<PAGE> 1
As filed with the Securities and Exchange Commission on June 5, 1998
Registration Nos. 2-95973 and 811-4236
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-lA
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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POST-EFFECTIVE AMENDMENT NO. 44 / X /
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and
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT / X /
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OF 1940
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AMENDMENT NO. 45 / X /
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THE ONE GROUP(R)
(Exact Name of Registrant as Specified in Charter)
1111 POLARIS PARKWAY
P.O. BOX 710211
COLUMBUS, OHIO 43271-0211
(Address of Principal Executive Offices)
(800) 480-4111
(Registrant's Telephone Number)
MARK S. REDMAN
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Name and Address of Agent for Service)
Copies To:
Alan G. Priest, Esquire Jessica K. Ditullio, Esquire
Ropes & Gray BANC ONE CORPORATION
One Franklin Square 100 East Broad Street, 18th Fl.
1301 K Street, N.W., Suite 800E Columbus, Ohio 43271-0158
Washington, D.C. 20005
Approximate Date of Proposed Public Offering: Immediately upon effectiveness
It is proposed that this filing will become effective (check appropriate box)
Immediately upon filing pursuant to paragraph (b)
--
on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (DATE) pursuant to paragraph (a)(1)
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X 75 days after filing pursuant to paragraph (a)(2)
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on (DATE) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
post-effective amendment designates a new effective date for a
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previously filed post-effective amendment.
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Section (a) (1) of Rule 24f-2. Rule 24f-2
Notice for the Registrant's fiscal year ending June 30, 1997 was filed on August
28, 1997.
<PAGE> 2
THE ONE GROUP(R)
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover Page . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . About the Fund
3. Financial Highlights . . . . . . . . . . . . . Inapplicable
4. General Description About the Fund, More About the
of Registrant . . . . . . . . . . . . . . . . Fund, How To Do Business with The One
Group(R); Details About the Fund's Investment
Practices and Policies
5. Management of the Fund . . . . . . . . . . . . About the Fund; More About the Fund;
Organization & Management of the Fund
6. Capital Stock and Other About the Fund; Shareholder
Securities . . . . . . . . . . . . . . . . . Information
7. Purchase of Securities How To Do Business with
Being Offered . . . . . . . . . . . . . . . . The One Group(R), Organization &
Management of the Fund
8. Redemption or Repurchase . . . . . . . . . . . How To Do Business with
The One Group(R)
9. Pending Legal Proceedings . . . . . . . . . . . Inapplicable
STATEMENT OF ADDITIONAL
INFORMATION
FORM N-1A PART B ITEM CAPTION
- --------------------- -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Trust; Additional Information -
Description of Shares
13. Investment Objective and Policies Investment Objectives and Policies
14. Management of the Fund Management of the Trust
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
15. Control Persons and Principal N/A
Holders of Securities
16. Investment Advisory and Other
Services Management of the Trust
17. Brokerage Allocation Management of the Trust - Portfolio
Transactions
18. Capital Stock and Other Securities Valuation; Additional
Information Regarding the Calculation
of Per Share Net Asset Value;
Additional Purchase and
Redemption Information;
Additional Information
19. Purchase, Redemption and Pricing of Valuation; Additional
Securities Being Offered Information Regarding the Calculation
Per Share Net Asset Value;
Additional Purchase and Redemption
Information; Management of the
Trust
20. Tax Status Investment Objectives and Policies -
Additional Tax Information Concerning the
Fund
21. Underwriters Management of the Trust - Distributor
22. Calculation of Performance Data Additional Information - Calculation of
Performance Data
23. Financial Statements New Fund -- None Available
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.
<PAGE> 4
Part A
Part A of Post Effective Amendment 43 (filed August 29, 1997) to the Trust's
Registration Statement of Form N1-A for The One Group U.S. Treasury Securities
Money Market Fund, The One Group Prime Money Market Fund, The One Group
Municipal Money Market Fund, The One Group Ohio Municipal Money Market Fund, The
One Group Income Equity Fund, The One Group Disciplined Value Fund, The One
Group Growth Opportunities Fund, The One Group Equity Index Fund, The One Group
International Equity Index Fund, The One Group Large Company Value Fund, The One
Group Large Company Growth Fund, The One Group Asset Allocation Fund, The One
Group Value Growth Fund, The One Group Small Capitalization Fund, The One Group
Income Bond Fund, The One Group Limited Volatility Bond Fund, The One Group
Intermediate Bond Fund, The One Group Treasury & Agency Fund, The One Group
Government Bond Fund, The One Group Ultra Short-Term Income Fund, The One Group
Intermediate Tax-Free Bond Fund, The One Group Municipal Income Fund, the Ohio
Municipal Bond Fund, The One Group Texas Tax-Free Bond Fund, The One Group West
Virginia Municipal Bond Fund, The One Group Kentucky Municipal Bond Fund, The
One Group Arizona Municipal Bond Fund, The One Group Louisiana Municipal Bond
Fund, The One Group Treasury Money Market Fund, The One Group Treasury Only
Money Market Fund, The One Group Government Money Market Fund, The One Group Tax
Exempt Money Market Fund, The One Group Institutional Prime Money Market Fund,
The One Group Investor Growth Fund, The One Group Investor Growth & Income Fund,
The One Group Investor Aggressive Growth Fund, The One Group Investor Fixed
Income Fund, The One Group Investor Conservative Growth Fund, and The One Group
Investor Balanced Fund is incorporated herein by reference.
<PAGE> 5
THE ONE GROUP(R)
FAMILY OF MUTUAL FUNDS
3435 Stelzer Road
Columbus, Ohio 43219-3035
(800) 480-4111
August 19, 1998
THE ONE GROUP(R) HIGH YIELD BOND FUND
THIS PROSPECTUS DESCRIBES A MUTUAL FUND WHICH SEEKS A HIGH LEVEL OF CURRENT
INCOME BY INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH YIELD, HIGH RISK DEBT
SECURITIES. CAPITAL APPRECIATION IS A SECONDARY OBJECTIVE. THE FUND MAY INVEST
UP TO 100% OF ITS TOTAL ASSETS IN HIGH YIELD BONDS AND SIMILAR LOWER RATED AND
UNRATED SECURITIES. HIGH YIELD SECURITIES (COMMONLY KNOWN AS "JUNK BONDS") ARE
CONSIDERED TO BE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. BECAUSE OF THE
RISK, THE FUND IS INTENDED AS A LONG TERM INVESTMENT AND IS NOT AN APPROPRIATE
INVESTMENT FOR ALL INVESTORS. THE INFORMATION IN THIS PROSPECTUS IS IMPORTANT.
PLEASE READ THIS PROSPECTUS CAREFULLY BEFORE YOU INVEST AND SAVE IT FOR FUTURE
REFERENCE.
PLEASE REMEMBER THAT SHARES OF THE FUND:
X ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY BANC ONE
CORPORATION OR ITS AFFILIATES
X ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR BY ANY FEDERAL OR STATE GOVERNMENTAL AGENCY
X INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED
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
<PAGE> 6
TABLE OF CONTENTS
A BRIEF PREVIEW OF THE FUND
ABOUT THE FUND
MORE ABOUT THE FUND
Special Risk Considerations
HOW TO DO BUSINESS WITH THE ONE GROUP
Purchasing Fund Shares
Sales Charges
Sales Charge Reductions and Waivers
Exchanging Fund Shares
Redeeming Fund Shares
SHAREHOLDER INFORMATION
Voting Rights
Dividend Policies
Tax Treatment of the Fund
Tax Treatment of Shareholders
Shareholder Inquiries
ORGANIZATION & MANAGEMENT OF THE FUND
The Fund
The Board of Trustees
The Advisor
The Sub-Advisor
The Distributor
The Administrator and Sub-Administrator
The Transfer Agent, Custodian and Sub-Custodian
DETAILS ABOUT THE FUND'S INVESTMENT PRACTICES AND POLICIES
Investment Practices
Investment Risks
Investment Policies
APPENDIX: DESCRIPTION OF RATINGS
<PAGE> 7
A BRIEF PREVIEW OF THE FUND
WHAT ARE THE GOALS OF THE ONE GROUP HIGH YIELD BOND FUND? The Fund seeks a high
level of current income by investing in a diversified portfolio of high yield,
high risk debt securities (commonly known as "junk bonds"). Capital appreciation
is a secondary objective. Please read about the Fund before investing.
WHAT IS THE FUND'S INVESTMENT STRATEGY? The Fund normally will invest at least
80% of its total assets in bonds and debt securities that are rated below
investment grade or that are unrated, although the Fund may invest up to 100% of
its total assets in such securities. Up to 20% of the Fund's total assets may be
invested in other types of securities, including investment grade debt
securities.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND? The Fund invests primarily in
junk bonds, i.e., debt securities which are rated below investment grade and
that are considered to be speculative. These investments may be issued by
companies which are highly leveraged, less creditworthy or financially
distressed. While these investments generally provide a higher yield than higher
rated debt securities, the high degree of risk involved in these investments can
result in substantial or total losses. The market prices of these securities can
change suddenly and unexpectedly. As a result, the Fund is intended as a long
term investment program for persons who are able and willing to assume a high
degree of risk. For more information about risks, please read "More About the
Fund," "Special Investment Risks" and "Investment Risks."
WHAT CLASSES OF SHARES ARE AVAILABLE? The Fund currently offers four classes of
Shares: Class A, Class B, Class C and Fiduciary Class. Class A, Class B and
Class C shares are offered to the general public. Fiduciary Class shares are
offered to institutional investors, including affiliates of BANC ONE CORPORATION
and any bank, depository institution, insurance company, pension plan or other
organization authorized to act in fiduciary, advisory, agency, custodial or
similar capacities. Fiduciary Class shares are not available to Individual
Retirement Accounts ("IRA"). The section called "How To Do Business With The One
Group" provides more information.
HOW DO I PURCHASE AND REDEEM SHARES? You may buy and redeem shares of the Fund
on any day that the Fund is open for business. Purchase and redemption
procedures are explained in greater detail in "How To Do Business With The One
Group." For additional information, call The One Group Services Company at
1-800-480-4111.
HOW ARE DIVIDENDS PAID? Generally, dividends are declared on each business day
and are distributed on the first business day of each month. Any capital gains
are distributed at least annually. Distributions are paid in additional shares
of the same class unless you elect to take the payment in cash. For a more
detailed discussion of dividends, see "Dividend Policies."
WHO MANAGES THE FUND? Banc One Investment Advisors Corporation ("Banc One
Investment Advisors"), an indirect subsidiary of BANC ONE CORPORATION, serves as
the advisor of the Fund. Banc One Investment Advisors is paid a fee for its
services. Banc One High Yield Partners, LLC ("Banc One Partners") serves as
Sub-Advisor to the Fund. The Sub-Advisor's fees are paid by Banc One Investment
Advisors. A more detailed discussion regarding Banc One Investment Advisors, its
services and compensation can be found in the Prospectus under the headings "The
Advisor" and "Expense Summary." Additional information regarding the Sub-Advisor
is located in the Prospectus under the heading "The Sub-Advisor."
3
<PAGE> 8
THE ONE GROUP HIGH YIELD BOND FUND
INVESTMENT OBJECTIVE: The Fund seeks a high level of current income by investing
primarily in a diversified portfolio of debt securities which are rated below
investment grade or unrated. Capital appreciation is a secondary objective.
INVESTMENT STRATEGY: The Fund invests in all types of high yield, high risk debt
securities. The Fund also may invest in convertible securities, preferred stock,
common stock, and loan participations. The Fund's weighted average maturity will
normally range between five and ten years, although the Fund may shorten its
weighted average maturity to as little as two years if deemed appropriate for
temporary defensive purposes.
PORTFOLIO SECURITIES: The Fund normally invests at least 80% of the Fund's total
assets in debt securities, loan participations, convertible securities and
preferred stock which are rated below investment grade or unrated, although the
Fund may invest up to 100% of the Fund's total assets in such securities.
Securities rated below investment grade are called "high yield bonds,"
"non-investment grade bonds," "below investment grade bonds" and "junk bonds."
These securities are rated in the fifth or lower rating categories (for example,
BB or lower by Standard & Poor's Corporation and Ba or lower by Moody's
Investors Service, Inc.), and are considered to be speculative. The Fund also
may invest up to 20% of its total assets in other securities, including
investment grade debt securities. As a matter of fundamental policy, at least
65% of the Fund's total assets will consist of bonds. For a list of all the
securities in which the Fund may invest, please read "Investment Practices."
RISK CONSIDERATIONS: The Fund invests in debt securities which are considered
speculative. While these securities generally provide a higher yield than higher
rated debt securities, they are subject to a greater degree of risk. Issuers of
these securities may include highly leveraged, less creditworthy companies or
financially distressed firms. The credit quality of these securities can change
suddenly and unexpectedly. Before you invest, please read "More About the
Funds", "Special Investment Risks", and "Investment Risks."
FUND MANAGEMENT: Banc One Partners serves as sub-advisor to the Fund. Banc One
Partners is controlled by Banc One Investment Advisors and Pacholder Associates,
Inc. Anthony L. Longi, Jr., an officer of Banc One Partners, is the Manager of
the Fund. As an officer of Pacholder Associates, Inc., Mr. Longi has served as
portfolio manager of the Pacholder Fund, Inc. since 1994 and as a high yield
research analyst since 1987.
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSES
<TABLE>
<CAPTION>
Fiduciary
SHAREHOLDER TRANSACTION EXPENSES(1) Class A Class B Class C Class
------- ------- ------- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.50% none none none
(as a percentage of offering price)
Maximum Contingent Deferred Sales Charge none(2) 5.00% 1.00% none
(as a percentage of original purchase price
or redemption proceeds, as applicable)
Redemption Fees none none none none
Exchange Fees none none none none
ANNUAL OPERATING EXPENSE
(as a percentage of average daily net assets)
Investment Advisory Fees (after fee waiver)(3) .60% .60% .60% .60%
12b-1 Fees (after fee waiver)(4) .25% .90% .90% none
Other Expenses (after fee waiver) .35% .35% .35% .35%
Total Fund Operating Expenses (after fee waivers)(5) 1.20% 1.85% 1.85% .95%
</TABLE>
(1) If you buy or sell shares through a Shareholder Servicing Agent, you
may be charged separate transaction fees by the Shareholder Servicing
Agent. In addition, a $7.00 charge is deducted from redemption amounts
paid by wire.
(2) Except for purchases of $1 million or more. Please see "Sales Charges."
(3) Without the fee waiver, Investment Advisory Fees would be .75% for all
classes of shares.
(4) Due to 12b-1 fees, long-term Class A, Class B and Class C shareholders
may pay more than the equivalent of the maximum front-end sales charges
permitted by the rules of the National Association of Securities
Dealers. Without the voluntary waiver, 12b-1 fees would be .35% for
Class A shares and 1.00% for Class B and Class C shares.
4
<PAGE> 9
(5) Without the voluntary reduction of Investment Advisory and 12b-1 fees,
Total Operating Expenses would be 1.80% for Class A shares, 2.45% for
Class B shares, 2.45% for Class C shares and 1.45% for Fiduciary Class
shares.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment in
the Fund, assuming: (1) payment of the maximum sales charge; (2) 5% annual
return; and (3) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $57 $81 $108 $184
Class A (without fee waiver) $59 $89 $121 $211
Class B $69 $88 $120 $200
Class B (without fee waiver) $71 $96 $133 $227
Class C $29 $58 $100 $217
Class C (without fee waiver) $31 $66 $113 $243
Fiduciary Class $10 $30 $53 $117
Fiduciary Class (without fee waiver) $11 $35 $61 $134
</TABLE>
Assuming no redemption at the end of each time period, the dollar amounts in the
above example would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $57 $81 $108 $184
Class A (without fee waiver) $59 $89 $121 $211
Class B $19 $58 $100 $200
Class B (without fee waiver) $21 $66 $113 $227
Class C $19 $58 $100 $217
Class C (without fee waiver) $21 $66 $113 $243
Fiduciary Class $10 $30 $53 $117
Fiduciary Class (without fee waiver) $11 $35 $61 $134
</TABLE>
Class B shares automatically convert to Class A shares after eight (8) years.
Therefore, the "10 years" examples above reflect this conversion.
These examples are designed to assist you in understanding the various costs and
expenses that may be directly or indirectly paid by investors in the Fund. THESE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
This section normally would include Financial Highlights for the Fund. Because
the Fund will not begin operations until after August 19, 1998, there are no
Financial Highlights for the Fund.
5
<PAGE> 10
MORE ABOUT THE FUND
WHEN THE PROSPECTUS REFERS TO "BONDS," WHAT TYPES OF INVESTMENTS ARE INCLUDED?
Bonds include debt instruments with maturities of one year or more issued by the
U.S. Treasury, U.S. government agencies, corporations, and foreign entities, as
well as mortgage related securities, asset-backed securities, stripped
government securities and zero coupon obligations.
PORTFOLIO QUALITY
The Fund normally invests 80% of its total assets in securities which are rated
below investment grade (i.e., securities in the fifth or lower rating
categories) or unrated securities of comparable quality, although the Fund may
invest up to 100% of its total assets in such securities. The Fund also may
invest up to 20% of its total assets in investment grade securities (i.e.,
securities in one of the top four rating categories). Please read "Special Risk
Considerations" and "High Yield/Junk Bonds" for more information. If securities
are unrated, Banc One Investment Advisors or Banc One Partners will determine
whether it is an investment grade security. Banc One Investment Advisors or
Banc One Partners will look at a security's rating at the time of investment.
For more information about ratings, please see "Description of Ratings" in the
Appendix.
ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets in illiquid investments. A
security is illiquid if it cannot be sold at approximately the value assessed by
the Fund within seven (7) days. Banc One Investment Advisors or Banc One
Partners will follow guidelines adopted by The One Group Board of Trustees in
determining whether an investment is illiquid.
SPECIAL RISK CONSIDERATIONS
HIGH YIELD/JUNK BONDS: The Fund invests in high yield securities that are
unrated or rated below investment grade (commonly known as "junk bonds"). These
securities are considered to be high risk investments. You should not invest in
the Fund unless you are willing to assume the greater risk associated with high
yield securities. These risks include the following:
GREATER RISK OF LOSS. There is a greater risk that issuers of lower
rated securities will default than issuers of higher rated securities.
Issuers of lower rated securities may be less creditworthy, highly
indebted, financially distressed, or bankrupt. These issuers are more
vulnerable to real or perceived economic changes, political changes or
adverse industry developments. If an issuer fails to pay principal or
interest, the Fund would experience a decrease in income and a decline
in the market value of its investments. The Fund may also incur
additional expenses in seeking recovery from the issuer.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The income and
market value of the Fund's securities may fluctuate more than higher
rated securities. Although non-investment grade securities tend to be
less sensitive to interest rate changes than investment grade
securities, non-investment grade securities are more sensitive to
short-term corporate and market developments. During periods of
economic uncertainty and change, the market price of the Fund's
investments and the Fund's net asset value may be volatile.
VALUATION DIFFICULTIES. It is more difficult to value lower rated
securities than higher rated securities. If an issuer's financial
condition deteriorates, accurate financial and business information may
be limited or unavailable. In addition, the Fund's investments may be
thinly traded and there may be no established secondary market. Because
of the lack of market pricing and current information for certain of
the Fund's investments, valuation of such investments is much more
dependent on judgment than is the case with higher rated securities.
6
<PAGE> 11
LIQUIDITY. There may be no established secondary or public market for
the Fund's investments. As a result, the Fund may be required to sell
investments at substantial losses or retain them indefinitely even
where an issuer's financial condition is deteriorating.
HIGH YIELD BOND MARKET. Unlike investment grade securities (including
securities which were investment grade when issued but have fallen
below investment grade), the track record for bond default rates on new
issues of non-investment grade bonds is relatively short. It may be
that future default rates on new issues of non-investment grade
securities will be more widespread and higher than in the past,
especially if economic conditions deteriorate.
CREDIT QUALITY. Credit quality of non-investment grade securities can
change suddenly and unexpectedly, and even recently-issued credit
ratings may not fully reflect the actual risks posed by a particular
high-yield security. For these reasons, the Fund will not rely solely
on ratings issued by established credit rating agencies, but will use
such ratings in conjunction with Banc One Partners' independent and
ongoing review of credit quality. (Please see "Description of Ratings"
in the Appendix for additional information). Because investments in
lower rated or unrated securities involve greater investment risk,
achievement of the Fund's investment objectives will be more dependent
on Banc One Partners' credit analysis than would be the case if the
Fund were investing in higher rated securities. The Fund may seek to
hedge investments through transactions in options, futures contracts
and related options. The Fund also may use swap agreements to further
manage exposure to lower rated securities.
EXPERIENCE OF ADVISOR AND SUB-ADVISOR. The portfolio manager of the
Fund has been responsible for the day-to-day management of the
Pacholder Fund, Inc. since 1994. The Pacholder Fund, Inc. is a closed
end fund that invests primarily in high risk, high yield securities.
Open-end investment companies, like the Fund, are subject to different
regulatory requirements than closed-end funds such as the Pacholder
Fund, Inc. Banc One Partners, Banc One Investment Advisors and the
portfolio manager do not have experience in managing an open-end
investment company (like the Fund) that primarily invests in high
yield, high risk bonds.
FIXED INCOME SECURITIES: Investments in fixed income securities (for example,
bonds) will increase or decrease in value based on changes in interest rates.
Although non-investment grade securities tend to be less sensitive to interest
rate changes than investment grade securities, the value of the Fund's
investments generally declines if interest rates rise. On the other hand, if
rates fall, the value of the investments generally increases. The value of your
investment in a Fund will increase and decrease as the value of a Fund's
investments increase and decrease. While securities with longer duration and
maturities tend to produce higher yields, they are also subject to greater
fluctuations in value when interest rates change. Usually, changes in the value
of fixed income securities will not affect cash income generated, but may affect
the value of your investment.
DERIVATIVES: The Fund may invest in securities that are considered to be
derivatives. These securities may be more volatile than other investments. These
include:
- - options, futures contracts, and options on futures contracts
- - mortgage-backed securities, including collateralized mortgage obligations
and Real Estate Mortgage Investment Conduits (CMOs and REMICs) and stripped
mortgage-backed securities (IOs and POs)
- - asset-backed securities
- - swap, cap and floor transactions
- - new financial products
- - structured instruments
- - mortgage dollar rolls
- - Inverse floating rate instruments
Derivatives may be riskier than traditional investments.
HOW TO DO BUSINESS WITH THE ONE GROUP
PURCHASING FUND SHARES
7
<PAGE> 12
WHERE CAN I BUY SHARES? You may purchase Fund shares from the following sources:
- - The One Group Services Company, and
- - Shareholder Servicing Agents. These include investment advisors, brokers,
financial planners, banks, insurance companies, retirement or 401(k) plan
sponsors, or other intermediaries. Shares purchased this way will be held
for you by the Shareholder Servicing Agent.
WHEN CAN I BUY SHARES?
- - Purchases may be made on any business day. This includes any day that the
Fund is open for business, other than weekends and the following holidays:
New Years Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
- - Purchase requests received by The One Group Services Company before 4 p.m.
Eastern Standard Time ("EST"), will be effective that day.
- - Purchase orders may be canceled by the Fund's Custodian, State Street Bank
and Trust Company, if it does not receive "federal funds" by 4:00 p.m. EST
(i) on the business day after the order is placed if you are buying
Fiduciary Class shares, and (ii) on the third business day if you are
purchasing Class A, Class B or Class C shares.
- - If your shares are held by a Shareholder Servicing Agent, it is the
responsibility of the Shareholder Servicing Agent to send your purchase or
redemption order to the Fund. Your Shareholder Servicing Agent may have an
earlier cut-off time for purchase and redemption requests.
- - The One Group Services Company can reject a purchase order if it does not
think that it is in the best interests of the Fund and/or its shareholders
to accept the order.
- - Shares are electronically recorded. Therefore, certificates will not be
issued.
WHAT KIND OF SHARES CAN I BUY? The One Group offers the following classes of
shares:
- - Class A, Class B and Class C shares are available to the general public.
- - Fiduciary Class shares are available to institutional investors and any
organization authorized to act in a fiduciary, advisory, custodial or
agency capacity. We will refer to these entities as "Intermediaries."
- - If you intend to hold your shares six or more years, Class B shares may be
appropriate for you. If you intend to hold your shares for less than six
years, you may want to consider Class A or Class C shares.
The One Group Fund Direct IRA. The One Group offers a retirement plan, which
allows participants to defer taxes while their retirement savings grow. Call The
One Group Services Company at 1-800-480-4111 for an IRA Adoption Agreement.
HOW MUCH DO SHARES COST?
- - Shares are sold at net asset value ("NAV") plus a sales charge, if any.
- - Each class of shares in the Fund has a different NAV. This is primarily
because each class has different distribution expenses.
- - NAV per share is calculated by dividing the total market value of the
Fund's investments and other assets allocable to a class (minus class
expenses) by the number of outstanding shares in that class.
- - The Fund's NAV changes every day. NAV is calculated each business day at
4:00 p.m. EST.
HOW DO I OPEN AN ACCOUNT?
1. Read the prospectus carefully.
2. Decide how much you want to invest.
- The minimum initial investment for the Fund is $1,000 ($100 for
employees of BANC ONE CORPORATION and its affiliates).
- Subsequent investments for the Fund must be at least $100 ($25
for employees of BANC ONE CORPORATION and its affiliates).
- You may purchase no more than $250,000 of Class B shares at one
time.
- The One Group Services Company may waive these minimums.
3. Complete the Account Application Form. Be sure to sign up for all of the
Account privileges that you plan to take advantage of. Doing so now means
that you will not have to complete additional paperwork later.
8
<PAGE> 13
4. Send the completed application and a personal check (unless you choose to
pay by wire or bank transfer) payable to "The One Group" to:
State Street Bank and Trust Company
c/o The One Group
P.O. Box 8528
Boston, MA 02266-8528
Contributions to Fund Direct IRAs should be made payable to "State Street
Bank and Trust Company for the Benefit of (YOUR NAME)."
5. All checks should be in U.S. dollars. Third party checks will not be
accepted. Redemptions from the Fund will not be permitted for ten (10)
calendar days if purchases are made by check or under the Systematic
Investment Plan (see below).
6. If you purchase shares through a Shareholder Servicing Agent, you may be
required to complete additional forms or follow additional procedures. You
should contact your Shareholder Servicing Agent regarding purchases,
exchanges and redemptions.
7. If you have any questions, contact your Shareholder Servicing Agent or call
The One Group Services Company at 1-800-480-4111.
CAN I PURCHASE SHARES OVER THE TELEPHONE? Yes, simply select this option on your
Account Application Form and then:
- - Contact your Shareholder Servicing Agent or The One Group Services Company
at 1-800-480-4111 to relay your purchase instructions.
- - Send a personal check made payable to "The One Group" to State Street Bank
and Trust Company (see address above), or authorize a bank transfer or
initiate a wire transfer.
- - The One Group uses reasonable procedures to confirm that instructions given
by telephone are genuine. These procedures include recording telephone
instructions and asking for personal identification. If these procedures
are followed, The One Group will not be responsible for any loss,
liability, cost or expense of acting upon unauthorized or fraudulent
instructions; you bear the risk of loss.
- - You may revoke your right to make purchases by telephone or by sending a
letter to:
State Street Bank and Trust Company
c/o The One Group
P.O. Box 8528
Boston, MA 02266-8528
CAN I AUTOMATICALLY INVEST ON A SYSTEMATIC BASIS? Yes. After your Account is
established, you may purchase additional Class A, Class B and Class C shares by
making automatic monthly investments from your bank account. The minimum initial
investment is still $1,000, but minimum automatic additions are only $25. The
One Group Services Company may waive these minimums. To establish a Systematic
Investment Plan:
- - Select the "Systematic Investment Plan" option on the Account
Application Form.
- - Provide the necessary information about the bank account from which your
investments will be made.
- - Shares purchased under a Systematic Investment Plan may not be redeemed for
ten (10) calendar days.
- - The One Group currently does not charge for this service, but may impose a
charge in the future. However, your bank may impose a charge for debiting
your bank account.
- - You may revoke your right to make purchases by telephone or by sending a
letter to:
State Street Bank and Trust Company
c/o The One Group
P.O. Box 8528
Boston, MA 02266-8528
9
<PAGE> 14
CONVERSION FEATURE.
- - Your Class B shares automatically convert to Class A after eight years.
- - Conversion periods are measured from the end of the month in which the
Class B shares were purchased.
- - After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares.
- - You will not be assessed any sales charges or fees for conversion of
shares, nor will you be subject to any tax.
- - Because the share price of the Class A shares may be higher than that of
the Class B shares at the time of conversion, you may receive fewer Class
A shares; however, the dollar value will be the same.
- - If you have exchanged Class B shares of one Fund for Class B shares of
another, the time you held the shares in each Fund will be added together
for purposes of calculating the eight year time period.
SALES CHARGES
The One Group Services Company compensates Shareholder Servicing Agents who sell
shares of The One Group. Compensation comes from two sources: sales charges and
12b-1 fees. The One Group Services Company, at its own expense, also will
provide promotional incentives in the form of travel expenses, lodging and
bonuses to licensed individuals who sell shares of the Funds, as well as
vacation trips (including lodging at luxury resorts), tickets to entertainment
events, and merchandise.
CLASS A SHARES. If you buy Class A shares, the following table shows the amount
of sales charge and the commissions paid to Shareholder Servicing Agents.
<TABLE>
<CAPTION>
Sales Charge as a % Sales Charge as a % Commission as a %
Amount of Purchase of the Offering Price of Your Investment of Offering Price
------------------ ------------------------- -------------------- -------------------
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.05%
$100,000-$249,999 3.50% 3.63% 3.05%
$250,000-$499,999 2.50% 2.56% 2.05%
$500,000-$999,999 2.00% 2.04% 1.60%
$1,000,000* 0.00% 0.00% 0.00%
</TABLE>
* If you purchase $1 million or more of Class A shares and are not assessed a
sales charge at the time of purchase, you will be charged the equivalent of 1%
of the purchase price if you redeem any or all of the Class A shares within one
year of purchase.
CLASS B SHARES. Class B shares are offered at NAV, without any up-front sales
charges. However, if you redeem Class B shares before the sixth anniversary of
purchase, you will be assessed a Contingent Deferred Sales Charge ("CDSC")
according to the following schedule:
<TABLE>
<CAPTION>
CDSC as a % of Dollar
Years Since Purchase Amount Subject to Charge
-------------------- ------------------------
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
more than 6 None
</TABLE>
The One Group Services Company pays a commission of 4.00% of the original
purchase to Shareholder Servicing Agents who sell Class B shares of the Fund.
CLASS C SHARES: Class C shares are offered at NAV, without any up-front sales
charge. However, if you redeem your shares within one year of the purchase date,
you will be assessed a CDSC as follows:
CDSC as a % of Dollar
10
<PAGE> 15
<TABLE>
<CAPTION>
Years Since Purchase Amount Subject to Charge
-------------------- ------------------------
<S> <C> <C>
0-1 1.00%
After first year None
</TABLE>
Shareholder Servicing Agents selling Class C shares receive a commission of
1.00% of the original purchase price from The One Group Services Company.
How the CDSC is Calculated
- - The Fund assumes that all purchases made in a given month were made on the
first day of the month.
- - The CDSC is based on the current market value or the original cost of the
shares, whichever is less.
- - A sales charge is not imposed on increases in NAV above the initial
purchase price, nor is a sales charge assessed on shares acquired through
reinvestment of dividends or capital gains distributions.
- - To keep your CDSC as low as possible, the Fund first will redeem any shares
in your account that carry no CDSC, starting with Class A shares. After
that, the Fund will redeem the shares you have held for the longest time
and thus have the lowest CDSC.
12b-1 FEES. 12b-1 fees are paid by The One Group to The One Group Services
Company as compensation for its services and expenses. The One Group Services
Company in turn pays all or part of the 12b-1 fee to Shareholder Servicing
Agents that sell shares of The One Group.
- - The 12b-1 fees vary by share class as follows:
1. Class A shares pay a 12b-1 fee of .35% of the average daily net assets
of the Fund, which is currently being waived to .25%.
2. Class B and Class C shares pay a 12b-1 fee of 1.00% of the average
daily net assets of the Fund, which is currently being waived to .90%.
This will cause expenses for Class B and Class C shares to be higher
and dividends to be lower than for Class A shares.
3. There are no 12b-1 fees for Fiduciary Class shares.
- - 12b-1 fees, together with the CDSC, help The One Group Services Company
sell Class B and Class C shares without an "up-front" sales charge by
defraying the costs of advancing brokerage commissions and other expenses
paid to Shareholder Servicing Agents.
- - The One Group Services Company may use up to .25% of the fees for
shareholder servicing and up to .75% for distribution.
- - The One Group Services Company may pay 12b-1 fees to its affiliates and to
Banc One Investment Advisors and its affiliates (or any sub-advisor) for
brokerage and other agency transactions.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES. There are several ways you can reduce the
sales charges you pay on Class A shares:
1. RIGHT OF ACCUMULATION: You may add the market value of any Class A, Class B
or Class C shares of a Fund (except a money market fund) that you (and your
spouse and minor children) already own to the amount of your next Class A
purchase for purposes of calculating the sales charge. An Intermediary also
may take advantage of this option.
2. LETTER OF INTENT: With an initial investment of $2,000, you may purchase
Class A shares of one or more Funds over the next 13 months and pay the
same sales charge that you would have paid if all shares were purchased at
once. A percentage of your investment will be held in escrow until the full
amount covered by the Letter of Intent has been invested.
To take advantage of the accumulation privilege or letter of intent, complete
the appropriate section of your Fund application, or contact your Shareholder
Servicing Agent. To determine if you are eligible for the accumulation
privilege, contact The One Group Services Company at 1-800-480-4111. These
programs may be terminated or amended at any time.
11
<PAGE> 16
WAIVER OF THE CLASS A SALES CHARGE. No sales charge is imposed on Class A shares
of the Fund if the shares were:
1. Bought with the reinvestment of dividends and capital gains distributions.
2. Acquired in exchange for other Fund shares if a comparable sales charge has
been paid for the exchanged shares.
3. Bought by officers, directors or trustees, retirees and employees (and
their spouses and immediate family members) of:
- The One Group.
- BANC ONE CORPORATION and its subsidiaries and affiliates.
- The One Group Services Company and its subsidiaries and affiliates.
- State Street Bank and Trust Company and its subsidiaries and
affiliates.
- Broker/dealers who have entered into dealer agreements with The One
Group and their subsidiaries and affiliates.
- An investment sub-advisor of a fund of The One Group and such
sub-advisor's subsidiaries and affiliates.
4. Bought by:
- Affiliates of BANC ONE CORPORATION and certain accounts (other than IRA
Accounts) for which an Intermediary acts in a fiduciary, advisory,
agency, custodial or similar capacity.
- Accounts as to which a bank or broker-dealer charges an asset
allocation fee, provided the bank or broker-dealer has an agreement
with The One Group Services Company.
- Retirement and deferred compensation plans and trusts used to fund
those plans, including, but not limited to, those defined in sections
401(a), 403(b) or 457 of the Internal Revenue Code and "rabbi trusts."
- Shareholder Servicing Agents who have a dealer arrangement with The One
Group Services Company, who place trades for their own accounts or for
the accounts of their clients and who charge a management, consulting
or other fee for their services, as well as clients of such Shareholder
Servicing Agents who place trades for their own accounts if the
accounts are linked to the master account of such Shareholder Servicing
Agent.
5. Bought with proceeds from the sale of Fiduciary Class shares of a Fund of
The One Group or acquired in an exchange of Fiduciary Class shares of a
Fund for Class A shares of the same Fund, but only if the purchase is made
within 60 days of the sale or distribution.
6. Bought with proceeds from the sale of shares of a mutual fund for which a
sales charge was paid, but only if the purchase is made within 60 days of
the sale or distribution.
7. Bought in an Individual Retirement Account with the proceeds of a
distribution from an employee benefit plan, but only if the purchase is
made within 60 days of the sale or distribution and, at the time of the
distribution, the employee benefit plan had plan assets invested in a Fund
of The One Group.
8. Bought with assets of The One Group.
9. Bought in connection with plans of reorganizations of a Fund, such as
mergers, asset acquisitions and exchange offers to which a Fund is a party.
The waivers described in (5), (6) and (7) above will not continue indefinitely
and may be discontinued at any time without notice.
WAIVER OF THE CLASS B SALES CHARGE. No sales charge is imposed on redemptions of
Class B shares of the Fund:
1. Provided that you withdraw no more than 10% of the account value annually.
2. If you buy the shares in connection with certain retirement plans, such as
401(k) and similar qualified plans.
3. If you are the shareholder, or a participant or beneficiary of certain
retirement plans and you die or become disabled (as defined by the Tax
Code), but only if the redemption is made within one year of death or
disability.
4. That represent a minimum required distribution from an IRA Account or other
qualifying retirement plan, but only if you are at least age 70 1/2.
5. In connection with plans of reorganizations of a Fund, such as mergers,
asset acquisitions and exchange offers to which a Fund is a party.
6. Acquired in exchange for Class B shares of other Funds of The One Group.
WAIVER OF THE CLASS C SALES CHARGE. No sales charge is imposed on redemptions of
Class C shares of the Fund:
1. Provided that you withdraw no more than 10% of the account value annually.
12
<PAGE> 17
2. If you buy the shares in connection with certain retirement plans, such as
401(k) and similar qualified plans.
3. If you are the shareholder, or a participant or beneficiary of certain
retirement plans and you die or become disabled (as defined by the Tax
Code), but only if the redemption is made within one year of such death or
disability.
4. That represent a minimum required distribution from an IRA Account or other
qualifying retirement plan, but only if you are at least age 70 1/2.
5. In connection with plans of reorganizations of a Fund, such as mergers,
asset acquisitions and exchange offers to which a Fund is a party.
6. Acquired in exchange for Class C shares of other Funds of The One Group.
7. If The One Group Services Company receives notice before you invest
indicating that your Shareholder Servicing Agent, due to the type of
account that you have, waives the commission it would otherwise be paid.
To take advantage of any of these sales charge waivers, you must qualify for
such waiver in advance of the purchase. To see if you qualify, contact The One
Group Services Company at 1-800-480-4111 or your Shareholder Servicing Agent.
EXCHANGING FUND SHARES
WHAT ARE MY EXCHANGE PRIVILEGES? You may make the following exchanges:
- - Fiduciary Class shares of the Fund may be exchanged for Class A shares of
the Fund or for Class A or Fiduciary Class shares of another Fund of The
One Group.
- - Class A shares of the Fund may be exchanged for Fiduciary Class shares of
the Fund or for Class A or Fiduciary Class shares of another Fund of The
One Group, but only if you are eligible to purchase those shares.
- - Class B shares of the Fund may be exchanged for Class B shares of another
Fund of The One Group.
- - Class C shares of the Fund may be exchanged for Class C shares of another
Fund of The One Group.
The One Group does not charge a fee for this privilege. In addition, The One
Group may change the terms and conditions of your exchange privileges upon 60
days written notice.
WHEN ARE EXCHANGES PROCESSED? Exchanges are processed the same business day they
are received, provided:
- - State Street Bank and Trust Company receives the request by 4:00 p.m., EST.
- - You have provided The One Group with all of the information necessary to
process the exchange.
- - You have received a current prospectus of the Fund or Funds in which you
wish to invest.
- - You have contacted your Shareholder Servicing Agent, if necessary.
DO I PAY A SALES CHARGE ON AN EXCHANGE? Generally, you will not pay a sales
charge on an exchange. However:
- - You will pay a sales charge if you own Fiduciary Class shares of a Fund
and you want to exchange those shares for Class A shares, unless you
qualify for a sales charge waiver (see above).
- - You will pay a sales charge if you bought Class A shares of a Fund of The
One Group:
1. That does not charge a sales charge and you want to exchange them for
shares of a Fund that does, in which case you would pay the sales
charge applicable to the Fund into which you are exchanging.
2. That charged a lower sales charge than the Fund into which you are
exchanging, in which case you would pay the difference between that
Fund's sales charge and all other sales charges you have already paid.
- - If you exchange Class B or Class C shares of the Fund, you will not pay a
sales charge the time of the exchange, however:
1. Your new Class B or Class C shares will be subject to the higher CDSC
of either the Fund from which you exchanged, the Fund into which you
exchanged, or any Fund from which you previously exchanged.
2. The current holding period for your exchanged Class B or Class C shares
is carried over to your new shares.
ARE EXCHANGES TAXABLE? Generally:
- - An exchange between classes of shares of the same Fund is not taxable.
- - An exchange between Funds is considered a sale and generally results in a
capital gain or loss for Federal income tax purposes.
- - You should talk to your tax advisor before making an exchange.
13
<PAGE> 18
ARE THERE LIMITS ON EXCHANGES? Yes. The exchange privilege is not intended as a
way for you to speculate on short-term movements in the market. Therefore:
- - To prevent disruptions in the management of the Funds, The One Group limits
excessive exchange activity.
- - Exchange activity is excessive if it exceeds two substantive exchange
redemptions (within 30 days of each other) within a twelve month period.
- - In addition, The One Group reserves the right to reject any exchange
request (even those that are not excessive) if the Fund reasonably believes
that the exchange will be disruptive to efficient portfolio management.
Redeeming Fund Shares
WHEN CAN I REDEEM SHARES?
- - You may redeem all or some of your shares on any day that the Fund is open
for business.
- - Redemption requests received by The One Group Services Company before 4
p.m. EST, will be effective that day.
HOW DO I REDEEM SHARES?
- - Unless you have selected the telephone option on your Account Application
Form, you must send a written redemption request to your Shareholder
Servicing Agent, if applicable, or State Street Bank and Trust Company at
the following address:
The One Group
c/o State Street Bank and Trust Company
P.O. Box 8528
Boston, MA 02266-8528
- - All requests for redemptions from IRA accounts must be in writing.
- - You may request redemption forms by calling The One Group Services Company
at (800) 480-4111.
- - State Street Bank and Trust Company may require that the signature on your
redemption request be guaranteed by a commercial bank, a member of a
domestic stock exchange, or a member of the Securities Transfer Association
Medallion Program or the Stock Exchange Medallion Program, unless:
1. the redemption is for $50,000 worth of shares or less;
2. the redemption is payable to the shareholder of record; and
3. the redemption check is mailed to the shareholder at the record
address.
- - On the Account Application Form, you may elect to have the redemption
proceeds mailed or wired to:
1. a designated commercial bank (there is no charge for this service); or
2. State Street Bank and Trust Company or your Shareholder Servicing
Agent.
- - Your redemption proceeds will be paid within seven days after receipt of
the redemption request.
WHAT WILL MY SHARES BE WORTH?
- - If you own Class A and Fiduciary Class shares and the Fund receives your
redemption request by 4:00 p.m. EST, you will receive that day's NAV.
- - If you own Class B or Class C shares and the Fund receives your redemption
request by 4:00 p.m. EST, you will receive that day's NAV, minus the amount
of any applicable CDSC.
CAN I REDEEM BY TELEPHONE? Yes, if you selected this option on your Account
Application Form.
- - Call your Shareholder Servicing Agent or The One Group Services Company at
1-800-480-4111 to relay your redemption request.
- - Your redemption proceeds will be mailed or wired to the commercial bank
account you designated on your Account Application Form.
- - State Street Bank and Trust Company may charge you a wire redemption fee.
The current charge is $7.00.
- - The One Group uses reasonable procedures to confirm that instructions given
by telephone are genuine. These procedures include recording telephone
instructions and asking for personal identification. If these procedures
are followed, The One Group will not be responsible for any loss,
liability, cost or expense of acting upon unauthorized or fraudulent
instructions; you bear the risk of loss.
- - REDEMPTIONS FROM YOUR IRA ACCOUNT MAY NOT BE MADE BY TELEPHONE.
14
<PAGE> 19
CAN I REDEEM ON A SYSTEMATIC BASIS? If you have an account value of at least
$10,000 you may elect to receive monthly, quarterly or annual payments of not
less than $100 each.
- - Select the "Systematic Withdrawal Plan" option on the Account Application
Form.
- - Specify the amount you wish to receive and the frequency of the payments.
- - You may designate a person other than yourself as the payee.
- - There is no charge for this service.
- - If you select this option, please keep in mind that:
1. It may not be in your best interest to buy additional Class A shares
while participating in a Systematic Withdrawal Plan. This is because
Class A shares have an up-front sales charge.
2. If you own Class B or Class C shares, you or your designated payee may
receive systematic payments provided the payments are limited to no
more than 10% of your account value annually, measured from the date
the redemption request is received.
3. If you are age 70 1/2, you may elect to receive payments to the extent
that the payment represents a minimum required distribution from an IRA
or other qualifying retirement plan. These payments may be less than
$100 each.
4. If the amount of the systematic payment exceeds the income earned by
your account since the previous payment under the Systematic Withdrawal
Plan, payments will be made by redeeming some of your shares. This will
reduce the amount of your investment.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
- - All redemptions will be for cash.
- - If you redeem shares for which you paid by check, and The One Group has not
yet received payment on the check, The One Group will delay forwarding your
redemption proceeds for 10 or more days until payment has been collected
from your bank.
- - Because of the high cost of handling small investments, The One Group will
automatically redeem shares in accounts which, because of shareholder
redemptions, have values of less than $1,000. No sales charges will be
assessed and you will be given 60 days to make additional investments in
the Fund to increase the value of your account to at least $1,000.
- - The One Group may suspend your ability to redeem, or will redeem your
shares involuntarily, when it seems appropriate to do so in light of its
responsibilities under the Federal securities laws. The Statement of
Additional Information offers more details about this process.
SHAREHOLDER INFORMATION
VOTING RIGHTS
The Fund does not hold annual shareholder meetings, but may hold special
meetings. The special meetings are held, for example, to elect or remove
Trustees, change the Fund's fundamental investment objective, or approve an
investment advisory contract.
As a Fund shareholder, you have one vote for each share that you own. The Fund,
and each class of shares within the Fund, vote separately on matters relating
solely to that Fund or class, or which affect that Fund or class differently.
However, all shareholders will have equal voting rights on matters that affect
all shareholders equally.
DIVIDEND POLICIES
DIVIDENDS: The Fund generally declares dividends on each business day. Dividends
are distributed on the first business day of each month. Capital gains, if any,
for the Fund are distributed at least annually.
Dividends payable on Fiduciary Class shares will be more than those payable on
other classes of shares. This is because Class A, Class B and Class C shares
have higher distribution expenses.
The Fund pays dividends and distributions on a per-share basis. This means that
the value of your shares will be reduced by the amount of the payment. If you
purchase shares shortly before the record date for a dividend or the
distribution
15
<PAGE> 20
of capital gains, you will pay the full price for the shares and receive some
portion of the price back as a taxable dividend or distribution.
DIVIDEND REINVESTMENT: You automatically will receive all income dividends and
capital gain distributions in additional shares of the same Fund and class,
unless you have elected to take such payment in cash. The price of the shares is
the NAV determined immediately following the dividend record date. Reinvested
dividends and distributions receive the same tax treatment as dividends and
distributions paid in cash.
If you want to change the way in which you receive dividends and distributions,
you must write to State Street Bank & Trust Company at P.O. Box 8528, Boston, MA
02266-8528, at least 15 days prior to the distribution. The change is effective
upon receipt by State Street.
SPECIAL DIVIDEND RULES FOR CLASS B SHARES: Class B shares received as dividends
and capital gains distributions will be accounted for separately. Each time any
Class B shares (other than those in the sub-account) convert to Class A shares,
a percentage of the Class B shares in the sub-account will also convert to Class
A shares. (See "Conversion Feature.")
TAX TREATMENT OF THE FUND
TAX STATUS OF THE FUND: The Fund intends to qualify as a "regulated investment
company" for Federal income tax purposes. If the Fund qualifies, it will pay no
federal income tax on the earnings it distributes to shareholders.
TAX TREATMENT OF SHAREHOLDERS
TAXATION OF SHAREHOLDER TRANSACTIONS: A sale, exchange, or redemption of Fund
shares generally will produce either a taxable gain or a loss. You are
responsible for any tax liabilities generated by your transactions.
TAXATION OF ZERO-COUPON SECURITIES: The Fund may acquire certain securities
issued with original issue discount (including zero-coupon securities). Current
Federal tax requires that a holder (such as the Fund) of such a security must
include in taxable income a portion of the original issue discount which accrues
during the tax year on such security even if the Fund receives no payment in
cash on the security during the year. As an investment company, the Fund must
pay out substantially all of its net investment income each year, including any
original issue discount. Accordingly, the Fund may be required to pay out in
income distribution each year an amount which is greater than the total amount
of cash interest the Fund actually received. Such distributions will be made
from the cash assets of the Fund or by liquidation of investments if necessary.
If a distribution of cash necessitates the liquidation of investments, Banc One
Partners will select which securities to sell and the Fund may realize a gain or
loss from those sales. In the event the Fund realizes net capital gains from
these transactions, you may receive a larger capital gain distribution, if any,
than you would in the absence of such transactions.
TAXATION OF DISTRIBUTIONS: The Fund will distribute substantially all of its net
investment income (including net short-term capital gains) on at least an annual
basis. Dividends you receive from the Fund, whether reinvested or received in
cash, will be taxable to you. Dividends from the Fund's net investment income
will be taxable as ordinary income and dividends from a Fund's long-term capital
gains will be taxable to you as such, regardless of how long you have held the
shares.
Dividends paid in January, but declared in October, November or December of the
previous year, will be considered to have been paid the previous December.
TAXATION OF RETIREMENT PLANS: Distributions by the Fund to qualified retirement
plans will not be taxable. However, if shares are held by a plan that ceases to
qualify for tax-exempt treatment or by an individual who has received the shares
as a distribution from a retirement plan, the distributions will be taxable to
the plan or individual as described in "Taxation of Distributions." If you are
considering purchasing shares with qualified retirement plan assets, you should
consult your tax advisor for a more complete explanation of the Federal, state,
local and (if applicable) foreign tax consequences of making such an investment.
16
<PAGE> 21
TAX INFORMATION: The Form 1099 that is mailed to you every January details your
dividends and their federal tax category. Even though the Fund provides you with
this information, you are responsible for verifying your tax liability with your
tax professional. For additional tax information see the Statement of Additional
Information. Please note that this tax discussion is general in nature; no
attempt has been made to present a complete explanation of the Federal, state,
local or foreign tax treatment of the Funds or their shareholders.
SHAREHOLDER INQUIRIES
If you have any questions or need additional information, please write The One
Group Services Company at 3435 Stelzer Road, Columbus, OH 43219 or call
1-800-480-4111.
BOX: REPORTING: No later than September and March you will receive a financial
report from The One Group. In addition, The One Group will periodically send you
proxy statements and other reports.
ORGANIZATION & MANAGEMENT OF THE FUND
THE FUND: The Fund is a series of The One Group, an open-end management
investment company. The One Group currently consists of 40 separate Funds. The
Fund described in this prospectus is diversified. The other Funds are described
in separate prospectuses. The Fund is supervised by the Board of Trustees.
THE BOARD OF TRUSTEES: The Trustees oversee the management and administration of
the Fund. The Trustees are responsible for making major decisions about the
Fund's investment objectives and policies, but delegate the day-to-day
administration of the Fund to the officers of The One Group.
THE ADVISOR: Banc One Investment Advisors reviews and supervises the Fund's
investment programs. Banc One Investment Advisors has served as investment
advisor to The One Group since 1993. Prior to that time, The One Group was
advised by affiliates of Banc One Investment Advisors. In addition to The One
Group, Banc One Investment Advisors serves as investment advisor to other mutual
funds and individual, corporate, charitable and retirement accounts. As of
December 31, 1997, Banc One Investment Advisors, an indirect, wholly-owned
subsidiary of BANC ONE CORPORATION, managed over $52 billion in assets. For its
services, Banc One Investment Advisors is entitled to a fee, which is calculated
daily and paid monthly, equal to .75% of the Fund's daily net assets. Banc One
Investment Advisors has agreed to waive part of its fee. The fee waiver is
voluntary and may be terminated at any time.
THE SUB-ADVISOR: Banc One Partners, 1111 Polaris Parkway, P.O. Box 710211,
Columbus, Ohio 43271-0211, makes the day-to-day investment decisions of the Fund
and administers the Fund's investment program, subject to supervision by Banc
One Investment Advisors and the Trustees. Banc One Partners was formed in June,
1998 to provide investment advisory services related to high yield, high risk
investments to the Fund and other advisory clients. Banc One Partners is
controlled by Banc One Investment Advisors and Pacholder Associates, Inc., an
investment advisory firm which specializes in high yield, high risk, fixed
income securities. For its services, Banc One Partners is entitled to a fee,
which is calculated daily and paid monthly, equal to .70% of the Fund's average
daily net assets. Banc One Investment Advisors pays Banc One Partner's fee. Banc
One Partners has agreed to waive part of its fee. The fee waiver is voluntary
and may be terminated at any time. (See "Shareholders Expenses").
THE DISTRIBUTOR: The One Group Services Company, 3435 Stelzer Road, Columbus,
Ohio 43219, a wholly-owned subsidiary of The BISYS Group, Inc., markets the Fund
and distributes shares through selling brokers, financial institutions,
investment advisors, and other financial representatives.
THE ADMINISTRATOR AND SUB-ADMINISTRATOR: The One Group Services Company also
serves as the Fund's administrator. The One Group Services Company is
responsible for responding to shareholder inquiries and requests for
information, as well as providing regulatory reporting and compliance. For these
services, The One Group Services Company receives a fee based on the total
assets of The One Group. For the first $1.5 billion in One Group assets, The One
Group Services Company receives an annual fee of .20% of each Fund's average
daily net assets. The annual rate declines to .18% on assets up to $2 billion,
and to .16% when assets exceed $2 billion. The fee is calculated daily and paid
monthly. Some One Group Funds are not included in the calculations.
17
<PAGE> 22
Banc One Investment Advisors, the Sub-Administrator, provides office space,
equipment and facilities, as well as legal and regulatory support.
THE TRANSFER AGENT, CUSTODIAN AND SUB-CUSTODIAN: State Street Bank and Trust
Company, P.O. Box 8528, Boston, MA 02266-8528, or your Shareholder Servicing
Agent if appropriate, handles shareholder recordkeeping and statements,
distributes dividends, and processes buy and sell requests. As the Fund's
custodian, State Street holds the Fund's assets, settles all portfolio trades
and assists in calculating the Fund's net asset values. Bank One Trust Company,
N.A. serves as sub-custodian in connection with the Fund's securities lending
activities under an agreement with State Street Bank and Trust Company. Bank One
Trust Company, N.A. is paid a fee paid by the Fund for this service.
DETAILS ABOUT THE FUND'S INVESTMENT PRACTICES AND POLICIES
INVESTMENT PRACTICES
The Fund invests in a variety of securities and employs a number of investment
techniques. Each security and technique involves certain risks. What follows is
a list of the securities and techniques utilized by the Fund, as well as the
risks inherent in their use. Most of the Fund's investments will be high yield,
high risk securities. The special risks associated with such securities are
described in Special Risk Considerations. In addition, the high yield, high
risk, fixed income securities are subject to the ordinary risks that impact
fixed income securities. In general, fixed income securities are primarily
influenced by market, credit and prepayment risks, although certain securities
may be subject to additional risks. For a more complete discussion, see the
Statement of Additional Information and Special Risk Considerations. Following
the table is a more complete discussion of risk.
<TABLE>
<CAPTION>
Instrument Risk Type
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, STRIPS, and CUBES. Market
TREASURY RECEIPTS: TRS, TIGRS, and CATS. Market
U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by agencies and instrumentalities of the Market
U.S. Government. These include Ginnie Mae, Fannie Mae, and Freddie Mac. Credit
CERTIFICATES OF DEPOSIT: Negotiable instruments with a stated maturity. Market
Credit
Liquidity
TIME DEPOSITS: Non-negotiable receipts issued by a bank in exchange for the deposit of funds. Liquidity
Credit
Market
REPURCHASE AGREEMENTS: The purchase of a security and the simultaneous commitment to return Credit
the security to the seller at an agreed upon price on an agreed upon date. Market
This is treated as a loan. Liquidity
REVERSE REPURCHASE AGREEMENT: The sale of a security and the simultaneous commitment to Market
buy the security back at an agreed upon price on an agreed upon date. This is treated as a Leverage
borrowing by the Fund.
SECURITIES LENDING: The lending of up to 331/3% of the Fund's total assets. In return, the Credit
Fund will receive cash, other securities, and/or letters of credit as collateral. Market
Leverage
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or contract to purchase securities Market
at a fixed price for delivery at a future date. Leverage
Liquidity
INVESTMENT COMPANY SECURITIES: Shares of other mutual funds, including money market funds Market
of The One Group and shares of other investment companies for which Banc One Investment
Advisors serves as investment advisor or administrator. Banc One Investment Advisors will
waive certain fees investment when investing in funds for which it serves as advisor.
CONVERTIBLE SECURITIES: Bonds or preferred stock that convert to common stock. Market
Credit
</TABLE>
18
<PAGE> 23
<TABLE>
<S> <C>
CALL AND PUT OPTIONS: A call option gives the buyer the right to buy, and obligates Management
the seller of the option to sell, a security at a specified price. A put option gives Liquidity
the buyer the right to sell, and obligates the seller of the option to buy, a security Credit
at a specified price. The Fund will sell covered call and secured put options. Market
Leverage
FUTURES AND RELATED OPTIONS: A contract providing for the future sale and purchase of a Management
specified amount of a specified security, class of securities, or an index at a specified Market
time in the future at a specified price. Credit
Liquidity
Leverage
REAL ESTATE INVESTMENT TRUSTS ("REITS"): Pooled investment vehicles which invest primarily Liquidity
in income producing real estate or real estate related loans or interest. Management
Market
Pre-payment
Tax
Regulatory
BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn on and accepted by a Credit
commercial bank. Maturities are generally six months or less. Liquidity
Market
COMMERCIAL PAPER: Secured and unsecured short-term promissory notes issued by corporations Credit
and other entities. Maturities generally vary from a few days to nine months. Liquidity
Market
FOREIGN SECURITIES: Debt and equity securities issued by foreign governments, foreign Credit
corporations, domestic subsidiaries of foreign corporations, and foreign banks, as well as Market
commercial paper of foreign issuers and obligations of foreign banks and Political
overseas branches of U.S. banks and of foreign issuers and supranational entities. Liquidity
Foreign Investment
RESTRICTED SECURITIES: Securities not registered under the Securities Act of 1933, such as Liquidity
privately placed commercial paper and Rule 144A securities. Market
VARIABLE AND FLOATING RATE NOTES: Obligations with interest rates which are reset Market
daily, weekly, quarterly or some other period and which may be payable to the Fund on demand. Credit
WARRANTS: Securities, typically issued with preferred stock or bonds that give the holder the Market
right to buy a proportionate amount of common stock at a specified price. Credit
PREFERRED STOCK: A class of stock that generally pays a dividend at a specified rate and has Market
preference over common stock in the payment of dividends and in liquidation.
MORTGAGE-BACKED SECURITIES: Debt obligations secured by real estate loans and pools of loans. Pre-payment
These include collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment Market
Conduits ("REMICs"). Credit
Regulatory
COMMON STOCK: Shares of ownership of a company. Market
CORPORATE DEBT SECURITIES: Corporate bonds and non-convertible debt securities. Market
Credit
Liquidity
DEMAND FEATURES: Securities that are subject to puts and standby commitments to purchase Market
the securities at a fixed price (usually with accrued interest) within a fixed period of time Liquidity
following demand by the Fund. Management
ASSET-BACKED SECURITIES: Securities secured by company receivables, home equity loans, truck Pre-payment
and auto loans, leases, credit card receivables and other securities backed by other types of Market
receivables or other assets. Credit
MORTGAGE DOLLAR ROLLS: A transaction in which the Fund sells securities for delivery in a current Pre-payment
month and simultaneously contracts with the same party to repurchase similar but not identical Market
securities on a specified future date. Regulatory
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"): Loans in a mortgage pool which provide for Pre-payment
a fixed initial mortgage interest rate for a specified period of time, after which the rate Market
may be
</TABLE>
19
<PAGE> 24
<TABLE>
<S> <C>
subject to periodic adjustments. Credit
Regulatory
SWAPS, CAPS AND FLOORS: The Fund may enter into these transactions to manage its exposure Management
to changing interest rates and other factors. Swaps involve an exchange of obligations by Credit
two parties. Caps and floors entitle a purchaser to a principal amount from the seller Liquidity
of the cap or floor to the extent that a specified index exceeds or falls below a Market
predetermined interest rate or amount.
NEW FINANCIAL PRODUCTS: New options and futures contracts and other financial products Management
continue to be developed and the Fund may invest in such options, contracts and products. Credit
Market
Liquidity
STRUCTURED INSTRUMENTS: Debt securities issued by agencies and instrumentalities of the Market
U.S. government, banks, municipalities, corporations and other businesses whose interest Liquidity
and/or principal payments are indexed to foreign currency exchange rates, interest rates, Management
or one or more other referenced indices. Credit
Foreign Investment
ZERO COUPON DEBT SECURITIES: Bonds and other debt that pay no interest, but are issued at Credit
a discount from their value at maturity. When held to maturity, their entire return equals Market
the difference between their issue price and their maturity value. Zero Coupon
ZERO-FIXED-COUPON DEBT SECURITIES: Zero coupon debt securities which convert on a Credit
specified date to interest bearing debt securities. Market
Zero Coupon
STRIPPED MORTGAGE-BACKED SECURITIES: Derivative multi-class mortgage securities which Pre-payment
are usually structured with two classes of shares that receive different proportions Market
of the interest and principal from a pool of mortgage assets. These include Credit
IOs and POs. The Fund only invests in Stripped Mortgage-Backed Securities issued or Regulatory
guaranteed by the U.S. government, its agencies or instrumentalities.
INVERSE FLOATING RATE INSTRUMENTS: Leveraged floating rate debt instruments with interest Market
rates that reset in the opposite direction from the market rate of interest to which the Leverage
inverse floater is indexed. Credit
LOAN PARTICIPATIONS AND ASSIGNMENTS: Participations in, or assignments of all or a Credit
portion of loans to corporations or to governments, including governments of the less Political
developed countries ("LDC's"). Liquidity
Foreign Investment
Market
FIXED RATE MORTGAGE LOANS: Investments in fixed rate mortgage loans or mortgage pools which Credit
bear simple interest at fixed annual rates and have original terms ranging from 5 to 40 years. Pre-payment
Regulatory
Market
SHORT-TERM FUNDING AGREEMENTS: Investments in short-term funding agreements issued Credit
by banks and highly rated U.S. insurance companies such as Guaranteed Investment Liquidity
Contracts ("GIC's") and Bank Investment Contracts ("BIC's"). Market
</TABLE>
INVESTMENT RISKS
Below is a more complete discussion of the types of risks inherent in the
securities and investment techniques listed above. Because of these risks, the
value of the securities held by the Fund may fluctuate, as will the value of
your investment in the Fund. Certain investments are more susceptible to these
risks than others.
- - CREDIT RISK. The risk that the issuer of a security, or the counterparty to
a contract, will default or otherwise be unable to honor a financial
obligation. Credit risk is generally higher for non-investment grade
securities. The price of a security can be adversely affected prior to
actual default as its credit status deteriorates and the probability of
default rises.
20
<PAGE> 25
- - LEVERAGE RISK Associated with securities or practices (such as borrowing)
that multiply small index or market movements into large changes in value.
Leverage is often associated with investments in derivatives, but also may
be embedded directly in the characteristics of other securities.
- Hedged. When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. Hedges are sometimes subject to imperfect matching
between the derivative and underlying security, and there can be no
assurance that a Fund's hedging transactions will be effective.
- Speculative. To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or
losses from speculative positions in a derivative may be substantially
greater than the derivative's original cost.
- - LIQUIDITY RISK. The risk that certain securities may be difficult or
impossible to sell at the time and the price that would normally prevail in
the market. The seller may have to lower the price, sell other securities
instead or forego an investment opportunity, any of which could have a
negative effect on fund management or performance. This includes the risk
of missing out on an investment opportunity because the assets necessary to
take advantage of it are tied up in less advantageous investments.
- - MANAGEMENT RISK. The risk that a strategy used by a fund's management may
fail to produce the intended result. This includes the risk that changes in
the value of a hedging instrument will not match those of the asset being
hedged. Incomplete matching can result in unanticipated risks.
- - MARKET RISK. The risk that the market value of a security may move up and
down, sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than the price originally paid for it, or less
than it was worth at an earlier time. Market risk may affect a single
issuer, industry, sector of the economy or the market as a whole. There is
also the risk that the current interest rate may not accurately reflect
existing market rates. For fixed income securities, market risk is largely,
but not exclusively, influenced by changes in interest rates. A rise in
interest rates typically causes a fall in values, while a fall in rates
typically causes a rise in values. Finally, key information about a
security or market may be inaccurate or unavailable. This is particularly
relevant to investments in foreign securities.
- - POLITICAL RISK. The risk of losses attributable to unfavorable governmental
or political actions, seizure of foreign deposits, changes in tax or trade
statutes, and governmental collapse and war.
- - FOREIGN INVESTMENT RISK. Associated with higher transaction costs, delayed
settlements, currency controls and adverse economic developments. This
includes the risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by
foreign currency denominated investments and may widen any losses. Exchange
rate volatility also may affect the ability of an issuer to repay U.S.
dollar denominated debt, thereby increasing credit risk.
- - PRE-PAYMENT RISK. The risk that the principal repayment of a security will
occur at an unexpected time, especially that the repayment of a mortgage or
asset-backed security occurs either significantly sooner or later than
expected. Changes in pre-payment rates can result in greater price and
yield volatility. When mortgage and other obligations are pre-paid, a Fund
may have to reinvest in securities with a lower yield. Further, with early
prepayment, a Fund may fail to recover any premium paid, resulting in an
unexpected capital loss.
- - TAX RISK. The risk that the issuer of the securities will fail to comply
with certain requirements of the Internal Revenue Code, which would cause
adverse tax consequences.
- - REGULATORY RISK. The risk associated with Federal and state laws which may
restrict the remedies that a mortgage lender has when a borrower defaults
on mortgage loans. These laws include restrictions on foreclosures,
redemption rights after foreclosure, Federal and state bankruptcy and
debtor relief laws, restrictions on "due on sale" clauses, and state usury
laws.
21
<PAGE> 26
- - ZERO COUPON RISK. The market prices of securities structured as zero coupon
or pay-in-kind securities are generally affected to a greater extent by
interest rate changes. These securities tend to be more volatile than
securities which pay interest periodically.
INVESTMENT POLICIES
The Fund's investment objective and the following investment policies summarized
below are fundamental. This means that they cannot be changed without the
consent of a majority of the outstanding shares of the Fund. In addition to the
fundamental policies mentioned earlier, the following fundamental policies apply
to the Fund as specified. The full text of the fundamental policies can be found
in the Statement of Additional Information.
The Fund may not:
1. Purchase the securities of an issuer if as a result more than 5% of its total
assets would be invested in the securities of that issuer or the Fund would own
more than 10% of the outstanding voting securities of that issuer. This does not
include securities issued or guaranteed by the United States, its agencies or
instrumentalities, securities of registered investment companies, and repurchase
agreements involving these securities. This restriction applies with respect to
75% of the Fund's total assets.
2. Concentrate its investment in the securities of one or more issues conducting
their principal business in a particular industry or group of industries. This
does not include obligations issued or guaranteed by the U.S. government or its
agencies and instrumentalities and repurchase agreements involving such
securities.
3. Make loans, except that the Fund may (i) purchase or hold debt instruments in
accordance with its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) engage in securities lending.
Additional investment policies are set forth in the Statement of Additional
Information.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes as determined by Banc One Investment Advisors,
the Fund may invest up to 100% of its assets in money market instruments, and
may hold a portion of their assets in cash for liquidity purposes. While the
Fund is engaged in a temporary defensive position, it will not be pursuing its
investment objectives. Therefore, the Fund will pursue a temporary defensive
position only when market conditions warrant.
PORTFOLIO TURNOVER
Portfolio turnover may vary greatly from year to year, as well as within a
particular year. Higher portfolio turnover rates will likely result in higher
transaction costs to the Fund and may result in additional tax consequences to
you.
22
<PAGE> 27
APPENDIX
DESCRIPTION OF RATINGS
The following is a summary of published ratings by major credit rating agencies.
Credit ratings evaluate only the safety of principal and interest payments, not
the market value risk of lower quality securities. Credit rating agencies may
fail to change credit ratings to reflect subsequent events on a timely basis.
Although Banc One Investment Advisors considers security ratings when making
investment decisions, it also performs its own investment analysis and does not
rely solely on the ratings assigned by credit agencies.
Unrated securities will be treated as non-investment grade securities unless
Banc One Investment Advisors determines that such securities are the equivalent
of investment grade securities. Securities that have received different ratings
from more than one agency are considered investment grade if at least one agency
has rated the security investment grade.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Duff & Phelps Credit Rating Co. ("Duff")
- ----------------------------------------
D-1+ 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 obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection
factors. Risk factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
D-2 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.
D-3 Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is
expected.
D-4 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.
D-5 Issuer failed to meet scheduled principal and/interest
payments.
Standard & Poor's Corporation ("S&P")
- -------------------------------------
A-1 Highest category of commercial paper. Capacity to meet
financial commitment is strong. Obligations designated with a
plus sign (+) indicate that capacity to meet financial
commitment is extremely strong.
A-2 Issues somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in
higher rating categories. However, the capacity to meet
financial commitments is satisfactory.
A-3 Exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
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<PAGE> 28
B Regarded as having significant speculative characteristics.
The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
C Currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D In payment default. The D rating category is used when
payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Fitch's Investors Service, L.P. ("Fitch")
- -----------------------------------------
F-1+ Exceptionally strong credit quality. Strongest degree of
assurance for timely payment.
F-1 Very strong credit quality. Assurance of timely payment is
only slightly less in degree than issues rated F-1+.
F-2 Good credit quality. Satisfactory degree of assurance for
timely payment, but the margin of safety is not as good as for
issues assigned F-1+ and F-1 ratings.
F-3 Fair Credit Quality. The degree of assurance for timely
payment is adequate; however, near-term adverse changes could
cause these securities to be rated below investment grade.
F-5 Weak Credit Quality. Minimal degree of assurance for timely
payment. Vulnerable to near-term adverse changes in financial
and economic conditions.
D Default. Issues assigned this rating are in actual or
imminent payment default.
LOC Rating is based on a letter of credit issued by a commercial
bank.
IBCA Limited ("IBCA")
- ---------------------
A1 Highest capacity for timely repayment. Those issues rated A1+
possess a particularly strong credit feature.
A2 Satisfactory capacity for timely repayment although such
capacity may be susceptible to adverse changes in business,
economic or financial conditions.
A3 Adequate capacity for timely repayment, but more susceptible
to adverse changes business, economic or financial conditions
than for obligations in higher categories.
B Capacity for timely repayment is susceptible to adverse
changes in business, economic or financial conditions.
C High risk of default or which are currently in default.
Moody's Investors Service ("Moody's")
- -------------------------------------
Prime-1 Superior ability for repayment.
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<PAGE> 29
Prime-2 Strong ability for repayment.
Prime-3 Acceptable ability for repayment. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Does not fall within any of the Prime rating categories.
DESCRIPTION OF BANK RATINGS
Moody's
- -------
These ratings represent Moody's opinion of a bank's intrinsic safety and
soundness.
A These banks possess exceptional intrinsic financial strength. Typically
they will be major financial institutions with highly valuable and
defensible business franchises, strong financial fundamentals, and a
very attractive and stable operating environment.
B These banks possess strong intrinsic financial strength. Typically,
they will be important institutions with valuable and defensible
business franchises, good financial fundamentals, and an attractive and
stable operating environment.
C These banks possess good intrinsic financial strength. Typically, they
will be institutions with valuable and defensible business franchises.
These banks will demonstrate either acceptable financial fundamentals
within a stable operating environment, or better than average financial
fundamentals within an unstable operating environment.
D These banks possess adequate financial strength, but may be limited by
one or more of the following factors: a vulnerable or developing
business franchise; weak financial fundamentals; or an unstable
operating environment.
E These banks possess very weak intrinsic financial strength, require
periodic outside support or suggest an eventual need for outside
assistance. Such institutions may be limited by one or more of the
following factors: a business franchise of questionable value;
financial fundamentals that are seriously deficient in one or more
respects; or a highly unstable operating environment.
DESCRIPTION OF TAXABLE BOND RATINGS
- -----------------------------------
S&P
- ---
S&P's credit rating is a current opinion of an obligor's overall financial
capacity (its creditworthiness) to pay its financial obligation.
AAA The highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA The obligor's capacity to meet its financial commitments on the
obligation is very strong.
A The obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on
the obligation.
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<PAGE> 30
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB Less vulnerable to nonpayment than other speculative issues.
However, such issues face major ongoing uncertainties or
exposure to adverse business, financial, or economic
conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B More vulnerable to nonpayment than obligations rated BB, but
the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity
or willingness to meet its financial commitment on the
obligation.
CCC Currently vulnerable to nonpayment, and dependent upon
favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
CC Currently highly vulnerable to nonpayment.
C Used to cover a situation where a bankruptcy petition has been
filed or similar action has been taken, but payments on this
obligation are being continued.
D In payment default. Used when payments on an obligation are
not made on the date due even if the applicable grace period
has not expired, unless Standard & Poor's believes that such
payments will be made during such grace period. Also used upon
the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
Moody's
- -------
Investment Grade
Aaa 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 an exceptionally stable, margin and principal is secure.
Aa High quality by all standards. Margins of protection may not be as
large as in Aaa securities, fluctuation of protective elements may be
greater, or there may be other elements present that make the long-term
risks appear somewhat larger than in Aaa securities.
A These bonds 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 These bonds are considered 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.
Non-Investment Grade
Ba These bonds have speculative elements; their future cannot be
considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during
good and bad times over the future.
B These bonds lack the characteristics of a desirable investment (i.e.,
potentially low assurance of timely interest and principal payments or
maintenance of other contract terms over any long period of time may be
small).
26
<PAGE> 31
Caa Bonds in this category have poor standing and may be in default. These
bonds carry an element of danger with respect to principal and interest
payments.
Ca Speculative to a high degree and could be in default or have other
marked shortcomings. C is the lowest rating.
Fitch
- -----
AAA Bonds and preferred stock considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability
to pay interest and/or dividends and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds and preferred stock considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and/or
dividends and repay principal is very strong, although not quite as
strong as bonds rated 'AAA.' Because bonds and preferred stock rated in
the 'AAA' and 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated 'F-1+'.
A Bonds and preferred stock considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and/or dividends
and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances
than debt or preferred securities with higher ratings.
BBB Bonds and preferred stock considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest or
dividends 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 securities and, therefore,
impair timely payment. The likelihood that the ratings of these bonds
or preferred will fall below investment grade is higher than for
securities with higher ratings.
BB Bonds or preferred stock are considered speculative. The obligor's
ability to pay interest or dividends and repay principal may be
affected over time by adverse economic changes. However, business and
financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B Bonds or preferred stock are considered highly speculative. While
securities in this class are currently meeting debt service
requirements or paying dividends, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC Bonds or preferred stock have certain identifiable characteristics
that, if not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic environment.
CC Bonds or preferred stock are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal or
suspension of preferred stock dividends is imminent.
DDD, DD,
and D Bonds are in default on interest and/or principal payments or
preferred stock dividends are suspended. Such securities are extremely
speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. 'DDD'
represents the highest potential for recovery on these securities, and
'D' represents the lowest potential for recovery.
DESCRIPTION OF INSURANCE RATINGS
Moody's
- -------
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<PAGE> 32
These ratings represent Moody's opinions of the ability of insurance companies
to pay punctually senior policyholder claims and obligations.
Aaa Insurance companies rated in this category offer exceptional financial
security. While the financial strength of these companies is likely to
change, such changes as can be visualized are most unlikely to impair
their fundamentally strong position.
Aa These insurance companies offer excellent financial security. Together
with the Aaa group, they constitute what are generally known as high
grade companies. They are rated lower than Aaa companies because
long-term risks appear somewhat larger.
A Insurance companies rated in this category offer good financial
security. However, elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Insurance companies rated in this category offer adequate financial
security. However, certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Ba Insurance companies rated in this category offer questionable financial
security. Often the ability of these companies to meet policyholder
obligations may be very moderate and thereby not well safeguarded in
the future.
B Insurance companies rated in this company offer poor financial
security. Assurance of punctual payment of policyholder obligations
over any long period of time is small.
Caa Insurance companies rated in this category offer very poor financial
security. They may be in default on their policyholder obligations or
there may be present elements of danger with respect to punctual
payment of policyholder obligations and claims.
Ca Insurance companies rated in this category offer extremely poor
financial security. Such companies are often in default on their
policyholder obligations or have other marked shortcomings.
C Insurance companies rated in this category are the lowest rated class
of insurance company and can be regarded as having extremely poor
prospects of ever offering financial security.
S & P
- -----
An insurer rated 'BBB' or higher is regarded as having financial security
characteristics that outweigh any vulnerabilities, and is highly likely to have
the ability to meet financial commitments.
AAA EXTREMELY STRONG financial security characteristics. 'AAA' is the
highest Insurer Financial Strength Rating assigned by Standard &
Poor's.
AA VERY STRONG financial security characteristics, differing only slightly
from those rated higher.
A STRONG financial security characteristics, but is somewhat more likely
to be affected by adverse business conditions than are insurers with
higher ratings.
BBB GOOD financial security characteristics, but is more likely to be
affected by adverse business conditions than are higher rated insurers.
An insurer rated 'BB' or lower is regarded as having vulnerable characteristics
that may outweigh its strength. 'BB' indicates the least degree of vulnerability
within the range; 'CC' the highest.
BB MARGINAL financial security characteristics. Positive attributes exist,
but adverse business conditions could lead to insufficient ability to
meet financial commitments.
28
<PAGE> 33
B WEAK financial security characteristics. Adverse business conditions
will likely impair its ability to meet financial commitments.
CCC VERY WEAK financial security characteristics, and is dependent on
favorable business conditions to meet financial commitments.
CC EXTREMELY WEAK financial security characteristics and is likely not to
meet some of its financial commitments.
R An insurer rated 'R' has experienced a REGULATORY ACTION regarding
solvency. The rating does not apply to insurers subject only to
nonfinancial actions such as market conduct violations.
NR NOT RATED, which implies no opinion about the insurer's financial security.
Plus (+) or minus (-)
Following ratings from 'AA' to 'CCC' show relative standing within the major
rating categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
Moody's
- -------
MIG1 & VMIG1 Short-term municipal securities rated MIG1 or VMIG1 are of the best
quality. They have strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to
the market for refinancing.
MIG2 & VMIG2 These Short-term municipal securities rated are of high quality.
Margins of protection are ample although not so large as in the
preceding group.
MIG3 & VMIG3 Favorable quality. All security elements are accounted for, but
the undeniable strength of the preceding grades is lacking.
Liquidity and cash flow protection may be narrow and marketing
access for refinancing is likely to be less well established.
S&P
- ---
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating.
SP-1 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.
DESCRIPTION OF PREFERRED STOCK RATINGS
Moody's
- -------
aaa Top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within the
universe of preferred stocks.
aa High-grade preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will remain
relatively well maintained in the foreseeable future.
29
<PAGE> 34
a Upper-medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification, earnings
and asset protection are, nevertheless, expected to be maintained at
adequate levels.
baa Medium-grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
ba Considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty
of position characterizes preferred stocks in this class.
b Lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any
long period of time may be small.
caa Likely to be in arrears on dividend payments. This rating designation
does not purport to indicate the future status of payments.
ca Speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.
c Lowest rated class of preferred or preference stock. Issues so rated
can thus be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; the modifier 1 indicates that the security 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 issue ranks in the lower end of its
generic rating category.
S&P
- ---
S&P's preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations.
AAA Highest rating. This rating indicates an extremely strong capacity to
pay the preferred stock obligations.
AA High-quality, fixed-income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as for
issues rated "AAA."
A Backed by a sound capacity to pay the preferred stock obligations,
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB Backed by an adequate capacity to pay the preferred stock obligations.
Whereas the issuer normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to make payments for a preferred stock
in this category than for issues in the "A" category.
BB, B
CCC Regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. BB indicates the
lowest degree of speculation and CCC the highest. While such issues
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC In arrears on dividends or sinking fund payments, but that is currently
paying.
C Nonpaying issue.
D Nonpaying issue with the issuer in default on debt instruments.
30
<PAGE> 35
N.R. No rating has been requested, insufficient information on which to base
a rating, or Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
Plus (+) or minus (-)
To provide more detailed indications of preferred stock quality, ratings from AA
to CCC may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
SHORT-TERM DEBT RATINGS
Thompson Bank Watch, Inc. ("TBW") ratings apply only to the unsecured commercial
paper and other senior short-term and deposit obligations of entities to which
the ratings have been assigned. The TBW Short-Term ratings specifically assess
the likelihood of an untimely payment of principal and interest.
TBW-1 Very high degree of likelihood that principal and interest
will be paid on a timely basis.
TBW-2 While degree of safety regarding timely repayment of principal
and interest is strong, the relative degree is not as high as
for issues rated TBW-1.
TBW-3 Lowest investment grade category. While more susceptible to
adverse developments than obligations with higher ratings,
capacity to service principal and interest in a timely fashion
is considered adequate.
TBW-4 Non-investment grade and, therefore, speculative.
31
<PAGE> 36
Investment Advisor and Sub-Administrator
Banc One Investment Advisors Corporation
1111 Polaris Parkway
P.O. Box 710211
Columbus, OH 43271-0211
Sub-Advisor
Banc One High Yield Partners, LLC
1111 Polaris Parkway
P.O. Box 710211
Columbus, OH 43271-0211
Distributor
The One Group Services Company
3435 Stelzer Road
Columbus, OH 43219
Administrator
The One Group Services Company
3435 Stelzer Road
Columbus, OH 43219
Transfer Agent and Custodian
State Street Bank and Trust Company
P.O. Box 8528
Boston, MA 02266-8528
Legal Counsel
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, D.C. 20005
Independent Accountants
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, OH 43215
The Statement of Additional Information contains more detailed information about
the Fund. The current Statement of Additional Information has been filed with
the Securities and Exchange Commission and is available without charge by
calling 1-800-480-4111 or by writing to The One Group Services Company at 3435
Stelzer Road, Columbus, Ohio 43219. The Statement of Additional Information is
incorporated into this prospectus by reference. The SEC maintains a Web site
(www.sec.com) that contains the Statement of Additional Information, materials
incorporated by reference and other information regarding The One Group(R).
TOG-P-060
<PAGE> 37
Part B
Part B of Post Effective Amendment 43 (filed August 29, 1997) to the Trust's
Registration Statement on Form N1-A is incorporated herein by reference.
<PAGE> 38
THE ONE GROUP(R)
The One Group High Yield Bond Fund (the "Fund")
This Statement of Additional Information is not a Prospectus, but supplements
and should be read in conjunction with the Prospectus for The One Group High
Yield Bond Fund, dated August 19, 1998. This Statement of Additional Information
is incorporated in its entirety into the Fund's Prospectus. A copy of the
Prospectus is available without charge by writing to The One Group Services
Company, 3435 Stelzer Road, Columbus, Ohio 43219, or by telephoning toll free
(800)-480-4111.
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE TRUST.........................................................................................................1
INVESTMENT OBJECTIVES AND POLICIES................................................................................2
Additional Information on Fund Instruments...............................................................2
High Yield, High Risk Securities/Junk Bonds..............................................................3
Bank Obligations.........................................................................................3
Commercial Paper.........................................................................................3
Repurchase Agreements....................................................................................4
Reverse Repurchase Agreements............................................................................4
Government Securities....................................................................................4
Loan Participations and Assignments......................................................................4
Futures and Options Trading..............................................................................5
Futures Contracts........................................................................................5
Restrictions on the Use of Futures Contracts.............................................................6
Risk Factors in Futures Transactions.....................................................................7
Options Contracts........................................................................................8
Covered Calls............................................................................................9
Purchasing Call Options.................................................................................10
Purchasing Put Options..................................................................................10
Secured Puts............................................................................................10
Risk Factors in Options Transactions....................................................................11
Mortgage-Related Securities.............................................................................11
Real Estate Investment Trusts ("REITs").................................................................16
Foreign Investments.....................................................................................16
When-Issued Securities and Forward Commitments..........................................................17
Securities Lending......................................................................................17
Variable and Floating Rate Notes........................................................................18
Demand Features.........................................................................................18
Swaps, Caps and Floors..................................................................................19
Structured Instruments..................................................................................20
New Financial Products..................................................................................20
Restricted Securities...................................................................................21
U.S. Treasury Obligations...............................................................................22
Treasury Receipts.......................................................................................22
Common Stock............................................................................................22
Preferred Stock.........................................................................................22
Investment Company Securities...........................................................................22
Convertible Securities..................................................................................22
Warrants ...............................................................................................23
Asset-Backed Securities.................................................................................23
Short-Term Fund Agreement...............................................................................23
Investment Restrictions.................................................................................23
Portfolio Turnover......................................................................................25
Additional Tax Information Concerning the Fund..........................................................25
VALUATION........................................................................................................27
ADDITIONAL INFORMATION REGARDING THE CALCULATION OF PER SHARE NET ASSET VALUE....................................27
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................27
MANAGEMENT OF THE TRUST..........................................................................................30
Trustees & Officers.....................................................................................30
Investment Advisor......................................................................................33
Glass-Steagall Act......................................................................................34
</TABLE>
(ii)
<PAGE> 40
<TABLE>
<CAPTION>
<S> <C>
Portfolio Transactions..................................................................................34
Administrator...........................................................................................35
Distributor.............................................................................................36
Distribution Plan.......................................................................................36
Custodian and Transfer Agent............................................................................37
Experts.................................................................................................38
ADDITIONAL INFORMATION...........................................................................................38
Description of Shares...................................................................................39
Shareholder and Trustee Liability.......................................................................39
Performance.............................................................................................39
Calculation of Performance Data.........................................................................39
Miscellaneous...........................................................................................41
</TABLE>
(iii)
<PAGE> 41
THE TRUST
The One Group (the "Trust") is an open-end management investment
company. The Trust consists of forty series of units of beneficial interest
("Shares") each representing interests in one of forty separate investment
portfolios ("Funds"). This Statement of Additional Information contains
information relating to the High Yield Fund only.
Information regarding the U.S. Treasury Securities Money Market Fund
(formerly the U.S. Treasury Money Market Portfolio), the Prime Money Market
Fund, the Municipal Money Market Fund (formerly the Tax-Free Obligations
Portfolio), the Ohio Municipal Money Market Fund, the Income Equity Fund, the
Disciplined Value Fund, the Growth Opportunities Fund (formerly the Small
Company Growth Fund and the Growth Equity Portfolio), the Equity Index Fund, the
International Equity Index Fund, the Large Company Value Fund (formerly, the
Quantitative Equity Portfolio), the Large Company Growth Fund, the Asset
Allocation Fund (formerly, the Flexible Balanced Portfolio), the Value Growth
Fund, the Small Capitalization Fund (formerly, the Gulf South Growth Fund), the
Income Bond Fund (formerly the Income Portfolio), the Limited Volatility Bond
Fund, the Intermediate Bond Fund, the Treasury & Agency Fund, the Government
Bond Fund, the Income Fund, the Ultra Short-Term Income Fund, the Intermediate
Tax-Free Bond Fund, the Municipal Income Fund (formerly the Tax-Free Bond Fund),
the Ohio Municipal Bond Fund, the Texas Tax-Free Bond Fund, the West Virginia
Municipal Bond Fund, the Kentucky Municipal Bond Fund, the Arizona Municipal
Bond Fund, the Louisiana Municipal Bond Fund, the Treasury Money Market Fund,
the Treasury Only Money Market Fund, the Government Money Market Fund, the Tax
Exempt Money Market Fund, the Institutional Prime Money Market Fund, the
Investor Growth Fund, the Investor Growth & Income Fund, the Investor Aggressive
Growth Fund, the Investor Fixed Income Fund, the Investor Conservative Growth
Fund, and the Investor Balanced Fund is contained in separate prospectuses and a
separate Statement of Information dated November 1, 1997 which are incorporated
herein by reference and which may be obtained by writing to the Distributor for
the Trust, The One Group Services Company, 3435 Stelzer Road, Columbus, Ohio
43219, or by telephoning toll free (800) 480-4111.
The Fund is diversified, as defined under the Investment Company Act of
1940, as amended (the "1940 Act"). The shares in the Fund are offered in four
separate classes: Fiduciary Class Shares, Class A Shares, Class B Shares, and
Class C Shares. Much of the information contained herein expands upon subjects
discussed in the prospectus. No investment in a particular class of Shares of
the Fund should be made without first reading the Fund's Prospectus.
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<PAGE> 42
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the Fund's investment objective and
policies as set forth in the Fund's prospectus.
ADDITIONAL INFORMATION ON FUND INSTRUMENTS
HIGH YIELD, HIGH RISK SECURITIES/JUNK BONDS
The Fund invests primarily in high yield, high risk securities. High
yield, high risk bonds are securities that are rated below investment grade by
the primary rating agencies (BB or lower by S&P and BA or lower by Moody's).
Other terms used to describe such securities include "lower rated bonds",
"non-investment grade bonds," "below investment grade bonds," and "junk bonds".
Generally, lower rated debt securities provide a higher yield than higher rated
debt securities of similar maturity, but are subject to a greater degree of risk
with respect to the ability of the issuer to meet its principal and interest
obligations. Issuers of high yield securities may not be as strong financially
as those issuing higher rated securities. These securities are regarded as
predominately speculative. The market value of high yield securities may
fluctuate more than the market value of higher rated securities, since high
yield securities tend to reflect short-term corporate and market developments to
a greater extent than higher rated securities, which fluctuate primarily in
response to the general level of interest rates, assuming that there has been no
change in the fundamental quality of such securities. The market prices of fixed
income securities generally fall when interest rates rise. Conversely, the
market prices of fixed-income securities generally rise when interest rates
fall.
Additional risks of high yield securities include limited liquidity and
secondary market support. As a result, the prices of high yield securities may
decline rapidly in the event that a significant number of holders decide to
sell. Changes in expectations regarding an individual issuer, an industry or
high yield securities generally could reduce market liquidity for such
securities and make their sale by the Fund more difficult, at least in the
absence of price concessions. Reduced liquidity also could adversely affect the
Fund's ability to accurately value high yield securities. Issuers of high yield
securities also are more vulnerable to real or perceived economic changes (for
instance, an economic downturn or prolonged period of rising interest rates),
political changes or adverse developments specific to the issuer. Adverse
economic, political or other developments may impair the issuer's ability to
service principal and interest obligations, to meet projected business goals and
to obtain additional financing, particularly if the issuer is highly leveraged.
In the event of a default, the Fund would experience a reduction of their income
and could expect a decline in the market value of the defaulted securities.
Further, proposed or yet to be proposed new laws may have a possible
negative impact on the market for high yield, high risk bonds. As an example, in
the late 1980'S, legislation required federally-insured savings and loan
associations to divest their investments in high yield, high risk bonds. New
legislation, if enacted, could have a material negative effect on a Fund's net
asset value and investment practices.
Finally, the market prices of high-yield, high risk securities
structured as zero coupon or pay-in-kind securities (as defined below) are
generally affected to a greater extent by interest rate changes and tend to be
more volatile than securities which pay interest periodically. In addition, zero
coupon, pay-in-kind and delayed interest bonds often do not pay interest until
maturity. Accordingly, such bonds may involve greater credit risks than bonds
paying interest currently. However, the Fund must recognize a computed amount of
interest income and pay dividends to shareholders even though it has received no
cash. In some instances, the Funds may have to sell securities to have
sufficient cash to pay the dividends.
The high yield, high risk investments in which the Fund may invest
include the following:
-- Straight fixed-income debt securities. These include bonds and other
debt obligations which bear a fixed or variable rate of interest
payable at regular intervals and have a fixed or resettable maturity
date. The particular terms of such securities vary and may include
features such as call provisions and sinking funds.
-- Zero-coupon debt securities. These bear no interest obligation but
are issued at a discount from their value at maturity. When held to
maturity, their entire return equals the difference between their issue
price and their maturity value.
2
<PAGE> 43
-- Zero-fixed-coupon debt securities. These are zero-coupon debt
securities which convert on a specified date to interest-bearing debt
securities.
-- Pay-in-kind bonds. These are bonds which allow the issuer, at its
option, to make current interest payments on the bonds either in cash
or in additional bonds.
-- Private Placements. These are bonds sold directly to a small number
of investors, usually institutional, without registration under the
Securities Act of 1933
-- Convertible Securities. These are bonds or preferred stock that
convert to common stock.
-- Preferred Stock. These are stocks that generally pay a dividend at a
specified rate and which have preference over common stock in the
payment of dividends and in liquidation.
-- Loan Participations and Assignments. These are participations in, or
assignments of all or a portion of loans to corporations or to
governments, including governments of the less developed countries
("LDC's").
This foregoing list is not exhaustive. The prospectus and this Statement of
Additional Information list additional types of permissible investments. Such
investments may be purchased by the Fund even if they are classified as
non-investment grade securities.
BANK OBLIGATIONS
Bank obligations consist of 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 utilized by the Fund will be those guaranteed by domestic
and foreign banks and savings and loan associations having, at the time of
investment, total assets in excess of $1 billion (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
will be those of domestic and foreign branches of U.S. commercial banks which
are members of the Federal Reserve System or the deposits of which are insured
by the Federal Deposit Insurance Corporation and those of domestic savings and
loan associations the deposits of which are insured by the Federal Deposit
Insurance Corporation if, at the time of purchase, such institutions have total
assets in excess of $1 billion (as of the date of their most recently published
financial statements). Certificates of deposit may also include those issued by
foreign banks outside the United States with total assets at the time of
purchase in excess of the equivalent of $1 billion. The Fund may also invest in
Eurodollar certificates of deposit, which are U.S. dollar-denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States, and 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. The Fund may also invest in
obligations (including bankers' acceptances and certificates of deposit)
denominated in foreign currencies (see "Foreign Investments" herein).
Time deposits are interest-bearing non-negotiable deposits at a bank or
a savings and loan association that have a specific maturity date. A time
deposit earns a specific rate of interest over a definite period of time. Time
deposits cannot be traded on the secondary market and those exceeding seven days
and with a withdrawal penalty are considered to be illiquid. Demand deposits are
funds deposited in a commercial bank or a savings and loan association which,
without prior notice to the bank, may be withdrawn generally by negotiable
draft. Time and demand deposits will be maintained only at banks or savings and
loan associations from which the Fund could purchase certificates of deposit.
COMMERCIAL PAPER
Commercial paper consists of secured and 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.
3
<PAGE> 44
REPURCHASE AGREEMENTS
Under the terms of a repurchase agreement, the Fund would acquire
securities from member banks of the Federal Deposit Insurance Corporation with
total assets in excess of $1 billion and registered broker-dealers which Banc
One Investment Advisors Corporation ("Banc One Investment Advisors") or the
Fund's Sub-Advisor, Banc One High Yield Partners, LLC. (the "Sub-Advisor") deems
creditworthy under guidelines approved by the Board of Trustees, 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 the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Fund were delayed pending court action. Additionally,
there is no controlling legal precedent under U.S. law and there may be no
controlling legal precedents under the laws of certain foreign jurisdictions
confirming that the Fund would be entitled, as against a claim by such seller or
its receiver or trustee in bankruptcy, to retain the underlying securities,
although (with respect to repurchase agreements subject to U.S. law) the Board
of Trustees of the Trust believes that, under the regular procedures normally in
effect for custody of the Fund's securities subject to repurchase agreements and
under federal laws, a court of competent jurisdiction would rule in favor of the
Trust if presented with the question. Securities subject to repurchase
agreements will be held by the Trust's custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered by the Securities and Exchange Commission to be loans by the Fund
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
The Fund may borrow money for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. The Fund
would enter into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the time
the Fund entered into a reverse repurchase agreement, it would place in a
segregated custodial account assets, such as cash or liquid securities
consistent with the Fund's investment restrictions and having a value equal to
the repurchase price (including accrued interest), and would subsequently
monitor the account to ensure that such equivalent value was maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the price at which the Fund is obligated to
repurchase the securities. Reverse repurchased agreements are considered by the
Securities and Exchange Commission to be borrowings by the Fund under the 1940
Act.
GOVERNMENT SECURITIES
Obligations of certain agencies and instrumentalities of the U.S.
government, such as the Government National Mortgage Association (Ginnie Mae")
and the Export-Import Bank, are supported by the full faith and credit of the
U.S. Treasury; others, such as the Federal National Mortgage Association
("Fannie Mae"), 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, such as the
Federal Farm Credit Banks and the Federal Home Loan Mortgage Corporation
("Freddie Mac") are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. government would provide financial support
to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Fund will invest in the obligations of such
agencies or instrumentalities only when Banc One Investment Advisors or the
Sub-Advisor believes that the credit risk with respect thereto is minimal. For
information on mortgage-related securities issued by certain agencies or
instrumentalities of the U.S. government, see "Investment Objectives and
Policies--Mortgage-Related Securities" in this Statement of Additional
Information.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between issuers (which may be corporate issuers or
issuers of Sovereign Debt Obligations) and one or more financial institutions
or syndicates ("Lenders"). Investments in loans are expected in most instances
4
<PAGE> 45
to be in the form of participations in Loans ("Participations") and assignments
of all or a portion of Loans ("Assignments") from third parties. Because loan
participants and assignments may be illiquid, the Fund will invest no more than
15% of its net assets in loan participations and other illiquid assets. The
government that is the borrower on the Loan will be considered by the Fund to be
the issuer of a Participations or Assignment for purposes of the Fund's
fundamental investment policy that it will not invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry (i.e., foreign government). The Fund's investment in
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower.
When the Fund purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by a Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain Sovereign Debt Obligations
is restricted by the governing documentation as to the nature of the assignee
such that the only way in which a Fund may acquire an interest in a Loan is
through a Participation and not an Assignment. The Fund may have difficulty
disposing of Assignments and Participations because to do so it will have to
assign such securities to a third party. Because there is no liquid market for
such securities, the Fund anticipates that such securities could be sold only to
a limited number of institutional investors. The lack of a liquid secondary
market may have an adverse impact on the value of such securities and the Fund's
ability to dispose of particular Assignments or Participations when necessary to
meet the Fund's liquidity needs in response to a specific economic event such as
a deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Fund to assign a value to those securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
FUTURES AND OPTIONS TRADING
The Fund may enter into futures contracts, options, options on futures
contracts and stock index futures contracts and options thereon for the purposes
of remaining fully invested, reducing transaction costs, or managing interest
rate risk.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase
by another party of a specified amount of a specific security, class of
securities, or an index at a specified future time and at a specified price. A
stock index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
trading of the contracts and the price at which the futures contract is
originally struck. Futures contracts which are standardized as to maturity date
and underlying financial instrument are traded on national futures exchanges.
Futures exchanges and trading are regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. government agency.
Although most futures contracts by their terms call for actual delivery
and acceptance of the underlying securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
Closing out an open futures position is done by taking an opposite position
("buying" a contract which has previously been "sold," or "selling" a contract
previously purchased) in an identical contract to terminate the position. The
acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
When making futures trades, the Fund is required to make a good faith
margin deposit in cash or government securities with a broker or custodian to
initiate and maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Brokers may establish deposit requirements which
are higher than the exchange minimums. Initial margin deposits on futures
contracts are customarily set at levels much lower than the prices at which the
underlying securities are purchased and sold, typically ranging upward from less
than 5% of the value of the contract being traded.
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After a futures contract position is opened, the value of the contract
is marked to market daily. If the futures contract price changes to the extent
that the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.
Traders in futures contracts may be broadly classified as either
"hedgers" or "speculators." Hedgers use the futures markets primarily to offset
unfavorable changes in the value of securities otherwise held for investment
purposes or expected to be acquired by them. Speculators are less inclined to
own the securities underlying the futures contracts which they trade, and use
futures contracts with the expectation of realizing profits from fluctuations in
the prices of underlying securities. The Fund intends to enter into futures
contracts, options on futures contracts, index futures and options thereon that
are traded on an exchange regulated by the CFTC if, to the extent that such
futures and options are not for "bona fide hedging purposes" (as defined by the
CFTC), the aggregate initial margin and premiums on such positions (excluding
the amount by which options are in the money) do not exceed 5% of the Fund's
total assets at current value. The Fund, however, may invest more than such
amount for bona fide hedging purposes, and also may invest more than such amount
if it obtains authority to do so from the CFTC without rendering the Fund a
commodity pool operator or adversely affecting its status as an investment
company for federal securities laws or income tax purposes.
The Fund may buy and sell futures contracts and related options to
manage its exposure to changing interest rates and security prices. When
interest rates are expected to rise or market values of portfolio securities are
expected to fall, the Fund can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, the Fund, through
the purchase of such contracts, can attempt to secure better rates or prices for
the Fund than might later be available in the market when it effects anticipated
purchases.
Although techniques other than the sale and purchase of futures
contracts could be used to control the Fund's exposure to market fluctuations,
the use of futures contracts may be a more effective means of managing this
exposure. While the Fund will incur commission expenses in both opening and
closing out futures positions, these costs may be lower than transaction costs
that would be incurred in the purchase and sale of the underlying securities.
The Fund's ability to effectively utilize futures trading depends on
several factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying reference
security or index. Second, it is possible that a lack of liquidity for futures
contracts could exist in the secondary market, resulting in an inability to
close a futures position prior to its maturity date. Third, the purchase of a
futures contract involves the risk that the Fund could lose more than the
original margin deposit required to initiate a futures transaction.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
The Fund will not enter into futures contract transactions for purposes
other than bona fide hedging purposes to the extent that, immediately
thereafter, the sum of its initial margin deposits and premiums on open
contracts exceeds 5% of the market value of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain each Fund's
qualification as a regulated investment company.
The Fund has undertaken to restrict its futures contract trading as
follows: first, the Fund will not engage in transactions in futures contracts
for speculative purposes; second, the Fund will not market itself to the public
as a commodity pool or otherwise as a vehicle for trading in the commodities
futures or commodity options markets; third, the Fund will disclose to all
prospective Shareholders the purpose of and limitations on their commodity
futures trading; fourth, the Fund will submit to the CFTC special calls for
information. Accordingly, registration as a commodities pool operator with the
CFTC is not required.
In addition to the margin restrictions discussed above, transactions in
futures contracts may involve the segregation of funds pursuant to requirements
imposed by the Securities and Exchange Commission. Under those requirements,
where the Fund has a long position in a futures contract, it may be required to
establish a segregated account (not with a futures commission merchant or
broker) containing cash or certain liquid assets equal to the purchase price of
the contract (less any margin on deposit). For a short position in futures or
forward contracts held by the Fund, those requirements may mandate the
establishment of a segregated account (not with a futures commission merchant or
broker) with cash or certain liquid assets that,
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<PAGE> 47
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if the Fund "covers" a long position. For example, instead of
segregating assets, the Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund. In
addition, where the Fund takes short positions, or engages in sales of call
options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures contract, it may
cover by owning the instruments underlying the contract. The Fund may also cover
such a position by holding a call option permitting it to purchase the same
futures contract at a price no higher than the price at which the short position
was established. Where the Fund sells a call option on a futures contract, it
may cover either by entering into a long position in the same contract at a
price no higher than the strike price of the call option or by owning the
instruments underlying the futures contract. The Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures contract at a price no higher than the strike price of the call option
sold by the Fund.
The Fund also may engage in straddles and spreads. In a straddle
transaction, the Fund either buys a call and a put or sells a call and a put on
the same security. In a spread, the Fund purchases and sells a call or a put.
The Fund will sell a straddle when Banc One Investment Advisors or the
Sub-Advisor believes the price of a security will be stable. The Fund will
receive a premium on the sale of the put and the call. A spread permits the Fund
to make a hedged investment that the price of a security will increase or
decline.
In addition, the extent to which the Fund may enter into transactions
involving futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a registered investment company and the
Trust's intention to qualify as such. In certain circumstances, entry into a
futures contract that substantially eliminates risk of loss and the opportunity
for gain in an "appreciated financial position" will also accelerate gain to the
Fund.
RISK FACTORS IN FUTURES TRANSACTIONS
Positions in futures contracts may be closed out only on an exchange
which provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to be
required to make daily cash payments to maintain the required margin. In such
situations, if the Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make delivery
of the instruments underlying futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on the ability
to effectively hedge such positions. The Fund will minimize the risk that it
will be unable to close out a futures contract by only entering into futures
contracts which are traded on national futures exchanges and for which there
appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participations by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
futures strategies engaged in by the Fund are only for risk management purposes,
Banc One Investment Advisors and the Sub-Advisor do not believe that the Fund is
subject to the risks of loss frequently associated with futures transactions.
The Fund would presumably have sustained comparable losses if, instead of the
futures contract, it had invested in the underlying financial instrument and
sold it after the decline.
Utilization of futures transactions by the Fund does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the
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event of bankruptcy of a broker with whom the Fund has an open position in a
futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Some futures strategies, including selling futures, buying puts and
writing covered calls, may reduce the Fund's exposure to price fluctuations.
Other strategies, including buying futures, and buying calls, tend to increase
market exposure. Futures and options may be combined with each other in order to
adjust the risk and return characteristics of the overall portfolio. The Fund
expects to enter into these transactions to manage a return or spread on a
particular investment or portion of its assets, to protect against any increase
in the price of securities the Fund anticipates purchasing at a later date, or
for other risk management strategies.
OPTIONS CONTRACTS
The Fund may use trading of options on securities or futures contracts
as a hedging device. An option on a futures contract gives the purchaser of the
option the right (but not the obligation) to take a position at a specified
price (the "striking," "strike" or "exercise" price) in the underlying futures
contract or security. A "call" option gives the purchaser the right to take a
long (buy) position in the underlying futures contract or security, and the
purchaser of a "put" option acquires the right to take a short (sell) position
in the underlying futures contract or security. The purchase price of an option
is referred to as its "premium." The seller (or "writer") of an option is
obligated to take a futures or securities position at a specified price if the
option is exercised. In the case of a call option, the seller must stand ready
to take a short position (i.e., sell the futures contract or security) in the
underlying futures contract or security at the strike price if the option is
exercised. A seller of a put option, on the other hand, stands ready to take a
long position (i.e., buy the contract or security) in the underlying futures
contract or security at the strike price if the option is exercised.
A "naked" option refers to an option written by a party which does not
possess the underlying futures contract or security. A "covered" option refers
to an option written by a party which does possess the underlying position. The
initial purchase (sale) of an option is an "opening transaction." In order to
close out an option position, the Fund may enter into a "closing transaction".
This involves the sale (purchase) of an option contract on the same security
with the same exercise price and expiration date as the option contract
originally opened.
A call option on a futures contract or security is said to be
"in-the-money" if the strike price is below current market levels. Similarly, a
put option on a futures contract or security is said to be "out-of-the-money" if
the strike price is below current market levels. On the other hand, a put option
is "in-the-money" if the strike price is above current market levels, and
"out-of-the-money" if the strike price is below current market levels.
Options have limited life spans, usually tied to the delivery or
settlement date of the underlying futures contract or security. Some options,
however, expire significantly in advance of such dates. An option that is
"out-of-the-money" and not offset by the time it expires becomes worthless. On
certain exchanges "in-the-money" options are automatically exercised on their
expiration date, but on others unexercised options simply become worthless after
their expiration date. Options usually trade at a premium (referred to as the
"time value" of the option) above their intrinsic value (the difference between
the market price for the underlying futures contract or equity security and the
strike price). As an option nears its expiration date, the market value and the
intrinsic value move into parity as the time value diminishes.
The Fund may enter into over-the-counter option transactions. There
will be an active over-the-counter market for such options which will establish
their pricing and liquidity. Broker/Dealers with whom the Trust will enter into
such option transactions shall have a minimum net worth of $20,000,000. Each
Fund will limit the writing of put and call options to 25% of its net assets.
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Increased market volatility generally increases the value of options by
increasing the probability of favorable market swings, putting outstanding
options "in-the-money." Although purchasing options is a limited risk trading
approach, significant losses can be incurred by doing so.
COVERED CALLS
The Fund may write (sell) only "covered" call options and purchase
options to close out options previously written by the Fund. The Fund's purpose
in writing covered call options is to generate additional premium income. This
premium income will serve to enhance the Fund's total return and will reduce the
effect of any price decline of the security involved in the option. Covered call
options will generally be written on securities which, in the opinion of Banc
One Investment Advisors or the Sub-Advisor, are not expected to make any major
price moves in the near future but which, over the long term, are deemed to be
attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, the writer may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer to deliver
the underlying security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by repurchasing an option
identical to that previously sold. To secure the writer's obligation to deliver
the underlying security in the case of a call option, subject to the rules of
the Options Clearing Corporation, a writer is required to deposit in escrow the
underlying security or other assets in accordance with such rules. The Fund will
write only covered call options. This means that the Fund will only write a call
option on a security which the Fund already owns.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with the Fund's
investment objectives. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked options, which the Fund will not do), but capable of
enhancing the Fund's total return. When writing a covered call option, the Fund,
in return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but conversely
retains the risk of loss should the price of the security decline. Unlike one
who owns securities not subject to an option, the Fund has no control over when
it may be required to sell the underlying securities, since it may be assigned
an exercise notice at any time prior to the expiration of its obligation as a
writer. Thus, the security could be "called away" at a price substantially below
the fair market value of the security. If a call option which the Fund has
written expires, the Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security.
The security covering the call will be maintained in a segregated account of the
Fund's custodian. The Fund does not consider a security covered by a call to be
"pledged" as that term is used in the Fund's policy which limits the pledging or
mortgaging of its assets.
The premium received is the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, Banc One Investment Advisors or the
Sub-Advisor, in determining whether a particular call option should be written
on a particular security, will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options. The premium received by the Fund for writing covered call options will
be recorded as a liability in the Fund's statement of assets and liabilities.
This liability will be adjusted daily to the option's current market value,
which will be the latest sale price at the time at which the net asset value per
Share of the Fund is computed (close of the New York Stock Exchange), or, in the
absence of such sale, the latest asked price. The liability will be extinguished
upon expiration of the option, the purchase of an identical option in the
closing transaction, or delivery of the underlying security upon the exercise of
the option.
Generally, the Fund, in order to avoid the exercise of an option sold
by it, will be able to cancel its obligation under the option by entering into a
closing purchase transaction, if available, unless selling (in the case of a
call option) or purchasing (in the case of a put option) the underlying
securities is determined to be in the Fund's best interest. A closing purchase
transaction consists of the Fund purchasing an option having the same terms as
the option sold by the Fund, and has the effect of canceling the Fund's position
as a seller. The premium which the Fund will pay in executing a closing purchase
transaction may be higher
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(or lower) than the premium received when the option was sold, depending in
large part upon the relative price of the underlying security at the time of
each transaction. To the extent options sold by the Fund are exercised and the
Fund delivers securities to the holder of a call option, the Fund's turnover
rate will increase, which would cause the Fund to incur additional brokerage
expenses.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit the Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If the Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that the Fund will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. The Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities at the time the options are written. From time to time, the Fund may
purchase an underlying security for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such security
from its portfolio. In such cases, additional costs will be incurred.
The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
PURCHASING CALL OPTIONS
The Fund may purchase call options to hedge against an increase in the
price of securities that the Fund wants ultimately to buy. Such hedge protection
is provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option. In the event that paying a premium for a call option, together with a
price movement in the underlying security, is such that exercise of the option
would not be profitable to the Fund, loss of the premium may be offset by a
decrease in the acquisition cost of securities by the Fund.
PURCHASING PUT OPTIONS
The Fund may also purchase put options to protect its portfolio
holdings in an underlying security against a decline in market value. Such hedge
protection is provided during the life of the put option since the Fund, as
holder of the put option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying security's market
price. For a put option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price to cover the premium
and transaction costs. By using put options in this manner, the Fund will reduce
any profit it might otherwise have realized from appreciation of the underlying
security by the premium paid for the put option and by transaction cost.
However, any loss of premium may be offset by an increase in the value of the
Fund's securities.
SECURED PUTS
The Fund may write secured puts. For the secured put writer,
substantial depreciation in the value of the underlying security would result in
the security being "put to" the writer at the strike price of the option which
may be substantially in excess of the fair market value of the security. If a
secured put option expires unexercised, the writer realizes a gain in the amount
of the premium.
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RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the options strategies depends on the ability of
Banc One Investment Advisors or the Sub-Advisor to assess interest rate and
market movements correctly and to accurately calculate the fair price of the
option. In addition, there may be imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of the
options.
When it purchases an option, the Fund runs the risk that it will lose
its entire investment in the option in a relatively short period of time, unless
the Fund exercises the option or enters into a closing sale transaction with
respect to the option during the life of the option. If the price of the
underlying security does not rise (in the case of a call) or fall (in the case
of a put) to an extent sufficient to cover the option premium and transaction
costs, the Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying securities, since the
Fund may continue to hold its investment in those securities notwithstanding the
lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to
terminate option positions at times when Banc One Investment Advisors or the
Sub-Advisor, deems it desirable to do so. A Fund will take an option position
only if Banc One Investment Advisors or the Sub-Advisor believes there is a
liquid secondary market for the option, however, there is no assurance that the
Fund will be able to effect closing transactions at any particular time or at an
acceptable price.
If a secondary trading market in options were to become unavailable,
the Fund could no longer engage in closing transactions. Lack of investor
interest might adversely affect the liquidity of the market for particular
options or series of options. A marketplace may discontinue trading of a
particular option or options generally. In addition, a market could become
temporarily unavailable if unusual events, such as volume in excess of trading
or clearing capability, were to interrupt normal market operations. A
marketplace may at times find it necessary to impose restrictions on particular
types of options transactions, which may limit the Fund's ability to realize its
profits or limit its losses.
Disruptions in the markets for the securities underlying options
purchased or sold by the Fund could result in losses on the options. If trading
is interrupted in an underlying security, the trading of options on that
security is normally halted as well. As a result, the Fund as purchaser or
writer of an option will be unable to close out its positions until option
trading resumes, and it may be faced with losses if trading in the security
reopens at a substantially different price. In addition, the Options Clearing
Corporation ("OCC") or other options markets may impose exercise restrictions.
If a prohibition on exercise is imposed at the time when trading in the option
has also been halted, the Fund as purchaser or writer of an option will be
locked into its position until one of the two restrictions has been lifted. If a
prohibition on exercise remains in effect until an option owned by the Fund has
expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally-traded options. Because
of time differences between the United States and the various foreign countries,
and because different holidays are observed in different countries, foreign
option markets may be open for trading during hours or on days when U.S. markets
are closed. As a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
MORTGAGE-RELATED SECURITIES
The Fund may, consistent with its investment objectives and policies,
invest in mortgage-backed securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities.
Mortgage-backed securities, for purposes of the Trust's Prospectuses
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 ("Ginnie Mae") and government-related
organizations such as the Federal National Mortgage Association ("Fannie Mae")
and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), as well as by
nongovernmental issuers such as commercial banks, savings and loan institutions,
mortgage bankers, and private mortgage insurance companies. Such
non-governmental mortgage securities cannot be treated as U.S. government
securities for purposes of investment policies. The Fund also may invest in
mortgage-backed securities issued by non-government entities, which consist of
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs") and REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICs"). The Fund also may invest in multiple class securities
issued by U.S. government agencies and instrumentalities such as Fannie Mae,
Freddie Mac and Ginnie Mae. The Fund may invest in multiple class securities
issued by private issuers including guaranteed
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CMOs and REMIC pass-through or Participations certificates, when consistent with
the Fund's investment objective, policies and limitations. A REMIC is a CMO that
qualifies for special tax treatment under the Code and invests in certain
mortgages principally secured by interests in real property and other permitted
investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC
Certificates") issued by Fannie Mae, Freddie Mac, Ginnie Mae and private issuers
are types of multiple class pass-through securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Fund does not currently intend to purchase residual
interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC Trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed mortgage pass-through certificates
(the "Mortgage Assets"). The obligations of Fannie Mae, Freddie Mac or Ginnie
Mae under their respective guaranty of the REMIC Certificates are obligations
solely of Fannie Mae, Freddie Mac or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely
payment of interest, and also guarantees the payment of principal as payments
are required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified residential mortgages or
participation therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with the terms
of those classes as specified in the related offering circular supplement). The
Ginnie Mae guarantee is backed by the full faith and credit of the United States
of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are
treated as U.S. government securities for purposes of investment policies. CMOs
and REMIC Certificates provide for the redistribution of cash flow to multiple
classes. Each class of CMOs or REMIC Certificates, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. This reallocation of
interest and principal results in the redistribution of prepayment risk across
to different classes. This allows for the creation of bonds with more or less
risk than the underlying collateral exhibits. Principal prepayments on the
mortgage loans or the Mortgage Assets underlying the CMOs or REMIC Certificates
may cause some or all of the classes of CMOs or REMIC Certificates to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in the
order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs or REMIC Certificates
until all other classes having an earlier final distribution date have been paid
in full.
Additional structures of CMOs and REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay
or sequential pay structures. These securities include accrual certificates
(also know as "Z-Bonds"), which only accrue interest at a specified rate until
all other certificates having an earlier final distribution date have been
retired and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even
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though all other principal payments and prepayments of the Mortgage Assets are
then required to be applied to one or more other classes of the certificates.
The scheduled principal payments for the PAC Certificates generally have the
highest priority on each payment date after interest due has been paid to all
classes entitled to receive interest currently. Shortfalls, if any, are added to
the amount of principal payable on the next payment date. The PAC Certificate
payment schedule is taken into account in calculating the final distribution
date of each class of PAC. In order to create PAC tranches, one or more tranches
generally must be created that absorb most of the volatility in the underlying
Mortgage Assets. These tranches tend to have market prices and yields that are
much more volatile than the PAC classes.
The Z-Bonds in which the Fund may invest may bear the same non-credit-
related risks as do other types of Z-Bonds. Z-Bonds in which the Fund may invest
will not include residual interest.
There can be no assurance that the U.S. government would provide
financial support to Fannie Mae, Freddie Mac or Ginnie Mae if necessary in the
future.
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 the 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. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages and, therefore, it is not possible to
predict accurately the security's return to the 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 Fund will
receive when these amounts are reinvested.
The market value of the Fund's adjustable rate Mortgage-Backed
Securities may be adversely affected if interest rates increase faster than the
rates of interest payable on such securities or by the adjustable rate mortgage
loans underlying such securities. Furthermore, adjustable rate Mortgage-Backed
Securities or the mortgage loans underlying such securities may contain
provisions limiting the amount by which rates may be adjusted upward and
downward and may limit the amount by which monthly payments may be increased or
decreased to accommodate upward and downward adjustments in interest rates.
Certain adjustable rate mortgage loans may provide for periodic
adjustments of scheduled payments in order to amortize fully the mortgage loan
by its stated maturity. Other adjustable rate mortgage loans may permit their
stated maturity to be extended or shortened in accordance with the portion of
each payment that is applied to interest as affected by the periodic interest
rate adjustments.
Although having less risk of decline during periods of rising interest
rates, adjustable rate Mortgage-Backed Securities have less potential for
capital appreciation than fixed rate Mortgage-Backed Securities because their
coupon rates will decline in response to market interest rate declines. The
market value of fixed rate Mortgage-Backed Securities may be adversely affected
as a result of increases in interest rates and, because of the risk of
unscheduled principal prepayments, may benefit less than other fixed rate
securities of similar maturity from declining interest rates. Finally, to the
extent Mortgage-Backed Securities are purchased at a premium, mortgage
foreclosures and unscheduled principal prepayments may result in some loss of
the Fund's principal investment to the extent of the premium paid. On the other
hand, if such securities are purchased at a discount, both a scheduled payment
of principal and an unscheduled prepayment of principal will increase current
and total returns and will accelerate the recognition of income.
The Fund may invest in mortgage-related securities which are
collateralized mortgage obligations structured on pools of mortgage pass-through
certificates or mortgage loans.
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
Ginnie Mae include Ginnie Mae Mortgage Pass-Through Certificates which are
guaranteed as to the timely payment of principal and interest by Ginnie Mae and
such guarantee is backed by the full faith and credit of the United States.
Ginnie Mae is a wholly-owned U.S. government corporation within the Department
of Housing and Urban Development. Ginnie Mae certificates also are supported by
the authority of Ginnie Mae to borrow funds from the U.S. Treasury to make
payments under its guarantee. Mortgage-related securities issued by Fannie Mae
include Fannie Mae Guaranteed Mortgage Pass-Through
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Certificates which are solely the obligations of Fannie Mae and are not backed
by or entitled to the full faith and credit of the United States. Fannie Mae is
a government-sponsored organization owned entirely by private stock-holders.
Fannie Mae Certificates are guaranteed as to timely payment of the principal and
interest by Fannie Mae. Mortgage-related securities issued by Freddie Mac
include Freddie Mac Mortgage Participation Certificates. Freddie Mac is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Mac
Certificates are not guaranteed by the United States or by any Federal Home Loan
Banks and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Mac Certificates entitle the holder to timely
payment of interest, which is guaranteed by Freddie Mac. Freddie Mac guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When Freddie Mac does not guarantee timely payment of
principal, Freddie Mac 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.
The Fund may enter into MORTGAGE DOLLAR ROLLS in which the Fund sells
securities for delivery in the current month and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. When the Fund enters into
mortgage dollar rolls, the Fund will hold and maintain in a segregated account
until the settlement date, cash or liquid, high grade debt securities in an
amount equal to the forward purchase price. The Fund benefits to the extent of
any difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of the Fund compared with what such performance would have been without the use
of mortgage dollar rolls. The benefits derived from the use of mortgage dollar
rolls may depend upon Banc One Investment Advisors or the Sub-Advisor's ability
to predict correctly mortgage prepayments and interest rates. There is no
assurance that mortgage dollar rolls can be successfully employed. The Fund
currently intends to enter into mortgage dollar rolls that are accounted for as
a financing transaction. For purposes of diversification and investment
limitations, mortgage dollar rolls are considered to be mortgage-backed
securities.
The yield characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major differences typically
include more frequent interest and principal payments, usually monthly, and the
possibility that prepayments of principal may be made at any time. Prepayment
rates are influenced by changes in current interest rates and a variety of
economic, geographic, social and other factors and cannot be predicted with
certainty. As with fixed rate mortgage loans, adjustable rate mortgage loans may
be subject to a greater prepayment rate in a declining interest rate
environment. The yields to maturity of the Mortgage-Backed Securities in which
the Fund invests will be affected by the actual rate of payment (including
prepayments) of principal of the underlying mortgage loans. The mortgage loans
underlying such securities generally may be prepaid at any time without penalty.
In a fluctuating interest rate environment, a predominant factor affecting the
prepayment rate on a pool of mortgage loans is the difference between the
interest rates on the mortgage loans and prevailing mortgage loan interest rates
(giving consideration to the cost of any refinancing). In general, if mortgage
loan interest rates fall sufficiently below the interest rates on fixed rate
mortgage loans underlying mortgage pass-through securities, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan interest
rates rise above the interest rates on the fixed rate mortgage loans underlying
the mortgage pass-through securities, the rate of prepayment may be expected to
decrease.
The Fund may invest in certain STRIPPED MORTGAGE-BACKED SECURITIES
("SMBS") that are extremely sensitive to changes in prepayments and interest
rates. Even though such securities have been guaranteed by an agency or
instrumentality of the U.S. government, under certain interest rate or
prepayment rate scenarios, the Fund may fail to fully recover its investment in
such securities. The Fund may invest in SMBS to enhance revenues or hedge
against interest rate risk. SMBS are derivative multi-class mortgage securities.
The Fund may only invest in SMBS issued or guaranteed by the U.S. government,
its agencies or instrumentalities. SMBS are usually structured with two classes
that receive different proportions of the interest and principal distributions
from a pool of mortgage assets. A common type of SMBS will have one class
receiving all of the interest from the mortgage assets ("IOs"), while the other
class will receive all of the principal ("POs"). Mortgage IOs receive monthly
interest payments based upon a notional amount that declines over time as a
result of the normal monthly amortization and unscheduled prepayments of
principal on the associated mortgage POs. Changes in prepayment rates can cause
the return on investment in IOs to be highly volatile, and under extremely high
prepayment conditions IOs can incur significant losses. POs
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are bought at a discount to the ultimate principal repayment value. The rate of
return on a PO will vary with prepayments, rising as prepayments increase and
falling as prepayments decrease. Although the market for such securities is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of the Fund's limitations on investments in
illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage assets are generally higher than prevailing market yields
on other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that any premium paid will not be fully
recouped. Banc One Investment Advisors and the Sub-Advisor will seek to manage
these risks (and potential benefits) by investing in a variety of such
securities and by using certain analytical and hedging techniques.
The Fund may invest in ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). ARMs
eligible for inclusion in a mortgage pool will generally provide for a fixed
initial mortgage interest rate for a specified period of time. Thereafter, the
interest rates (the "Mortgage Interest Rates") may be subject to periodic
adjustment based on changes in the applicable index rate (the "Index Rate"). The
adjusted rate would be equal to the Index Rate plus a gross margin, which is a
fixed percentage spread over the Index Rate established for each ARM at the time
of its origination.
Adjustable interest rates can cause payment increases that some
borrowers may find difficult to make. However, certain ARMs may provide that the
Mortgage Interest Rate may not be adjusted to a rate above an applicable
lifetime maximum rate or below an applicable lifetime minimum rate for such ARM.
Certain ARMs may also be subject to limitations on the maximum amount by which
the Mortgage Interest Rate may adjust for any single adjustment period (the
"Maximum Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide
instead or as well for limitations on changes in the monthly payment on such
ARMs. Limitations on monthly payments can result in monthly payments which are
greater or less than the amount necessary to amortize a Negatively Amortizing
ARM by its maturity at the Mortgage Interest Rate in effect in any particular
month. In the event that a monthly payment is not sufficient to pay the interest
accruing on a Negatively Amortizing ARM, any such excess interest is added to
the principal balance of the loan, causing negative amortization and will be
repaid through future monthly payments. It may take borrowers under Negatively
Amortizing ARMs longer periods of time to achieve equity and may increase the
likelihood of default by such borrowers. In the event that a monthly payment
exceeds the sum of the interest accrued at the applicable Mortgage Interest Rate
and the principal payment which would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
(or "accelerated amortization") further reduces the principal balance of the
ARM. Negatively Amortizing ARMs do not provide for the extension of their
original maturity to accommodate changes in their Mortgage Interest Rate. As a
result, unless there is a periodic recalculation of the payment amount (which
there generally is), the final payment may be substantially larger than the
other payments. These limitations on periodic increases in interest rates and on
changes in monthly payment protect borrowers from unlimited interest rate and
payment increases.
There are two main categories of indices which provide the basis for
rate adjustments on ARMs: those based on U.S. Treasury securities and those
derived from a calculated measure such as a cost of Fund index or a moving
average of mortgage rates. Commonly utilized indices include the one-year,
three-year and five-year constant maturity Treasury bill rates, the three-month
Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term
Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
London Interbank Offered Rate ("LIBOR"), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant maturity
Treasury rate, closely mirror changes in market interest rate levels. Others,
such as the 11th District Federal Home Loan Bank Cost of Funds index, tend to
lag behind changes in market rate levels and tend to be somewhat less volatile.
The degree of volatility in the market value of the Fund's portfolio and
therefore in the net asset value of the Fund's shares will be a function of the
length of the interest rate reset periods and the degree of volatility in the
applicable indices.
In general, changes in both prepayment rates and interest rates will
change the yield on Mortgage-Backed Securities. The rate of principal
prepayments with respect to ARMs has fluctuated in recent years. As is the case
with fixed mortgage loans, ARMs may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, ARMs could be subject to higher prepayment
rates than if prevailing interest rates remain constant because the availability
of fixed rate mortgage loans at competitive interest rates may encourage
mortgagors to refinance their ARMs to "lock-in" a lower fixed interest rate.
Conversely, if prevailing interest rates rise significantly, ARMs may prepay at
lower rates than if prevailing rates remain at or below those in effect at the
time such ARMs were originated. As with fixed rate mortgages, there can be no
certainty as
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to the rate of prepayments on the ARMs in either stable or changing interest
rate environments. In addition, there can be no certainty as to whether
increases in the principal balances of the ARMs due to the addition of deferred
interest may result in a default rate higher than that on ARMs that do not
provide for negative amortization. Other factors affecting prepayment of ARMs
include changes in mortgagors' housing needs, job transfers, unemployment,
mortgagors' net equity in the mortgage properties and servicing decisions.
REAL ESTATE INVESTMENT TRUSTS ("REITs")
The Fund may invest in equity interests or debt obligations issued by
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling property that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Similar to
investment companies, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund will indirectly bear its proportionate
share of expenses incurred by REITs in which the Fund invests in addition to the
expenses incurred directly by the Fund.
Investing in REITS involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITS may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to heavy cash flow dependency, default by borrowers and
self-liquidation. REITs are also subject to the possibilities of failing to
qualify for tax free pass-through of income under the Code and failing to
maintain their exemption from registration under the Act.
REITs (especially mortgage REITs) are also subject to interest rate
risks. When interest rates decline, the value of a REIT's investment in fixed
rate obligations can be expected to rise. Conversely, when interest rates rise,
the value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investment in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have been more
volatile in price than the larger capitalization stocks included in the S&P
Index of 500 Common Stocks.
FOREIGN INVESTMENTS
The Fund may invest in certain obligations or securities of foreign
issuers. Possible investments include equity securities of foreign entities,
bonds and loan participations issued by foreign governments, foreign
corporations, and other foreign entities (generally denominated in U.S.
dollars), obligations of foreign branches of U.S. banks and of foreign banks,
including, without limitation, European Certificates of Deposit, European Time
Deposits, European Banker's Acceptances, Canadian Time Deposits and Yankee
Certificates of Deposits, and investments in Canadian Commercial Paper, foreign
securities and Europaper. Securities of foreign issuers may include sponsored
and unsponsored American Depository Receipts ("ADRs"). Sponsored ADRs are listed
on the New York Stock Exchange; unsponsored ADRs are not. Therefore, there may
be less information available about the issuers of unsponsored ADRs than the
issuers of sponsored ADRs. Unsponsored ADRs are restricted securities. These
instruments may subject a Fund to investment risks that differ in some respects
from those related to investments in obligations of U.S. domestic issuers. Such
risks include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization or expropriation of foreign deposits, the possible establishment
of exchange controls or taxation at the source, greater fluctuations in value
due to changes in exchange rates, or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on such obligations. Such investments may also entail higher custodial fees and
sales commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S.
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banks and foreign banks are not regulated by U.S. banking authorities and may be
subject to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks. In addition, foreign banks generally are not bound by
the accounting, auditing, and financial reporting standards comparable to those
applicable to U.S. banks.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities on a "when-issued" and forward
commitment basis. When the Fund agrees to purchase securities, the Fund's
custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. The Fund may purchase securities on a
when-issued basis when deemed by Banc One Investment Advisors or the Sub-Advisor
to present attractive investment opportunities. When-issued securities are
purchased for delivery beyond the normal settlement date at a stated price and
yield, thereby involving the risk that the yield obtained will be less than that
available in the market at delivery. The Fund generally will not pay for such
securities or earn interest on them until received. Although the purchase of
securities on a when-issued basis is not considered to be leveraging, it has the
effect of leveraging. When a when-issued security is purchased, the Custodian
will set aside cash or liquid securities to satisfy the purchase commitment. In
such a case, the Fund may be required subsequently to place additional assets in
the separate account in order to assure that the value of the account remains
equal to the amount of the Fund's commitment. It may be expected that the Fund's
net assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. The
Fund does not intend to purchase "when-issued" securities for speculative
purposes but only for the purpose of acquiring portfolio securities. Because the
Fund will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, the Fund's liquidity and the ability of
Banc One Investment Advisors and the Sub-Advisor to manage the Fund might, as
described in the Prospectus, be affected in the event its commitments to
purchase when-issued securities ever exceeded 40% of the value of its assets.
Commitments to purchase when-issued securities will not, under normal market
conditions, exceed 25% of a Fund's total assets, and a commitment will not
exceed 90 days. The Fund may dispose of a when-issued security or forward
commitment prior to settlement if Banc One Investment Advisors or the
Sub-Advisor deems it appropriate to do so. When the Fund engages in
"when-issued" transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in the Fund's incurring a loss or
missing the opportunity to obtain a price considered to be advantageous.
In a forward commitment transaction, the Fund contracts to purchase
securities for a fixed price at a future date beyond customary settlement time.
The Fund is required to hold and maintain in a segregated account until the
settlement date, cash, U.S. government securities or liquid high-grade debt
obligations in an amount sufficient to meet the purchase price. Alternatively,
the Fund may enter into offsetting contracts for the forward sale of other
securities that they own. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date.
SECURITIES LENDING
In order to generate additional income, the Fund may lend up to 33 1/3%
of its total assets pursuant to agreements requiring that the loan be
continuously secured by cash, securities of the U.S. government or its agencies,
shares of an investment trust or mutual fund, letters of credit or any
combination of cash, such securities, shares, or letters of credit as collateral
equal at all times to at least 100% of the market value plus accrued interest on
the securities lent. The Fund will continue to receive an amount equal to the
interest on the securities lent while simultaneously seeking to earn interest on
the investment of cash collateral in U.S. government securities, shares of an
investment trust or mutual fund, or other short-term, highly liquid investments.
Collateral is marked to market daily to provide a level of collateral at least
equal to the market value of the securities lent. There may be risks of delay in
recovery of the securities or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will only be made to
borrowers deemed by Banc One Investment Advisors to be of good standing under
guidelines established by the Trust's Board of Trustees and when, in the
judgment of Banc One Investment Advisors, the consideration which can be earned
currently from such securities loans justifies the attendant risk. Loans are
subject to termination by the Fund or the borrower at any time, and are
therefore, not considered to be illiquid investments.
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VARIABLE AND FLOATING RATE NOTES
Variable amount master demand notes are unsecured or secured demand
notes that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate according to the terms of the instrument.
Because master demand notes are direct lending arrangements between the Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, the Fund may demand payment of principal and accrued interest at
any time. Issuers of variable amount master demand notes are normally
manufacturing, retail, financial, and other business concerns. Banc One
Investment Advisors or the Sub-Advisor 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 period of time
remaining until the principal amount can be recovered from the issuer through
demand.
The Fund subject to its investment objective policies and restrictions,
may acquire variable and floating rate notes. A variable rate note is one whose
terms provide for the adjustment of its interest rate on set dates and which,
upon such adjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate note is one whose terms provide for
the adjustment of its interest rate whenever a specified interest rate changes
and which, at any time, can reasonably be expected to have a market value that
approximates its par value. Such notes are frequently not rated by credit rating
agencies. In determining whether to invest in such notes, Banc One Investment
Advisors or the Sub-Advisor will consider the earning power, cash flow and other
liquidity ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by the Fund,
the Fund may re-sell the note at any time to a third party. The absence of such
an active secondary market, however, could make it difficult for the Fund to
dispose of the variable or floating rate note involved in the event the issuer
of the note defaulted on its payment obligations, and the Fund could, for this
or other reasons, suffer a loss to the extent of the default. Variable or
floating rate notes may be secured by bank letters of credit. The Fund will
purchase a variable or floating rate instrument to facilitate portfolio
liquidity or to permit investment of the Fund's assets at a favorable rate of
return.
Variable and floating rate notes for which no readily available market
exists will be purchased in an amount which, together with securities with legal
or contractual restrictions on resale or for which no readily available market
exists (including repurchase agreements providing for settlement more than seven
days after notice), exceeds 15% of the Fund's net assets only if such notes are
subject to a demand feature that will permit the Fund to demand payment of the
principal within seven days after demand by the Fund. There is no limit on the
extent to which a Fund may purchase demand notes that are not illiquid. The
above Funds 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.
DEMAND FEATURES
The Fund may acquire securities that are subject to puts and standby
commitments ("demand features") to purchase the securities at their principal
amount (usually with accrued interest) within a fixed period (usually seven
days) following a demand by the Fund. The demand feature may be issued by the
issuer of the underlying securities, a dealer in the securities or by another
third party, and may not be transferred separately from the underlying security.
The underlying securities subject to a put may be sold at any time at market
rates. The Fund expects that they will acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if advisable or necessary, a premium may be paid for put features. A premium
paid will have the effect of reducing the yield otherwise payable on the
underlying security.
Under a "stand-by commitment," a dealer would agree to purchase, at the
Fund's option, specified municipal securities at a specified price. The Fund
will acquire these commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes. Stand-by
commitments may also be referred to as put options. The Fund will generally
limit its investments in stand-by commitments to 25% of its total assets.
The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit the Fund to meet redemption requests and
remain as fully invested as possible.
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SWAPS, CAPS AND FLOORS
The Fund may enter into swaps, caps, and floors on various securities
(such as U.S. government securities), securities indexes, interest rates,
prepayment rates, foreign currencies or other financial instruments or indexes,
in order to protect the value of the Fund from interest rate fluctuations and to
hedge against fluctuations in the floating rate market in which the Fund's
investments are traded, for both hedging and non-hedging purposes. While swaps,
caps, and floors (sometimes hereinafter collectively referred to as "swap
contracts") are different from futures contracts (and options on futures
contracts) in that swap contracts are individually negotiated with specific
counterparties, the Fund will use swap contracts for purposes similar to the
purposes for which they use options, futures, and options on futures. Those uses
of swap contracts (i.e., risk management and hedging) present the Fund with
risks and opportunities similar to those associated with options contracts,
futures contracts, and options on futures. See "Futures Contracts" and "Risk
Factors in Futures Contracts."
The Fund may enter into these transactions to manage their exposure to
changing interest rates and other market factors. Some transactions may reduce
the Fund's exposure to market fluctuations while others may tend to increase
market exposure.
Swap contracts typically involve an exchange of obligations by two
sophisticated parties. For example, in an interest rate swap, the Fund may
exchange with another party their respective rights to receive interest, such as
an exchange of fixed rate payments for floating rate payments. Currency swaps
involve the exchange of respective rights to make or receive payments in
specified currencies. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages.
Caps and floors are variations on swaps. The purchase of a cap entitles
the purchaser to receive a principal amount from the party selling the cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of an interest rate floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to the
extent that a specified index falls below a predetermined interest rate or
amount. Caps and floors are similar in many respects to over-the-counter options
transactions, and may involve investment risks that are similar to those
associated with options transactions and options on futures contracts.
Because swap contracts are individually negotiated, they remain the
obligation of the respective counterparties, and there is a risk that a
counterparty will be unable to meet its obligations under a particular swap
contract. If a counterparty defaults on a swap contract with the Fund, the Fund
may suffer a loss. To address this risk, the Fund will usually enter into
interest rate swaps on a net basis, which means that the two payment streams
(one from the Fund to the counterparty, one to the Fund from the counterparty)
are netted out, with the Fund receiving or paying, as the case may be, only the
net amount of the two payments. Interest rate swaps do not involve the delivery
of securities, other underlying assets, or principal, except for the purposes of
collateralization as discussed below. Accordingly, the risk of loss with respect
to interest rate swaps entered into on a net basis would be limited to the net
amount of the interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the Fund's risk of
loss consists of the net amount of interest payments that the Fund is
contractually entitled to receive. In addition, the Fund may incur a market
value adjustment on securities held upon the early termination of the swap. To
protect against losses related to counterparty default, the Fund may enter into
swaps that require transfers of collateral for changes in market value. In
contrast, currency swaps and other types of swaps may involve the delivery of
the entire principal value of one designated currency or financial instrument in
exchange for the other designated currency or financial instrument. Therefore,
the entire principal value of such swaps may be subject to the risk that the
other party will default on its contractual delivery obligations.
In addition, because swap contracts are individually negotiated and
ordinarily non-transferable, there also may be circumstances in which it would
be impossible for the Fund to close out its obligations under the swap contract
prior to its maturity. Under such circumstances, the Fund might be able to
negotiate another swap contract with a different counterparty to offset the risk
associated with the first swap contract. Unless the Fund is able to negotiate
such an offsetting swap contract, however, the Fund could be subject to
continued adverse developments, even after Banc One Investment Advisors or the
Sub-Advisor has determined that it would be prudent to close out or offset the
first swap contract.
The use of swaps involves investment techniques and risks different
from and potentially greater than those associated with ordinary Fund securities
transactions. If Banc One Investment Advisors or the Sub-Advisor is incorrect in
its expectations of market values, interest rates, or currency exchange rates,
the
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investment performance of the Funds would be less favorable than it would have
been if this investment technique were not used. In addition, in certain
circumstances entry into a swap contract that substantially eliminates risk of
loss and the opportunity for gain in an ?appreciated financial position? will
accelerate gain to the Funds.
The Staff of the Securities and Exchange Commission is presently
considering its position with respect to swaps, caps and floors as senior
securities. Pending a determination by the Staff, the Fund will either treat
swaps, caps and floors as being subject to their senior securities restrictions
or will refrain from engaging in swaps, caps and floors. Once the Staff has
expressed a position with respect to swaps, caps and floors, the Fund intends to
engage in swaps, caps and floors, if at all, in a manner consistent with such
position. To the extent the net amount of an interest rate or mortgage swap is
held in a segregated account, consisting of cash or liquid, high grade debt
securities, the Fund, Banc One Investment Advisors and the Sub-Advisor believe
that swaps do not constitute senior securities under the Investment Company Act
of 1940 and, accordingly, will not treat them as being subject to each Fund's
borrowing restrictions. The net amount of the excess, if any, of each Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's Custodian. The Fund generally
will limit its investments in swaps, caps and floors to 25% of its total assets.
STRUCTURED INSTRUMENTS
Structured instruments are debt securities issued by agencies of the
U.S. government (such as Ginnie Mae, Fannie Mae, and Freddie Mac), banks,
corporations, and other business entities whose interest and/or principal
payments are indexed to certain specific foreign currency exchange rates,
interest rates, or one or more other reference indices. Structured instruments
frequently are assembled in the form of medium-term notes, but a variety of
forms are available and may be used in particular circumstances. Structured
instruments are commonly considered to be derivatives.
The terms of such structured instruments provide that their principal
and/or interest payments are adjusted upwards or downwards to reflect changes in
the reference index while the structured instruments are outstanding. In
addition, the reference index may be used in determining when the principal is
redeemed. As a result, the interest and/or principal payments that may be made
on a structured product may vary widely, depending on a variety of factors,
including the volatility of the reference index and the effect of changes in the
reference index on principal and/or interest payment.
While structured instruments may offer the potential for a favorable
rate of return from time to time, they also entail certain risks. Structured
instruments may be less liquid than other debt securities, and the price of
structured instruments may be more volatile. If the value of the reference index
changes in a manner other than that expected by Banc One Investment Advisors or
the Sub-Advisor, principal and/or interest payments on the structured instrument
may be substantially less than expected. The Fund will invest only in structured
securities that are consistent with the Fund's investment objective, policies
and restrictions and Banc One Investment Advisors' or the Sub-Advisor's outlook
on market conditions. In some cases, depending on the terms of the reference
index, a structured instrument may provide that the principal and/or interest
payments may be adjusted below zero; however, the Fund will not invest in
structured instruments if the terms of the structured instrument provide that
the Fund may be obligated to pay more than its initial investment in the
structured instrument, or to repay any interest or principal that has already
been collected or paid back. Structured instruments that are registered under
the federal securities laws may be treated as liquid. In addition, many
structured instruments may not be registered under the federal securities laws.
In that event, the Fund's ability to resell such a structured instrument may be
more limited than its ability to resell other Fund securities. The Fund will
treat such instruments as illiquid, and will limit its investments in such
instruments to no more than 15% of the Fund's net assets, when combined with all
other illiquid investments of the Fund. In addition, although structured
instruments may be sold in the form of a corporate debt obligation, they may not
have some of the protection against counterparty default that may be available
with respect to publicly traded debt securities (i.e., the existence of a trust
indenture). In that respect, the risks of default associated with structured
instruments may be similar to those associated with swap contracts. See "Swaps,
Caps and Floors."
NEW FINANCIAL PRODUCTS
New options and futures contracts and other financial products, and
various combinations thereof, continue to be developed and the Fund may invest
in any such options, contracts and products as may be
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developed to the extent consistent with the Fund's investment objective,
policies and restrictions and the regulatory requirements applicable to
investment companies.
These various products may be used to adjust the risk and return
characteristics of the Fund's investments. These various products may increase
or decrease exposure to security prices, interest rates, commodity prices, or
other factors that affect security values, regardless of the issuer's credit
risk. If market conditions do not perform consistent with expectations, the
performance of the Fund would be less favorable than it would have been if these
products were not used. In addition, losses may occur if counterparties involved
in transactions do not perform as promised. These products may expose the Fund
to potentially greater return as well as potentially greater risk of loss than
more traditional fixed income investments.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and other restricted securities. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally sold
to institutional investors, such as the Fund, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus providing liquidity. The Fund
believes that Section 4(2) commercial paper and possibly certain other
restricted securities which meet the criteria for liquidity established by the
Trustees are quite liquid. The Fund intends, therefore, to treat restricted
securities that meet the liquidity criteria established by the Board of
Trustees, including Section 4(2) commercial paper and Rule 144A Securities, as
determined by Banc One Investment Advisors or the Sub-Advisor, as liquid and not
subject to the investment limitation applicable to illiquid securities.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a nonexclusive safe-harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Trustees. Banc One
Investment Advisors or the Sub-Advisor will therefore consider the following
criteria established by the Trustees in determining the liquidity of certain
restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
- dealer undertakings to make a market in the security; and
- the nature of the security and the nature of the marketplace
trades.
Certain Section 4(2) commercial paper programs cannot rely on Rule 144A
because, among other things, they were established before the adoption of the
rule. However, the Trustees may determine for purposes of the Trust's liquidity
requirements that an issue of 4(2) commercial paper is liquid if the following
conditions, which are set forth in a 1994 SEC no-action letter, are met:
- The 4(2) paper must not be traded flat or in default as to
principal or interest;
- The 4(2) paper must be rated in one of the two highest rating
categories by a least two nationally recognized statistical
rating organizations ("NRSROs"), or if only one NRSRO rates
the security, by that NRSRO, or if unrated, is determined by
Banc One Investment Advisors to be of equivalent quality; and
- Banc One Investment Advisors or the Sub-Advisor must consider
the trading market for the specific security, taking into
account all relevant factors, including but not limited, to
whether the paper is the subject of a commercial paper program
that is administered by an
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issuing and paying agent bank and for which there exists a
dealer willing to make a market in that paper, or is
administered by a direct issuer pursuant to a direct
placement program; and
- Banc One Investment Advisors or the Sub-Advisor shall monitor
the liquidity of the 4(2) commercial paper purchased and shall
report to the Board of Trustees promptly if any such
securities are no longer determined to be liquid if such
determination causes the Fund to hold more than 15% of its net
assets in illiquid securities in order for the Board of
Trustees to consider what action, if any, should be taken on
behalf of The One Group, unless Banc One Investment Advisors
or the Sub-Advisor is able to dispose of illiquid assets in an
orderly manner in an amount that reduces the Fund's holdings
of illiquid assets to less than 15% of its net assets; and
- Banc One Investment Advisors or the Sub-Advisor shall report
to the Board of Trustees on the appropriateness of the
purchase and retention of liquid restricted securities under
these Guidelines no less frequently that quarterly.
U.S. TREASURY OBLIGATIONS
The Fund may invest in bills, notes and bonds issued by the U.S.
Treasury and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known as
Separately Traded Registered Interest and Principal Securities ("STRIPS") and
Coupon Under Book Entry Safekeeping ("CUBES").
TREASURY RECEIPTS
The Fund may purchase interests in separately traded interest and
principal component parts of U.S. Treasury obligations that are issued by banks
or brokerage firms and are created by depositing U.S. Treasury notes and U.S.
Treasury bonds into a special account at a custodian bank. Receipts include
Treasury Receipts ("TRS"), Treasury Investment Growth Receipts ("TIGRS"), and
Certificates of Accrual on Treasury Securities ("CATS").
COMMON STOCK
Common Stock represents a share of ownership in a company and usually
carries voting rights. Unlike preferred stock, dividends on common stock are not
fixed but are declared at the discretion of the issuer's board of directors.
PREFERRED STOCK
Preferred stock is a class of stock that generally pays dividends at a
specified rate and has preference over common stock in the payment of dividends
and liquidation. Preferred stock generally does not carry voting rights. As with
all equity securities, the price of preferred stock fluctuates based on changes
in a company's financial condition and on overall market and economic
conditions.
INVESTMENT COMPANY SECURITIES
The Fund may invest up to 5% of its total assets in the securities of
any one investment company, but may not own more than 3% of the securities of
any one investment company or invest more than 10% of its total assets in the
securities of other investment companies. Other investment company securities
may include securities of a money market fund of the Trust, and securities of
other investment companies for which Banc One Investment Advisors serves as
investment advisor or administrator. Because other investment companies employ
an investment advisor, such investments by the Funds may cause Shareholders to
bear duplicative fees. Banc One Investment Advisors will waive its fee
attributable to the assets of the investing fund invested in a money market fund
of the Trust and in other funds advised by Banc One Investment Advisors; and, to
the extent required by the laws of any state in which shares of the Trust are
sold, Banc One Investment Advisors will waive its fees attributable to the
assets of the Fund invested in any investment company.
CONVERTIBLE SECURITIES
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Convertible securities have characteristics similar to both fixed
income and equity securities. Convertible securities may be issued as bonds or
preferred stock. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying stock. As a result, the Fund's selection of convertible securities is
based, to a great extent, on the potential for capital appreciation that may
exist in the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and any
call provisions.
WARRANTS
Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to buy a proportionate amount of common
stock at a specified price, usually at a price that is higher than the market
price at the time of issuance of the warrant. The right may last for a period of
years or indefinitely.
ASSET-BACKED SECURITIES
Asset-backed securities consist of securities secured by company
receivables, home equity loans, truck and auto loans, leases, credit card
receivables and other securities backed by other types of receivables or other
assets. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying debt may be
refinanced or paid off prior to their maturities during periods of declining
interest rates. In that case, a portfolio manager may have to reinvest the
proceeds from the securities at a lower rate. Potential market gains on a
security subject to prepayment risk may be more limited than potential market
gains on a comparable security that is not subject to prepayment risk. Under
certain prepayment rate scenarios, the Fund may fail to recoup any premium paid
on asset-backed securities.
SHORT-TERM FUNDING AGREEMENT
The Fund may, in order to enhance yield, make limited investments in
short-term funding agreements issued by banks and highly rated U.S. insurance
companies. Short-term funding agreements issued by insurance companies are
sometimes referred to as Guaranteed Investment Contracts ("GICs"), while those
issued by banks are referred to as Bank Investment Contracts ("BICs"). Pursuant
to such agreements, the Fund makes cash contributions to a deposit account at a
bank or insurance company. The bank or insurance company then credits to the
Fund on a monthly basis guaranteed interest at either a fixed, variable or
floating rate. These contracts are general obligations of the issuing bank or
insurance company (although they may be the obligations of an insurance company
separate account) and are paid from the general assets of the issuing entity.
The Fund will purchase short-term funding agreements only from banks and
insurance companies which, at the time of purchase, are rated in one of the
three highest rating categories and have assets of $1 billion or more.
Generally, there is no active secondary market in short-term funding agreements.
Therefore, short-term funding agreements may be considered by the Funds to be
illiquid investments. To the extent that a short-term funding agreement is
determined to be illiquid, such agreements will be acquired by the Funds only
if, at the time of purchase, no more than 15% of the Fund's net assets will be
invested in short-term funding agreements and other illiquid securities.
INVESTMENT RESTRICTIONS
The following investment restrictions are FUNDAMENTAL and may only be
changed by a vote of a majority of the outstanding shares of the Fund. See
"ADDITIONAL INFORMATION -- Miscellaneous" in this Statement of Additional
Information.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities, and, if
consistent with the Fund's investment objective and policies, repurchase
agreements involving such securities) if as a result more than 5% of the total
assets of the Fund would be invested in the securities of such issuer or the
Fund would own more than 10% of the outstanding voting securities of such
issuer. This restriction applies to 75% of the Fund's assets. For purposes of
these limitations, a security is considered to be issued by the government
entity whose assets and revenues guarantee or back the security. With respect to
private activity bonds or industrial development bonds backed only by the assets
and revenues of a non-governmental user, such user would be considered the
issuer.
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2. Purchase any securities that would cause more than 25% of the total
assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in the obligations issued or
guaranteed by the U.S. government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this limitation
(i) utilities will be divided according to their services (for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry); and (ii) 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.
3. Make loans, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii) enter
into repurchase agreements; and (iii) engage in securities lending as described
in the Prospectus and in this Statement of Additional Information.
4. Purchase securities on margin, sell securities short, or participate
in a joint or joint and several basis in any securities trading account.
5. Underwrite the securities of other issuers except to the extent that
the Fund may be deemed to be an underwriter under certain securities laws in the
disposition of "restricted securities."
6. Purchase or sell commodities or commodity contracts (including
futures contracts), except that for bona fide hedging and other permissible
purposes the Fund may purchase or sell financial futures contracts.
7. Purchase participation or other direct interests in oil, gas or
mineral exploration or development programs (although investments by the Fund in
marketable securities of companies engaged in such activities are not hereby
precluded).
8. Invest in any issuer for purposes of exercising control or
management.
9. Purchase securities of other investment companies except as
permitted by the 1940 Act and rules, regulations and applicable exemptive relief
thereunder.
10. Purchase or sell real estate (however, the Fund may, to the extent
appropriate to its investment objective, purchase securities secured by real
estate or interests therein or securities issued by companies investing in real
estate or interests therein).
11. Borrow money or issue senior securities, except that the Fund
may borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets at
the time of its borrowing. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
The following investment restrictions are NON-FUNDAMENTAL except as
noted otherwise and therefore can be changed by the Board of Trustees without
prior shareholder approval.
The Fund may not:
1. Invest in illiquid securities in an amount exceeding, in the
aggregate 15% of the Fund's net assets. An illiquid security is a security which
cannot be disposed of promptly (within seven days) and in the usual course of
business without a loss, and includes repurchase agreements maturing in excess
of seven days, time deposits with a withdrawal penalty, non-negotiable
instruments and instruments for which no market exists.
2. Acquire the securities of registered open-end investment
companies or registered unit investment trusts in reliance on Section
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
The foregoing percentages apply at the time of purchase of a security.
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PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund will be calculated by dividing
the lesser of purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The calculation excludes all
securities whose maturities at the time of acquisition were one year or less.
Portfolio turnover 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 and by requirements which enable the Trust to receive certain
favorable tax treatments. Portfolio turnover will not be a limiting factor in
making portfolio decisions. Higher portfolio turnover rates will likely result
in higher transaction costs to the Fund and may result in additional tax
consequences to investors in the Fund. Portfolio Turnover for the Fund is
expected to be less than 100%.
ADDITIONAL TAX INFORMATION CONCERNING THE FUND
The Fund is treated as a separate entity for federal income tax
purposes and is not combined with The One Group's other funds. It is the policy
of the Fund to meet the requirements necessary to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). By following such policy, the Fund expects to eliminate or
reduce to a nominal amount the federal income taxes to which it may be subject.
In order to qualify as a regulated investment company, the Fund must,
among other things, (1) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies, (2)
derive less than 30% of its gross income from the sale or other disposition of
stock, securities, options, futures, forward contracts, and certain foreign
currencies (or certain options, futures, or forward contracts on foreign
currencies) held for less than three months, and (3) diversify its holdings so
that at the end of each quarter of its taxable year (i) at least 50% of the
market value of the Fund's assets is represented by cash or cash items, United
States government securities, securities of other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the value of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
United States government securities or the securities of other regulated
investment companies) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and limit the range of the Fund's investments. If the Fund qualifies as
a regulated investment company, it will not be subject to federal income tax on
the part of its income distributed to Shareholders, provided the Fund
distributes during its taxable year at least (a) 90% of its taxable net
investment income (very generally, dividends, interest, certain other income,
and the excess, if any, of net short-term capital gain over net long-term loss),
and (b) 90% of the excess of (i) its tax-exempt interest income (if any) less
(ii) certain deductions attributable to that income. The Fund intends to make
sufficient distributions to Shareholders to qualify for this special tax
treatment.
If the Fund fails to qualify as a regulated investment company
receiving special tax treatment in any taxable year, the Fund would be subject
to tax on its taxable income at corporate rates, and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, would be taxable to Shareholders as ordinary
income. In addition, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company and being accorded special tax
treatment.
Regulated investment companies that do not distribute in each calendar
year (regardless of whether they otherwise have a non-calendar taxable year) an
amount equal to 98% of their "ordinary income" (as defined) for the calendar
year, plus 98% of their capital gain net income (as defined) for the one-year
period ending on October 31 of such calendar year, plus any undistributed
amounts from the previous year are subject to a non-deductible excise tax equal
to 4% of the undistributed amounts. For purposes of the excise tax, the Fund is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year. The Fund intends to make
sufficient distributions to avoid liability for the excise tax.
Shareholders of the Fund will generally be subject to federal income
tax on distributions received from the Fund. Dividends that are attributable to
a Fund's net investment income will be taxed to shareholders as ordinary income.
Distributions of net capital gain that are designated by the Fund as capital
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gain dividends will generally be taxable to a Shareholder receiving such
distributions as long-term capital gain regardless of how long the Shareholder
has held its shares. Distributions in excess of the Fund's current and
accumulated "earnings and profits" will be treated by a Shareholder receiving
such distributions as a return of capital to the extent of such Shareholder's
basis in its Shares in the Fund, and thereafter as capital gain. A return of
capital is not taxable, but reduces a Shareholder's basis in its shares.
Shareholders not subject to tax on their income generally will not be required
to pay tax on amounts distributed to them. The sale, exchange or redemption of
Fund shares by a Shareholder may give rise to a taxable gain or loss to that
Shareholder. In general, any gain or loss realized upon a taxable disposition of
shares will be treated as long-term capital gain or loss if the Shareholder has
held the shares for more than 12 months, and otherwise as short-term capital
gain or loss. However, if a Shareholder sells shares at a loss within six months
of purchase, any loss will be disallowed for Federal income tax purposes to the
extent of any exempt-interest dividends received on such shares. The Fund may
designate a portion of its distributions of net capital gain as deriving from
capital assets held for more than one year but not more than 18 months
("mid-term gain"). The balance of such distributions, deriving from capital
assets held for more than 18 months, may be included in a Shareholder's
computation of its adjusted net capital gain. In addition, a Shareholder's gain
upon a taxable disposition of shares held for more than one year but not more
than 18 months will qualify as mid-term gain, and gain upon a taxable
disposition of shares held for more than 18 months may be included in the
Shareholders' computation of its adjusted net capital gain. It is expected that
pursuant to forthcoming regulations, the Fund will provide shareholders with
information allowing them to calculate their mid-term gains and adjusted net
capital gains.
In addition, any loss (not already disallowed as provided in the
preceding sentence) realized upon a taxable disposition of shares held for six
months or less will be treated as long-term to the extent of any long-term
capital gain distributions received by the Shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable disposition of Fund
shares will be disallowed if other Fund shares are purchased within 30 days
before or after the disposition. In such a case, the basis of the newly
purchased shares will be adjusted to reflect the disallowed loss.
Certain investment and hedging activities of the Fund, including
transactions in options, futures contracts, hedging transactions, forward
contracts, straddles, swaps, short sales, and foreign securities will be subject
to special tax rules. In a given case, these rules may accelerate income to the
Fund, defer losses to the Fund, cause adjustments in the holding periods of the
Fund's securities, convert short-term capital losses into long-term capital
losses, or otherwise affect the character of the Fund's income. These rules
could therefore affect the amount, timing and character of distributions to
Shareholders and cause differences between a Fund's book income and taxable
income. Income earned as a result of these transactions would, in general, not
be eligible for the dividends-received deduction or for treatment as
exempt-interest dividends when distributed to Shareholders. The Fund will
endeavor to make any available elections pertaining to such transactions in a
manner believed to be in the best interest of the Fund.
Certain securities purchased by the Fund (such as STRIPS, CUBES, TRS,
TIGRS, and CATS), as defined in "Details About the Fund's Investment Practices
and Policies" in the Prospectus, are sold at original issue discount and thus do
not make periodic cash interest payments. Similarly, zero-coupon bonds do not
make periodic interest payments and pay-in-kind bonds may not make such
payments. A Fund will be required to include as part of its current income for
tax purposes the imputed interest on such obligations even though the Fund has
not received any interest payments on such obligations during that period.
Because each Fund distributes substantially all of its net investment income to
its Shareholders (including such imputed interest), the Fund may have to sell
portfolio securities in order to generate the cash necessary for the required
distributions. Such sales may occur at a time when the Fund would not otherwise
have chosen to sell such securities and may result in a taxable gain or loss.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or of gross proceeds from
redemptions paid to any individual Shareholder who has provided to the Fund
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
report payments of interest or dividends. This withholding, known as backup
withholding, is not an additional tax, and any amounts withheld may be credited
against the Shareholder's ultimate U.S. tax liability.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting purchasers of Shares of a Fund of the Trust.
No attempt is made to present herein a complete explanation of the federal
income tax treatment of the Fund or its Shareholders, and this discussion is not
intended as a substitute for careful tax planning. Accordingly, prospective
purchasers of Shares of the Fund
26
<PAGE> 67
are urged to consult their tax advisors with specific reference to their own tax
situation, including the potential application of state, local and (if
applicable) foreign taxes.
VALUATION
Except as noted below, investments of the Fund in securities the
principal market for which is a securities exchange are valued at their market
values based upon the latest available sales price or, absent such a price, by
reference to the latest available bid and asked prices in the principal market
in which such securities are normally traded.
Securities the principal market for which is not a securities exchange
are valued at the mean of their latest bid and ask quotations in such principal
market. 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 Trustees of the Trust. Short-term securities are valued at either
amortized cost or original cost plus accrued interest, which approximates
current value.
The value of a foreign security is determined in its national currency
as of the close of trading on the foreign exchange or other principal market on
which it is traded, which value is then converted into its U.S. dollar
equivalent at the foreign exchange closing mid-market rate reported in the
FINANCIAL TIMES as the closing rate for that date. When an occurrence subsequent
to the time a value of a foreign security was so established is likely to have
changed the value, then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Trustees of the
Trust or their delegates.
Securities for which market quotations are readily available will be
valued on the basis of quotations provided by dealers in such securities or
furnished by a pricing service. Securities for which market quotations are not
readily available and other assets will be valued at fair value using methods
determined in good faith by Banc One Investment Advisors or the Sub-Advisor
under the supervision of the Trustees and may include yield equivalents or a
pricing matrix.
ADDITIONAL INFORMATION REGARDING THE
CALCULATION OF PER SHARE NET ASSET VALUE
The net asset value of the Fund is determined and its Fiduciary Class,
Class A, Class B and Class C Shares are priced as of the times specified in the
Fund's Prospectus. The net asset value per Share of the Fund's Fiduciary Class,
Class A, Class B and Class C Shares is calculated by determining the value of
the respective Class's proportional interest in the securities and other assets
of the Fund, less (i) such Class's proportional share of general liabilities and
(ii) the liabilities allocable only to such Class, and dividing such amount by
the number of Shares of the Class outstanding. The net asset value of a Fund's
Fiduciary Class, Class A, Class B and Class C Shares may differ from each other
due to the expense of the Distribution and Shareholders Services Plan fee
applicable to the Fund's Class A, Class B and Class C Shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
All of the classes of Shares in the Fund are sold on a continuous basis
by The One Group Services Company (the "Distributor"), and the Distributor has
agreed to use appropriate efforts to solicit all purchase orders.
Fiduciary Class Shares in the Fund may be purchased, through procedures
established by the Distributor, by institutional investors, including affiliates
of BANC ONE CORPORATION and any bank, depository institution, insurance company,
pension plan or other organization authorized to act in fiduciary, advisory,
agency, custodial or similar capacities. Fiduciary Shares are not available to
Individual Retirement Accounts.
Class B and Class C Shares may be purchased by any investor that does
not meet the purchase eligibility criteria, described above, with respect to
Fiduciary Shares. In addition to purchasing Class A, Class B and Class C Shares
directly from the Distributor, an investor may purchase Class A, Class B and
Class C Shares through a financial institution, such as a bank, savings and loan
association, insurance company (each a "Shareholder Servicing Agent") that has
established a Shareholder servicing agreement
27
<PAGE> 68
with the Distributor, or through a broker-dealer that has established a dealer
agreement with the Distributor. Questions concerning the eligibility
requirements for each class of the Trust's Shares may be directed to the
Distributor at 1-800-480-4111.
As described in the Prospectus, and in the Multiple Class Plan, under
certain circumstances, Class A Shares of a Fund may be purchased free of the
sales charge applicable to such Class A Shares. No sales charge is imposed on
Class A Shares of the Funds: (i) issued through reinvestment of dividends and
capital gains distributions; (ii) acquired through the exercise of exchange
privileges where a comparable sales charge has been paid for exchanged Shares;
(iii) purchased by officers, directors or trustees, retirees and employees (and
their spouses and immediate family members) of the Trust, of BANC ONE
CORPORATION and its subsidiaries and affiliates, of the Distributor and its
subsidiaries and affiliates, of broker-dealers who have entered into a dealer
agreement with the Trust and their subsidiaries and affiliates, or of
Sub-Advisor and such Sub-Advisor's subsidiaries and affiliates; (iv) sold to
affiliates of BANC ONE CORPORATION and certain accounts (other than Individual
Retirement Accounts) for which financial organizations, including any bank,
depository institution, insurance company, pension plan or other organization
are authorized to act in fiduciary, advisory, agency, custodial or similar
capacities, or purchased by investment advisors, financial planners or other
intermediaries who have a dealer arrangement with the Distributor, who place
trades for their own accounts or for the accounts of their clients and who
charge a management, consulting or other fee for their services, as well as
clients of such investment advisors, financial planners or other intermediaries
who place trades for their own accounts if the accounts are linked to the master
account of such investment advisor, financial planner or other intermediary; (v)
purchased with proceeds from the recent redemption of Fiduciary Class Shares of
a Fund of the Trust or acquired in an exchange of Fiduciary Class Shares of a
Fund for Class A Shares of the same Fund; (vi) purchased with proceeds from the
recent redemption of Shares of a mutual fund for which a sales charge was paid;
(vii) purchased in an Individual Retirement Account with the proceeds of a
distribution from an employee benefit plan, provided that, at the time of
distribution, the employee benefit plan had plan assets invested in a Fund of
the Trust; (viii) purchased with Trust assets; (ix) purchased in accounts as to
which a bank or broker-dealer charges an asset allocation fee, provided the bank
or broker-dealer has an agreement with the Distributor; (x) purchased in
connection with plans of reorganization of a Fund, such as mergers, asset
acquisitions and exchange offers to which a Fund is a party.
An investor relying upon any of the categories of waivers of the sales
charge must qualify for such waiver in advance of the purchase with the
Distributor or the financial institution or intermediary through which Shares
are purchased by the investor.
The waiver of the sales charge under circumstances (v), (vi), and (vii)
above applies only if the purchase is made within 60 days of the redemption and
if conditions imposed by the Distributor are met. The waiver policy with respect
to the purchase of Shares through the use of proceeds from a recent redemption
or distribution as described in clauses (v), (vi), and (vii) above will not be
continued indefinitely and may be discontinued at any time without notice.
Investors should call the Distributor at 1-800-480-4111 to determine whether
they are eligible to purchase Shares without paying a sales charge through the
use of proceeds from a recent redemption or distribution as described above, and
to confirm continued availability of these waiver policies prior to initiating
the procedures described in clauses (v), (vi), and (vii).
Fiduciary Class Shareholders of the Fund may exchange their Shares for
Class A Shares of the same Fund or for Class A Shares or Fiduciary Class Shares
of another Fund of the Trust. Class A Shareholders may exchange their Shares for
Fiduciary Class Shares of the Fund or for Fiduciary Class or Class A Shares of
another Fund of the Trust, if the Shareholder is eligible to purchase such
Shares. If a Class A Shareholder of the Fund exchanges his or her Shares within
one year of receipt of the Shares, the Shareholder will be assessed a 2%
redemption fee. The exchange privilege may be exercised only in those states
where the Shares of the Fund or such other Fund may be legally sold. All
exchanges discussed herein are made at the net asset value of the exchanged
Shares, except as provided below. The Trust does not impose a charge for
processing exchanges of Shares. If a Shareholder seeks to exchange Class A
Shares of a Fund of the Trust that does not impose a sales charge for Class A
Shares of a Fund of the Trust that does, or the Fund being exchanged into has a
higher sales charge, the Shareholder will be required to pay a sales charge in
the amount equal to the difference between the sales charge applicable to the
Fund into which the Shares are being exchanged and any sales charge previously
paid for the exchanged Shares, including any sales charges incurred on any
earlier exchanges of the Shares (unless such sales charge is otherwise waived as
provided above). The exchange of Fiduciary Class Shares for Class A Shares also
will require payment of the sales charge unless the sales charge is waived, as
provided above. If a Shareholder (no longer eligible to purchase Fiduciary
Shares) purchases Class A Shares of a Fund, the Shareholder will be subject to
Distribution and Shareholder Services Plan Fees.
28
<PAGE> 69
Class B Shareholders of a Fund may exchange their Shares for Class B
Shares of any other Fund of the Trust on the basis of the net asset value of the
exchanged Class B Shares, without the payment of any Contingent Deferred Sales
Charge that might otherwise be due upon redemption of the outstanding Class B
Shares. The newly acquired Class B Shares will be subject to the higher
Contingent Deferred Sales Charge of either the Fund from which the Shares were
exchanged or the Fund into which the Shares were exchanged. With respect to
outstanding Class B Shares as to which previous exchanges have taken place,
"higher Contingent Deferred Sales Charge" shall mean the higher of the
Contingent Deferred Sales Charge applicable to either the Fund the Shares are
exchanging into or any other Fund from which the Shares previously have been
exchanged. For purposes of computing the Contingent Deferred Sales Charge that
may be payable upon a disposition of the newly acquired Class B Shares, the
holding period for outstanding Class B Shares of the Fund from which the
exchange was made is "tacked" to the holding period of the newly acquired Class
B Shares. For purposes of calculating the holding period applicable to the newly
acquired Class B Shares, the newly acquired Class B Shares shall be deemed to
have been issued on the date of receipt of the Shareholder's order to purchase
the outstanding Class B Shares of the Fund from which the initial exchange was
made.
Class C Shareholders may not exchange their Class C Shares for shares
of any other class nor may shares of any other class be exchanged for Class C
Shares.
The Trust may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists as
determined by the Securities and Exchange Commission.
The Trust may redeem Shares involuntarily if redemption appears
appropriate in light of the Trust's responsibilities under the 1940 Act.
29
<PAGE> 70
MANAGEMENT OF THE TRUST
TRUSTEES & OFFICERS
Overall responsibility for management of the Trust rests with the Board
of Trustees of the Trust, who are elected by the Shareholders of the Trust.
There are currently six Trustees, all of whom, except John F. Finn, are not
"interested persons" of the Trust within the meaning of that term under the 1940
Act. The Trustees, in turn, elect the officers of the Trust to supervise
actively its day-to-day operations.
The Trustees of the Trust, their addresses, and principal occupations
during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE WITH THE TRUST DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter C. Marshall Trustee From November, 1993 to present,
DCI Marketing, Inc. President, DCI Marketing, Inc.;
2727 W. Good Hope Road from August, 1992 to November,
Miwaukee, WI 53209 1993, Vice President-Finance and
Age: 56 President-Finance and Treasurer,
DCI Marketing, Inc.
Charles I. Post Trustee From July, 1986 to present, has
7615 4th Avenue West been self-employed as a consultant.
Bradenton, FL 34209
Age: 70
John S. Randall Trustee Since 1972, has been self-employed
1840 North Prospect Ave. as a management consultant.
Apt. 419
Milwaukee, WI 53202
Age: 85
Frederick W. Ruebeck Trustee From June, 1988 to present, has
Eli Lilly & Company been Director of Investments, Eli
Lilly Corporate Center Lilly and Company.
307 East McCarty
Indianapolis, IN 46285
Age: 58
Robert A. Oden, Jr. Trustee From 1995 to present, President,
Office of the President Kenyon College; from 1989 to
Ransom Hall 1995, Headmaster, The Hotchkiss
Kenyon College School.
Gambier, OH 43022
Age: 51
John F. Finn Trustee Since 1975, President of
Gardner, President Inc., (Wholesale Distributor
Gardner, Inc. to the outdoor power equipment1150
Chaesepake Avenue industry).
Columbus, Ohio 43212
Age: 50
</TABLE>
The Trustees of the Trust receive fees and expenses for each meeting of
the Board of Trustees attended. No officer or employee of the Distributor
currently acts as a Trustee of the Trust.
The Compensation Table below sets forth the total compensation to the
Trustees from the Trust and the operational funds of The One Group for the
Trust's fiscal year ended June 30, 1997.
30
<PAGE> 71
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS ESTIMATED TOTAL
AGGREGATE ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART BENEFITS FROM
NAME OF FROM THE OF FUND UPON THE FUND
PERSON, POSITION TRUST EXPENSES RETIREMENT COMPLEX(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter C. Marshall, $36,000 N/A N/A $39,000
Chairman
Charles I. Post, $33,500 N/A N/A $36,500
Trustee
John S. Randall, $33,500 N/A N/A $36,500
Trustee
Frederick W. Ruebeck, $33,500 N/A N/A $36,500
Trustee
</TABLE>
1 Figures are for the Trust's fiscal year ended June 30, 1997.
2 "Fund Complex" comprises the 33 operational funds of The One Group as
well as the 4 funds of The One Group(R) Investment Trust at June 30,
1997.
31
<PAGE> 72
The officers of the Trust receive no compensation directly from the
Trust for performing the duties of their offices. The officers of the Trust,
their addresses, and principal occupations during the past five years are shown
below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING PAST 5 YEARS
- ------------------------------------ ----------------------------------------------
<S> <C> <C>
Mark S. Redman President, From November, 1997 to present,
The One Group Services Co. Assistant Secretary President, The One Group Services
3435 Stelzer Road Company; from June 1995, to
Columbus, Ohio 43219 November 1997, Officer, The One
Group Services Company;
from February 1989 to present,
employee of BISYS
Fund Services, Inc. (FKA Winsbury
Company).
William J. Tomko Treasurer From April, 1987 to present, Chief
BISYS Fund Services, Inc. Operating, Officer, BISYS
3435 Stelzer Road Services, Inc.
Columbus, Ohio 43219
Charles L. Booth Secretary From April, 1988 to present,
BISYS Fund Services, Inc. Chief Compliance Officer, and
3435 Stelzer Road Vice President Fund Administration,
Columbus, OH 43219 BISYS Fund Services, Inc.
Alaina J. Metz Assistant Secretary From June 1995 to present,
BISYS Fund Services, Inc. Chief Administrator,
3435 Stelzer Road Administration and Regulatory
Columbus, Ohio 43219 Services, BISYS Fund Services,
Inc.; from May 1989 - June 1995,
Supervisor, Mutual Fund Legal
Department, Alliance Capital Management.
</TABLE>
32
<PAGE> 73
INVESTMENT ADVISOR
Banc One Investment Advisors Corporation
Banc One Investment Advisors provides investment advisory services to
the Fund. Banc One Investment Advisors continuously reviews and supervises the
Fund's investment program, subject to the supervision of, and policies
established by, the Trustees of the Trust. The Trust's Shares are not sponsored,
endorsed or guaranteed by, and do not constitute obligations or deposits of any
bank affiliate of Banc One Investment Advisors and are not insured by the FDIC
or issued or guaranteed by the U.S. government or any of its agencies.
Banc One Investment Advisors is an indirect, wholly-owned subsidiary of
BANC ONE CORPORATION, a bank holding company incorporated in the state of Ohio.
BANC ONE CORPORATION has affiliate banking organizations in Arizona, Colorado,
Illinois, Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas, Utah, West
Virginia and Wisconsin. In addition, BANC ONE CORPORATION has several affiliates
that engage in data processing, venture capital, investment and merchant
banking, and other diversified services including trust management, investment
management, brokerage, equipment leasing, mortgage banking, consumer finance,
and insurance. On a consolidated basis, BANC ONE CORPORATION had assets of over
$115 billion as of December 31, 1997.
Banc One Investment Advisors represents a consolidation of the
investment advisory staffs of a number of bank affiliates of BANC ONE
CORPORATION, which have considerable experience in the management of open-end
management investment company portfolios, including The One Group (formerly, the
Helmsman Fund) since 1985.
All investment advisory services are provided to the Fund by Banc One
Investment Advisors pursuant to an investment advisory agreement dated January
11, 1993 (the "Investment Advisory Agreement"). The Investment Advisory
Agreement (and the Sub-Investment Advisory Agreement dated May 21, 1998
described immediately following, collectively, the "Advisory and Sub-Advisory
Agreements") will continue in effect from year to year, if such continuance is
approved at least annually by the Trust's Board of Trustees or by vote of a
majority of the outstanding Shares of such Fund (as defined under "ADDITIONAL
INFORMATION--Miscellaneous" in this Statement of Additional Information), and a
majority of the Trustees who are not parties to the respective investment
advisory agreements or interested persons (as defined in the Investment Company
Act of 1940) of any party to the respective investment advisory agreements by
votes cast in person at a meeting called for such purpose. The Advisory
Agreement was renewed by the Trust's Board of Trustees at their quarterly
meeting on August 21, 1997. The Advisory and Sub-Advisory Agreements may be
terminated at any time on 60 days' written notice without penalty by the
Trustees, by vote of a majority of the outstanding Shares of that Fund, or by
the Fund's Advisor or Sub-Advisor as the case may be. The Advisory and
Sub-Advisory Agreements also terminate automatically in the event of any
assignment, as defined in the 1940 Act.
The Advisory and Sub-Advisory Agreements each provide that the
respective Advisor or Sub-Advisor shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with the
performance of the respective investment advisory agreements, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of Banc One Investment Advisors or
Sub-Advisor in the performance of its duties, or from reckless disregard by it
of its duties and obligations thereunder.
For its services, Banc One Investment Advisors is entitled to a fee
equal to 0.75% of the average daily net assets of the Fund. Banc One Investment
Advisors has voluntarily agreed to waive all or part of its fees.
This fee waiver is voluntary and may be terminated at any time.
Banc One High Yield Partners, LLC
Banc One High Yield Partners, LLC serves as investment Sub-Advisor to
the Fund pursuant to an agreement with Banc One Investment Advisors. The
Sub-Advisor was formed in June, 1998 to provide investment advisory services
related to high yield, high risk assets to various clients, including the Fund.
The Sub-Advisor is controlled by Banc One Investment Advisors and Pacholder
Associates, Inc., an investment advisory firm which specializes in high yield,
high risk, fixed income securities. Neither Banc One Investment Advisors,
Pacholder Associates, Inc. or the Sub-Advisor have experience in managing an
open-end investment company investing primarily in high yield, high risk bonds.
33
<PAGE> 74
For its services, the Sub-Advisor is entitled to a fee, which is
calculated daily and paid monthly by Banc One Investment Advisors, equal to .70%
of the Fund's average daily net assets. The Sub-Advisor has voluntarily agreed
to waive all or part of its fees. This fee waiver is voluntary and may be
terminated at any time.
GLASS-STEAGALL ACT
In 1971 the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a 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 advisor, 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 Advisors 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 advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act. In addition, state securities laws on this issue
may differ from the interpretations of federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
In the Investment Advisory Agreement with the Trust, Banc One
Investment Advisors has represented to the Trust that it possesses the legal
authority to perform the investment advisory services contemplated by the
agreement and described in the Prospectuses and this Statement of Additional
Information without violation of applicable statutes and regulations. 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 Banc One Investment Advisors from continuing to
perform such services for the Trust. Depending upon the nature of any changes in
the services which could be provided by Banc One Investment Advisors, the Board
of Trustees of the Trust would review the Trust's relationship with Banc One
Investment Advisors and consider taking all action necessary in the
circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of BANC ONE CORPORATION subsidiary banks or
their correspondent banks in connection with customer purchases of Shares of the
Trust, these 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 Trust's method of operations would affect its net asset value per
Share or result in financial losses to any customer.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory and Sub-Advisory Agreements, Banc One
Investment Advisors and the Sub-Advisor determine, subject to the general
supervision of the Board of Trustees of the Trust and in accordance with the
Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund and which brokers are to be eligible to execute
its portfolio transactions. Purchases and sales of portfolio securities usually
are principal transactions in which portfolio securities are purchased directly
from the issuer or from an underwriter or market maker for the securities.
Purchases from underwriters of portfolio securities generally include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers may include the spread between the bid and
asked price. Transactions on stock exchanges (other than certain foreign 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 Trust, where possible,
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better price and execution are available
elsewhere. While the Banc One Investment
34
<PAGE> 75
Advisors generally seeks competitive spreads or commissions, the Trust may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by Banc One Investment Advisors and the Sub-Advisor with
respect to the Funds each serves based on 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, dealers who provide supplemental investment research to
Banc One Investment Advisors or the Sub-Advisor may receive orders for
transactions by the Trust, even if such dealers charge commissions in excess of
the lowest rates available, provided such commissions are reasonable in light of
the value of brokerage and research services received. Such research services
may include, but are not be limited to, analysis and reports concerning economic
factors and trends, industries, specific securities, and portfolio strategies.
Information so received is in addition to and not in lieu of services required
to be performed by Banc One Investment Advisors or the Sub-Advisor and does not
reduce the advisory fees payable to Banc One Investment Advisors or the
Sub-Advisor. Such information may be useful to Banc One Investment Advisors or
the Sub-Advisor in serving both the Trust and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to Banc One Investment Advisors or the Sub-Advisor in carrying out
their obligations to the Trust. In the last fiscal year, Banc One Investment
Advisors directed brokerage commissions to brokers who provided research
services to Banc One Investment Advisors. Total compensation paid to such
brokers amounted to $15,142,680 for the fiscal year ended June 30, 1997.
The Fund will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with its Advisors or their
affiliates except as may be permitted under the 1940 Act, and will not give
preference to correspondents of BANC ONE CORPORATION subsidiary banks with
respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those for
the other Funds of the Trust or any other investment company or account managed
by Banc One Investment Advisors or the Sub-Advisor. Any such other investment
company or account may also invest in the same securities as the Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and another Fund of the Trust, investment company or account,
the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Banc One Investment Advisors or the
Sub-Advisor believes to be equitable to the Fund and such other Fund of the
Trust, investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained by the Fund. To the extent permitted by law, Banc
One Investment Advisors and the Sub-Advisor may aggregate the securities to be
sold or purchased by it for the Fund with those to be sold or purchased by it
for other Funds of the Trust or for other investment companies or accounts in
order to obtain best execution. As provided by the Investment Advisory and
Sub-Advisory Agreements, in making investment recommendations for the Trust,
Banc One Investment Advisors and the Sub-Advisor will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Trust is a customer of Banc One Investment Advisors or the Sub-Advisor or
their parents or subsidiaries or affiliates and, in dealing with its commercial
customers, Banc One Investment Advisors and the Sub-Advisor and their respective
parent, subsidiaries, and affiliates will not inquire or take into consideration
whether securities of such customers are held by the Trust.
ADMINISTRATOR
The One Group Services Company serves as Administrator (the
"Administrator") to the Fund pursuant to a Management and Administration
Agreement with the Trust (the "Administration Agreement"). The Board of Trustees
of the Trust approved The One Group Services Company as the sole Administrator
for each Fund of the Trust beginning December 1, 1995. The Administrator assists
in supervising all operations of each Fund to which it serves as Administrator
(other than those performed under the respective investment advisory agreements
and Custodian and Transfer Agency Agreements for that Fund).
Under the Administration Agreement, the Administrator has agreed to
price the portfolio securities of the Fund and to compute the net asset value
and net income of the Fund on a daily basis, to maintain office facilities for
the Trust, to maintain the Fund's financial accounts and records, and to furnish
the Trust statistical and research data, data processing, clerical, accounting,
and bookkeeping services, and certain other services required by the Trust. The
Administrator prepares annual and semi-annual reports to the Securities and
Exchange Commission, prepares federal and State tax returns, prepares filings
with State
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<PAGE> 76
securities commissions, and generally assists in all aspects of the Trust's
operations other than those performed under the investment advisory agreements,
and Custodian and Transfer Agency Agreements. Under the Administration
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder. For its services, the Administrator receives a fee
based on the total assets of the Trust. For the first 1.5 billion of Trust
assets, the Administrator receives an annual fee of .20% of each Fund of the
Trust's average daily net assets. The annual rate declines to .18% on assets up
to $2 billion, and to .16% when assets exceed $2 billion. The fee is calculated
daily and paid monthly. Some of the Funds of the Trust are not included in the
calculations.
Banc One Investment Advisors also serves as Sub-Administrator to the
Fund, pursuant to an agreement between the Administrator and Banc One Investment
Advisors. Pursuant to this agreement, Banc One Investment Advisors performs many
of the Administrator's duties, for which Banc One Investment Advisors receives a
fee paid by the Administrator.
Unless sooner terminated, the Administration Agreement between the
Trust and The One Group Services Company will continue in effect through
November 30, 1998. The Administration Agreement thereafter shall be renewed
automatically for successive one year terms, unless written notice not to renew
is given by the non-renewing party to the other party at least sixty days prior
to the expiration of the then-current term. The Administration Agreement will be
reviewed and ratified at least annually by the Trust's Board of Trustees,
provided that the Administration Agreement is also reviewed and ratified by the
majority of the Trust's Trustees who are not parties to the Administration
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Administration Agreement, by vote cast in person at a meeting called for the
purpose of reviewing and ratifying the Administration Agreement. The
Administration Agreement is terminable with respect to the Fund only upon mutual
agreement of the parties to the Administration Agreement and for cause (as
defined in the Administration Agreement) by the party alleging cause, on not
less than sixty days' notice by the Trust's Board of Trustees or by The One
Group Services Company.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
the Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
DISTRIBUTOR
The One Group Services Company serves as Distributor to the Fund
pursuant to its Distribution Agreement with the Trust (the "Distribution
Agreement"). The Board of Trustees of the Trust approved The One Group Services
Company as the sole Distributor beginning November 1, 1995. Unless otherwise
terminated, the Distribution Agreement will continue in effect until October
31, 1998 and will continue from year to year if approved at least annually (i)
by the Trust's Board of Trustees or by the vote of a majority of the outstanding
Shares of the Funds (see "ADDITIONAL INFORMATION-- Miscellaneous," in this
Statement of Additional Information) that are parties to the Distribution
Agreement, and (ii) by the vote of a majority of the Trustees of the Trust who
are not parties to the Distribution Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The agreement may be terminated in the event of its assignment, as
defined in the 1940 Act. The One Group Services Company is a broker-dealer
registered with the Securities and Exchange Commission, and is a member of the
National Association of Securities Dealers, Inc.
DISTRIBUTION PLAN
The operation and fees with respect to Class A Shares, Class B Shares,
Class C Shares, and Service Class Shares of the Trust payable under the Trust's
Distribution and Shareholder Services Plans, to which Class A Shares, Class B
Shares, Class C Shares, and Service Class Shares of each Fund of the Trust are
subject, are described in each such Fund's Prospectuses and in the Multiple
Class Plan.
The Distribution and Shareholder Services Plan with respect to Class A
Shares (the "Distribution Plan") was initially approved on July 28, 1989 by the
Trust's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Distribution Plan (the "Independent
Trustees"). The Distribution Plan originally applied to the single class of
Shares of each Fund of the Trust that existed prior to the
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<PAGE> 77
offering of the Funds' Shares as five separate classes. An amendment to the
Distribution Plan was approved by the Independent Trustees on October 21, 1991,
and became effective on February 7, 1992. Such amendment limited fees under the
Distribution Plan only to the Class A Shares of each Fund. The Distribution Plan
was amended again on February 11, 1993 in order to make Retirement Class Shares
(now the Service Class Shares) subject to distribution fees. The Distribution
Plan was further amended on February 29, 1996, to eliminate certain "defensive"
provisions of the Distribution Plan. A Distribution and Shareholder Services
Plan (the "CDSC Plan") for Class B and Class C Shares was initially approved on
August 12, 1993 by the Independent Trustees. The CDSC Distribution Plan was
re-executed on December 13, 1995 and amended on February 20, 1997. Prior to
February 7, 1992, distribution fees were waived with respect to every Fund of
the Trust except the U.S. Treasury Securities Money Market Fund and the Prime
Money Market Fund.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
and CDSC Plan may be terminated with respect to the Class A Shares, Class B
Shares, Class C Shares or Service Class Shares of any Fund by a vote of a
majority of the Independent Trustees, or by a vote of a majority of the
outstanding Class A Shares, Class B Shares, Class C Shares or Service Class
Shares, respectively, of that Fund. The Distribution Plan and CDSC Plan may be
amended by vote of the Trust's Board of Trustees, including a majority of the
Independent Trustees, cast in person at a meeting called for such purpose,
except that any change in the Distribution Plan or Class B Distribution Plan
that would materially increase the distribution fee with respect to the Class A
Shares, Class B Shares, Class C Shares or Service Class Shares of a Fund
requires the approval of that Fund's Class A, Class B, Class C or Service Class
Shareholders, respectively. The Trust's Board of Trustees will review on a
quarterly and annual basis written reports of the amounts received and expended
under the Distribution Plan (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plan) indicating the purposes for which such expenditures
were made.
CUSTODIAN AND TRANSFER AGENT
Cash and securities owned by the Fund are held by State Street Bank and
Trust Company ("State Street") as Custodian. State Street serves as Custodian
pursuant to a Custodian Agreement with the Trust (the "Custodian Agreement").
Under the Custodian Agreement, State Street (i) maintains a separate account or
accounts in the name of each Fund of the Trust; (ii) makes receipts and
disbursements of money on behalf of the Fund; (iii) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities; (iv) responds to correspondence from security brokers and others
relating to its duties; and (v) makes periodic reports to the Trust's Board of
Trustees concerning the Trust's operations. State Street may, at its own
expense, open and maintain a sub-custody account or accounts on behalf of the
Trust, provided that State Street shall remain liable for the performance of all
of its duties under the Custodian Agreement.
Bank One Trust Company, N.A. serves as Sub-Custodian in connection with
the Trust's securities lending activities, pursuant to an agreement between
State Street and Bank One Trust Company. Bank One Trust Company receives a fee
paid by the Trust.
Rules adopted under the 1940 Act permit the Trust to maintain its
securities and cash in the custody of certain eligible banks and securities
depositories.
State Street Bank & Trust ("State Street") serves as Transfer Agent and
Dividend Disbursing Agent for the Fund pursuant to Transfer Agency Agreements
with the Trust (the "Transfer Agency Agreement"). Under the Transfer Agency
Agreements, State Street has agreed (i) to issue and redeem Shares of the Trust;
(ii) to address and mail all communications by the Trust to its Shareholders,
including reports to Shareholders, dividend and distribution notices, and proxy
material for its meetings of Shareholders; (iii) to respond to correspondence or
inquiries by Shareholders and others relating to its duties; (iv) to maintain
Shareholder accounts and certain sub-accounts; and (v) to make periodic reports
to the Trust's Board of Trustees concerning the Trust's operations.
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<PAGE> 78
EXPERTS
The law firm of Ropes & Gray, One Franklin Square, 1301 K Street, N.W.,
Suite 800 East, Washington, D.C. 20005 is counsel to the Trust. From time to
time, Ropes & Gray have rendered legal services to BANC ONE CORPORATION and its
subsidiary banks.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Trust is a Massachusetts Business Trust. The Trust's Declaration of
Trust was filed with the Secretary of State of the Commonwealth of Massachusetts
on May 23, 1985 and authorizes the Board of Trustees to issue an unlimited
number of Shares, which are units of beneficial interest, without par value. The
Trust's Declaration of Trust authorizes the Board of Trustees to establish one
or more series of Shares of the Trust, and to classify or reclassify any series
into one or more classes by setting or changing in any one or more respects the
preferences, designations, conversion, or other rights, restrictions, or
limitations as to dividends, conditions of redemption, qualifications, or other
terms applicable to the Shares of such class, subject to those matters expressly
provided for in the Declaration of Trust, as amended, with respect to the Shares
of each series of the Trust. The Trust presently includes 40 series of Shares,
which represent interests in the Prime Money Market Fund, the U.S. Treasury
Securities Money Market Fund, the Municipal Money Market Fund, the Ohio
Municipal Money Market Fund, the Income Equity Fund, the Disciplined Value Fund,
the Growth Opportunities Fund, the Value Growth Fund, the Small Capitalization
Fund, the Large Company Value Fund, the Large Company Growth Fund, the
International Equity Index Fund, the Equity Index Fund, the Asset Allocation
Fund, the Income Bond Fund, the Limited Volatility Bond Fund, the Intermediate
Bond Fund, the Government Bond Fund, the Ultra Short-Term Income Fund, the High
Yield Bond Fund, the Investor Growth Fund, the Investor Growth & Income Fund,
the Investor Aggressive Growth Fund, the Investor Fixed Income Fund, the
Investor Conservative Growth Fund, the Investor Balanced Fund, the Municipal
Income Fund, the Intermediate Tax-Free Bond Fund, the Ohio Municipal Bond Fund,
the Texas Tax-Free Bond Fund, the West Virginia Municipal Bond Fund, the
Kentucky Municipal Bond Fund, the Louisiana Municipal Bond Fund, the Arizona
Municipal Bond Fund, the Treasury Money Market Fund, the Treasury Only Money
Market Fund, the Government Money Market Fund, the Tax Exempt Money Market Fund,
the Institutional Prime Money Market Fund and the Treasury and Agency Fund. The
Funds of the Trust (other than the Institutional Money Market Funds, the U.S.
Treasury Securities Money Market Fund, the Prime Money Market Fund, the
Municipal Money Market Fund and the Ohio Municipal Money Market Fund) offer
Shares in four separate classes: Fiduciary Shares, Class A Shares, Class B and
Class C Shares. The U.S. Treasury Securities Money Market Fund and the Prime
Money Market Fund offer Fiduciary Class Shares, Class A Shares, Class B Shares,
Class C Shares, and Service Class Shares. The Institutional Money Market Funds
offer only Fiduciary Class Shares. The Municipal Money Market Fund and the Ohio
Municipal Money Market Funds offer Fiduciary Class, Class A and Class C Shares.
See the relevant Prospectus for those Funds for more details.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board may grant in its discretion. When
issued for payment as described in the Prospectus and this Statement of
Additional Information, the Trust's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Trust,
Shares of the Fund are entitled to receive the assets available for distribution
belonging to the Fund, and a proportionate distribution, based upon the relative
asset values of the respective Funds of the Trust, of any general assets not
belonging to any particular Fund of the Trust which are available for
distribution.
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 Trust 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 of the Trust affected by the matter. For purposes of determining
whether the approval of a majority of the outstanding Shares of a Fund of the
Trust will be required in connection with a matter, a Fund of the Trust will be
deemed to be affected by a matter unless it is clear that the interests of each
Fund of the Trust 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 the 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 Trustees may be effectively acted upon by
Shareholders of the Trust voting without regard to series.
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Class A Shares, Class B Shares, and Class C Shares of a Fund have
exclusive voting rights with respect to matters pertaining to the Fund's
Distribution Plan.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, holders of units of beneficial interest in a
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, the Trust's Declaration of
Trust provides that Shareholders shall not be subject to any personal liability
for the obligations of the Trust, and that every written agreement, obligation,
instrument, or undertaking made by the Trust shall contain a provision to the
effect that the Shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any Shareholder held personally liable solely by reason of his being or having
been a Shareholder. The Declaration of Trust also provides that the Trust shall,
upon request, assume the defense of any claim made against any Shareholder for
any act or obligation of the Trust, and shall satisfy any judgment thereon.
Thus, the risk of a Shareholder incurring financial loss on account of
Shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of the Trust shall be personally liable in connection with the
administration or preservation of the assets of the trust or the conduct of the
Trust's business; nor shall any Trustee, officer, or agent be personally liable
to any person for any action or failure to act except for his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties. The
Declaration of Trust also provides that all persons having any claim against the
Trustees or the Trust shall look solely to the assets of the trust for payment.
PERFORMANCE
From time to time, the Fund may advertise yield, total return and/or
distribution rate. These figures will be based on historical earnings and are
not intended to indicate future performance. The yield of the Fund refers to the
annualized income generated by an investment in the Fund over a specified 30-day
period. The yield is calculated by assuming that the income generated by the
investment during that period is generated over a one-year period and is shown
as a percentage of the investment.
Total return is the change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects an actual rate of return over a stated period
of time. An average annual total return is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results.
The distribution rate is computed by dividing the total amount of the
dividends per share paid out during the past period by the maximum offering
price or month-end net asset value depending on the class of the Fund. This
figure is then "annualized" (multiplied by 365 days and divided by the
applicable number of days in the period). Funds with a front-end sales charge
would incorporate the offering price into the distribution yield in place of
month-end net asset value.
Distribution rate is a measure of the level of income paid out in cash
to Shareholders over a specified period. It differs from yield and total return
and is not intended to be a complete measure of performance. Furthermore, the
distribution rate may include return of principal and/or capital gains. Total
return is the change in value of a hypothetical investment over a given period
assuming reinvestment of dividends and capital gain distributions. The yield
refers to the cumulative 30-day rolling net investment income, divided by
maximum offering price and multiplied by average shares outstanding during this
period.
CALCULATION OF PERFORMANCE DATA
Performance information showing the Fund's total return and/or 30-day
yield with respect to a particular class may be presented from time to time in
advertising and sales literature. A 30-day yield is calculated by dividing the
net investment income per-share earned during the 30-day base period by the
maximum offering price per share on the last day of the period, according to the
following formula:
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<PAGE> 80
a-b
------
30-Day Yield = 2[(cd +1)6-1]
In the above formula, "a" represents dividends and interest earned by a
particular class during the 30-day base period; "b" represents expenses accrued
to a particular class for the 30-day base period (net of reimbursements); "c"
represents the average daily number of Shares of a particular class outstanding
during the 30-day base period that were entitled to receive dividends; and "d"
represents the maximum offering price per share of a particular class on the
last day of the 30-day base period.
The Fund's respective cumulative total return and average annual total
return was determined by calculating the change in the value of a hypothetical
$1,000 investment in a particular class of the Fund for each of the periods
shown. Cumulative total return for a particular class of the Fund is computed by
determining the rate of return over the applicable period that would equate the
initial amount invested to the ending redeemable value of the investment. The
cumulative return is calculated as the total dollar increase or decrease in the
value of an account assuming reinvestment of all distributions divided by the
original initial investment. The average annual return for a particular class of
the Fund is computed by determining the average annual compounded rate of return
over the applicable period that would equate the initial amount invested to the
ending redeemable value of the investment. The ending redeemable value includes
dividends and capital gain distributions reinvested at net asset value. The
resulting percentages indicated the positive or negative investment results that
an investor would have experienced from changes in share price and reinvestment
of dividends and capital gains distributions.
Performance information showing the Fund's and/or particular Class's
distribution rate may be presented from time to time in advertising and sales
literature. The distribution rate is calculated as follows:
distribution yield = a/(b) x 365
-----------
c
In the formula, "a" represents dividends distributed by a particular
class during that period; "b" represents month end offer price or net asset
value for a particular class; "c" represents the number of days in the period
being calculated. "365" is the number of days in a year, used to annualize the
distribution yield.
Performance will fluctuate from time to time and is not necessarily
representative of future results. Accordingly, the Fund's performance may not
provide for comparison with bank deposits or other investments that pay a fixed
return for a stated period of time. Performance is a function of the Fund's
quality, composition, and maturity, as well as expenses allocated to the Fund.
Fees imposed upon customer accounts at a bank, with regard to Fiduciary Class
Shares, or a Participating Organization, with regard to Class A and Class B
Shares, will reduce a Fund's effective yield to customers.
In addition, the performance of each class of the Fund may from time to
time be compared to that of other mutual funds tracked by mutual fund rating
services, to that of broad groups of comparable mutual funds or to that of
unmanaged indices that may assume investment of dividends but do not reflect
deductions for administrative and management costs. Further, the performance of
each class of the Fund may be compared to other funds or to relevant indices
that may calculate total return without reflecting sales charges; in which case,
the Fund may advertise its total return in the same manner. If reflected, sales
charges would reduce these total return calculations.
Statistical and performance information compiled and maintained by CDA
Technologies, Inc. and Interactive Data Corporation may also be used. CDA is a
performance evaluation service that maintains a statistical data base of
performance, as reported by a diverse universe of independently-managed mutual
funds. Interactive Data Corporation is a statistical access service that
maintains a data base of various industry indicators, such as historical and
current price/earning information and individual stock and fixed income price
and return information.
Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H. 15), may also be used. Also current rate
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information on municipal debt obligations of various durations, as reported
daily by the Bond Buyer, may also be used. The BOND BUYER is published daily and
is an industry-accepted source for current municipal bond market information.
Comparative information on the Consumer Price Index may also be
included. This Index, as prepared by the U.S. Bureau of Labor Statistics, is
the most commonly used measure of inflation. It indicates the cost fluctuations
of a representative group of consumer goods. It does not represent a return on
investment.
The Fund may quote actual total return performance from time to time in
advertising and other types of literature compared to results reported by the
Dow Jones Industrial Average.
The Dow Jones Industrial Average is an industry-accepted unmanaged index
of generally conservative securities used for measuring general market
performance. The performance reported will reflect the reinvestment of all
distributions on a quarterly basis and market price fluctuations. The index does
not take into account any brokerage commissions or other fees. Comparative
information on the Consumer Price Index may also be included.
The Fund may also promote the yield and/or total return performance and
use comparative performance information computed by and available from certain
industry and general market research and publications, such as Lipper Analytical
Services, Inc.; it may also use indices such as the Standard & Poor's 400
Composite Stock Index, the Standard & Poor's 500 Composite Stock Index, the
Standard & Poor's 600 Composite Stock Index, the Russell 2000, or the Morgan
Stanley International European, Asian and Far East Gross Domestic Product Index
for performance comparison. Statistical and performance information compiled and
maintained by CDA Technologies, Inc. and Interactive Data Corporation may also
be used.
The Fund may quote actual yield and/or total return performance in
advertising and other types of literature compared to indices or averages of
alternative financial products available to prospective investors. The
performance comparisons may include the average return of various bank
instruments, some of which may carry certain return guarantees offered by
leading banks and thrifts as monitored by BANK RATE MONITOR, and those of
corporate bond and government security price indices of various durations.
Comparative information on the Consumer Price Index may also be included.
The Fund may also use comparative performance information computed by
and available from certain industry and general market research and
publications, as well as statistical and performance information, compiled and
maintained by CDA Technologies, Inc. and Interactive Data-Corporation.
The Fund may also use current interest rate and yield information on
government debt obligations of various durations, as reported weekly by the
Federal Reserve (Bulletin H. 15). In addition, current rate information on
municipal debt obligations of various durations, as reported daily by the Bond
Buyer, may also be used.
MISCELLANEOUS
The Trust is not required to hold a meeting of Shareholders for the
purpose of electing Trustees except that (i) the Trust is required to hold a
Shareholders' meeting for the election of Trustees at such time as less than a
majority of the Trustees holding office have been elected by Shareholders and
(ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds
of the Trustees holding office have been elected by the Shareholders, that
vacancy may only be filled by a vote of the Shareholders. In addition, Trustees
may be removed from office by a written consent signed by the holders of Shares
representing two-thirds of the outstanding Shares of the Trust at a meeting duly
called for the purpose, which meeting shall be held upon the written request of
the holders of Shares representing not less than 20% of the outstanding Shares
of the Trust. Except as set forth above, the Trustees may continue to hold
office and may appoint successor Trustees.
As used in the Trust's Prospectuses and in this Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
the Trust 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 payments derived from any reinvestment of such
proceeds, and any general assets of the Trust not readily identified
as belonging to a particular Fund that are allocated to that Fund by the Trust's
Board of Trustees. The Board of Trustees may allocate such general assets in
any manner it deems fair
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and equitable. It is anticipated that the factor that will be used by the Board
of Trustees in making allocations of general assets to particular Funds will be
the relative net asset values of the respective Funds at the time of allocation.
Assets belonging to a particular Fund are charged with the direct liabilities
and expenses in respect of that Fund, and with a share of the general
liabilities and expenses of the Trust not readily identified as belonging to a
particular Fund that are allocated to that Fund in proportion to the relative
net asset values of the respective Funds at the time of allocation. The timing
of allocations of general assets and general liabilities and expenses of the
Trust to particular Funds will be determined the Board of Trustees of the Trust
and will be in accordance with generally accepted accounting principles.
Determinations by the Board of Trustees of the Trust 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 a particular Fund are
conclusive. For information regarding the allocations of Class Expenses to
particular classes of a Fund, see the respective Prospectus of the Fund under
"MANAGEMENT-Expenses."
As used in the Trust's Prospectuses and in this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Trust a
particular Fund, or a particular class of Shares of a Fund, means the
affirmative vote of the lesser of (a) more than 50% of the outstanding Shares
of the Trust, such Fund, or such class of Shares of such Fund, or (b) 67% or
more of the Shares of the Trust, such Fund, or such class of Shares of such
Fund present at a meeting at which the holders of more than 50% of the
outstanding Shares of the Trust, such Fund, or such class of Shares of such
Fund are represented in person or by proxy.
The Trust is registered with the Securities and Exchange Commission as a
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Trust.
The Prospectus and this Statement of Additional Information omit certain
of the information contained in the Registration Statement filed with the
Securities and Exchange 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 Statement of Additional Information.
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Registration Statement
of The One Group(R)
on Form N-1A
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Because the One Group High Yield Bond Fund is a series without assets
or an operating history, there are no financial statements for the
Fund.
(b) Exhibits:
(1) Amended and Restated Declaration of Trust is incorporated by
reference to Exhibit (1) to Post-Effective Amendment No. 39
(filed August 16, 1996) to Registrant's Registration Statement
on Form N-1A.
(2) Code of Regulations as amended and restated July 26, 1990 is
incorporated by reference to Exhibit (2) to Post-Effective
Amendment No. 39 (filed August 16, 1996) to Registrant's
Registration Statement on Form N-1A.
(3) None.
(4) None.
(5)(a) Investment Advisory Agreement dated January 11, 1993 between
Registrant and Banc One Investment Advisors Corporation is
incorporated by reference to Exhibit 5(a) to Post-Effective
Amendment No. 27 (filed March l7, l993) to Registrant's
Registration Statement on Form N-1A.
(5)(b) Amended and Restated Schedule A to the Investment Advisory
Agreement between Registrant and Banc One Investment Advisors
Corporation dated May 21, 1998 is incorporated by reference to
Exhibit (6)(b) to Registrant's Registration Statement on Form
N-14 (filed on May 29, 1998).
(5)(c) Sub-Investment Advisory Agreement dated October 1, 1996
between Banc One Investment Advisors Corporation and
Independence International Associates, Inc. is incorporated by
reference to Exhibit (5)(c) to Post-Effective Amendment No. 42
(filed June 18, 1997) to the Registrant's Registration
Statement on Form N-1A.
(5)(d) Form of Sub-Investment Advisory Agreement between Banc One
Investment Advisors Corporation and Banc One High Yield
Partners, LLC is incorporated by reference to Exhibit (6)(d)
to Registrant's Registration Statement on Form N-14 (filed on
May 29, 1998).
(6)(a) Re-executed Distribution Agreement dated December 13, 1995
between Registrant and The One Group Services Company is
incorporated by reference to Exhibit (7)(c) to Registrant's
Registration Statement on Form N-14 (filed January 19, 1996).
(6)(b) Revised Schedules A-D to the Distribution Agreement between
the Registrant and The One Group Services Company are
incorporated by reference to Exhibit (6)(b) to Post-
<PAGE> 84
Effective Amendment No. 40 (filed August 29, 1996) to the
Registrant's Registration Statement on Form N-1A.
(6)(c) Revised Schedule E to the Distribution Agreement between the
Registrant and The One Group Services Company is incorporated
by reference to Exhibit (6)(d) to Post-Effective Amendment No.
43 (filed August 29, 1997) to Registrant's Registration
Statement on Form N-1A.
(6)(d) Dealer's Agreement for Registrant dated November 11, 1995
between The One Group Services Company and Banc One Securities
Corporation is incorporated by reference to Exhibit (7)(d) to
Registrant's Registration Statement on Form N-14 (filed
January 19, 1996).
(6)(e) Form of Shareholder Servicing Agreement between the Registrant
and Participating Service Organization is incorporated by
reference to Exhibit (7)(f) to Registrant's Registration
Statement on Form N-14 (filed on May 29, 1998).
(6)(f) Agency Services and Delegation Agreement between INVESCO Trust
Company and Registrant dated January 1, 1998 is incorporated
by reference to Exhibit (10)(j) to Registrant's Registration
Statement on Form N-14 (filed on May 29, 1998).
(7) None.
(8)(a) Custodian Contract between Registrant and State Street Bank
and Trust Company is incorporated by reference to Exhibit (8)
to Post-Effective Amendment No. 12 (filed September 9, 1988)
to Registrant's Registration Statement on Form N-1A.
(8)(b) Sub-Custodian Agreement between State Street Bank and Trust
Company, Bank One Trust Company, NA and the Registrant is
incorporated by reference to Exhibit (8)(b) to Post-Effective
Amendment No. 37 (filed June 13, 1996) to the Registrant's
Registration Statement on Form N-1A.
(8)(c) International Securities Lending Subcustodian and Services
Agreement, dated December 29, 1997 between State Street Bank
and Trust Company, Bank One Trust Company, N.A. and the
Registrant is filed herewith.
(9)(a) Re-executed Management and Administration Agreement dated
November 20, 1997 is incorporated by reference to Exhibit
(13)(b) to Registrant's Registration Statement on Form N-14
(filed on May 29, 1998).
(9)(b) Revised Schedule A to the Management and Administration
Agreement between the Registrant and The One Group Services
Company is incorporated by reference to Exhibit (9)(b) to
Post-Effective Amendment No. 43 (filed August 29, 1997)
Registrant's Registration Statement on Form N-1A.
(9)(c) Transfer Agency and Service Agreement between the Registrant
and State Street Bank and Trust Company is incorporated by
reference to Exhibit (9)(b) to Post-Effective Amendment No. 12
(filed September 9, 1988) to Registrant's Registration
Statement on Form N-1A.
<PAGE> 85
(9)(d) Fund Accounting Agreement dated December 1, 1995 between the
Registrant and The One Group Services Company is incorporated
by reference to Exhibit (13)(c) to Registrant's Registration
Statement on Form N-14 (filed January 19, 1996).
(9)(e) Revised Schedule A to the Fund Accounting Agreement between
the Registrant and The One Group Services Company is
incorporated by reference to Exhibit (9)(e) to Post-Effective
Amendment No. 40 (filed August 29, 1996) to the Registrant's
Registration Statement on Form N-1A.
(9)(f) Sub-Administration Agreement dated December 1, 1995 between
The One Group Services Company and Banc One Investment
Advisors Corporation is incorporated by reference to Exhibit
(13)(d) to the Registrant's Registration Statement on Form
N-14 (filed January 19, 1996).
(9)(g) Revised Schedule A to the Sub-Administration Agreement between
The One Group Services Company and Banc One Investment
Advisors is incorporated by reference to Exhibit (9)(g) to
Post-Effective Amendment No. 40 (filed August 29, 1997) to the
Registrant's Registration Statement on Form N-1A.
(9)(h) Agency Services and Delegation Agreement dated January 1, 1996
between the Registrant and BISYS Qualified Plan Services is
incorporated by reference to Exhibit (9)(g) to Post-Effective
Amendment No. 37 (filed June 13, 1996) to the Registrant's
Registration Statement on Form N-1A.
(9)(i) Form of Agency Services and Delegation Agreement between the
Registrant and Bank One Trust Company, NA is incorporated by
reference to Exhibit (9)(i) to Post-Effective Amendment No. 43
(filed August 29, 1997) to Registrant's Registration Statement
on Form N-1A.
(9)(j) Form of Order Processing Agreement between the Registrant and
Bank One Trust Company, NA is incorporated by reference to
Exhibit (9)(j) to Post-Effective Amendment No. 43 (filed
August 29, 1997) to Registrant's Registration Statement on
Form N-1A.
(9)(k) Shareholder Servicing Agreement is incorporated by reference
to Exhibit 9(h) to Post-Effective Amendment No. 37 (filed June
13, 1996) to the Registrant's Registration Statement on Form
N-1A.
(9)(l) Services Agreement dated as of June 6, 1997 between the
Registrant and Charles Schwab & Co., Inc. is filed herewith.
(9)(m) Operating Agreement dated as of June 6, 1997 between the
Registrant and Charles Schwab & Co., Inc. is filed herewith.
(9)(n) Retirement Services Order Processing Agreement dated as of
June 6, 1997 between the Registrant and Charles Schwab & Co.,
Inc. is filed herewith.
<PAGE> 86
(10) Opinion and consent of counsel is filed herewith.
(11)(a) Consent of Coopers & Lybrand L.L.P. is filed herewith.
(11)(b) Consent of KPMG Peat Marwick LLP is filed herewith.
(11)(c) Consent of Price Waterhouse, LLP is filed herewith.
(11)(d) Consent of Ropes & Gray is filed herewith.
(12) Because the One Group High Yield Bond Fund is a series without
assets or an operating history, there are no financial
statements for the Fund.
(13) Purchase Agreement dated July 18, 1985, between Registrant and
Physicians Insurance Company of Ohio is incorporated by
reference to Exhibit (13) of the Registrant's Pre-Effective
Amendment No. 2 (filed July 18, 1985) to Registrant's
Registration Statement on Form N-1A.
(14) None.
(15)(a) Re-Executed Distribution and Shareholder Services Plan - Class
A and Service Class shares dated November 1, 1995, as amended
August 20, 1997, between the Registrant and The One Group
Services Company is incorporated by reference to Exhibit
(15)(a) to Post-Effective Amendment No. 43 (filed August 29,
1997) to Registrant's Registration Statement on Form N-1A.
(15)(b) Distribution and Shareholder Services Plan - Class B and Class
C Shares dated January 1, 1994, as amended August 20, 1997,
between the Registrant and The One Group Services Company is
incorporated by reference to Exhibit (15)(b) to Post-Effective
Amendment No. 43 (filed August 29, 1997) to Registrant's
Registration Statement on Form N-1A.
(16) Because the One Group High Yield Bond Fund is a series,
without assets or an operating history, there are no
performance calculations for the Fund.
(17) Because the One Group High Yield Bond Fund is a series,
without assets or an operating history, there are no financial
data schedules for the Fund.
(18)(a) Multiple Class Plan for the Registrant adopted by the Board of
Trustees on May 22, 1995, as amended May 21, 1998 is
incorporated by reference to Exhibit (10)(k) to Registrant's
Registration Statement on Form N-14 (filed on May 29, 1998).
<PAGE> 87
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of the effective date of this Registration Statement there are no persons
controlled or under common control with the Registrant.
Item 26. NUMBER OF HOLDERS OF SECURITIES
As of June 1, 1998, the number of record holders of each
series of Fiduciary Class shares of the Registrant were as
follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders
--------------- ----------------
<S> <C>
Prime Money Market Fund 441
U.S. Treasury Securities 69
Money Market Fund
Municipal Money Market Fund 20
Income Equity Fund 225
Income Bond Fund 137
Growth Opportunities Fund 249
Disciplined Value Fund 123
Limited Volatility Bond Fund 127
International Equity Index Fund 133
Intermediate Tax-Free Bond Fund 26
Equity Index Fund 166
Large Company Value Fund 96
Ohio Municipal Bond Fund 21
Ohio Municipal
Money Market Fund 8
Kentucky Municipal Bond Fund 42
Texas Tax-Free Bond Fund 0
West Virginia Municipal Bond Fund 13
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
<S> <C>
Asset Allocation Fund 87
Ultra Short-Term Income Fund 30
Government Bond Fund 111
Municipal Income Fund 35
Intermediate Bond Fund 125
Arizona Municipal Bond Fund 5
Large Company Growth Fund 246
Louisiana Municipal Bond Fund 11
Value Growth Fund 88
Small Capitalization Fund 57
High Yield Bond Fund 0
Investor Conservative Growth Fund 33
Investor Growth Fund 50
Investor Balanced Fund 37
Investor Fixed Income Fund 0
Investor Aggressive Growth Fund 0
Investor Growth & Income Fund 37
Treasury & Agency Fund 8
</TABLE>
As of June 1, 1998, the number of record holders of
each series of Class A Shares of the Registrant were
as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders
--------------- ------------------
<S> <C>
Prime Money Market Fund 1,926
U.S. Treasury Securities
Money Market Fund 1,156
Municipal Money Market Fund 51
Income Equity Fund 8,709
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
<S> <C>
Income Bond Fund 779
Growth Opportunities Fund 9,065
Disciplined Value Fund 3,524
Limited Volatility Bond Fund 992
International Equity Index Fund 2,091
Intermediate Tax-Free Bond Fund 182
Equity Index Fund 15,048
Large Company Value Fund 1,416
Ohio Municipal Bond Fund 381
Ohio Municipal
Money Market Fund 32
Kentucky Municipal Bond Fund 199
Texas Tax-Free Bond Fund 0
West Virginia Municipal Bond Fund 18
Asset Allocation Fund 3,803
Ultra Short-Term Income Fund 172
Government Bond Fund 1,807
Municipal Income Fund 880
Intermediate Bond Fund 1,111
Arizona Municipal Bond Fund 26
Large Company Growth Fund 17,733
Louisiana Municipal Bond Fund 1,067
Value Growth Fund 4,866
Small Capitalization Fund 2,713
High Yield Bond Fund 0
Investor Conservative Growth Fund 356
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
<S> <C>
Investor Growth Fund 2,656
Investor Balanced Fund 881
Investor Fixed Income Fund 0
Investor Aggressive Growth Fund 0
Investor Growth & Income Fund 1,343
Treasury & Agency Fund 56
</TABLE>
As of June 1, 1998, the number of record holders of
each series of Service Class Shares of the Registrant
were as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders
--------------- -----------------
<S> <C>
Prime Money Market Fund 0
U.S. Treasury Securities 0
Money Market Fund
</TABLE>
As of June 1, 1998, the number of record holders of
each series of Class B Shares (CDSC) of the
Registrant were as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders
--------------- ----------------
<S> <C>
Prime Money Market Fund 159
U.S. Treasury Securities Money
Market Fund 39
Income Equity Fund 15,359
Income Bond Fund 1,230
Growth Opportunities Fund 16,112
Disciplined Value Fund 4,072
Limited Volatility Bond Fund 505
International Equity Index Fund 3,231
Intermediate Tax-Free Bond Fund 142
Equity Index Fund 37,979
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
<S> <C>
Large Company Value Fund 2,563
Ohio Municipal Bond Fund 777
Kentucky Municipal Bond Fund 1799
Texas Tax-Free Bond Fund 0
West Virginia Municipal Bond Fund 80
Asset Allocation Fund 9,607
Ultra Short-Term Income Fund 322
Government Bond Fund 1,468
Municipal Income Fund 1,559
Intermediate Bond Fund 1,542
Arizona Municipal Bond Fund 8
Large Company Growth Fund 31,517
Louisiana Municipal Bond Fund 177
Value Growth Fund 3,530
Small Capitalization Fund 1,825
High Yield Bond Fund 0
Investor Conservative Growth Fund 1,675
Investor Growth Fund 6,886
Investor Balanced Fund 3,504
Investor Fixed Income Fund 0
Investor Aggressive Growth Fund 0
Investor Growth & Income Fund 4,515
Treasury & Agency Fund 155
</TABLE>
As of June 1, 1998, the number of record holders of
each of the Institutional Money Market Funds of the
Registrant were as follows:
<PAGE> 92
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders
--------------- ----------------
<S> <C>
Treasury Only Money Market Fund 15
Government Money Market Fund 14
Institutional Prime Money Market Fund 0
Treasury Money Market 0
Tax-Exempt Money Market 0
</TABLE>
As of June 1,1998, the number of record holders of
each series of Class C Shares of the Registrant were
as follows:
<TABLE>
<CAPTION>
Number of Record
Title of Series Holders
--------------- -----------------
<S> <C>
U.S. Treasury Securities Money Market Fund 5
Income Equity Fund 29
Growth Opportunities Fund 41
International Equity Index Fund 14
Equity Index Fund 97
Municipal Income Fund 31
Intermediate Bond Fund 14
Large Company Growth Fund 26
Value Growth Fund 34
Small Capitalization Fund 22
Investor Conservative Growth Fund 84
Investor Growth Fund 492
Investor Balanced Fund 159
Investor Fixed Income Fund 0
Prime Money Market Fund 0
Municipal Money Market Fund 0
Income Bond Fund 0
Disciplined Value Fund 0
Intermediate Tax-Free Bond Fund 0
Large Company Value Fund 0
Ohio Municipal Bond Fund 0
Ohio Municipal Money Market Fund 0
Kentucky Municipal Bond Fund 0
Texas Tax-Free Bond Fund 0
West Virginia Municipal Bond Fund 0
Asset Allocation Fund 0
Ultra Short-Term Income Fund 0
Government Bond Fund 0
Arizona Municipal Bond Fund 0
Louisiana Municipal Bond Fund 0
High Yield Bond Fund 0
Treasury & Agency Fund 0
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
<S> <C>
Investor Aggressive Growth Fund 0
Investor Growth & Income Fund 230
</TABLE>
Item 27. Indemnification
---------------
Article IX, Section 9.2 of the Registrant's
Declaration of Trust, incorporated as Exhibit (1)
hereto, provides for the indemnification of
Registrant's trustees and officers. Indemnification
of the Group's principal underwriter, custodians,
investment advisers, administrator, and transfer
agents is provided for in the Group's respective
Agreements with those service providers as filed or
incorporated by reference as Exhibits hereto. As of
the effective date of this Registration Statement,
the Group has obtained from a major insurance carrier
a trustees and officers' liability policy covering
certain types of errors and omissions. In no event
will Registrant indemnify any of its trustees,
officers, employees, or agents against any liability
to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith, or
gross negligence in the performance of his duties, or
by reason of his reckless disregard of the duties
involved in the conduct of his office or under his
agreement with Registrant. Registrant will comply
with Rule 484 under the Securities Act of 1933 and
Release 11330 under the Investment Company Act of
1940 in connection with any indemnification.
Insofar as indemnification for liability arising
under the Securities Act of 1933 may be permitted to
trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of
Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the
securities being registered, 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
such indemnification by it is against public policy
as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
-----------------------------------------------------
Banc One Investment Advisors Corporation ("Banc One
Investment Advisors") performs investment advisory
services for all of the Funds of the Group.
Independence International Associates, Inc. performs
investment sub-advisory services for the
International Equity Index Fund. Banc One High Yield
Partners, LLC provides investment advisory services
for the High Yield Bond Fund.
Banc One Investment Advisors is an indirect
wholly-owned subsidiary of BANC ONE CORPORATION, a
bank holding company incorporated in the state of
<PAGE> 94
Ohio. BANC ONE CORPORATION now operates affiliate
banking organizations in Arizona, Colorado, Illinois,
Indiana, Kentucky, Louisiana, Ohio, Oklahoma, Texas,
Utah, West Virginia and Wisconsin. In addition, BANC
ONE CORPORATION has several affiliates that engage in
data processing, venture capital, investment and
merchant banking, and other diversified services
including trust management, investment management,
brokerage, equipment leasing, mortgage banking,
consumer finance, and insurance.
To the knowledge of Registrant, none of the directors
or officers of Banc One Investment Advisors,
Independence International Associates, Inc. or Banc
One High Yield Partners, LLC, except as set forth or
incorporated herein, is or has been, at any time
during the past two calendar years, engaged in any
other business, profession, vocation or employment of
a substantial nature. Set forth below are the names
and principal businesses of the directors of Banc One
Investment Advisors who are engaged in any other
business, profession, vocation or employment of a
substantial nature.
Banc One Investment Advisors
----------------------------
<TABLE>
<CAPTION>
Position with Other Substantial Type of
Banc One Investment Advisors Occupation Business
---------------------------- ------------- --------
<S> <C> <C>
David J. Kundert, Chairman and CEO Chairman, Bank One Investment
Trust Company, NA
Frederick L. Cullen, Director Chairman/CEO Bank Banking
One, NA; Chairman and
Chief Operating Officer,
Banc One Ohio
Corporation
Garrett Jamison, Director President & Chief Banking
Executive Officer, Bank
One Trust Company,
NA
Geoffrey von Kuhn, Director Vice Chairman, Banc Banking
One Capital Corporation
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
<S> <C> <C>
David R. Meuse, Director Chairman/CEO Banc Investment
One Capital Holding
Corporation
Michael J. McMennamin, Director Executive VP & Chief Bankng
Financial Officer,
BANC ONE
CORPORATION
</TABLE>
The principal business address of the principal executive officer and directors
of Banc One Investent Advisors is 1111 Polaris Parkway, P.O. Box 710211,
Columbus, Ohio 43271-0211.
Independence International Associates, Inc.
-------------------------------------------
Independence International Associates, Inc. ("IIA") is the
Sub-Investment Advisor to the International Equity Index Fund. IIA, a
corporation organized under the laws of Massachusetts, provides investment
advice to institutional and investment company clients. Information regarding
the firm's ownership and other business connections of the officers and
directors is listed on the Form ADV filed by IIA with the SEC pursuant to the
Investment Advisers Act of 1940 (SEC File No.801-28785), the text of which is
hereby incorporated by reference.
Banc One High Yield Partners, LLC
---------------------------------
Banc One High Yield Partners, LLC is the Sub-Investment Advisor to the
High Yield Bond Fund ("Banc One Partners"). Banc One Partners, a limited
liability company organized under the laws of Ohio, provides investment advice
to the High Yield Bond Fund. Set forth below are the names and principal
businesses of the manager and officers of Banc One Partners who are engaged in
any other business, profession, vocation or employment of a substantial nature.
<TABLE>
<CAPTION>
Position with Other Substantial Type of
Banc One Partners Occupation Business
----------------- -------------- --------
<S> <C> <C>
James P. Shanahan, Manager Pacholder Associates, Investment
Inc., Managing
Director & General
Counsel
William J. Morgan, Manager Pacholder Associates, Investment
Inc., President
Mark A. Beeson, Manager Banc One Investment Advisors, Investment
Senior Managing Director
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
<S> <C> <C>
Donald R. Kimble, Manager Banc One Trust Company, NA Fiduciary
Senior Managing Director
and Chief Financial Officer
Gary Madich, Manager Banc One Investment Investment
Advisors, Senior
Managing Director
Ryan L. Langdon, Officer Pacholder Associates, Investment
Inc., Vice President
Anthony L. Longi, Jr., Officer Pacholder Associates, Investment
Inc., Executive Vice
President
</TABLE>
Item 29. Principal Underwriters
----------------------
(a) The One Group Services Company acts as administrator and
distributor for each of the Fund's Portfolios.
(b) The directors and officers of The One Group Services Company are
set forth below. The business address of each director or officer
is 3435 Stelzer Road, Columbus, Ohio 43219.
<TABLE>
<CAPTION>
Positions and Offices Positions and
Name and Principal with The One Group Offices
Business Address Services Company with Registrant
- ---------------- --------------------- ---------------
<S> <C> <C>
Lynn J. Mangum Chairman and Chief None
Executive Officer
Robert J. McMullen Executive Vice President None
and Director
Dennis Sheehan Senior Vice President None
Kevin J. Dell Vice President/Secretary/ None
General Counsel
Michael D. Burns Vice President/Compliance Officer None
Annamaria Porcaro Assistant Secretary None
Robert Tuch Assistant Secretary None
Stephen G. Mintos Executive Vice President/ None
Chief Operating Officer
Charles L. Booth Senior Vice President Secretary
Dale Smith Vice President/ None
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
<S> <C> <C>
Chief Financial Officer
John Gilliam Vice President None
Mark S. Redman President President
Mark J. Ryberczyk Senior Vice President None
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
(1) Banc One Investment Advisors Corporation, 1111
Polaris Parkway, P.O. Box 710211, Columbus, Ohio
43271-0211 (records relating to its functions as
Investment Adviser and Sub-Administrator).
(2) Independence International Associates, Inc., 75
State Street, Boston, MA 02109 (records relating
to its functions as Sub-Investment Adviser to the
International Equity Index Fund).
(3) Banc One High Yield Partners, LLC, 1111 Polaris
Parkway, P.O. Box 710211, Columbus, Ohio
43271-0211 and 8044 Montgomery Road, Suite #382,
Cincinnati, Ohio 45236 (records relating to its
functions as Sub-Investment Advisor to the High
Yield Bond Fund).
(4) The One Group Services Company, 3435 Stelzer Road,
Columbus, OH 43219 (records relating to its
functions as Distributor for all funds).
(5) The One Group Services Company, 3435 Stelzer Road,
Columbus, OH 43219 (records relating to its
functions as Administrator for all funds).
(6) State Street Bank and Trust Company, 470 Atlantic
Avenue, Fifth Floor, Boston, MA 02205-9087
(records relating to its functions as custodian
and transfer agent to all funds).
(7) Ropes & Gray, One Franklin Square, 1301 K Street,
N.W., Suite 800 East, Washington, D.C. 20005
(Declaration of Trust, Code of Regulations, and
Minute Books).
Item 31. Management Services
-------------------
N/A
Item 32. Undertakings
------------
The Registrant undertakes to call a meeting of
Shareholders, at the request of at least 10% of the
Registrant's outstanding shares, for the purpose of voting
upon the question of removal of a trustee or trustees and
to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of
<PAGE> 98
1940.
The Registrant undertakes to furnish to each person to
whom a prospectus for a particular fund is delivered a
copy of the Registrant's latest annual report to
shareholders relating to that fund upon request and
without charge.
<PAGE> 99
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 44 to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Washington, D.C. on the 5th
of June, 1998
The One Group(R)
(Registrant)
By: /s/ Mark S. Redman
---------------------------
*Mark S. Redman
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 and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Mark S. Redman President June 5, 1998
* Mark S. Redman
/s/ Peter C. Marshall Trustee June 5, 1998
- ---------------------
*Peter C. Marshall
/s/ Charles I. Post Trustee June 5, 1998
- --------------------
*Charles I. Post
/s/ John S. Randall Trustee June 5, 1998
- --------------------
*John S. Randall
/s/ Frederick W. Ruebeck Trustee June 5, 1998
- -------------------------
*Frederick W. Ruebeck
/s/ Robert A. Oden Trustee June 5, 1998
- -------------------
*Robert A. Oden
/s/ John F. Finn Trustee June 5, 1998
- ----------------
*John F. Finn
</TABLE>
By: /s/ Alan G. Priest
----------------
Alan G. Priest
Attorney-in-Fact
<PAGE> 100
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
(8)(c) International Securities Lending Subcustodian and
Services Agreement, dated December 29, 1997 between
State Street Bank and Trust Company, Bank One Trust
Company, N.A. and the Registrant.
(9)(l) Services Agreement dated as of June 6, 1997 between
Charles Schwab & Co., Inc. and Registrant.
(9)(m) Operating Agreement dated as of June 6, 1997 between
Charles Schwab & Co., Inc. and Registrant.
(9)(n) Retirement Services Order Processing Agreement dated
as of June 6, 1997 between Charles Schwab & Co.,
Inc., Charles Schwab Trust Company and Registrant.
(10) Opinion and consent of counsel.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of KPMG Peat Marwick LLP.
(11)(c) Consent of Price Waterhouse, LLP.
(11)(d) Consent of Ropes & Gray.
<PAGE> 1
EXHIBIT (8)(c)
International Securities Lending Subcustodian and Services Agreement, dated
December 29, 1997 between State Street Bank and Trust Company, Bank One
Trust Company, N.A. and the Registrant.
<PAGE> 2
INTERNATIONAL SECURITIES LENDING SUBCUSTODIAN AND SERVICES AGREEMENT
- --------------------------------------------------------------------
This International Securities Lending Subcustodian and Services
Agreement (the "Agreement") is entered into as of December 29, 1997 by and
between State Street Bank and Trust Company, a Massachusetts trust company (the
"Custodian"), Bank One Trust Company, N.A. (the "Subcustodian") and The One
Group(R), an open-end management investment company registered under the
Investment Company Act of 1940 ("The One Group").
BACKGROUND INFORMATION
----------------------
A. The Custodian has been appointed as custodian for The One Group
pursuant to a Custodian Agreement between the Custodian and The One
Group (the "Custodian Agreement").
B. Banc One Investment Advisors Corporation, an investment advisor
registered under the Investment Advisers Act of 1940 ("BOIA") serves
as investment adviser to The One Group.
C. The One Group, BOIA, and the Subcustodian intend to enter into a
Securities Lending Agreement for Non-ERISA Accounts (the "Securities
Lending Agreement") in order to permit The One Group to utilize the
securities lending program developed by BOIA and the Subcustodian for
foreign securities (the "International Securities Lending Program").
Upon execution of the Securities Lending Agreement, the Custodian and
the Subcustodian shall perform the duties specified herein in order
to facilitate loans of foreign securities (the "Foreign Securities")
in accordance with the Securities Lending Agreement.
STATEMENT OF AGREEMENT
----------------------
The parties hereby acknowledge the accuracy of the foregoing Background
Information and hereby agree as follows:
[section]1. DESIGNATION OF SECURITIES BY BOIA. The One Group hereby
authorizes BOIA to designate Foreign Securities of The One Group that are
eligible for participation in the International Securities Lending Program.
[section]2. AUTHORIZATION TO LOAN SECURITIES. Pursuant to the
Securities Lending Agreement, BOIA and The One Group have authorized the
Subcustodian to facilitate loans of Foreign Securities in accordance with the
Securities Lending Agreement with any entity named on a list of borrowers
attached to the Securities Lending Agreement as Exhibit B as amended from time
to time (each a "Borrower"). Subject to the supervision of BOIA, the
Subcustodian shall perform the following acts in accordance with loans of
Foreign Securities under the Securities Lending Agreement:
(a) enter into Loan Agreements on such terms as approved by BOIA;
(b) establish one or more collateral accounts (each, a "Collateral
Account;" collectively, the "Collateral Accounts") to hold cash and
other securities received from Borrowers as collateral (the
"Collateral") under the loan agreement with the applicable Borrower
(each, a "Loan Agreement") in accordance with the terms of this
Agreement and the Securities Lending Agreement;
(c) notify BOIA upon receipt of Collateral as provided in the
applicable Loan Agreement in order to permit BOIA to instruct the
Custodian to transfer Foreign Securities to the applicable Borrower;
(d) prepare each business day a mark-to-market valuation of the then
fair market value of the loaned Foreign Securities, including income
accrued but unpaid thereon;
(e) receive and release Collateral as provided in the Loan Agreement
with the applicable Borrower;
(f) accept substitutions of Collateral and execute and deliver or send
any receipts required under the Loan Agreement in connection therewith;
(g) make investments of cash received as, or with respect to,
Collateral ("Cash Collateral") in accordance with
<PAGE> 3
instructions of BOIA;
(h) take such action upon termination of a loan as may be directed by
BOIA;
(i) take such other actions as specified in the Securities Lending
Agreement; and
(j) monitor compliance with the terms of the Loan Agreement and within
a reasonable time after learning of a default, give notice thereof to
BOIA, and thereafter take such actions, if any, as may be specified by
BOIA.
[section]3. DELIVERY OF FOREIGN SECURITIES TO BORROWERS. Upon receipt
of Proper Instructions from BOIA as defined in the Custodian Agreement and
pursuant to the Custodian Agreement, the Custodian shall deliver or cause its
foreign sub-custodians to deliver such Foreign Securities to such Borrowers as
are designated in Proper Instructions from BOIA. Custodian shall notify BOIA by
no later than noon, New York City time, on each Business Day if: (i) a Borrower
fails to return such Foreign Securities as are specified by BOIA in Proper
Instructions to Custodian or its foreign sub-custodians; or (ii) a Borrower
fails to pay such distributions made on or in respect of loaned Foreign
Securities as are specified by BOIA in Proper Instructions. In addition, the
Custodian shall send BOIA written confirmation no later than noon, New York City
time, on each Business Day that Custodian has received Foreign Securities from a
Borrower as specified by BOIA in Proper Instructions.
[section]4. APPOINTMENT OF THE SUBCUSTODIAN. The One Group hereby
instructs the Custodian to appoint and, solely in accordance with The One
Group's instructions, the Custodian hereby appoints Subcustodian as subcustodian
for The One Group, to hold certain cash and other securities received as
Collateral from Borrowers for loans of Foreign Securities in connection with the
International Securities Lending Program. Subcustodian represents that it is
qualified to act as a custodian for a registered investment company under the
Investment Company Act of 1940, as amended. Subcustodian shall only be
responsible for custody hereunder of Collateral actually delivered to it and
then only while it is held in and as a part of a Collateral Account. All
securities accepted by Subcustodian on behalf of The One Group under the terms
of this Agreement shall be in "street name" or other good delivery form.
[section]5. REGISTRATION OF SECURITIES. Except as otherwise provided in
the Securities Lending Agreement, securities held by the Subcustodian (other
than bearer securities) shall be registered in the name of The One Group or in
the name of the Subcustodian or of any nominee of the Subcustodian or in the
name of any depository designated by the Subcustodian or its nominee.
[section]6. COLLATERAL ACCOUNTS. All securities received as Collateral
in connection with loans of securities or investments of Cash Collateral may be
held in the Collateral Account established for the particular Fund of The One
Group or commingled in a Collateral Account established for the International
Securities Lending Program; provided, however, that all Collateral, including,
without limitation, the investments of Cash Collateral shall be held in the
United States. The Subcustodian may hold securities in: (i) the bank vault of
Subcustodian; (ii) such other banks or trust companies as have been approved by
The One Group and pursuant to a written agreement between such other banks or
trust companies and the Subcustodian; (iii) its accounts with a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository (the
"Securities Depository"); or (iv) a book-entry account which is maintained for
the Subcustodian by a Federal Reserve Bank (the "Book Entry Account").
So long as Subcustodian maintains any account pursuant to (iii) or (iv)
above for The One Group, Subcustodian shall: (i) identify as belonging to The
One Group a quantity of such securities in the fungible bulk of securities (A)
registered in the name of Subcustodian or its nominee, or (B) shown on
Subcustodian's account on the books of the Securities Depository, the Book-Entry
Account, or Subcustodian's agent; (ii) promptly send to The One Group and the
Custodian reports it receives from the appropriate Federal Reserve Bank or
Securities Depository on its system of internal accounting control; and (iii)
send to The One Group and the Custodian such reports of the systems of internal
accounting control of Subcustodian and its agents through which such securities
are deposited as are available and as The One Group and the Custodian may
reasonably request from time to time.
[section]7. COLLECTION OF INCOME. Subcustodian shall collect all income
and other payments with respect to registered securities held in a Collateral
Account to which The One Group shall be entitled by law or pursuant to custom in
the
<PAGE> 4
securities business, and shall collect all income and principal and other
payments with respect to bearer securities if, on the date of payment by the
issuer, such securities are held by Subcustodian in a Collateral Account.
Subcustodian shall detach and present for payment all coupons and other income
and principal items requiring presentation as and when they become due, shall
collect dividends and interest when due on securities held in a Collateral
Account, and shall endorse and deposit for collection, in the name of The One
Group, checks, drafts, and other negotiable instruments on the same day as
received.
Subcustodian shall not be under any obligation or duty to take action
to effect collection of any amount, if the securities held as Collateral on
which such amount is payable are in default and payment is refused after due
demand or presentation. Subcustodian will, however, notify BOIA in writing
within a reasonable period of time of such default and refusal to pay.
[section]8. INSTRUCTIONS. Instructions furnished to the Custodian by
BOIA or to the Subcustodian by BOIA or the Custodian with respect to this
Agreement shall be signed by such officer or officers of the party giving such
instructions as are authorized from time to time by such party (each an
"Authorized Person"); provided, however, that each of the Custodian and the
Subcustodian is authorized to accept and act upon orders, whether given orally,
by telephone or otherwise, which the Custodian or the Subcustodian reasonably
believes to be given by an Authorized Person. All oral instructions shall be
promptly confirmed in writing. The records of the Subcustodian and the Custodian
shall be presumed to reflect accurately any oral instructions given by an
Authorized Person or a person believed by such party to be an Authorized Person.
[section]9. VOTING AND OTHER ACTIONS. Subcustodian shall promptly
deliver or mail to BOIA all forms of proxies and all notices of meetings
affecting or relating to securities held in the Collateral Account. Upon receipt
of instructions of BOIA, Subcustodian shall execute and deliver such proxies or
other authorizations as may be required. Neither Subcustodian nor its nominee
shall vote any securities or execute any proxy to vote the same or give any
consent to take any other action with respect thereto.
[section]10. RESPONSIBILITY OF SUBCUSTODIAN. The Subcustodian shall use
the same care with respect to the receiving, safekeeping, handling, and
delivering of Collateral, as applicable, held under this Agreement as it uses in
respect of its own similar securities, but it need not maintain any special
insurance for the benefit of the Custodian, BOIA, or The One Group. The
Subcustodian shall not be liable for any action taken or thing done by it in
carrying out the terms and provisions of this Agreement if done in good faith
and without negligence or willful misconduct on the Subcustodian's part. The
Custodian shall not be liable for any action taken or thing done by it in
carrying out the terms and provisions of this Agreement if done in good faith
and without negligence or willful misconduct on the Custodian's part. In
providing the services hereunder, it is understood that the Subcustodian shall
neither render advice to the Custodian, BOIA, or The One Group as to the value
of securities or other property, or make recommendations as to the advisability
of investing in, purchasing, loaning, or selling Foreign Securities, Collateral
or other property, nor shall the Subcustodian, either directly or indirectly,
have any discretionary authority or control with respect to purchasing, loaning,
or selling Collateral, Foreign Securities or other property for The One Group.
Except with respect to [section]3, the Custodian shall have no responsibility
for any liabilities of any party arising out of the operation of the
International Securities Lending Program, as to which the Subcustodian, the
Funds, and the Adviser shall have recourse only to each other.
Notwithstanding Article 1 of the Custodian Agreement to the contrary, the
Custodian shall have no responsibility for the selection or monitoring of the
Subcustodian or for the actions or omissions of the Subcustodian or the
Subcustodian's subcustodians or agents. The Custodian shall have no liability
for and shall be released by The One Group for any losses, claims or liabilities
arising from the free delivery of Foreign Securities to Borrowers pursuant to
the Custodian Agreement and this Agreement. The Custodian shall be entitled to
the benefits and protections afforded it under the Custodian Agreement with
respect to any actions taken by it pursuant to this Agreement, and any Proper
Instructions given under this Agreement shall be treated as Proper Instructions
under the Custodian Agreement. The One Group acknowledges and agrees that the
Subcustodian shall be solely responsible for the records it maintains with
respect to the assets held by it and that the Custodian's duty to maintain
records for The One Group in accordance with Article 9 of the Custodian
Agreement shall not include the records maintained by the Subcustodian. Except
with respect to the International Securities Lending Program as to which all
parties agree that Custodian shall have no responsibilities (other than as set
forth in [section]3), the
<PAGE> 5
Subcustodian shall indemnify and hold the Custodian harmless against any loss,
liability or claim which the Custodian suffers arising from the Subcustodian's
bad faith, willful misconduct or negligence in the performance of its
obligations under this Agreement which cause the Custodian to breach the
Custodian Agreement. The indemnification provided hereunder by Subcustodian
shall not extend to any special or consequential damages arising out of the
performance of this Agreement.
Subcustodian shall release and deliver securities held in the Collateral
Account and take any other action as directed by BOIA, with respect to
dividends, splits, distributions, spin-offs, puts, calls, conversions,
redemptions, tenders, exchanges, mergers, reorganizations, rights, warrants, or
any other similar activity relating to the securities. Subcustodian shall
request direction of BOIA upon receipt of actual notice where The One Group has
an option as to any such activity. For purposes of this paragraph, Subcustodian
shall be deemed to have actual notice if any such activity is published in one
or more of the following publications: J.J. Kenny's Munibase System, Financial
Card Service, Xcitek, Inc., Standard & Poors' Called Bond Listing, Depository
Trust Reorganization Notices, and The Wall Street Journal. If Subcustodian does
not have actual notice of such activity, any such activity will be handled by
Subcustodian on a "best efforts" basis. The Subcustodian will follow all
instructions from BOIA with respect to voting as to any particular issue(s).
As long as and to the extent that it exercises reasonable care, Subcustodian
shall not be responsible for the title, validity, or genuineness of any property
or evidence of title thereto received by it or delivered by it pursuant to this
Agreement and Subcustodian shall be held harmless in acting upon instructions
from an Authorized Person under this Agreement or in accordance with the
Securities Lending Agreement.
Subcustodian shall be entitled to rely upon and may act upon advice of
counsel (who may or may not be counsel for the Custodian or The One Group) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
If the Custodian, The One Group or BOIA require Subcustodian to take any
action with respect to securities, which action involves the payment of monies
or which action may, in the opinion of Subcustodian, result in Subcustodian's or
its nominee's being liable for the payment of money or incurring liability of
some other form, BOIA or The One Group, as a prerequisite to requiring
Subcustodian to take such action, shall provide indemnity to Subcustodian in an
amount and form satisfactory to Subcustodian.
Neither Custodian nor Subcustodian shall be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement
arising out of or caused directly or indirectly, by circumstances beyond its
reasonable control, including without limitation: acts of God; earthquakes;
fires; floods; wars; civil or military disturbance; sabotage; epidemics; riots;
terrorism; interruptions, loss or malfunctions of utilities or communications
service; accidents; labor disputes; acts of civil or military authority;
governmental action; or inability to obtain labor, material, equipment, or
transportation.
Subcustodian shall have no duties or responsibilities whatsoever except such
duties and responsibilities as are specifically set forth in this Agreement and
the Securities Lending Agreement.
[section]11. FEES. The One Group shall in connection with each loan hereunder
pay to the Subcustodian the Subcustodian's fee, which shall accrue daily, and
which shall be set forth on Exhibit E of the Securities Lending Agreement.
[section]12. RECORDS AND REPORTS. The One Group hereby acknowledges that it
may have the right to receive broker confirmations within the time period
prescribed by 12 C.F.R. Section 12.5 at no additional cost. In lieu of receiving
such confirmations within such time period, The One Group and Subcustodian agree
to the alternative procedures set forth in this Section. The Subcustodian shall
furnish statements of account monthly to The One Group or in such other manner
and frequency as the Subcustodian and The One Group shall agree.
The Subcustodian shall provide The One Group and the Custodian, upon request,
with any quarterly or annual reports prepared in the normal course of business
of the Subcustodian by the Subcustodian's independent public accountants on the
account system, internal accounting controls and procedures for safeguarding
securities relating to the services provided by the Subcustodian under this
Agreement.
<PAGE> 6
The Subcustodian will not refuse any reasonable request for inspection and
audit of its books and records by an agent of a Fund or the Custodian, as such
records may relate to this Agreement.
The Subcustodian shall cooperate with each Fund and the Custodian and their
respective independent public accountants in connection with annual and other
audits of the books and records of the Custodian or the Funds.
[section]13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT. This Agreement
shall become effective as of the date hereof and shall continue in full force
and effect until terminated as hereinafter provided, may be amended at any time
by mutual agreement of the parties hereto, and may be terminated by any party
hereto by an instrument in writing delivered or mailed, postage prepaid to the
other parties, such termination to take effect not sooner than thirty (30) days
after the date of delivery or mailing; provided, however, that the Custodian may
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Subcustodian by the Federal Deposit Insurance
Corporation or upon the happening of a like event at the direction of an
appropriate regulatory body or court of competent jurisdiction. Notwithstanding
the foregoing, this Agreement shall not terminate with respect to loans of
Foreign Securities in effect under the Securities Lending Agreement on the date
of termination. Upon termination of this Agreement, the Subcustodian shall
promptly deliver all property then held by the Subcustodian under this Agreement
or cash proceeds thereof in accordance with instructions of BOIA.
[section]14. COMMUNICATIONS. All communications required or permitted to be
given under this Agreement shall be in writing (including telex, telegraph or
telefax, facsimile, or similar electronic transmittal device) unless expressly
provided otherwise, and addressed as follows:
<TABLE>
<CAPTION>
<S> <C>
(a) If to the Subcustodian: Bank One Trust Company, N.A.
235 West Schrock Road
Westerville, Ohio 43271-1075
Attention: Securities Lending
Telephone: (614) 248-1167
Telefax: (614) 248-1126
(b) If to the Custodian: State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02119
Attention: Christopher J. Meyers
Telephone: (617) 985-6345
Telefax: (617) 537-5152
(c) If to BOIA: Banc One Investment Advisors Corporation
1111 Polaris Parkway
Columbus, Ohio 43240
Attn: Steven E. Cutler
Telephone: (614) 213-8522
Telefax: (614) 213-7173
(d) If to The One Group: The One Group
c/o Banc One Investment Advisors Corporation
1111 Polaris Parkway
Columbus, Ohio 43240
Attn: Mark A. Beeson
Telephone: (614) 213-6678
Telefax: (614) 213-6331
</TABLE>
[section]15. GOVERNING LAW. This Agreement shall be construed and enforced
according to the laws of the State of Ohio and all provisions shall be
administered according to the laws of said State, except as said laws are
superseded or preempted by any Federal law.
<PAGE> 7
[section]16. SEVERABILITY. The intention of the parties to this agreement is
to comply fully with all laws, rules, regulations, and public policies, and this
Agreement shall be construed consistently with all laws, rules, regulations, and
public policies to the extent possible. If and to the extent that any court of
competent jurisdiction determines it is impossible to construe any provision of
this agreement consistently with any law, rule, regulation, or public policy and
consequently holds that provision to be invalid, such holding shall in no way
affect the validity of the other provisions of this Agreement, which shall
remain in full force and effect.
[section]17. NON-WAIVER. No failure by any party to insist upon compliance
with any term of this Agreement, to exercise any option, enforce any right, or
seek any remedy upon any default of any other party shall affect, or constitute
a waiver of, the first party's right to insist upon such strict compliance,
exercise that option, enforce that right, or seek that remedy with respect to
that default or any prior, contemporaneous, or subsequent default. No custom or
practice of the parties at variance with any provision of this Agreement shall
affect or constitute a waiver of, any party's right to demand strict compliance
with all provisions of this Agreement.
[section]18. CAPTIONS. The captions of the various sections of this Agreement
are not part of the context of this Agreement, but are only labels to assist in
locating those sections and shall be ignored in construing this Agreement.
[section]19. ADDITIONAL TERMS APPLICABLE TO THE ONE GROUP. The One Group is a
series investment company consisting of a variety of investment portfolios and
is entering this Agreement on behalf of the investment portfolios identified on
Exhibit A attached to the Securities Lending Agreement ("Funds"). Any reference
to The One Group in this Agreement shall be deemed a reference solely to the
particular Fund to which a given lending transaction under this Agreement
relates. Under no circumstances shall the rights, obligations, or remedies with
respect to a particular Fund constitute a right, obligation or remedy applicable
to any other Fund. In particular and without limiting the generality of the
foregoing: (a) any event of default regarding one Fund shall not create any
right or obligation with respect to any other Fund, (b) the Custodian and the
Subcustodian shall have no right to set off claims of a Fund by applying
property of any other Fund, and (c) no Fund shall have the right to set off
against assets or property held by a Borrower, the Custodian or Subcustodian for
any other Fund.
The One Group was created under as a Massachusetts Business Trust under a
Declaration of Trust filed on May 23, 1985 ("Trust Agreement"). The Trust
Agreement provides, among other things, that trustees of The One Group are
responsible for the actions of The One Group in their capacity as trustees and
not personally. The parties hereto expressly acknowledge and agree that the
obligations of The One Group hereunder shall not be binding upon any of the
shareholders, trustees, officers, employees or agents of The One Group, but
shall only bind the trust property of The One Group, as provided in the Trust
Agreement. The execution and delivery of this Agreement by an officer of The One
Group has been approved by the trustees of The One Group, and neither the
authorization nor the execution and delivery shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of The One Group as provided
in the Trust Agreement.
[section]20. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or the breach of the same, shall be settled through
consultation and negotiation in good faith and a spirit of mutual cooperation.
However, if those attempts fail, the parties agree that any misunderstandings or
disputes arising from this Agreement shall be decided by arbitration which shall
be conducted, upon request by either party, before three (3) arbitrators (unless
both parties agree upon one (1) arbitrator), designated by the American
Arbitration Association (the "AAA"), in accordance with the terms of the
Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable,
the United States Arbitration Act (Title 9 of the United States Code), or if
such Act is not applicable, any substantially equivalent state law. The parties
further agree that the arbitrator(s) will decide which party must bear the
expenses of the arbitration proceedings.
[section]21. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties with respect to the subject matter hereof and may not be
modified or amended except by a writing signed by the parties hereto.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed this 29th day of December, 1997.
THE ONE GROUP
<PAGE> 8
By: /s/ Mark S. Redman
--------------------------------
Title: President
-----------------------------
BANK ONE TRUST COMPANY, N.A.
(as Subcustodian)
By: /s/ Steven E. Cutler
--------------------------------
Title: Vice President
-----------------------------
STATE STREET BANK AND TRUST COMPANY
(as Custodian)
By: Charles R. Whittemore, Jr.
----------------------------------
Title: Vice President
-------------------------------
9789.5
<PAGE> 1
EXHIBIT (9)(l)
SERVICES AGREEMENT DATED AS OF JUNE 6, 1997 BETWEEN
CHARLES SCHWAB & CO., INC. AND REGISTRANT
<PAGE> 2
SERVICES AGREEMENT
This Agreement is made as of June 6, 1997, between Charles Schwab &
Co., Inc. ("Schwab"), a California corporation, each registered investment
company ("Fund Company") executing this Agreement, on its own behalf and on
behalf of each of its series or classes of shares listed on Schedule I, as
amended from time to time (such series or classes being referred to as the
"Fund(s)"), and Fund Affiliate (defined below) that has executed this Agreement.
Fund Company and Fund Affiliate are collectively referred to herein as "Fund
Parties." In the event that there are no series or classes of shares listed on
Schedule I, the term "Fund(s)" shall mean "Fund Company."
WHEREAS Fund Affiliate is either (i) an investment adviser to or
administrator for the Funds or (ii) the principal underwriter or distributor for
the Funds.
WHEREAS Fund Parties wish to have Schwab perform certain recordkeeping,
shareholder communication, and other services for each Fund; and
WHEREAS Schwab is willing to perform such services on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties agree as follows:
1. Services
a. During the term of this Agreement, Schwab shall perform the
services set forth on Exhibit A hereto, as such exhibit may be amended from time
to time by mutual consent of the parties (the "Services").
b. The parties agree that the Operating Agreement, dated as of
June 6, 1997 between Schwab and Fund Company, as amended from time to time
("Operating Agreement"), is incorporated herein by this reference. In processing
purchase, redemption, transfer and exchange orders placed by Schwab on behalf of
its customers, and in order to facilitate Schwab's performance of Services, all
terms and conditions of the Operating Agreement shall be binding as between
Schwab and Fund Parties, and the references to Fund Company therein shall be
deemed to mean Fund Parties for the purposes of this Agreement. In the event of
any inconsistency between the Operating Agreement and this Agreement, this
Agreement shall control.
2. Fees
For the Services, Schwab shall receive a fee (the "Fee") which shall be
calculated and paid in accordance with Exhibit B hereto. Schedule II reflects
the portion of the Fee that each Fund Party has agreed, as between them, to pay.
Should Exhibit A be amended to revise the Services, the parties shall also amend
Exhibit B and Schedule II, if necessary, in order to reflect any changes in the
Fee.
<PAGE> 3
3. Transaction Charges
The parties acknowledge and agree that Schwab may collect
transaction fees from certain customers (including "Active Traders," as Schwab
may define that term) for certain services and from other customers upon such
other customers' redemption of certain shares.
4. Indemnification
a. Schwab shall indemnify and hold harmless Fund Parties and
their directors, officers, employees, and agents ("Indemnified Parties") from
and against any and all losses, claims, liabilities and expenses (including
reasonable attorney's fees) ("Losses") incurred by any of them arising out of
(i) Schwab's dissemination of information regarding Fund Parties or a Fund that
contains an untrue statement of material fact or any omission of a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading and that was not published or
provided to Schwab by or on behalf of Fund Company or its affiliated persons
("Affiliates") as defined under the Investment Company Act of 1940, as amended
(the " 1940 Act"), or accurately derived from information published or provided
by or on behalf of Fund Company or any Affiliate, (ii) any breach by Schwab of
any representation, warranty or agreement contained in this Agreement, or (iii)
any willful misconduct or negligence by Schwab in the performance of, or failure
to perform, its obligations under this Agreement, except to the extent such
Losses are caused by Fund Company or Fund's breach of this Agreement or Fund
Company or Fund's willful misconduct or negligence in the performance, or
failure to perform, its obligations under this Agreement. This Section 4(a)
shall survive termination of this Agreement.
b. In any event, no party shall be liable for any special,
consequential or incidental damages.
5. Role and Relationship of Schwab
The parties acknowledge and agree that the Services under this
Agreement are recordkeeping, shareholder communication and related services only
and are not the services of an underwriter or a principal underwriter of any
Fund within the meaning of the Securities Act of 1933, as amended, or the 1940
Act. This Agreement does not grant Schwab any right to purchase shares from any
Fund (although it does not preclude Schwab from purchasing any such shares), nor
does it constitute Schwab an agent of Fund Parties or any Fund for purposes of
selling shares of any Fund to any dealer or the public. To the extent Schwab is
involved in the purchase of shares of any Fund by Schwab's customers, such
involvement will be as agent of such customer only.
-2-
<PAGE> 4
6. Information to be Provided
Fund Parties shall provide to Schwab prior to the
effectiveness of this Agreement or as soon thereafter as practicable, two (2)
copies of the then-current prospectus and statement of additional information of
each Fund. Fund Party shall provide Schwab with written copies of any amendments
to or changes in the Fund's prospectus or statement of additional information
immediately upon their effective date.
7. Representations and Warranties
a. Each Fund Party represents and warrants that it has
obtained certified resolutions of its board of directors authorizing such Fund
Party to enter into this Agreement.
b. Each Fund Party represents and warrants that the person
signing this Agreement on its behalf is an officer authorized to execute this
Agreement on behalf of such Fund Party.
8. Notices
All notices required by this Agreement (excluding the
Operating Agreement) shall be in writing and delivered personally or sent by
first class mail. Such notices will be deemed to have been received as of the
earlier of actual physical receipt or three (3) days after deposit, first class
postage prepaid, in the United States mail. All such notices shall be made:
if to Schwab, to: Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Attention: Matthew L. Sadler
Vice President/Mutual Funds
with a copy to: General Counsel, at the same address;
if to Fund Party, to the address given below in the signature
block.
9. Nonexclusivity
Each Party acknowledges that the other may enter into
agreements similar to this Agreement with other parties for the performance of
services similar to those to be provided under this Agreement, unless otherwise
agreed to in writing by the parties.
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<PAGE> 5
10. Assignability
This Agreement is not assignable by any party without the
other parties' prior written consents and any attempted assignment in
contravention hereof shall be null and void; provided, however, that Schwab may,
without the consent of Fund Parties, assign its rights and obligations under
this Agreement to any Affiliate.
11. Exhibits and Schedules; Entire Agreement
All Exhibits and Schedules to this Agreement, as they may be
amended from time to time, are by this reference incorporated into and made a
part of this Agreement. This Agreement (including the Exhibits and Schedules
hereto), together with the Operating Agreement, constitute the entire agreement
between the parties as to the subject matter hereof and supersede any and all
agreements, representations and warranties, written or oral, regarding such
subject matter made prior to the time at which this Agreement has been executed
and delivered by Schwab and Fund Parties.
12. No Waiver
The failure of either party to insist upon exercising any
right under this Agreement shall not be construed as a waiver or relinquishment
to any extent of such party's right to assert or rely upon such provision or
right in any other instance.
13. Amendment
This Agreement and the Exhibits and Schedules hereto may be
amended only by a writing executed by each party hereto that is to be bound by
such amendment.
14. Governing Law
This Agreement shall be governed by and interpreted under the
laws of the State of California, applicable to contracts between California
residents entered into and to be performed entirely within the state.
15. Counterparts
This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together shall
constitute one and the same instrument.
16. Effectiveness of Agreement; Termination
a. Upon Schwab's acceptance of Schedule I, as amended from
time to time, the effective date of this Agreement as to any Fund shall be the
later of the date on which this Agreement is made or the date set forth opposite
the name of the Fund on Schedule I.
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<PAGE> 6
b. This Agreement may be terminated as to a Fund by any party
(i) upon ninety (90) days' written notice to the other parties or (ii) upon such
shorter notice as is required by law, order, or instruction by a court of
competent jurisdiction or a regulatory body or self-regulatory organization with
jurisdiction over the terminating party or (iii) immediately, effective on the
day following the termination of any plan of distribution/shareholder servicing
("Rule 12b-1 Plan") adopted and maintained pursuant to Rule 12b-1 under the 1940
Act by any Fund that has a Rule 12b-1 Plan in effect as of the effective date
of this Agreement, provided that a portion of the Fee is paid pursuant to the
Rule 12b-1 Plan.
c. After the date of termination as to a Fund, Fund Parties
will not be obligated to pay the Fee with respect to any shares of the Fund that
are first held in Schwab customer accounts after the date of such termination.
However, notwithstanding any such termination, Fund Parties will remain
obligated to pay Schwab the Fee as to each share of the Fund that was considered
in the calculation of the Fee as of the date of termination (a "Pre-Termination
Share"), for so long as such Pre-Termination Share is held in any Schwab
brokerage account and Schwab continues to perform substantially all of the
Services as to such Pre-Termination Share. Further, for so long as Schwab
continues to perform the Services as to any Pre-Termination Shares, this
Agreement will otherwise remain in fall force and effect as to such
Pre-Termination Shares. Fund Parties shall reimburse Schwab promptly for any
reasonable expenses Schwab incurs in effecting any termination of this
Agreement, including delivery to a Fund Party of any records, instruments, or
documents reasonably requested by the Fund Party.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement by a duly
authorized representative of the parties hereto.
CHARLES SCHWAB & CO., INC. THE ONE GROUP, on its own behalf and on
behalf of each Fund listed on Schedule I hereto
By: \s\ Matthew L. Sadler By: \s\ Mark S. Redman
------------------------ --------------------------
Matthew L. Sadler Name: Mark S. Redman
------------------------
Vice President/Mutual Funds Title: Vice President
-----------------------
Date: 9/22/97 Date: 8/22/97
---------------------- ------------------------
Address: 3435 Stelzer Rd.
---------------------
Columbus, Ohio 43219
-----------------------------
Attn:
------------------------
The One Group Services Co.
-----------------------------
Name of Fund Affiliate
By: /s/ Mark A. Dillon
--------------------------
Name: Mark A. Dillon
------------------------
Title: President
-----------------------
Date: 8/22/97
------------------------
Address: 3435 Stelzer Road
---------------------
Columbus, OH 43219
-----------------------------
Attn: Mark S. Redman
------------------------
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<PAGE> 8
EXHIBIT A
SERVICES
1. Record Maintenance
Schwab shall maintain the following records with respect to a
Fund for each customer who holds Fund shares in a Schwab brokerage account:
a. Number of shares;
b. Date, price and amount of purchases and redemptions
(including dividend reinvestments) and dates and amounts of dividends paid for
at least the current year to date;
c. Name and address of the customer, including zip codes and
social security numbers or taxpayers identification numbers;
d. Records of distributions and dividend payments;
e. Any transfers of shares; and
f. Overall control records.
2. Shareholder Communications
Schwab shall:
a. Provide to a shareholder mailing agent for the purpose of
mailing certain Fund-related materials the names and addresses of all Schwab
customers who hold shares of such Fund in their Schwab brokerage accounts. The
shareholder mailing agent shall be a person or entity with whom the Fund has
arranged for the distribution of certain Fund-related material in accordance
with the Operating Agreement. The Fund-related materials shall consist of
updated prospectuses and any supplements and amendments thereto, annual and
other periodic reports, proxy or information statements and other appropriate
shareholder communications. In the alternative, in accordance with the Operating
Agreement, Schwab may distribute the Fund-related materials to its customers.
b. Mail current Fund prospectuses and statements of additional
information and annual and other periodic reports upon customer request and, as
applicable, with confirmation statements;
c. Mail statements to customers on a monthly basis (or, as to
accounts in which there has been no activity in a particular month, no less
frequently than quarterly) showing, among other things, the number of shares of
each Fund owned by such customer and the net asset value of such Fund as of a
recent date;
d. Produce and mail to customers confirmation statements
reflecting purchases and redemptions of shares of each Fund in Schwab brokerage
accounts;
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<PAGE> 9
e. Respond to customer inquiries regarding, among other
things, share prices, account balances, dividend amounts and dividend payment
dates; and
f. With respect to Fund shares purchased by customers after
the effective date of this Agreement, provide average cost basis reporting to
the customers to assist them in preparation of income tax returns.
3. Transactional Services
Schwab shall communicate, as to shares of each Fund, purchase,
redemption and exchange orders reflecting the orders it receives from its
customers. Schwab shall also communicate, as to shares of each Fund, mergers,
splits and other reorganization activities.
4. Tax Information Returns and Reports
Schwab shall prepare and file with the appropriate
governmental agencies, such information, returns and reports as are required to
be so filed for reporting (i) dividends and other distributions made, (ii)
amounts withheld on dividends and other distributions and payments under
applicable federal and state laws, rules and regulations, and (iii) gross
proceeds of sales transactions as required.
5. Fund Communications
Schwab shall, on a daily basis and for each Fund, report the
number of shares on which the Fee is to be paid pursuant to this Agreement and
the number of shares on which no such Fee is to be paid. Schwab shall also
provide each Fund with monthly summaries of reports. Such summaries shall be
expressed in both shares and dollar amounts.
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<PAGE> 10
EXHIBIT B
CALCULATION OF FEE
1. The Fee shall be calculated by multiplying the Daily Value of
Qualifying Shares (defined below) times 35 basis points per annum. The Fee shall
be computed daily and paid monthly in arrears.
2. The Daily Value of Qualifying Shares is the aggregate daily value of
all shares of the Fund held in Schwab brokerage accounts, subject to the
following exclusions ("Qualifying Shares"). There shall be excluded from the
shares (i) shares held in a Schwab brokerage account prior to the effective date
of this Agreement as to the Fund and (ii) shares first held in a Schwab
brokerage account after the termination of this Agreement as to the Fund.
3. For purposes of this Exhibit, the daily value of the shares of each
Fund will be the net asset value reported by such Fund to the National
Association of Securities Dealers, Inc. Automated Quotation System. No
adjustments will be made to the net asset values to correct errors in the net
asset values so reported for any day unless such error is corrected and the
corrected net asset value per share is reported to Schwab before 5 o'clock,
p.m., San Francisco time, on the first business day after the day to which the
error relates.
4. At the request of Fund Parties, Schwab shall provide, on each
business day, a statement detailing the calculation for each Fund and the
aggregate value of the Qualifying Shares of each Fund. As soon as practicable
after the end of the month, Schwab shall also provide to Fund Parties an invoice
for the amount of the Fee due for each Fund. In the calculation of such Fee,
Schwab's records shall govern unless an error can be shown in the number of
shares used in such calculation.
5. Fund Parties shall pay Schwab the Fee within thirty (30) days after
Fund Parties' receipt of such statement. Such payment shall be by wire transfer,
unless the amount thereof is less than $250. Such wire transfers shall be
separate from wire transfers of redemption proceeds or distributions under the
Operating Agreement. Amounts less than $250 may, at Fund Parties' discretion, be
paid by check.
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<PAGE> 11
SCHEDULE I
TO THE SERVICES AGREEMENT
Fund Company/Fund(s) Effective Date
- -------------------- --------------
The One Group
Large Company Growth Fund-Class A SI 6/6/97
Income Equity Fund-Class A SI 6/6/97
Ultra Short Term Income Fund-Class A SI 6/6/97
Municipal Income Fund-Class A SI 6/6/97
International Equity Index Fund-Class A SI 6/6/97
Ohio Municipal Bond Fund-Class A SI 6/6/97
Arizona Municipal Bond Fund-Class A SI 6/6/97
Intermediate Bond Fund-Class A SI 6/6/97
* Indicates that Fund is a "no load" or "no sales charge" Fund as defined in
Rule 2830 of the Conduct Rules of the National Association of Securities
Dealers, Inc. SI Indicates that the Fund is available only to Schwab
Institutional customers.
Accepted by:
CHARLES SCHWAB & CO., INC. THE ONE GROUP, on its own behalf and
on behalf of each Fund Company
listed on Schedule I
By: /s/ Matthew L. Sadler
-----------------------------
Matthew L. Sadler By: /s/ Mark S. Redman
Vice President/Mutual Funds ------------------------------
Date: 9/22/97 Name: Mark S. Redman
--------------------------- ----------------------------
Title: Vice President
---------------------------
Date: 8/22/97
----------------------------
Acknowledged by:
The One Group Services Co.
---------------------------------
Name of Fund Affiliate
By: /s/ Mark A. Dillon
------------------------------
Name: Mark A. Dillon
----------------------------
Title: President
---------------------------
Date: 8/22/97
----------------------------
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<PAGE> 12
SCHEDULE II
TO THE SERVICES AGREEMENT
Fund Company
The One Group .25%
- ----------------------------- --------------------
(name)
Fund Affiliate
The One Group Services Co. .10%
- ----------------------------- --------------------
(name)
Fee Rate Percentage Per Annum on
All Qualifying Shares 0.35%
-11-
<PAGE> 1
EXHIBIT (9)(m)
OPERATING AGREEMENT DATED AS OF JUNE 6, 1997 BETWEEN
CHARLES SCHWAB & COMPANY AND REGISTRANT
<PAGE> 2
OPERATING AGREEMENT
This Agreement is made as of June 6, 1997, between Charles Schwab &
Co., Inc. ("Schwab"), a California corporation, and each registered investment
company executing this Agreement ("Fund Company"), on its own behalf and on
behalf of each of its series or classes of shares listed on Schedule I, as
amended from time to time (such series or classes being referred to as
"Fund(s)"). In the event there are no series or classes of shares listed on
Schedule I, then the term "Fund(s)" shall mean "Fund Company."
WHEREAS Fund Company wishes to have shares of the Fund(s) available for
purchase and redemption by Schwab's brokerage customers through Schwab's Mutual
Fund Marketplace(R) "MFMP");
WHEREAS certain policies, procedures and information are necessary to
enable the Fund(s) to participate in the MFMP; and
WHEREAS Schwab is willing to permit the Fund(s) to participate in its
MFMP pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties agree as follows:
1. Operating Procedures
Schwab will open an omnibus account (the "Account") with each
Fund through which it will purchase and redeem shares, settle transactions,
reconcile transactions, obtain pricing, reinvest distributions and maintain
records in accordance with the Operating Procedures set forth in Exhibit A
hereto. In addition, the parties agree to transfer accounts, communicate with
Fund shareholders and perform other obligations in accordance with the Operating
Procedures.
2. Qualification Requirements
a. Schwab will only place purchase orders for shares of a Fund
on behalf of a customer whose account address recorded on Schwab's books is in a
state or other jurisdiction in which Fund Company has advised Schwab that such
Fund has qualified its shares for sale under applicable law. Fund Company shall
advise Schwab immediately if any such qualification is terminated or if it
wishes Schwab not to place purchase orders for a Fund on behalf of its customers
who reside in a particular state or other jurisdiction.
b. Schwab will, upon request, (i) furnish Fund Company with
monthly written statements of the number of shares of each Fund purchased on
behalf of Schwab customers resident in one or more states or other jurisdictions
indicated by Fund Company or (ii) on a daily basis,
<PAGE> 3
transmit to an electronic database provider with whom Schwab has established
effective systems interfaces information regarding the number of shares of each
Fund sold in each state for retrieval by Fund Company. Fund Company shall be
responsible for all reasonable fees and other reasonable charges of such
database provider in connection with Schwab's transmission of such information
to and Fund Company's retrieval of such information from such database provider.
c. Fund Company agrees that any rescission offer that is made
to shareholders who own shares directly with a Fund will also be made to Schwab
customers who would be entitled to such rescission offer if they owned shares
directly with the Fund. Fund Company will provide Schwab with a letter on Fund
Company letterhead containing the terms of any such rescission offer, and Schwab
may send this writing, or any derivation thereof, to the affected Schwab
customers. To assist Fund Company in effecting any such rescission offer, Schwab
agrees to provide Fund Company with relevant information regarding any affected
Schwab customer, including the account number, the number of shares purchased
and redeemed, if any, the dates of the purchasers) and redemption(s), if any,
and the dollar amount of such transactions.
3. Compliance Responsibilities
a. Fund Company is responsible for (i) the compliance of each
prospectus, registration statement, annual or other periodic report, proxy
statement and item of advertising or marketing material of or relating to each
Fund with all applicable laws, rules and regulations (except for advertising or
marketing material prepared by Schwab that was not published or provided to
Schwab by or on behalf of Fund Company or any Affiliate (defined below) or
accurately derived from information published or provided by or on behalf of
Fund Company or any Affiliate), (ii) the distribution and tabulation of proxies
in accordance with all applicable laws, rules and regulations (except for such
proxy related services provided by Schwab's mailing agent), (iii) the
registration or qualification of the shares of each Fund under all applicable
laws, rules and regulations, and (iv) the compliance by Fund Company and each
Affiliate of Fund Company, as that term is defined below, with all applicable
laws, rules and regulations (including the Investment Company Act of 1940, as
amended (the " 1940 Act"), and the Investment Advisers Act of 1940, as amended),
and the rules and regulations of each self-regulatory organization with
jurisdiction over Fund Company or Affiliate, except to the extent that the
failure to so comply by Fund Company or any Affiliate is caused by Schwab's
breach of this Agreement. An "Affiliate" of a person means (i) any person
directly or indirectly controlling, controlled by, or under common control with,
such person, (ii) any officer, director, partner, corporation, or employee of
such person, and (iii) if such person is an investment company, any investment
advisor thereof or any member of the advisory board thereof.
b. In the event that the Account holds five percent (5 %) or
more of the outstanding Fund shares, Fund Company will be responsible for
requesting Schwab to confirm its status as shareholder of record and to confirm
whether any Schwab customer beneficially owns five percent (5 %) or more of the
outstanding Fund shares through its Schwab brokerage account. For this purpose,
Fund Company shall indicate in its inquiry the number of Fund shares that equal
five percent (5 %) of outstanding Fund shares. Schwab shall promptly reply to
any such inquiries.
-2-
<PAGE> 4
c. Schwab is responsible for Schwab's compliance with all
applicable laws, rules and regulations governing Schwab's performance under this
Agreement, except to the extent that Schwab's failure to comply with any law,
rule or regulation is caused by Fund Company's breach of this Agreement, or its
willful misconduct or negligence in the performance or failure to perform its
obligations under this Agreement.
d. Except as set forth in this Agreement or as otherwise
agreed upon in writing by the parties, any communication, instruction or notice
made pursuant to this Agreement shall be made orally, provided that such oral
communication is on a recorded telephone line or is promptly confirmed in
writing by facsimile transmission. Schwab is entitled to rely on any
communications, instructions or notices which it reasonably believes were
provided to it by Fund Company, any Affiliate or their agents authorized to
provide such communications, instructions or notices to Schwab, and on
communications, instructions or notices provided to it by its customers. Fund
Company is entitled to rely on any communications, instructions or notices it
reasonably believes were provided to it by Schwab, or its agents authorized to
provide such communications, instructions or notices to Fund Company.
e. Except to the extent otherwise expressly provided in this
Agreement, neither party assumes any responsibility hereunder, or will be liable
to the other, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control.
f. Fund Company and each Fund shall indemnify and hold
harmless Schwab and each director, officer, employee and agent of Schwab from
and against any and all losses, claims, liabilities and expenses (including
reasonable attorney's fees) ("Losses") incurred by any of them arising out of
(i) any untrue statement of material fact or any omission of a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading in any prospectus, registration
statement, annual or other periodic report or proxy statement of the Fund or in
any advertising or promotional material published or provided to Schwab by or on
behalf of Fund Company or any Affiliate or accurately derived from information
published or provided by or on behalf of Fund Company or any Affiliate, (ii) any
violation of any law, rule or regulation relating to the registration or
qualification of shares of the Fund, (iii) any breach by Fund Company of any
representation, warranty or agreement contained in this Agreement, or (iv) any
willful misconduct or negligence by Fund Company or a Fund in the performance
of, or failure to perform its obligations under this Agreement, except to the
extent such Losses are caused by Schwab's breach of this Agreement or its
willful misconduct or negligence in the performance, or failure to perform, its
obligations under this Agreement. This Section 3(f) shall survive termination of
this Agreement.
4. Account Establishment and Maintenance Fees
Fund Company shall pay to Schwab such fees as are set forth on Schedule
H hereto to reimburse Schwab for its costs in establishing and maintaining
Account(s) for each Fund. Fees attributable to establishment of the Account(s)
for a Fund shall be paid prior to establishment of the
-3-
<PAGE> 5
Account(s) for the Fund. Fees attributable to maintaining the Account(s) for
each Fund shall be billed on an annual basis on December 31 and paid promptly,
in no event later than thirty (30) days after billing. Such payment shall be by
wire transfer. Such wire transfers shall be separate from wire transfers of
redemption proceeds or distributions under this Agreement.
5. Representations and Warranties
a. Fund Company represents and warrants to Schwab that each
Fund is in compliance with the conditions and qualifications set forth in Rule
2830 of the Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"), as amended from time to time ("Rule 2830"), which enable an NASD
member to offer or sell shares in the Fund. Fund Company represents and warrants
that each Fund marked with an asterisk on Schedule I is a no load" or "no sales
charge" Fund as defined in Rule 2830. If a Fund, for any reason, fails to
satisfy the terms and conditions of Rule 2830, Fund Company will notify Schwab
immediately of the Fund's disqualification and the reason therefor.
b. Schwab represents and warrants that Schwab is a member of
the NASD.
6. Use of Parties' Names
a. Without Schwab's prior written consent, Fund Company will
not cause or permit the use, description, or reference to Schwab, or to the
relationship contemplated by this Agreement in any advertisement or promotional
materials or activities.
b. Fund Company authorizes Schwab to use the names or other
identifying marks of Fund Company and Fund in connection with the operation of
the MFMP. Fund Company may withdraw this authorization as to any particular use
of any such name or identifying marks at any time (i) upon Fund Company's
reasonable determination that such use would have a material adverse effect on
the reputation or marketing efforts of Fund Company or such Fund, or (ii) if any
of the Funds cease to be available through the MFMP; provided, however, that
Schwab may, in its discretion, continue to use materials prepared or printed
prior to the withdrawal of such authorization or in the process of being
prepared or printed at the time of such withdrawal.
7. Proprietary Information
Each party hereto acknowledges that the identities of the
other party's customers, information maintained by such other party regarding
those customers, and all computer programs and procedures developed by such
other party or such other party's affiliates or agents in connection with such
other party's performance of its duties hereunder constitute the valuable
property of such other party. Each party agrees that should it come into
possession of any list or compilation of the identities of or other information
about the other party's customers, or any other property of such party, pursuant
to this Agreement or any other agreement related to services under this
Agreement, the party who acquired such information or property shall use its
best efforts to hold such
-4-
<PAGE> 6
information or property in confidence and refrain from using, disclosing, or
distributing any of such information or other property, except (i) with the
other party's prior written consent, or (ii) as required by law or judicial
process. Each party acknowledges that any breach of the foregoing agreements as
to another party would result in immediate and irreparable harm to such other
party for which there would be no adequate remedy at law and agrees that in the
event of such a breach such other party will be entitled to equitable relief by
way of temporary and permanent injunctions, as well as such other relief as any
court of competent jurisdiction deems appropriate.
8. Assignability
This Agreement is not assignable by either party without the
other party's prior written consent, and any attempted assignment in
contravention hereof shall be null and void and not merely voidable; provided,
however, that Schwab may, without the consent of Fund Company, assign its rights
and obligations under this Agreement to any Affiliate.
9. Exhibits and Schedules; Entire Agreement
All Exhibits and Schedules to this Agreement, as they may be
amended from time to time, are by this reference incorporated into and made a
part of this Agreement. This Agreement (including the Exhibits and Schedule
hereto) constitutes the entire agreement between the parties as to the subject
matter hereof and supersedes any and all agreements, representations and
warranties, written or oral, regarding such subject matter made prior to the
date on which this Agreement has been executed and delivered by Schwab and Fund
Company.
10. Amendment
This Agreement may be amended only by a writing executed by
each party hereto that is to be bound by such amendment, except as provided in
this Section 10. Exhibit A and Schedule II may each be amended by Schwab on
forty (40) days' written notice to Fund Company or such earlier time as shall be
agreed to by the parties. Exhibits B and C shall be amended by Fund Company in
the event of any change to the information contained therein.
11. Governing Law
This Agreement shall be governed by and interpreted under the
laws of the State of California, applicable to contracts between California
residents entered into and to be performed entirely within the state.
12. Counterparts
This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together shall
constitute one and the same instrument.
-5-
<PAGE> 7
13. Effectiveness and Termination
a. Upon Schwab's acceptance of Schedule I, as amended from
time to time, the effective date of this Agreement as to any Fund shall be the
later of the date on which this Agreement is made or the date set forth opposite
the name of the Fund on Schedule I.
b. This Agreement may be terminated as to any Fund by Schwab
immediately upon written notice to Fund Company. This Agreement may be
terminated as to any Fund by Fund Company upon thirty (30) days' written notice
to Schwab.
c. Upon the termination date for any Fund, Schwab will no
longer make the Fund shares available for purchase by Schwab's customers through
the MFMP. Schwab reserves the right to transfer the Fund shares of its customers
out of the Account. If Schwab continues to hold the Fund shares on behalf of its
customers in the Account, the parties agree to be obligated under, and act in
accordance with, the terms and conditions of this Agreement with respect to such
shares.
IN WITNESS WHEREOF, this Agreement has been executed by a duly
authorized representative of the parties hereto.
CHARLES SCHWAB & CO., INC. THE ONE GROUP, on its own behalf and on behalf
of each Fund listed on Schedule I hereto, as
amended from time to time
By: \s\ Fred Potts By: \s\ Mark S. Redman
-------------------------- ----------------------------
Fred Potts
Vice President/Mutual Funds
Operations Administration Name: Vice President
--------------------------
Date: 9//19/97 Title: Mark S. Redman
------------------------ -------------------------
Date: 8/22/97
--------------------------
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<PAGE> 8
SCHEDULE I
TO THE OPERATING AGREEMENT
Fund Company(ies)/Fund(s) Effective Date
- ------------------------- --------------
The One Group
Large Company Growth Fund-Class A SI 6/6/97
Income Equity Fund-Class A SI 6/6/97
Ultra Short Term Income Fund-Class A SI 6/6/97
Municipal Income Fund-Class A SI 6/6/97
International Equity Index Fund-Class A SI 6/6/97
Ohio Municipal Bond Fund-Class A SI 6/6/97
Arizona Municipal Bond Fund-Class A SI 6/6/97
Intermediate Bond Fund-Class A SI 6/6/97
* Indicates that Fund is a "no-load" or "no sales charge" Fund as defined
in Rule 2830 of the Conduct Rules of National Association of Securities
Dealers, Inc.
SI Indicates that Fund is available only to Schwab Institutional customers.
THE ONE GROUP, on its own behalf and on
Accepted by: behalf of each Fund listed on this Schedule I,
as amended from time to time
CHARLES SCHWAB & CO., INC.
By: /s/ Fred Potts By: /s/ Mark S. Redman
--------------------------- ---------------------------
Fred Potts Name: Mark S. Redman
Vice President/Mutual Funds -------------------------
Operations Administration Title: Vice President
------------------------
Date: 9/19/97 Date: 8/22/97
---------------------- -------------------------
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<PAGE> 9
SCHEDULE II
TO THE OPERATING AGREEMENT
Fees to Establish and Maintain Account(s) for a Fund
Establishment Fees
The Establishment Fee shall be $12,000 for the Account(s) for the initial
Fund established on Schwab's system, and $4,500 for the Account(s) for each
additional Fund, whether added at the same time or subsequent to the initial
Fund.
Maintenance Fee
a. The Maintenance Fee as to the Account(s) for each Fund shall be
charged in advance, annually, on December 31 ("Assessment Date") commencing on
the first Assessment Date after the establishment of the Account(s) for the Fund
on the Schwab system. The Maintenance Fee as to the Account(s) of a Fund shall
not be prorated in the event of termination of this Agreement as to such Fund
prior to the end of a calendar year for which such Maintenance Fee has been
charged.
b. The Maintenance Fees as to the Account(s) for each Fund shall be
determined based on the aggregate value of all shares of a Fund contained in all
Account(s) at the Fund on the Assessment Date. The Maintenance Fees are as
follows:
Aggregate Value of All Shares Maintenance Fee
- ----------------------------- ---------------
Up to and including $2.5 million $ 4,500
Over $2.5 million and up to and
including $5 million $ 3,000
Over $5 million $ 0
c. For purposes of this calculation, the value of the shares of each
Fund will be the net asset value reported by such Fund to the National
Association of Securities Dealers, Inc. Automated Quotation System. No
adjustments will be made to the net asset values to correct errors in the net
asset values so reported for any Assessment Date unless such error is corrected
and the corrected net asset value per share is reported to Schwab before 5
o'clock, p.m., San Francisco time, on the next business day after the Assessment
Date to which the error relates.
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<PAGE> 10
EXHIBIT A
Operating Procedures
1 The Account
a. Schwab will open an Account with each Fund. The Account shall
be registered:
Charles Schwab & Co., Inc.
Special Custody Account for the Exclusive Benefit of Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104
The Account will be set up for the reinvestment of capital gains and dividend
distributions.
b. The Fund shall designate the Account with account numbers.
Account numbers will be the means of identification when the parties are
transacting in the Account.
c. The parties acknowledge that the Account is an omnibus account
in Schwab's name with shares held by any number of beneficial owners. Schwab
represents that the shares in the Account are customer securities and are
segregated from Schwab's own assets. Fund Company represents that the shares in
the Account are carried free of any charge, lien or payment of any kind in favor
of the Fund or any person claiming through the Fund.
d. The Account shall be kept open on the Fund's books regardless
of a lack of activity or small position size, except to the extent that Schwab
takes specific action to close the Account, or to the extent the Fund's
prospectus reserves the right to close accounts that are inactive. In the latter
case, Fund Company will give prior notice to Schwab before closing any Account.
e. Schwab has the right to open additional accounts from time to
time to accommodate other investment options and features, and to consolidate
existing accounts if and when appropriate to meet the needs of the MFMP. In the
event that it is necessary for Schwab to open an account with a Fund for the
payment of distributions in cash, the term "Account" shall mean both the account
for the reinvestment of capital gains and dividend distributions and the account
for the payment of distributions in cash.
f. Schwab reserves the right to issue instructions to each Fund
to move shares between the Account and any other account Schwab may open.
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2. Purchase and Redemption Orders
For each day on which any Schwab customer places with Schwab a
purchase or redemption order for shares of a Fund, Schwab shall aggregate all
such purchase orders and aggregate all such redemption orders and communicate to
the Fund an aggregate purchase order and an aggregate redemption order. Schwab
will accept orders to purchase and redeem Fund shares from its customers no
later than 4:00 p.m. Eastern Time (market close). Schwab will communicate the
order to the Fund prior to a mutually agreed upon time.
3. Settlement of Transactions
a. Schwab will transmit the purchase price of the aggregate
purchase order to the Fund by wire transfer on the next business day after the
trade date. For purposes of this Agreement, a "business day" is any day the New
York Stock Exchange is open for trading.
b. For each business day on which Schwab places a redemption
order for a Fund within the time designated by the Fund, Fund Company will cause
the Fund(s) to send to Schwab the aggregate proceeds of all redemption orders
for the Fund(s) placed by Schwab on that day. Such redemption proceeds will be
sent by wire transfer on the next business day following the trade date for the
redemption orders; provided that Fund Company may, in its discretion, send such
proceeds by check if the aggregate amount is less than $250. Wire transfers of
redemption proceeds shall be separate from wire transfers for other purposes.
c. Each wire transfer of redemption proceeds shall indicate,
on the Fed Funds wire system, the amount thereof attributable to each Fund;
provided, however, that if the number of entries would be too great to be
transmitted through the Fed Funds wire system, Fund Company shall, on the day
the wire is sent, notify Schwab of such entries. The cost of the wire transfer
is the responsibility of the party sending the wire. The interest cost
associated with any delayed wire is the responsibility of the party sending the
wire.
d. Should a Fund need to extend settlement on a trade, Fund
Company must contact Schwab on trade date to discuss the extension. For purposes
of determining the length of settlement, Fund Company agrees to treat
shareholders that hold Fund shares through the Account the same as it treats
shareholders that hold Fund shares directly with the Fund.
e. In the event that a Fund cannot verify redemption proceeds,
Fund Company will settle trades and forward redemption proceeds in accordance
with this Agreement based on the information provided by Schwab. Schwab will be
responsible for the accuracy of all trade information provided by it.
f. Fund Company represents that each Fund that has reserved
the right to redeem in kind has filed Form N-18F-1 with the Securities and
Exchange Commission. For purposes of complying with the Fund's election on Form
N-18F-1, Fund Company agrees that it will treat as a
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"shareholder" each shareholder that holds Fund shares through the Account,
provided that Schwab provides to Fund Company, upon request, the name or account
number,
number of Fund shares and other relevant information for each such shareholder.
Fund Company acknowledges that treatment of Schwab as the sole shareholder of
Fund shares held in the Account for purposes of applying the limits in Rule
18f-1 under the 1940 Act would be inconsistent with the intent of Rule 18f-1 and
the Fund's election on Form N-18F-1 and could unfairly prejudice shareholders
that hold Fund shares through the Account.
4. Account Reconciliation Requirements
a. Schwab shall verify, on a next day basis, orders placed for
the Account with each Fund. All activity in the Account must be reflected.
Therefore, any "as of" activity must be shown with its corresponding "as of"
dates.
b. Schwab must receive statements on or before the eighth
business day of each month, even if there has been no activity in the Account
during the period, unless Schwab can verify transactions by direct or indirect
systems access.
c. The parties agree to notify each other and correct any
error in the Account with any Fund upon discovery. If an error is not corrected
by the day following discovery, each party agrees to make best efforts to avoid
this from hindering any routine daily operational activity.
5. Pricing
Every business day on which there is a transaction in the
Account and for each month-end business day, Fund Company will provide to Schwab
prior to 7:00 p.m., Eastern Time, each Fund's closing net asset value and public
offering price (if applicable) for that day and/or notification of no price for
that day. Fund Company shall provide such information on a best efforts basis
taking into consideration any extraordinary circumstances arising at the Fund
(e.g. natural disasters, etc.).
6. Distributions
a. Fund Company shall provide distribution information to
Schwab in a timely manner to enable Schwab to pay distributions to its customers
on or as close, to payable date as practicable. As to each Fund, Fund Company or
such Fund shall provide Schwab with (i) the record date, ex-dividend date, and
payable date with respect to a Fund as soon as practicable after it is
announced, but no later than three (3) business days prior to record date, (ii)
the record date share balance in the Account and the distribution rate per share
on the first business day after record date, and (iii) the reinvest price per
share as soon as it is available. Other distribution information required by
Schwab from time to time for payment of distributions to its customers shall be
provided by Fund
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Company on such dates as are agreed upon between Schwab and Fund Company, but no
later than payable date.
b. For purposes of effecting cash distributions for customers
who have elected to receive their capital gains distributions and/or dividends
in cash, prior to 10:00 a.m., Eastern Time, on the next business day following
receipt of the reinvest price per share as provided in paragraph 6(a)(iii)
above, Schwab shall notify Fund Company of the aggregate number of Fund shares
with respect to which the purchase is required to be voided. Fund Company agrees
that the purchase of such aggregate number of Fund shares may be voided. Fund
Company or such Fund shall wire the proceeds of such voided transaction from the
Fund to Schwab on the same business day. Schwab shall use such voided
transaction proceeds to pay the distribution in cash to Schwab customers who
have elected to receive such distributions in cash.
c. For each Fund that pays daily dividends, Fund Company shall
provide on a daily basis, the following record date information: daily rate,
account share balance, account accrual dividend amount (for that day), account
accrual dividend amount (for period to date), and account transfers and
period-to-date accrual amounts.
d. In the event that Schwab maintains an Account with a Fund
for the payment of distributions in cash, Fund Company shall wire, on payable
date, any cash distribution from the Fund to Schwab.
e. For each Fund that pays daily dividends, each Fund shall
accrue dividends, commencing on the settlement date for the purchase of Fund
shares and terminating on the trade date for the redemption of Fund shares.
f. For annual tax reporting purposes, Fund Company shall
inform Schwab of the portion of each Fund's distributions that include any of
the following: foreign source income, tax exempt income by state of origin or
return of capital.
g. In conformance with its status as a broker/dealer holding
its customers securities in street name, Schwab shall prepare and file with the
appropriate governmental agencies, such information, returns and reports as are
required to be so filed for reporting (i) dividends and other distributions
made, (ii) amounts withheld on dividends and other distributions and payments
under applicable federal and state laws, rules and regulations and (iii) gross
proceeds of sales transactions as required.
h. Upon notice from Fund Company, Schwab shall effect mergers,
splits and other reorganization activities of a Fund for its customers.
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7. Price and Distribution Rate Errors
a. In the event adjustments are required to correct any error
in the computation of the net asset value or public offering price of a Fund's
shares or in the distribution rate for a Fund's shares, Fund Company shall
notify Schwab upon discovering the need for such adjustments.
Notification can be made orally, but must be confirmed in writing.
b. Schwab and Fund Company shall agree promptly and in good
faith to a resolution of the error, and no adjustment for the error shall be
taken in the Account until such agreement is reached. Following resolution, upon
request by Schwab, Fund Company shall provide Schwab with written notification
of the resolution. The letter shall be written on Fund Company letterhead and
must state for each day on which an error occurred the incorrect price or rate,
the correct price or rate, and the reason for the price or rate change. Fund
Company agrees that Schwab may send this writing, or derivation thereof, to
Schwab's customers whose accounts are affected by the price or rate change.
c. If a Schwab customer has received cash in excess of what he
is entitled, Schwab will, when requested by Fund Company, and to the extent
practicable and permitted by law, debit the customer's brokerage account in the
amount of such excess, but only to the extent of any cash in the account, and
repay it to the Fund. In no event, however, shall Schwab be liable to Fund
Company or the Fund for any such amounts. Upon the request of Fund Company,
Schwab shall provide Fund Company with the name of Schwab's customer and other
relevant information concerning the customer's brokerage account to assist Fund
Company in the collection from Schwab's customer of any such excess amount not
repaid to the Fund.
d. If adjustment is necessary to correct an error which has
caused Schwab's customers to receive dollars or shares less than that to which
they are entitled, the Fund shall, as appropriate and as mutually agreed by the
parties pursuant to 7(b) above, make all necessary adjustments to the number of
shares owned in the Account and/or distribute to Schwab any and all amounts of
the underpayment. Schwab will credit the appropriate amount of such shares or
payment to each Schwab customer.
e. For purposes of making adjustments, including the
collection of overpayments, Fund Company agrees to treat shareholders that hold
Fund shares through the Account the same as it treats shareholders that hold
Fund shares directly with the Fund. When making adjustments for an error, a Fund
shall not net transactions for that day in the Account.
8. Record Maintenance
a. Schwab shall maintain records for each of its customers who
holds Fund shares through the Account, which records shall include:
i. Number of shares;
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ii. Date, price and amount of purchases and redemptions
(including dividend reinvestments) and date and amounts of
dividends paid for at least the current year to date;
iii. Name and address of each of its customers, including zip
codes and social security numbers or taxpayer identification
numbers;
iv. Records of distributions and dividend payments;
v. Any transfers of shares; and
vi. Overall control records.
b. Schwab will be responsible for accurately posting transactions in
Fund shares to its customers' brokerage accounts.
9. Transfer of Accounts
a. Fund Company agrees to transfer shares between accounts for
Schwab customers or other street name brokers held directly with a Fund and the
Account on the Fund's records. For the purpose of expediting direct transfers
from accounts for Schwab customers, Fund Company will accept by facsimile
transmission a summary sheet of information ("Summary Sheet") indicating the
customers' names, account numbers, the Fund affected and the number of shares to
be re-registered. For record keeping purposes, actual copies of transfer forms
will be forwarded to a Fund upon its request for such forms.
b. Schwab represents and warrants that for each transfer
indicated in the Summary Sheet, it holds each underlying instruction for
re-registration signed by its customer, and that its customer's signature on
such instruction is signature guaranteed by Schwab pursuant to the New York
Stock Exchange's Medallion Signature Program. Schwab will retain these documents
for the period required by any applicable law rule or regulation.
c. Schwab agrees to indemnify and hold harmless Fund Company,
the Fund and each director, officer, employee and agent of Fund Company
("indemnified person") from and against any and all Losses incurred by any of
them arising out of the impropriety of any transfer effected by the Fund in
reliance on the Summary Sheet to the same extent as provided under the New York
Stock Exchange's Medallion Signature Program, except to the extent such Losses
arise out of the failure of any indemnified person to comply with the
instructions on the summary sheet of information.
d. Fund Company shall process all transfer requests into the
appropriate Account. Schwab as custodian is qualified to accept in the Accounts
shares from Fund IRA, Keogh or 401(k) accounts. At no time shall any Fund
establish separate accounts registered to Schwab for the benefit of individual
shareholders. In the event any such account is mistakenly opened, Schwab
reserves the right to instruct such Fund to move Fund shares to the Account.
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e. Fund Company must confirm to Schwab the completion of each
transfer on the day it occurs. The confirming information shall include the
number of shares, date ("as of" date if unavoidable delay), transaction date,
account number of the customer and the Account, registration, accrued dividends
and account type (i.e., IRA, Keogh, 401(k), etc.).
f. Transfer processing after record date but prior to payable
date will include all accrued dividends. Each Fund is responsible for monitoring
all completed full transfers for "trailing" dividends. Should a "trailing"
dividend appear in an account, a Fund shall send such dividend to Schwab within
five (5) business days, along with a specific written notification thereof.
Notification shall include details of the dividend and customer, including the
customer's social security number or taxpayer identification number, and/or the
account number for the Account to which the transfer was made.
g. If Schwab customers submit share certificates for transfer
into their Schwab brokerage accounts, Schwab will send such certificates,
properly endorsed to the applicable Fund, for transfer into the Account with
such Fund. Upon Schwab's request, Fund Company agrees to provide the status of
said certificates and book share balances.
10. Shareholder Communication
a. Fund Company shall arrange with Schwab, or a mailing agent
designated or approved by Schwab, for the distribution of the materials listed
below to all of Schwab's customers who hold Fund shares, which distribution
shall be so arranged by Fund Company as to occur immediately upon the effective
date of the materials:
i. All proxy or information statements prepared for
circulation to shareholders of record of such Fund;
ii. Annual reports;
iii. Semi-annual reports;
iv. Quarterly reports (if applicable); and
v. All updated prospectuses, supplements and amendments
thereto.
Fund Company shall be responsible for providing the materials and for Schwab or
the mailing, gent's fees in connection with this service as well as for timely
distribution. Fund Company agrees to have Schwab or the mailing agent
consolidate mailings of material to shareholders of more than one Fund if the
mailing is identical for all Funds in the Fund Company family.
b. In addition to the materials listed above, Fund Company
agrees to provide directly to Schwab all prospectuses, statements of additional
information and supplements and amendments thereto, and annual and other
periodic reports for each Fund in amounts reasonably requested by Schwab for
distribution to its customers. Fund Company is obligated to supply these
materials to Schwab in a timely manner so as to allow Schwab, at its own
expense, to send current prospectuses and statements of additional information
and periodic reports, immediately upon their
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effective dates, to customers and prospective customers requesting them through
Schwab. Schwab will also send a current Fund prospectus with purchase trade
confirmations for the initial purchase of a Fund. Fund Company shall notify
Schwab immediately of any change to a Fund's prospectus.
c. If Schwab acts as clearing broker in an omnibus
relationship with a correspondent bank or broker ("Correspondent"), upon the
request of Schwab, Fund Company shall also provide to Schwab, in a timely
manner, sufficient supplies of Fund materials identified in Sections 10(a) and
10(b) for Schwab to give to Correspondent for the distribution of such materials
to Correspondent's customers who hold Fund shares.
d. Fund Company shall ensure that the prospectus of each of
its Funds discloses that a broker may charge transaction fees on the purchase
and/or sale of Fund shares. Fund Company shall also ensure that either the
prospectus, or the statement of additional information if the statement of
additional information is incorporated in the prospectus, of each of its Funds
discloses (i) that the performance of the Fund may be compared in publications
to the performance of various indices and investments for which reliable
performance data is available, (ii) that the performance of the Fund may be
compared in publications to averages, performance rankings, or other information
prepared by recognized mutual fund statistical services, and (iii) that the
annual report contains additional performance information and will be made
available' to investors upon request and without charge.
e. Schwab shall mail statements to its customers on a monthly
basis (or as to accounts in which there has been no activity in a particular
month, no less frequently than quarterly) showing, among other things, the
number of shares of each Fund owned by such customer and the net asset value of
each such Fund as of a recent date.
f. Schwab shall respond to customer inquiries regarding, among
other things, share prices, account balances, dividend amounts and dividend
payment dates. With respect to Fund shares purchased by customers after the
effective date of this Agreement, Schwab shall provide average cost basis
reporting to assist customers in the preparation of income tax returns.
11. New Processing Systems
Fund Company agrees to cooperate to the extent possible with
Schwab as Schwab develops and seeks to implement new processing systems for the
MFMP.
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EXHIBIT (9)(n)
RETIREMENT SERVICES ORDER PROCESSING AGREEMENT DATED AS OF JUNE 6, 1995
BETWEEN CHARLES SCHWAB & CO., INC., CHARLES SCHWAB
TRUST COMPANY AND REGISTRANT
<PAGE> 2
RETIREMENT PLAN ORDER PROCESSING AMENDMENT
TO THE OPERATING AGREEMENT
This Retirement Plan Order Processing Amendment is made as of June 6,
1997, by and between Charles Schwab & Co., Inc. ("Schwab"), a California
corporation; The Charles Schwab Trust Company ("CSTC"), a California banking
corporation; and each registered investment company ("Fund Company") listed on
Schedule I hereto, executing this Amendment on its own behalf and on behalf of
each of its series or classes of shares ("Fund(s)"), which are parties to an
Operating Agreement with Schwab, made as of June 6, 1997, as amended thereafter
("Operating Agreement"), including such Funds as are listed on Schedule II
hereto, which are excluded from participation in retirement plan order
processing under this Amendment ("Excluded Funds"). This Amendment amends the
Operating Agreement. In the event that there are no Funds, then the term
"Fund(s)" shall mean "Fund Company."
WHEREAS, Schwab and Fund Company, on its own behalf and on behalf of
the Funds, have entered into the Operating Agreement pursuant to which shares of
the Funds are made available for purchase and redemption by Schwab's brokerage
customers through Schwab's Mutual Fund Marketplace(R) ("MFMP");
WHEREAS, Schwab has designated CSTC as its agent to perform certain
functions under the Operating Agreement, including communication of aggregate
purchase and redemption orders for Fund shares to each Fund, for which Schwab
remains fully responsible to Fund Company and the Funds;
<PAGE> 3
WHEREAS, Schwab and Fund Company desire to amend the Operating
Agreement to facilitate the purchase and redemption of Fund shares on behalf of
certain retirement plans ("Plans") for which CSTC acts as trustee of the trust
funds under the Plans and for which an entity identified on Schedule III, as
amended by Schwab from time to time, acts as recordkeeper ("Recordkeeper"),
subject to the terms and conditions of this Amendment; and
WHEREAS, Fund Company wishes to appoint CSTC as a limited purpose
co-transfer agent to each Fund's named transfer agent to facilitate such
purchases and redemptions on behalf of the Plans, and CSTC wishes to accept this
appointment.
NOW THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties hereto agree as follows:
1. Agency Appointment and Acceptance. Fund Company hereby appoints CSTC
to be a limited purpose co-transfer agent to each Fund's named transfer agent
for the purpose of receiving instructions in proper form from the persons
designated to direct investment of the Plan assets ("Instructions") from which
are derived orders for purchases and redemptions of Fund shares ("Orders"). CSTC
hereby accepts the appointment as limited purpose co-transfer agent to each
Fund's named transfer agent.
2. Agents of CSTC. CSTC, as a co-transfer agent, may engage such
subagents as it deems necessary, appropriate or desirable to carry out its
obligation as a limited purpose co-transfer agent to each Fund's named transfer
agent under Section 1 of this Amendment, pursuant to such terms as are
consistent with the agreements set forth in this Amendment and as CSTC deems
necessary, appropriate or desirable. CSTC shall, however, remain fully
responsible to Fund Company and the Funds for any obligations performed by
CSTC's agents
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under this Section 2. These agents of CSTC shall be the Recordkeepers and shall
each be a service company and a limited purpose sub-transfer agent to CSTC as
co-transfer agent to each Fund's named transfer agent.
3. CSTC's Receipt and Transmission of Orders. CSTC agrees that (a)
Orders derived from Instructions received by Recordkeepers prior to the close of
the New York Stock Exchange (generally, 4:00 p.m. Eastern Time) ("Market Close")
on any Business Day ("Day 1") will be transmitted by CSTC to the Fund by 10:00
a.m. Eastern Time on the next Business Day ("Day 2") (such Orders are referred
to herein as "Day 1 Trades"); and (b) Orders derived from Instructions received
by Recordkeepers after Market Close on any Business Day ("Day 1") will be
transmitted by CSTC to the Fund by 10:00 a.m. Eastern Time on the second
Business Day following Day 1 ("Day 3") (such Orders are referred to herein as
"Day 2 Trades").
4. Fund's Pricing of Orders. Fund Company agrees that Day 1 Trades will
be effected at the net asset value of each Fund's shares ("Net Asset Value")
calculated as of Market Close on Day 1, provided such trades are received by the
Fund by 10:00 a.m. Eastern Time on Day 2; and Day 2 Trades will be effected at
the Net Asset Value calculated as of Market Close on Day 2, provided such trades
are received by the Fund by 10:00 a.m. Eastern Time on Day 3. Fund Company
agrees that, consistent with the foregoing, Day 1 Trades will have been received
by the Fund prior to Market Close on Day 1, and Day 2 Trades will have been
received by the Fund prior to Market Close on Day 2 for all purposes, including,
without limitation, effecting distributions.
5. Settlement. In accordance with the Operating Agreement, Schwab and
Fund Company will settle Day 1 Trades on Day 2 and will settle Day 2 Trades on
Day 3.
1
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6. Provision of Net Asset Value. In accordance with the Operating
Agreement, Fund Company will provide Schwab the Net Asset Value calculated as of
Market Close on each Business Day by 7:00 p.m. Eastern Time on such Business
Day.
7. Representations and Warranties as to Transfer Agency. CSTC
represents and warrants that it is registered as a transfer agent under Section
17A of the Securities Exchange Act of 1934, as amended ("1934 Act"), and CSTC
will amend its TA-1 filing to disclose its appointment pursuant to this
Amendment as a limited purpose co-transfer agent to each Fund's named transfer
agent. CSTC further represents and warrants that each Recordkeeper appointed by
CSTC pursuant to Section 2 of this Amendment shall be registered as a transfer
agent under Section 17A of the 1934 Act, and that it shall cause each
Recordkeeper to amend its TA-1 to disclose its appointment as a service company
and a limited purpose sub-transfer agent to CSTC as co-transfer agent to each
Fund's named transfer agent.
Fund Company represents and warrants that the Funds' named transfer
agent is set forth on Schedule IV hereto, as amended by Fund Company from time
to time.
8. Books and Records. To the extent required under the Investment
Company Act of 1940, as amended ("1940 Act"), and the rules thereunder, CSTC
agrees that such records maintained by it or each Recordkeeper hereunder are the
property of the Funds and will be preserved, maintained, and made available in
accordance with the 1940 Act and the rules thereunder. Copies, or if required
originals, of such records shall be surrendered promptly to a Fund and its
agents (or independent accountants) upon request. This Section 8 shall survive
termination of this Amendment.
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9. Role and Relationship of CSTC. The parties acknowledge and agree
that, except as specifically provided in this Amendment, and for the sole and
limited purpose set forth herein, CSTC acts as an agent for Schwab under the
Operating Agreement in connection with the effectuation of Orders subject to
this Amendment. CSTC shall not be nor hold itself out as an agent of any Fund
other than as provided herein.
10. Role and Relationship of Recordkeepers. The parties acknowledge and
agree that, except as specifically provided in this Amendment and for the sole
and limited purpose set forth herein, the Recordkeepers act as agents of the
Plans in connection with the effectuation of Orders subject to this Amendment.
The parties agree that the Recordkeepers are not agents of the Funds other than
as provided herein, and CSTC shall ensure that the Recordkeepers do not hold
themselves out as an agent of any Fund other than as provided herein.
11. Insurance Coverage. CSTC shall maintain, and shall cause each
Recordkeeper to maintain, general liability insurance, at all times that this
Amendment is in effect, that is reasonable and customary in light of its duties
hereunder. Such general liability insurance coverage shall be issued by a
qualified insurance carrier, with limits of not less than $5 million.
12. Termination. Fund Company will provide Schwab and CSTC 90 days'
prior written notice if purchase orders for a Fund's shares may no longer be
effected in accordance with this Amendment. Such termination shall not affect
the remaining provisions of this Amendment as to such Fund, and redemption
orders shall continue to be effected pursuant to
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this Amendment. Schwab and CSTC may terminate this Amendment as to a Fund upon
90 days' prior written notice to Fund Company.
Any termination of the Operating Agreement by Fund Company shall not
apply to transactions effected pursuant to this Amendment prior to 90 days after
the date the Fund Company provides written notice of such termination to Schwab
and CSTC.
13. Indemnification. Schwab and CSTC, on the one hand, and Fund
Company, on the other, agree to indemnify and hold harmless Fund Company, on the
one hand, and Schwab and CSTC, on the other, together with each of its
directors, officers, employees and agents, from and against any and all losses,
liabilities, demands, claims, actions and expenses (including, without
limitation, reasonable attorney's fees) ("Losses") arising out of or in
connection with any breach by Schwab or CSTC, on the one hand, and Fund Company,
on the other, of its obligations under this Amendment, except to the extent such
breach was a direct consequence of an act or omission of an indemnified party
constituting negligence or willful misconduct. In no event will any party be
liable for consequential, incidental, special or indirect damages resulting to
an indemnified party subject to this Amendment. This Section 13 shall survive
termination of this Amendment.
14. Proprietary Information. The parties agree that all books, records,
information, and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or carrying out of this
Amendment, including but not limited to the information on Schedule III, as
amended by Schwab from time to time, and any reports regarding Fund
shareholdings of the Plans or the Recordkeepers that CSTC may provide to Fund
Company from time to time as part of its obligations as a limited purpose
co-transfer
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<PAGE> 8
agent to each Fund's named transfer agent, shall be kept confidential and shall
not be otherwise used or voluntarily disclosed to any other person, except as
may be required by law or judicial process. Fund Company expressly agrees not to
use nor permit others to use any such books, records, information, or data to
solicit Plans, sponsors of Plans, or Recordkeepers. This Section 14 shall
survive termination of this Amendment.
15. Effect of Amendment. This Amendment is intended to amend and
supplement the provisions of the Operating Agreement. In the event of a conflict
between the provisions of this Amendment and the provisions of the Operating
Agreement, the provisions of this Amendment shall control. All other provisions
of the Operating Agreement shall remain in full force and effect.
CHARLES SCHWAB & CO., INC. THE ONE GROUP, on its own behalf and on
behalf of each Fund
By: \s\ Fred Potts
--------------------------
Fred Potts By: /s/ Mark S. Redman
---------------------------
Vice President/Mutual Funds
Operations Administration Name: Mark S. Redman
-------------------------
Date: 9/19/97 Title: Vice President
------------------------ ------------------------
THE CHARLES SCHWAB Date: 8/22/97
TRUST COMPANY -------------------------
By: \s\ Thomas J. Torio
-------------------------
Thomas Torio
Vice President
Date: 10/1/97
-----------------------
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<PAGE> 9
SCHEDULE I
TO THE RETIREMENT PLAN ORDER PROCESSING AMENDMENT TO THE OPERATING AGREEMENT,
MADE AS OF JUNE 6, 1997
FUND COMPANY
The One Group
Date: June 6, 1997
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<PAGE> 10
SCHEDULE II
TO THE RETIREMENT PLAN ORDER PROCESSING AMENDMENT TO THE OPERATING AGREEMENT,
MADE AS OF JUNE 6, 1997
EXCLUDED FUNDS
The One Group Municipal Income Fund, Class A
The One Group Ohio Municipal Bond Fund, Class A
The One Group Arizona Municipal Bond Fund, Class A
Date: June 6, 1997
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<PAGE> 11
SCHEDULE III
TO THE RETIREMENT PLAN ORDER PROCESSING AMENDMENT TO THE OPERATING AGREEMENT,
MADE AS OF JUNE 6, 1997
RECORDKEEPERS
Schwab Retirement Plan Services, Inc.
Date: June 6, 1997
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SCHEDULE IV
TO THE RETIREMENT PLAN ORDER PROCESSING AMENDMENT TO THE OPERATING AGREEMENT,
MADE AS OF JUNE 6, 1997
NAMED TRANSFER AGENT
State Street Bank & Trust Company
Date: June 6, 1997
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EXHIBIT 10
Opinion of Counsel
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June 5, 1998
The One Group(R)
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
You have registered under the Securities Act of 1933, as amended (the "1933
Act") an indefinited number of shares of beneficial interest ("Shares") of The
One Group ("Trust"), as permitted by Rule 24f-2 under the Investment Company Act
of 1940, as amended (the "1940 Act"). You propose to file a post-effective
amendment on Form N-1A (the "Post-Effective Amendment") to your Registration
Statement in order to register under the 1933 Act and the 1940 Act shares of the
High Yield Bond Fund of the Trust (the "Series").
We have examined your Agreement and Declaration of Trust on file in the
office of the Secretary of The Commonwealth of Massachusetts and the Clark of
the City of Boston. We have also examined a copy of your Code of Regulations and
such other documents, receipts and records as we have deemed necessary for the
purpose of this opinion.
Based on the foregoing, we are of the opinion that the issue and sale of
authorized but unissued Shares of the Series have been duly authorized under
Massachusetts law. Upon the original issue and sale of your authorized but
unissued Shares and upon receipt of the authorized consideration therefor in an
amount not less than the net asset value of the Shares established and in force
at the time of their sale, the Shares issued will be validly issued, fully paid
and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust provides for indemnification out
of the property of a particular series of Shares for all loss and expenses of
any shareholder of that series held personally liable solely by reason of his
being or having been a shareholder. Thus, the risk of shareholder liability is
limited to circumstances in which that series of Shares itself would be unable
to meet its obligations.
We understand that this opinion is to be used in connection with the filing
of the Post-Effective Amendment. We consent to the filing of this opinion with
and as part of your Post-Effective Amendment.
Sincerely,
/s/ Ropes & Gray
Ropes & Gray
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EXHIBIT 11(a)
Consent of Coopers & Lybrand L.L.P.
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 44 to the Registration Statement on Form N-1A (File No. 2-95973) of The One
Group, of our reports dated August 22, 1997 on our audits of the financial
statements and financial highlights of the U.S. Treasury Securities Money Market
Fund, the Prime Money Market Fund, the Municipal Money Market Fund, the Ohio
Municipal Money Market Fund, the Ultra Short-Term Bond Fund, the Limited
Volatility Bond Fund, the Intermediate Bond Fund, the Government Bond Fund, the
Income Bond Fund, the Treasury & Agency Fund, the Intermediate Tax-Free Bond
Fund, the Municipal Income Fund, the Kentucky Municipal Bond Fund, the Ohio
Municipal Bond Fund, the Louisiana Municipal Bond Fund, the West Virginia
Municipal Bond Fund, the Arizona Municipal Bond Fund, the Treasury Only Money
Market Fund, the Government Money Market Fund, the Asset Allocation Fund, the
Income Equity Fund, the Equity Index Fund, the Value Growth Fund, the Large
Company Value Fund, the Disciplined Value Fund, the Large Company Growth Fund,
the Growth Opportunities Fund, the Gulf South Growth Fund, the International
Equity Index Fund, the Investor Growth Fund, the Investor Growth & Income Fund,
the Investor Balanced Fund, and the Investor Conservative Growth Fund
constituting The One Group whose reports are included in the Annual Reports to
Shareholders for the year ended June 30, 1997. We also consent to the reference
to our Firm under the caption "Financial Highlights" in the Prospectus, and
"Experts" in the Statement of Additional Information relating to The One Group
which are incorporated by reference in this Post-Effective Amendment No. 44 to
the Registration Statement on Form N-1A (File No. 2-95973)
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Columbus, Ohio
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June 5, 1998
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EXHIBIT 11(b)
Consent of KPMG Peat Marwick LLP
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INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The One Group
We consent to the reference to our firm under the heading "Experts" in the
Statement of Additional Information included in Post Effective Amendment No. 43
to Form N-1A which is incorporated by reference herein.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
June 5, 1998
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EXHIBIT 11(c)
Consent of Price Waterhouse LLP
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CONSENT OF INDEPENDENT ACCOUNTANTS
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We hereby consent to the reference to us under the heading "Experts" in the
Statement of Additional Information incorporated by reference in this
Post-Effective Amendment No. 44 to the registration statement on Form N-1A of
The One Group.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, NY
June 5, 1998
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EXHIBIT 11(d)
Consent of Ropes & Gray
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CONSENT OF COUNSEL
We hereby consent to the use of our name and the references to our firm under
the caption "Legal Counsel" included in or made a part of Post-Effective
Amendment No. 44 to the Registration Statement of The One Group(R) (Nos. 2-95973
and 811-4236) on Form N-1A under the Securities Act of 1933, as amended.
/s/ ROPES & GRAY
ROPES & GRAY
Washington, D.C.
June 5, 1998
