIME LEARNING CREDIT FOR MORE THAN ONE FAMILY
MEMBER?
A6: Yes. However, unlike the Hope Scholarship Credit, the Lifetime Learning
Credit is calculated on a per family, rather than a per student, basis.
Therefore, the maximum available credit does not vary with the number of
students in the family. For example, if in 1999 a married individual whose
modified adjusted gross income is $35,000 pays $5,000 of qualified tuition and
related expenses to attend an eligible educational institution, the individual
may claim a $1,000 Lifetime Learning Credit. If in the same year the individual
also pays another $2,000 in qualified tuition and related expenses for his
spouse to attend an eligible educational institution, the individual's Lifetime
Learning Credit is still $1,000.
Q7: MAY BOTH THE PARENT AND A DEPENDENT CHILD CLAIM THE LIFETIME LEARNING
CREDIT FOR THE CHILD'S QUALIFIED TUITION AND RELATED EXPENSES IN THE SAME YEAR?
A7: No. Either the parent or the child, but not both, may claim the credit for
the child's expenses in a particular year. If an individual claims the child as
a dependent on his/her Federal income tax return for the year, only the
individual may claim the Life-time Learning Credit for the child's qualified
tuition and related expenses. If no one claims the child as a dependent on a
Federal income tax return for the year, only the child may claim the Lifetime
Learning Credit for the child's expenses.
Q8: HOW DOES A PARENT CLAIM A LIFETIME LEARNING CREDIT FOR THE QUALIFIED
TUITION AND RELATED EXPENSES OF A DEPENDENT CHILD?
A8: The parent may claim the credit on his/her Federal income tax return even
if the child files his/her own tax return. When a child is claimed as a
dependent on the parent's return, any qualified tuition and related expenses
paid by the child during the year are treated as if the parent had paid them
and, therefore, are included in calculating the parent's Lifetime Learning
Credit. A child may not claim a Lifetime Learning Credit on his/her tax return
for any year if the child's parent claims the child as a dependent in that same
year. Also, a married taxpayer who does not file a joint return is not eligible
to claim the Lifetime Learning Credit. (See Sec. 1, Q&A11.)
Q9: WHAT IS THE MAXIMUM LIFETIME LEARNING CREDIT A TAXPAYER
MAY CLAIM?
A9: The credit is equal to 20 percent of the taxpayer's out-of-pocket expenses
for qualified tuition and related expenses of all eligible family members, up
to a maximum of $5,000 in expenses annually through 2002. Thus, the maximum
Lifetime Learning Credit a taxpayer may claim through 2002 is $1,000. After
2002, the credit is equal to 20 percent of the taxpayer's out-of-pocket
expenses up to a maximum of $10,000 in expenses. Thus, the maximum Lifetime
Learning Credit a taxpayer may claim after 2002 is $2,000. The maximum credit
does not change even if the taxpayer is claiming a credit for the expenses of
more than one student in the family.
Q10: WHAT DOES THE TERM "QUALIFIED TUITION AND RELATED EXPENSES" MEAN FOR
PURPOSES OF THE LIFETIME LEARNING CREDIT?
A10: The term "qualified tuition and related expenses" for purposes of the
Lifetime Learning Credit has the same meaning as it does for purposes of the
Hope Scholarship Credit. (See Sec. 1, Q&A5.)
Q11: IF A STUDENT (WHO IS NOT CLAIMED AS A DEPENDENT ON ANYONE'S FEDERAL INCOME
TAX RETURN) PAYS QUALIFIED TUITION AND RELATED EXPENSES USING A COMBINATION OF
A PELL GRANT, A LOAN, A GIFT FROM A FAMILY MEMBER, AND SOME PERSONAL SAVINGS,
WHAT EXPENSES MAY BE TAKEN INTO ACCOUNT IN CALCULATING THE LIFETIME LEARNING
CREDIT THE STUDENT MAY CLAIM?
A11: The student may take into account only "out-of-pocket" expenses in
calculating the Lifetime Learning Credit. Qualified tuition and related
expenses paid with the student's earnings, a loan, a gift, an inheritance, or
personal savings (including savings from a qualified state tuition program) are
taken into account in calculating the credit amount. However, qualified tuition
and related expenses paid with a Pell Grant or other tax-free scholarship, a
tax-free distribution from an Education IRA, or tax-free employer-provided
educational assistance are not taken into account in calculating the credit
amount.
Q12: HOW DOES A TAXPAYER CLAIM THE LIFETIME LEARNING CREDIT?
A12: The first year that the credit will be available is 1998. Taxpayers will
not be able to claim the credit until they file their 1998 returns in 1999.
Instructions accompanying the 1998 tax forms (for returns required to be filed
in 1999) will explain how to calculate the credit and how to claim it on the
tax return.
Q13: IS THERE A LIMIT ON THE NUMBER OF YEARS IN WHICH A LIFETIME LEARNING
CREDIT MAY BE CLAIMED, AS THERE IS FOR THE HOPE SCHOLARSHIP CREDIT?
A13: Unlike the Hope Scholarship Credit, there is no limit to the number of
years in which a Lifetime Learning Credit may be claimed for each student.
Thus, for example, an individual who enrolls in one college-level class every
year would be able to claim the Lifetime Learning Credit for an unlimited
number of years, provided the individual meets the income limits and is taking
the classes at institutions that meet the eligibility requirements. (See Q&A3
in this section.)
Q14: MAY A PARENT OR STUDENT CLAIM A LIFETIME LEARNING CREDIT FOR TUITION PAID
IN ADVANCE OF WHEN THE ACADEMIC PERIOD BEGINS?
A14: Generally, the credit is available only for payments of qualified tuition
and related expenses that cover an academic period beginning in the same
calendar year as the year in which payment is made. (An academic period begins
on the first day of classes, and does not include periods of orientation,
counseling, or vacation.) An exception, however, allows a parent or student to
claim a Lifetime Learning Credit for payments of qualified tuition and related
expenses made during the calendar year to cover an academic period that begins
in January, February, or March of the following taxable year. Because the
Lifetime Learning Credit does not apply to expenses paid before July 1, 1998,
this exception does not apply to tuition paid before that date to cover
academic periods beginning before or after that date.
Q15: MAY A STUDENT OR A STUDENT'S PARENTS TAKE THE LIFETIME LEARNING CREDIT FOR
THE STUDENT'S EXPENSES IN A TAXABLE YEAR IN WHICH THE STUDENT TAKES MONEY OUT
OF AN EDUCATION IRA ON A TAX-FREE BASIS?
A15: No. If a student is receiving a tax-free distribution from an Education
IRA in a particular taxable year, none of that student's expenses may be
claimed as the basis for a Lifetime Learning Credit for that year. However, the
student may waive the tax-free treatment of the Education IRA distribution and
elect to pay any tax that would otherwise be owed on the Education IRA
distributions so that the student or the student's parents may claim a Lifetime
Learning Credit for expenses paid in the same year the Education IRA
distributions are received.
SECTION 3. EDUCATION IRAS
Beginning January 1, 1998, taxpayers may deposit up to $500 per year into an
Education IRA for a child under age 18. Parents, grandparents, other family
members, friends, and a child him/ herself may contribute to the child's
Education IRA, provided that the total contributions for the child during the
taxable year do not exceed the $500 limit. Amounts deposited in the account
grow tax-free until distributed, and the child will not owe tax on any
withdrawal from the account if the child's qualified higher education expenses
at an eligible educational institution for the year equal or exceed the amount
of the withdrawal. If the child does not need the money for postsecondary
education, the account balance can be rolled over to the Education IRA of
certain family members who can use it for their higher education. Amounts
withdrawn from an Education IRA that exceed the child's qualified higher
education expenses in a taxable year are generally subject to income tax and to
an additional tax of 10 percent. The Hope Scholarship Credit and Lifetime
Learning Credit may not be claimed for a student's expenses in a taxable year
in which the student takes a tax-free withdrawal from an Education IRA.
Q1: WHAT IS AN EDUCATION IRA?
A1: An Education IRA is a trust or custodial account that is created or
organized in the United States exclusively for the purpose of paying the
qualified higher education expenses of the designated beneficiary of the
account. The account must be designated as an Education IRA when it is created
in order to be treated as an Education IRA for tax purposes.
Q2: FOR WHOM MAY AN EDUCATION IRA BE ESTABLISHED?
A2: An Education IRA may be established for the benefit of any child under age
18. Contributions to the Education IRA will not be accepted after the
designated beneficiary reaches his/her 18th birthday.
Q3: WHERE MAY AN INDIVIDUAL OPEN AN EDUCATION IRA?
A3: An individual may open an Education IRA with any bank, or other entity that
has been approved to serve as a nonbank trustee or custodian of an individual
retirement account (IRA), and the bank or entity is offering Education IRAs.
Other entities that wish to offer Education IRAs but are not approved to serve
as IRA trustees or custodians may seek approval by following the same IRS
procedures used for approval of other IRA nonbank trustees. See Notice 97-57,
1997-43 I.R.B. (October 27, 1997).
Q4: WHEN MAY A TAXPAYER START CONTRIBUTING TO AN EDUCATION IRA FOR A CHILD?
A4: A taxpayer may start making contributions on January 1, 1998, or at any
time thereafter.
Q5: HOW MUCH MAY BE CONTRIBUTED TO A CHILD'S EDUCATION IRA?
A5: Up to $500 per year in aggregate contributions may be made for the benefit
of any child. The contributions may be placed in a single Education IRA or in
multiple Education IRAs.
Q6: WHAT HAPPENS IF MORE THAN $500 IS CONTRIBUTED TO AN EDUCATION IRA ON BEHALF
OF A CHILD IN A CALENDAR YEAR?
A6: Aggregate contributions for the benefit of a particular child in excess of
$500 for a calendar year are treated as excess contributions. If the excess
contributions (and any earnings attributable to them) are not withdrawn from
the child's account (or accounts) before the tax return for the year is due,
the excess contributions are subject to a 6 percent excise tax for each year
the excess amount remains in the account.
Q7: MAY CONTRIBUTIONS OTHER THAN CASH BE MADE TO A CHILD'S EDUCATION IRA?
A7: No. Education IRAs are permitted to accept contributions made in cash only.
Q8: MAY CONTRIBUTORS TAKE A DEDUCTION FOR CONTRIBUTIONS MADE TO AN EDUCATION
IRA?
A8: No.
Q9: ARE THERE ANY RESTRICTIONS ON WHO CAN CONTRIBUTE TO AN EDUCATION IRA?
A9: Any individual may contribute up to $500 to a child's Education IRA if the
individual's modified adjusted gross income for the taxable year is no more
than $95,000 ($150,000 for married taxpayers filing jointly). (See Sec. 1, Q&A6
for a description of modified adjusted gross income.) The $500 maximum
contribution per child is gradually reduced for individuals with modified
adjusted gross income between $95,000 and $110,000 (between $150,000 and
$160,000 for married taxpayers filing jointly). For example, an unmarried
taxpayer with modified adjusted gross income of $96,500 in a taxable year could
make a maximum contribution per child of $450 for that year. Taxpayers with
modified adjusted gross income above $110,000 ($160,000 for married taxpayers
filing jointly) cannot make contributions to anyone's Education IRA.
Q10: MAY A CHILD CONTRIBUTE TO HIS/HER OWN EDUCATION IRA?
A10: Yes.
Q11: DOES A TAXPAYER HAVE TO BE RELATED TO THE DESIGNATED BENEFICIARY IN ORDER
TO CONTRIBUTE TO THE DESIGNATED BENEFICIARY'S EDUCATION IRA?
A11: No.
Q12: HOW MANY EDUCATION IRAS MAY A CHILD HAVE?
A12: There is no limit on the number of Education IRAs that may be established
designating a particular child as beneficiary. However, in any given taxable
year the total aggregate contributions to all the accounts designating a
particular child as beneficiary may not exceed $500.
Q13: MAY A DESIGNATED BENEFICIARY TAKE A TAX-FREE WITHDRAWAL FROM AN EDUCATION
IRA TO PAY QUALIFIED HIGHER EDUCATION EXPENSES IF THE DESIGNATED BENEFICIARY IS
ENROLLED LESS THAN FULL-TIME AT AN ELIGIBLE EDUCATIONAL INSTITUTION?
A13: Yes. Whether the designated beneficiary is enrolled full-time, half-time,
or less than half-time, he/she may take a tax-free withdrawal to pay qualified
higher education expenses.
Q14: WHAT HAPPENS WHEN A DESIGNATED BENEFICIARY WITHDRAWS ASSETS FROM AN
EDUCATION IRA TO PAY FOR COLLEGE?
A14: Generally, the withdrawal is tax-free to the designated beneficiary to the
extent the amount of the withdrawal does not exceed the designated
beneficiary's qualified higher education expenses.
Q15: WHAT ARE "QUALIFIED HIGHER EDUCATION EXPENSES"?
A15: "Qualified higher education expenses" mean expenses for tuition, fees,
books, supplies, and equipment required for the enrollment or attendance of the
designated beneficiary at an eligible educational institution. Qualified higher
education expenses also include amounts contributed to a qualified state
tuition program. Qualified higher education expenses also include room and
board (generally the school's posted room and board charge, or $2,500 per year
for students living off-campus and not at home)if the designated beneficiary is
at least a half-time student at an eligible educational institution. The
standards for determining whether a student is enrolled at least half-time are
the same as those used for the Hope Scholarship Credit. (See Sec. 1, Q&A3.)
Q16: WHAT IS AN ELIGIBLE EDUCATIONAL INSTITUTION?
A16: An eligible educational institution is any college, university, vocational
school, or other postsecondary educational institution that is described in
Section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088) and,
therefore, eligible to participate in the student aid programs administered by
the Department of Education. This category includes virtually all accredited
public, nonprofit, and proprietary postsecondary institutions. (The same
eligibility requirements for institutions apply for the Hope Scholarship
Credit, the Lifetime Learning Credit, and early withdrawals from IRAs for
qualified higher education expenses.)(See Sec. 1, Q&A4, Sec. 2, Q&A3, and Sec.
4, Q&A2.)
Q17: WHAT HAPPENS IF A DESIGNATED BENEFICIARY WITHDRAWS AN AMOUNT FROM AN
EDUCATION IRA BUT DOES NOT HAVE ANY QUALIFIED HIGHER EDUCATION EXPENSES TO PAY
IN THE TAXABLE YEAR HE/SHE MAKES THE WITHDRAWAL?
A17: Generally, if a designated beneficiary withdraws an amount from an
Education IRA and does not have any qualified higher education expenses during
the taxable year, a portion of the distribution is taxable. The taxable portion
is the portion that represents earnings that have accumulated tax-free in the
account. The taxable portion of the distribution is also subject to a 10
percent additional tax unless an exception applies.
Q18: IS A DISTRIBUTION FROM AN EDUCATION IRA TAXABLE IF THE DISTRIBUTION IS
CONTRIBUTED TO ANOTHER EDUCATION IRA?
A18: Any amount distributed from an Education IRA and rolled over to another
Education IRA for the benefit of the same designated beneficiary or certain
members of the designated beneficiary's family is not taxable. An amount is
rolled over if it is paid to another Education IRA on a date within 60 days
after the date of the distribution. Members of the designated beneficiary's
family include the designated beneficiary's children and their descendants,
stepchildren and their descendants, siblings and their children, parents and
grandparents, stepparents, and spouses of all the foregoing. The $500 annual
contribution limit to Education IRAs does not apply to these rollover
contributions. For example, an older brother who has $2,000 left in his
Education IRA after he graduates from college can roll over the full $2,000
balance to an Education IRA for his younger sister who is still in high school
without paying any tax on the transfer.
Q19: WHAT HAPPENS TO THE ASSETS REMAINING IN AN EDUCATION IRA AFTER THE
DESIGNATED BENEFICIARY FINISHES HIS/HER POSTSECONDARY EDUCATION?
A19: There are two options. The amount remaining in the account may be
withdrawn for the designated beneficiary. The designated beneficiary will be
subject to both income tax and the additional 10 percent tax on the portion of
the amount withdrawn that represents earnings if the designated beneficiary
does not have any qualified higher education expenses in the same taxable year
he/she makes the withdrawal. Alternatively, if the amount in the designated
beneficiary's Education IRA is withdrawn and rolled over (as described in Q&A18
of this section) to another Education IRA for the benefit of a member of the
designated beneficiary's family, the amount rolled over will not be taxable.
Q20: RATHER THAN ROLLING OVER MONEY FROM ONE EDUCATION IRA TO ANOTHER, MAY THE
DESIGNATED BENEFICIARY OF THE ACCOUNT BE CHANGED FROM ONE CHILD TO ANOTHER
WITHOUT TRIGGERING A TAX?
A20: Yes, provided: (1) the terms of the particular trust or custodial account
permit a change in designated beneficiaries (each trustee or custodian will
control whether options like this one are available in the accounts they
offer), and (2) the new designated beneficiary is a member of the previous
designated beneficiary's family. (See Q&A18 in this section.)
Q21: MAY A STUDENT OR THE STUDENT'S PARENTS CLAIM THE HOPE SCHOLARSHIP CREDIT
OR LIFETIME LEARNING CREDIT FOR THE STUDENT'S EXPENSES IN A TAXABLE YEAR IN
WHICH THE STUDENT RECEIVES MONEY FROM AN EDUCATION IRA ON A TAX-FREE BASIS?
A21: No. If a student is receiving a tax-free distribution from an Education
IRA in a particular taxable year, none of that student's expenses may be
claimed as the basis for a Hope Scholarship Credit or Lifetime Learning Credit
for that year. However, the student may waive the tax-free treatment of the
Education IRA distribution and elect to pay any tax that would otherwise be
owed on an Education IRA distribution so that the student or the student's
parents may claim a Hope Scholarship Credit or Lifetime Learning Credit for
expenses paid in the same year the Education IRA distributions are received.
Q22: MAY CONTRIBUTIONS BE MADE TO BOTH A QUALIFIED STATE TUITION PROGRAM AND AN
EDUCATION IRA ON BEHALF OF THE SAME DESIGNATED BENEFICIARY IN THE SAME TAXABLE
YEAR?
A22: No. Any amount contributed to an Education IRA on behalf of a designated
beneficiary during any taxable year in which an amount is also contributed to a
qualified state tuition program on behalf of the same beneficiary will be
treated as an excess contribution to the Education IRA. (See Q&A6 in this
section for the treatment of excess contributions.)
SECTION 4. USING IRA WITHDRAWALS TO PAY
HIGHER EDUCATION EXPENSES
Beginning January 1, 1998, a taxpayer may make withdrawals from an individual
retirement account (IRA) to pay the qualified higher education expenses for the
taxpayer, the taxpayer's spouse, or the child or grandchild of the taxpayer or
taxpayer's spouse at an eligible educational institution. The taxpayer will owe
federal income tax on the amount withdrawn, but will not be subject to the 10
percent early withdrawal tax that applies when amounts are withdrawn from an
individual retirement account before the account holder reaches age 591/2.
Q1: WHEN CAN AN INDIVIDUAL FIRST MAKE A WITHDRAWAL FROM AN IRA TO PAY FOR
QUALIFIED HIGHER EDUCATION EXPENSES WITHOUT PAYING THE 10 PERCENT EARLY
WITHDRAWAL TAX?
A1: On or after January 1, 1998, an individual can make withdrawals from
his/her IRA to pay for qualified higher education expenses for academic periods
beginning on or after January 1, 1998, without paying the 10 percent early
withdrawal tax. See Notice 97-53, 1997-40 I.R.B. The 10 percent early
withdrawal tax does not apply to a distribution from an IRA to the extent that
the amount of the distribution does not exceed the qualified higher education
expenses for the taxpayer, the taxpayer's spouse, and the child or grandchild
of the taxpayer or the taxpayer's spouse at an eligible educational
institution. For purposes of this rule, the term "qualified higher education
expenses" means tuition, fees, books, supplies and equipment required for the
enrollment or attendance of the student at an eligible educational institution.
Qualified higher education expenses also include room and board if the student
is enrolled at least half-time. Qualified higher education expenses paid with
an individual's earnings, a loan, a gift, an inheritance given to the student
or the individual claiming the credit, or personal savings (including savings
from a qualified state tuition program) are included in determining the amount
of the IRA withdrawal which is not subject to the 10 percent early withdrawal
tax. Qualified higher education expenses paid with a Pell Grant or other tax-
free scholarship, a tax-free distribution from an Education IRA, or tax-free
employer-provided educational assistance are excluded.
Q2: WHAT ARE THE REQUIREMENTS FOR AN "ELIGIBLE EDUCATIONAL
INSTITUTION"?
A2: An "eligible educational institution" is any college, university,
vocational school, or other postsecondary educational institution that is
described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088)
and, therefore, eligible to participate in the student aid programs
administered by the Department of Education. This category includes virtually
all accredited public, nonprofit, and proprietary postsecondary institutions.
(The same eligibility requirements for institutions apply for the Hope
Scholarship Credit, the Lifetime Learning Credit, and Education IRAs.) (See
Sec. 1, Q&A4, Sec. 2, Q&A3, and Sec. 3, Q&A16.)
Q3: WHEN ARE IRA WITHDRAWALS USUALLY SUBJECT TO THE 10
PERCENT EARLY WITHDRAWAL TAX?
A3: Generally, if a taxpayer makes a withdrawal from his/her IRA before
reaching age 591/2, the taxpayer must pay the 10 percent early withdrawal tax
on all or part of the amount withdrawn.
Q4: IN ADDITION TO THE EDUCATION IRA, TRA '97 ALSO CREATED THE ROTH IRA. MAY A
TAXPAYER MAKE A WITHDRAWAL FROM A ROTH IRA TO PAY FOR HIS/HER CHILD'S QUALIFIED
HIGHER EDUCATION EXPENSES?
A4: Yes. A taxpayer may make a withdrawal from a Roth IRA,
as they can from other IRAs, to pay qualified higher education expenses without
paying the 10 percent early withdrawal tax.
SECTION 5. STUDENT LOAN INTEREST DEDUCTION
Beginning January 1, 1998, taxpayers who have taken loans to pay the cost of
attending an eligible educational institution for themselves, their spouse, or
their dependent generally may deduct interest they pay on these student loans.
The maximum deduction each taxpayer is permitted to take increases from $1,000
in 1998 to $2,500 in 2001 and thereafter. The following table summarizes the
yearly increases.
YEAR MAXIMUM DEDUCTION
1998 $1,000
1999 $1,500
2000 $2,000
2001 and thereafter $2,500
The deduction is available only for interest payments made during the first 60
months in which interest payments are required on the loan. The student loan
interest deduction is available for interest payments due and made on or after
January 1, 1998. Thus, the first time taxpayers will be able to claim the
deduction is when they file their 1998 tax returns in 1999. No student loan
interest deduction will be allowed for interest due or paid before 1998.
Q1: ARE THERE ANY LIMITS ON WHAT QUALIFIES AS A STUDENT LOAN?
A1: Yes. The loan must have been used to pay the costs of attendance at an
eligible educational institution for a student enrolled at least half-time in a
program leading to a degree, certificate, or other recognized educational
credential. An eligible educational institution is any college, university,
vocational school, or other postsecondary educational institution that is
described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088)
and, therefore, eligible to participate in the student aid programs
administered by the Department of Education. This category includes virtually
all accredited public, nonprofit, and proprietary postsecondary institutions.
For purposes of the student loan interest deduction, eligible educational
institutions also include institutions that conduct an internship or residency
program leading to a degree or certificate awarded by an institution of higher
education, a hospital, or a health care facility that offers postgraduate
training.
Q2: IS A STUDENT LOAN INTEREST DEDUCTION AVAILABLE IF THE STUDENT LOAN IS NOT
FEDERALLY GUARANTEED OR OTHERWISE SUBSIDIZED?
A2: Yes. As long as the loan was used to pay the costs of attendance at an
eligible educational institution and the other eligibility requirements are
met, the deduction is available for the interest on the loan. The deduction
does not depend on whether the loan is federally guaranteed or subsidized.
Q3: WHAT COSTS ARE INCLUDED IN THE COSTS OF ATTENDANCE?
A3: Costs of attendance include all items that are included in costs of
attendance for purposes of calculating a student's financial need in accordance
with the Higher Education Act. Thus, they include tuition, fees, room, board,
books, equipment, and other necessary expenses, such as transportation. Costs
of attendance include more items than are included in qualified tuition and
related expenses for purposes of the Hope Scholarship and Lifetime Learning
Credits. (See Sec. 1, Q&A5 and Sec. 2, Q&A10.)
Q4: IS THE DEDUCTION AVAILABLE FOR INTEREST PAID ON LOANS USED TO PAY FOR
GRADUATE SCHOOL?
A4: Yes.
Q5: ARE THERE ANY LIMITS ON WHO MAY TAKE THE STUDENT LOAN INTEREST DEDUCTION?
A5: Yes, there are income restrictions. To claim the maximum deduction, a
taxpayer must have modified adjusted gross income of $40,000 or less ($60,000
for married taxpayers filing jointly). The amount of the taxpayer's deduction
is gradually reduced for taxpayers with modified adjusted gross income between
$40,000 and $55,000 (between $60,000 and $75,000 for married taxpayers filing
jointly). For example, for 1998, the maximum deduction a single taxpayer with
modified adjusted gross income of $47,500 could take would be $500. Taxpayers
with modified adjusted gross income above $55,000 ($75,000 for married
taxpayers filing jointly) may not claim the student loan interest deduction.
The modified adjusted gross income limitations are indexed for inflation after
2002.
Q6: MAY FORMER STUDENTS WHOSE LOANS ARE ALREADY IN REPAYMENT DEDUCT THE
INTEREST THEY PAY ON A STUDENT LOAN ON OR AFTER JANUARY 1, 1998?
A6: Yes, but they may deduct only those payments made during the first 60
months that interest payments are required on a loan. If interest payments on a
student loan were first required before January 1, 1998, the months in which
those payments were required count against the 60-month time limit for that
loan. The 60-month period may run out at different times for different loans.
Q7: MAY A PARENT CLAIM THE STUDENT LOAN INTEREST DEDUCTION IF THE PARENT
BORROWS TO PAY HIS/HER CHILD'S COSTS OF ATTENDING COLLEGE?
A7: Yes. An individual may claim the student loan interest deduction if the
individual borrows money to pay the costs of attending college for certain
members of the individual's family or household (including his/her children)
and incurs the debt in a year in which the individual supplies more than half
of the student's support.
Q8: IF AN INDIVIDUAL HAS PAID MORE THAN $1,000 IN INTEREST ON STUDENT LOANS IN
1998 AND IS OTHERWISE ELIGIBLE TO TAKE THE MAXIMUM STUDENT LOAN INTEREST
DEDUCTION, HOW LARGE A DEDUCTION MAY THE INDIVIDUAL CLAIM?
A8: The individual's student loan interest deduction for 1998 is $1,000,
provided the individual's modified adjusted gross income falls below the point
where the deduction is reduced or eliminated.
Q9: DOES AN INDIVIDUAL HAVE TO ITEMIZE HIS/HER INCOME TAX DEDUCTIONS TO CLAIM
THE STUDENT LOAN INTEREST DEDUCTION?
A9: No. The student loan interest deduction is available regardless of whether
an individual elects to take the standard deduction or to itemize deductions.
Instructions accompanying the 1998 tax forms (for returns required to be filed
in 1999) will explain how to compute and claim the deduction.
Q10: IF A STUDENT IS CLAIMED AS A DEPENDENT BY HIS/HER PARENT IN A PARTICULAR
TAXABLE YEAR, MAY THE STUDENT TAKE THE STUDENT LOAN INTEREST DEDUCTION FOR
STUDENT LOAN INTEREST THAT HE/SHE PAYS IN THAT YEAR?
A10: No. The student may not claim the student loan interest deduction in any
taxable year in which he/she is claimed as a dependent on another taxpayer's
return. However, if the student continues to pay interest on a student loan and
meets the other eligibility requirements, the student may claim the student
loan interest deduction for payments made in a later year when the student is
no longer a dependent on his/her parent's Federal income tax return.
Q11: ARE THERE ANY TAX BENEFITS AVAILABLE IF THE STUDENT REPAYS HIS/HER LOAN BY
PERFORMING COMMUNITY SERVICE RATHER THAN MAKING CASH PAYMENTS?
A11: There may be. Loan forgiveness provided in return for community service is
tax-free when it is part of certain lending programs run by Federal, state, or
local governments, educational institutions, or charitable organizations.
Students should consult a tax advisor to determine whether they qualify.
SECTION 6. QUALIFIED STATE TUITION PROGRAMS
Under current law, a qualified state tuition program (QSTP) means a program
established and maintained by a state under which a person may: (1) prepay
tuition benefits on behalf of a beneficiary so that the beneficiary is entitled
to a waiver or a payment of qualified higher education expenses, or (2)
contribute to an account that is established for paying qualified higher
education expenses of the beneficiary. The tax on earnings attributable to
prepayments or contributions is deferred until the earnings are distributed
from the QSTP. The beneficiary pays tax on the earnings at the time of
distribution. If amounts saved through a QSTP are used to pay for college, the
student or the student's parents still may be eligible to claim either the Hope
Scholarship Credit or the Lifetime Learning Credit.
Q1: HOW HAVE THE PRIOR RULES FOR QSTPS BEEN CHANGED BY TRA '97?
A1: (1) QSTPs may now be used to save for room and board expenses, up to a
specified level (generally the school's posted room and board charge, or $2,500
per year for students living off-campus and not at home); (2) QSTPs may now be
used to pay expenses not only at public and nonprofit institutions but also at
proprietary schools (i.e., any school that is an eligible educational
institution for purposes of the Hope Scholarship or Lifetime Learning Credits,
see Sec. 1, Q&A4); (3) Accounts in QSTPs may now be transferred tax-free from
the beneficiary to a broader range of family members. (Step-siblings and
spouses of family members have been added.)
Q2: MAY A STUDENT USING A QSTP TO PAY FOR COLLEGE ALSO BENEFIT FROM THE HOPE
SCHOLARSHIP CREDIT OR LIFETIME LEARNING CREDIT?
A2: Yes. The student or the student's parent may claim a Hope Scholarship
Credit or Lifetime Learning Credit for qualified tuition and related expenses
covered by a qualified state tuition program, provided the other eligibility
requirements for the credits are met.
Q3: WHEN ARE THE CHANGES TO THE QSTP RULES MADE BY TRA '97 EFFECTIVE?
A3: Generally, the new rules go into effect on January 1, 1998. However, the
new provision permitting QSTPs to be used to save for room and board expenses
is effective back to August 20, 1996.
Q4: MAY CONTRIBUTIONS BE MADE TO BOTH A QUALIFIED STATE TUITION PROGRAM AND AN
EDUCATION IRA ON BEHALF OF THE SAME DESIGNATED BENEFICIARY IN THE SAME TAXABLE
YEAR?
A4: No. Any amount contributed to an Education IRA on behalf
of a designated beneficiary during any taxable year in which an amount is also
contributed to a qualified state tuition program on behalf of the same
beneficiary will be treated as an excess contribution to the Education IRA.
(See Sec. 3, Q&A6 for the treatment of excess contributions to an Education
IRA.)
SECTION 7. EXCLUSION FOR EMPLOYER-PROVIDED
EDUCATIONAL ASSISTANCE
TRA '97 extends tax-free treatment to employer-provided educational assistance
for undergraduate courses that begin before June 1, 2000. Employers may
continue to provide up to $5,250 per year in educational assistance to each
employee on a tax-free basis for courses beginning before that date, regardless
of whether the education is job-related. This benefit expires for assistance in
paying for courses that begin on or after June 1, 2000.
Q1: HOW DOES AN EMPLOYEE LEARN WHETHER TAX-FREE EDUCATIONAL ASSISTANCE IS
AVAILABLE TO HIM/HER?
A1: Employers have this information. Employers offering tax-free educational
assistance are required to have a written plan describing the benefit and the
terms under which it is available.
Q2: DOES THE EMPLOYEE HAVE TO DO ANYTHING SPECIAL TO AVOID BEING TAXED ON
EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE,UP TO THE $5,250 LIMIT?
A2: No. The employer will automatically treat the educational assistance as a
tax-free benefit and will not include it as wages
on the employee's W-2 form.
Q3: MAY AN EMPLOYEE RECEIVE TAX-FREE EDUCATIONAL ASSISTANCE FROM THE EMPLOYER
TO ATTEND GRADUATE SCHOOL?
A3: In general, no. However, employers can provide job-related educational
assistance for graduate-level education as a tax-free fringe benefit under
certain circumstances. Educational assistance would generally qualify as job-
related if it maintains or improves skills required for the employee's current
job or satisfies certain express employer-imposed conditions for continued
employment. Individuals should consult a tax advisor for help in determining
the tax treatment of any assistance the individual may be receiving from an
employer for graduate-level education.
Q4: IF A STUDENT IS ENROLLED IN UNDERGRADUATE COURSES IN A PARTICULAR YEAR AND
OWES $3,000 IN QUALIFIED TUITION AND RELATED EXPENSES, AND THE STUDENT'S
EMPLOYER PAYS ALL OF THE STUDENT'S QUALIFIED TUITION AND RELATED EXPENSES, MAY
A HOPE SCHOLARSHIP CREDIT OR A LIFETIME LEARNING CREDIT BE CLAIMED FOR THAT
STUDENT FOR THAT YEAR?
A4: No. Neither the Hope Scholarship Credit nor the Lifetime Learning Credit
may be claimed for that student for that year.
FURTHER INFORMATION
For further information contact: Donna J. Welch, (202) 622-4910 regarding the
Hope Scholarship and Lifetime Learning Credits; Monice L. Rosenbaum, (202) 622-
6070 regarding employer-provided educational assistance and qualified state
tuition programs; Pamela R. Kinard, (202) 622-6030 regarding Education IRAs and
using IRA withdrawals to pay for higher education expenses; and John Moriarty,
(202) 622-4950 regarding student loan interest deduction (not toll-free
numbers).
The IRS will publish additional guidance on the provisions discussed in this
notice as well as other provisions included in TRA '97. You may visit the IRS
worldwide web site at (http://www.irs.ustreas.gov/ hot/taxlaw.html) for
information on additional guidance as it becomes available.
The Department of Education has a worldwide web site (http://
www.ed.gov/proginfo/SFA/StudentGuide) you can visit and telephone numbers (1-
800-4FED-AID and 1-800-USA-LEARN) you can call to get more information on
affording college and obtaining student aid, such as Pell Grants and student
loans.
DRAFTING INFORMATION
The principal authors of this notice are Donna J. Welch, Office of Assistant
Chief Counsel (Income Tax and Accounting) and Monice L. Rosenbaum and Pamela R.
Kinard, Office of Associate Chief Councel (Employee Benefits and Exempt
Organizations). However, other personnel from the IRS and Treasury Department
participated in its development.
ADDITIONAL DISCLOSURES
HOW DOES THE DESIGNATED BENEFICIARY BEGIN RECEIVING DISTRIBUTIONS?
Contact the First Omaha Family of Funds for a Distribution Request Form. The
First Omaha Family of Funds may be reached at P.O. Box 419022, Kansas City, MO
64141-6022 or by calling
1-800-662-4203.
CAN I REVOKE MY ACCOUNT?
The Depositor will be permitted to revoke the Education IRA within seven (7)
days after the date on which you are given this Education IRA Disclosure
Statement. If you have not received this Disclosure Statement at least seven (7)
calendar days before your Education IRA has been established, you have the right
to revoke your Education IRA during the seven (7) calendar days after your
Education IRA was established. To revoke your Education IRA under this seven-day
provision, you must request the revocation by giving written notice to First
Omaha Funds. If mailed, your revocation notice will be deemed mailed on the date
of the postmark (or, if sent by certified or registered mail, the date of
certification or registration) if it is deposited in the mail in the United
States in an envelope or other appropriate wrapper, first-class postage prepaid,
properly addressed. Upon such revocation, you will be entitled to a return of
the entire amount of the consideration paid to the Education IRA, without
adjustment for sales commissions, administrative expenses or fluctuation in the
market value of the Education IRA.
HAS THE INTERNAL REVENUE SERVICE APPROVED THE FORM OF THE FIRST OMAHA FUNDS
EDUCATION IRA CUSTODIAL ACCOUNT AGREEMENT?
While many of the provisions of the First Omaha Funds Education IRA Custodial
Account Agreement are taken verbatim from a form provided by the Internal
Revenue Service, the Internal Revenue Service has not approved the form of the
entire Agreement.
EDUCATION INDIVIDUAL RETIREMENT
CUSTODIAL ACCOUNT AGREEMENT
(UNDER SECTION 530 OF THE INTERNAL REVENUE CODE)
This Agreement, together with the Education IRA Application, constitutes Form
5305-EA (January 1998) of the Internal Revenue Service.
The Depositor whose name appears on the Education IRA Application to which this
Agreement applies (hereinafter called "Depositor") is establishing an Education
Individual Retirement Custodial Account under Section 530 for the benefit of the
Designated Beneficiary whose name appears on the Education IRA Application
exclusively to pay for the qualified higher education expenses, within the
meaning of Section 530(d)(2), of such Designated Beneficiary. This account must
be created in the United States for the exclusive purpose of paying the
qualified higher education expenses of the Designated Beneficiary.
The financial institution named on the Education IRAApplication (hereinafter
called "Custodian") has provided the Depositor with a concise statement
disclosing the provisions of Section 530. This Disclosure Statement must include
an explanation of the statutory requirements applicable to, and the income tax
consequences of establishing and maintaining an account under, Section 530.
Providing the Depositor with a copy of Notice 97_60, 1997_46 I.R.B. 8 (November
17, 1997) is considered a sufficient Disclosure Statement. The Custodian also
will provide a copy of this form and the Disclosure Statement to the Responsible
Individual, as defined in Article VI below, if the Responsible Individual is not
the same person as the Depositor. The Depositor has deposited with the Custodian
the amount in cash indicated as the initial contribution on theEducation IRA
Application.
The Depositor and theCustodian make the following agreement.
ARTICLE I
1.1 The Custodian may accept additional cash contributions. These contributions
may be from the Depositor, or from any other individual, for the benefit of
the Designated Beneficiary, provided the Designated Beneficiary has not
attained the age of 18 as of the date such contributions are made. Total
contributions that are not rollover contributions described in Section
530(d)(5) are limited to a maximum amount of $500 for the taxable year.
ARTICLE II
2.1 The maximum aggregate contribution that an individual may make to the
custodial account in any year may not exceed the $500 in total
contributions that the custodial account can receive. In addition, the
maximum aggregate contribution that an individual may make to the custodial
account in any year is phased out for unmarried individuals who have
modified adjusted gross income (AGI) between $95,000 and $110,000 for the
year of the contribution and for married individuals who file joint returns
with modified AGI between $150,000 and $160,000 for the year of the
contribution. Unmarried individuals with modified AGI above $110,000 for
the year and married individuals who file joint returns and have modified
AGI above $160,000 for the year may not make a contribution for that year.
Modified AGI is defined in Section 530(c)(2).
ARTICLE III
3.1 No part of the custodial account funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with
other property except in a common investment fund (within the meaning of
Section 530(b)(1)(D)).
ARTICLE IV
4.1 Any balance to the credit of the Designated Beneficiary on the date on
which such Designated Beneficiary attains age 30 shall be distributed to
the Designated Beneficiary within 30 days of such date.
4.2 Any balance to the credit of the Designated Beneficiary shall be
distributed to the estate of the Designated Beneficiary within 30 days of
the date of such Designated Beneficiary's death.
ARTICLE V
5.1 The Depositor shall have the power to direct the Custodian regarding the
investment of the above-listed amount assigned to the custodial account
(including earnings thereon) in the investment choices offered by the
Custodian. The Responsible Individual, however, shall have the power to
redirect the Custodian regarding the investment of such amounts, as well as
the power to direct the Custodian regarding the investment of all
additional contributions (including earnings thereon) to the custodial
account. In the event that the Responsible Individual does not direct the
Custodian regarding the investment of additional contributions (including
earnings thereon), the initial investment direction of the Depositor also
will govern all additional contributions made to the custodial account
until such time as the Responsible Individual otherwise directs the
Custodian. Unless otherwise provided in the Agreement, the Responsible
Individual also shall have the power to direct the Custodian regarding the
administration, management and distribution of the account.
ARTICLE VI
6.1 The "Responsible Individual" named by the Depositor shall
be a parent or guardian of the Designated Beneficiary. The custodial
account shall have only one Responsible Individual at any time. If the
Responsible Individual becomes incapacitated or dies while the Designated
Beneficiary is a minor under state law, the successor Responsible
Individual shall be the person named to succeed in that capacity by the
preceding Responsible Individual in a witnessed writing or, if no successor
is so named, the successor Responsible Individual shall be the Designated
Beneficiary's other parent or successor guardian. Unless otherwise directed
by checking the option below, at the time that the Designated
Beneficiary attains the age of majority under state law, the Designated
Beneficiary becomes the Responsible Individual.
- OPTION (This provision is effective only if checked):
The Responsible Individual shall continue to serve as the Responsible
Individual for the custodial account after the Designated Beneficiary
attains the age of majority under state law and until such time as all
assets have been distributed from the custodial account and the custodial's
account terminates. If the Responsible Individual becomes incapacitated or
dies after the Designated Beneficiary reaches the age of majority under
state law, the Responsible Individual shall be the Designated Beneficiary.
ARTICLE VII
7.1 The Responsible Individual M may or M may not change the beneficiary
designated under this Agreement to another member of the Designated
Beneficiary's family described in Section 529(e)(2) in accordance with the
Custodian's procedures.
ARTICLE VIII
8.1 The Depositor agrees to provide the Custodian with the information
necessary for the Custodian to prepare any reports required under Section
530(h).
8.2 The Custodian agrees to submit reports to the Internal Revenue Service and
the Responsible Individual as prescribed by the Internal Revenue Service.
ARTICLE IX
9.1 Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV will be controlling. Any additional
articles that are not consistent with Section 530 and related regulations
will be invalid.
ARTICLE X
10.1 This Agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be
made with the consent of the Depositor and the Custodian.
ARTICLE XI
The provisions of this Article shall apply to any and all
Custodial Accounts established pursuant to this Agreement.
11.1 DEFINITIONS
(a) CUSTODIAN. The Custodian must be a bank or savings and loan
association as defined in Section 408(n) or any person who has the
approval of the IRS to act as Custodian. Any person who may serve as a
Custodian of a traditional IRA may serve as the Custodian of an
Education IRA.
(b) DEPOSITOR. The Depositor is the person who establishes the custodial
account.
(c) DESIGNATED BENEFICIARY. The Designated Beneficiary is the person on
whose behalf the custodial account has been established.
(d) RESPONSIBLE INDIVIDUAL. The Responsible Individual, generally, is a
parent or guardian of the Designated Beneficiary. However, under
certain circumstances, the Responsible Individual may be the
Designated Beneficiary.
11.2 INVESTMENT POWER OF CUSTODIAN
The Custodian shall invest and reinvest all contributions to the custodial
account, plus any earnings in any or all of the following:
(a) Investment shares of the Mutual Funds (regulated investment companies)
which the Custodian has designated as appropriate for investments in
the custodial account.
(b) All dividends and capital gain distributions received on the shares of
any Mutual Fund held in the Depositor's account shall be reinvested in
shares of the same Mutual Fund which paid the distribution, and
credited to the custodial account.
11.3 FEES, EXPENSES, TAXES AND PENALTIES
(a) The Depositor agrees to pay to the Custodian fees for services
performed under this Agreement in an amount specified from time to
time by the Custodian. Such fees may include, but are not limited to,
a fee to establish the custodial account and the annual maintenance
fee. The Custodian shall have the right to change such fees at any
time without prior written notice to the Depositor. As soon as
practicable after any change in fees, the Custodian shall make
available to the Depositor a new fee schedule. All fees may be billed
to the Depositor or deducted from the custodial account, at the
discretion of the Custodian. The Custodian shall also be entitled to
reimbursement for all reasonable and necessary costs, expenses and
disbursement incurred by it in the performance of services. Such
reimbursement shall be made from the account if not paid directly by
the Depositor.
(b) The Depositor shall be responsible for the payment of any income,
transfer and other taxes of any kind that may be levied or assessed
upon the custodial account, and all other administrative expenses
reasonably incurred by the Custodian in the performance of its duties,
including any fees for legal services provided to the Custodian. To
the extent the Depositor fails to pay such taxes and expenses
directly, the Custodian may, in its discretion, deduct them from the
custodial account.
(c) The Custodian shall not be responsible for excise or penalty taxes or
interest imposed by the IRS by virtue of any premature distributions,
or over-contributions or excess accumulations with respect to the
account, nor shall the Custodian be responsible for providing any tax
or legal advice with respect to the account.
(d) Sales charges, if any, attributable to the acquisition of shares of a
Mutual Fund as stated in its then current prospectus may be charged to
the Depositor's account.
11.4 RESPONSIBILITIES OF CUSTODIAN
(a) The Custodian shall maintain the custodial account, distinct from all
other custodial accounts, for the exclusive benefit of the Designated
Beneficiary and shall be responsible for performing only such services
as are described in this Agreement.
(b) All contributions by the Depositor to the custodial account shall be
invested according to Article 11.2 hereof at the sole direction of the
Depositor, and the Custodian shall not be responsible or liable for
any investment decisions or recommendations with respect to the
investment, reinvestment, or sale of assets in the custodial account.
With regard to the Mutual Funds listed on the Application and any
other Mutual Fund, the Depositor understands that the Custodian does
not endorse the Mutual Funds as suitable investments for the account.
In addition, the Custodian will not provide investment advice to the
Depositor. The Depositor assumes all responsibility for the choice of
his or her investments in the custodial account. The Custodian shall
not be responsible for reviewing any assets held in the custodial
account and shall not be responsible for questioning any investment
decision of the Depositor. The Custodian shall not be liable for any
loss resulting from any action taken by the Custodian at the direction
of the Depositor or any loss resulting from any failure to act because
of the absence of directions from the Depositor.
(c) The Custodian shall not be responsible for inquiring into the nature
or amount of any contribution made by the Depositor, nor into the
amount or timing of any distribution requested by the Depositor, or
whether such contributions or distributions comply with the Code. The
Depositor shall have full responsibility for any tax or investment
consequences of all contributions to and distributions from the
custodial account.
(d) If the Custodian receives any investment instructions from the
Depositor which, in the opinion of the Custodian, are not in good
order or are unclear, or if the Custodian receives monies from the
Depositor which would exceed the amount that the Depositor may
contribute to the custodial account, the Custodian may hold all or a
portion of the monies uninvested pending receipt of written (or in any
other manner permitted by the Custodian) instructions or clarifica-
tion. During any such delay the Custodian will not be liable for any
loss of income or appreciation, loss of interest, or for any other
loss. The Custodian may also return all or a portion of the monies to
the Depositor. Again, in such situations, the Custodian will not be
liable for any loss.
(e) The Custodian will accept transfers of a cash amount to the custodial
account from another custodian or trustee of an Education Individual
Retirement Account, upon the Responsible Individual's written
direction. The Custodian will also transfer a cash amount in the
custodial account upon the written request of the Depositor to another
custodian or trustee of an Education Individual Retirement Account.
For such transfer, the Custodian may require a written acceptance of
the successor custodian. The Depositor warrants that all transfers to
and from the custodial account will be made in accordance with the
rules and regulations of the Internal Revenue Service.
(f) The Custodian is authorized to hire an agent to perform certain of its
duties hereunder, which agent may be the transfer agent for the Mutual
Fund shares authorized to be held hereunder.
(g) The Depositor agrees to indemnify and hold harmless, and to defend the
Custodian against any and all claims arising from and liabilities
incurred by reason of any action taken by the Custodian in good faith
pursuant to this Agreement.
11.5 JUDICIAL SETTLEMENT OF ACCOUNTS
The Custodian may bring an action before a court of appropriate
jurisdiction at any time to resolve any dispute or ambiguity in its
accounts. If a dispute or ambiguity exists regarding who is entitled to
receive funds from the custodial accounts, the Custodian may withhold such
funds until the dispute or ambiguity is resolved through settlement by the
parties or determination by a court of appropriate jurisdiction. The
court's resolution shall be final and binding on all parties involved. All
expenses incurred by the Custodian, including, without limitation, all
legal and accounting fees, shall be paid for from the custodial account, if
not otherwise paid by the Depositor.
11.6 NOTICE
(a) All notices or requests to the Custodian to make distributions from
the custodial account must conform to the requirements of the Internal
Revenue Code, the redemption requirements of the applicable fund
prospectus and the requirements of the Custodian and its duly
appointed agent, if any. The Custodian will make distributions from
the custodial account only after receiving a written request from the
Depositor (or any other party entitled to receive the assets of the
custodial account) in the form required by the Custodian. The
Depositor (or any other party entitled to receive the assets of the
custodial account) must provide to the Custodian any applications,
certificates, tax waivers, signature guarantees and any other
documents (including proof of any legal representative's authority)
that the Custodian requires. The Custodian will not be liable for
complying with a distribution request that appears to be genuine, nor
will the Custodian be liable for refusing to comply with a
distribution request which the Custodian is not satisfied is genuine
or in proper form. This includes any losses which may occur while the
Custodian waits for the distribution request to be in the proper form.
The Depositor (or any other party entitled to receive the assets of
the custodial account) also agrees to fully indemnify the Custodian
for any losses which may result from the Custodian's failure to act
upon an improperly made distribution request.
(b) Except as otherwise permitted by the Custodian, all instructions to
the Custodian under this Agreement must be in writing. The Depositor
may authorize an agent to act on his or her behalf, provided that such
appointment and authorization is provided in writing to the Custodian
in the form required by the Custodian. Any instructions by such an
authorized agent will be binding upon the Depositor. Any authorization
given by the Depositor will remain in effect until the Custodian
receives written notice of the Depositor's revocation of the
authorization, or the death of the Depositor, whichever occurs first.
(c) Any notice, report, payment, distribution or other material required
to be delivered by the Custodian under this Agreement, shall be deemed
delivered and effective three days after the date mailed by the
Custodian to the recipient at the recipient's last address of record
as provided by the recipient to the Custodian, and the Custodian shall
not be obligated to ascertain the actual address or whereabouts of the
recipient.
(d) Any notice or instructions required to be delivered by any party to
the Custodian under this Agreement shall be deemed delivered when
actually received by the Custodian.
(e) Any notice required to be given to the Custodian under this Agreement
shall be given to the Mutual Fund Group, the name of which appears on
the front of the Agreement. Notices may be delivered in person or may
be sent by United States mail, first-class with postage prepaid and
properly addressed.
11.7 REPORTS, RECORDS AND ACCOUNTING
The Custodian shall maintain such records as may be reasonably necessary
for the proper administration of the account. The Custodian shall render a
report to the Depositor, on the status of the account or accounts at least
annually. The report shall show contributions (deposits) received,
withdrawals made, dividend credits, other credits and/or charges, and the
balance at the end of the report period. The report shall also furnish the
Depositor such other information as the Custodian may possess and as may be
necessary for the Depositor to comply with the reporting requirements of
the Internal Revenue Code and any applicable regulations. The Custodian
shall have no duty to furnish information about the account to any person
except as expressly provided herein or as required by law. Any accounting,
when approved by the Depositor, will be binding and conclusive as to the
Depositor, the Responsible Individual and the Designated Beneficiary, and
the Custodian will thereby be released and discharged from any liability or
accountability to all such parties with respect to matters set forth
therein. The Depositor shall advise the Custodian within 60 days following
receipt of the Custodian's report of any corrections to his or her account.
If the Depositor fails to advise the Custodian of any corrections within
the 60-day period, the Depositor shall be deemed to have approved the
Custodian's report. The Custodian shall have the right to have its account
settled by a court of competent jurisdiction.
11.8 RECORDS RETENTION
The Custodian shall retain its records relating to the account as long as
necessary for the proper administration thereof and at least for any period
required by applicable law.
11.9 RESIGNATION OR REMOVAL OF CUSTODIAN
(a) The Custodian may resign as the Custodian hereunder without the
consent of the Depositor, by providing notice of such resignation 30
days prior to the effective date of the resignation. In the event of a
resignation by the Custodian, the Depositor must appoint a successor
Custodian or Trustee. Upon receipt by the Custodian of a written
acceptance of such appointment by the successor Custodian or Trustee,
the Custodian shall transfer and pay over to such successor the assets
of the custodial account. If after 30 days from notice of resignation,
the Custodian has not received written acceptance of such appointment
by the successor Custodian or Trustee, the Custodian shall pay or
otherwise transfer to the Designated Beneficiary the assets remaining
in the custodial account. The Custodian is authorized, however, to
reserve such funds as it deems advisable for payment of any
liabilities constituting a charge against the assets of the custodial
account or against the Custodian, with any balance of such reserve
remaining after payment of all such items to be paid over to the
successor Custodian.
(b) Upon the appointment and qualification of a successor Custodian or
Trustee, the successor Custodian or Trustee shall assume all rights,
powers, and privileges, liabilities and duties of the Custodian. Upon
acceptance of appointment by the successor Custodian or Trustee, the
Custodian shall assign, transfer and deliver to the successor all
funds held in the custodial account. The Custodian is authorized,
however, to reserve such funds as it deems advisable for payment of
any liabilities constituting a charge against the assets of the
custodial account or against the Custodian, with any balance of such
reserve remaining after the payment of all such items to be paid over
to the successor Custodian or Trustee.
11.10 EXCLUSIVE BENEFIT
The custodial account is established for the exclusive benefit of the
Designated Beneficiary.
11.11 AMENDMENT
(a) The Custodian is authorized from time to time to amend this Agreement,
in whole or in part. The Custodian shall furnish copies of any such
amendments to the Depositor within 30 days of the date the amendments
are effective.
(b) This Agreement may not be amended in any manner that will cause or
permit any part of the assets of the custodial account to be divested
from any person having any interest in the custodial account unless
such amendment is necessary to satisfy the conditions of any law,
governmental regulation or ruling or to meet the requirements of the
Internal Revenue Code or any amendment thereof, in which case the
Custodian is expressly authorized to make amendments that are
necessary for such purposes. Such amendments may be made retroactively
to the later of the effective date of this Agreement or the effective
date of any future legal requirements.
11.12 CONTINUANCE OF THE CUSTODIAL RELATIONSHIP
The relationship created by this Agreement shall continue in effect until a
full distribution of the custodial account has been made and all accounts
of the Custodian have been settled.
11.13 RESPONSIBLE INDIVIDUAL
(a) The Depositor shall designate the Responsible Individual on the
Education IRA Application. Upon written acceptance and direction in a
form satisfactory to the Custodian, the Responsible Individual shall
assume the power to direct the Custodian regarding the administration,
management and distribution of the account, and shall be subject to
all of the terms and conditions of the Agreement to the same extent as
is the Depositor. From and after the date the Custodian receives the
Responsible Individual's acceptance and direction, the Custodian may
cease further contact with the Depositor, references in this Article
XI to the Depositor shall mean the Responsible Individual, and the
Depositor shall have no further right or power to direct the Custodian
in any manner.
(b) The Responsible Individual may designate a successor Responsible
Individual to succeed in that capacity if the Responsible Individual
becomes incapacitated or dies while the Designated Beneficiary is a
minor under state law. The Custodian may require any such designation
to be on a form acceptable to the Custodian, and any such designations
shall be effective only upon receipt by the Custodian. If no successor
Responsible Individual has been named, then, in accordance with
Article VI, the successor Responsible Individual shall be the
Designated Beneficiary's other parent or successor guardian. Any
successor Responsible Individual may designate a successor Responsible
Individual in the manner provided herein.
(c) The Custodian shall be fully protected if it relies in good faith upon
a certificate or other evidence provided by the successor Responsible
Individual as to the incapacity of the Responsible Individual. The
Custodian may require such additional evidence as it deems appropriate
concerning such incapacity.
11.14 CUSTODIAN'S LIMITED LIABILITY
The Custodian shall not be liable for any action taken or omitted at the
direction of the Depositor, or with his or her consent and approval, or for
any action taken or omitted in accordance with the terms and conditions of
this Agreement, or applicable governmental regulations or law, or for any
other action taken or omitted by it in good faith for any mistake in
judgment, or for any loss suffered by the custodial account except those
which are a result of its own gross negligence or willful misconduct.
11.15 GENERAL PROVISIONS
(a) Anything contained in this Agreement to the contrary notwithstanding,
neither the Depositor nor any other party shall be entitled to use the
custodial account or any portion thereof, as security for a loan, nor
shall the Custodian or any other person or institution engage in any
prohibited transaction, within the meaning of Section 4975 of the
Code, with respect to any custodial account.
(b) Except to the extent otherwise required by law or this Agreement, none
of the amounts held in a custodial account shall be subject to the
claims of any creditor of the Depositor or any other party, nor shall
the Depositor or any other party have the right to anticipate, sell or
pledge, option, encumber or assign any of the benefits, payments or
proceeds to which he or she may be entitled under this Agreement.
(c) If any question arises as to the meaning of any provision of this
Agreement, the Custodian shall be authorized to construe or interpret
any such provision, and the Custodian's construction and interpre-
tation shall be binding upon the Depositor and any other party.
(d) Throughout this Agreement, the singular form includes the plural where
applicable.
(e) Any provision of this Agreement which would disqualify the custodial
account as an Education Individual Retirement Account shall be
disregarded to the extent necessary to make the custodial account
qualify as an Education Individual Retirement Account under the Code.
(f) The headings and articles of this Agreement are for convenience of
reference only, and shall have no substantive effect on provisions of
this Agreement.
(g) This Agreement and the custodial account created hereby shall be
governed by the laws of the State in which the Custodian maintains its
principal place of business. All contributions to the custodial
account shall be deemed to take place in said State.
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<NAME> FIRST OMAHA FUNDS INC
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> FIRST OMAHA FUNDS INC
<SERIES>
<NUMBER> 1
<NAME> U.S. GOVERNMENT OBLIGATIONS FUND
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